What are the pros and cons of buying 2nd lien notes when the 1st lien is either performing or non-performing?
2nd position notes are higher risk than 1st position and are typically discounted more deeply as a result. That’s not to say, however, that they aren’t worth pursuing.
When I’m dealing with 2nd positions, I like:
- A great borrower with great credit
- Low loan to value leverage on the combined notes
- Good property as collateral.
You can make some great money from the 2nd position if you know what you’re doing.