Before talking about returns it is worth recalling what you are buying. An NPL (Non-Performing Loan) is a loan that the borrower has stopped paying and that the bank sells at a discount to remove it from its balance sheet. The investor does not buy a flat: they buy the right to collect on that debt, usually with collateral (a mortgage over a property) behind it.
Where the profit comes from
The return arises from the difference between what you pay for the loan and what you ultimately recover. If you buy a debt with a face value of 100 for 40 and manage to recover 70 (for example, by taking over the property that secures it or by negotiating with the borrower), that margin is the heart of the business. The larger the entry discount and the more solid the collateral, the better the equation.
What the real return depends on
The purchase discount
It is the starting point. Buying well below face value gives a margin of safety: even if recovery is not perfect, there is still a profit. A small discount leaves little room.
The collateral
An NPL backed by a property with real value and a good location is very different from one with no collateral or with dubious collateral. The quality of the collateral determines how much you will be able to recover.
The recovery time
Recovering the debt may require court proceedings that take time. The longer they drag on, the lower the annualised return, even if the gross margin is the same.
The condition of the property
If you end up taking over the collateral, it matters whether it is occupied or vacant. An occupied property forces you to manage the eviction and cuts into the return, as happens when buying an occupied flat.
NPLs can offer margins far higher than traditional real estate investment, but in exchange for greater complexity: court proceedings, collateral that must be verified and uncertain timelines. It is not a product to invest in blindly.
How it compares with other routes
NPLs usually offer a larger discount than buying the already-repossessed property (an REO) or going directly to an auction, precisely because you take on more management and more uncertainty. The auction transfer (cesión de remate) is another intermediate route. Which one suits you depends on your capital, your risk tolerance and your horizon, something we analyse in detail when comparing auctions, auction transfers and NPL.
At Equus Capital we study NPL transactions across Spain: we assess the collateral, the discount and the realistic return before you invest a single euro. First consultation free and with no obligation.
Frequently asked questions
How much do you make investing in NPL?
There is no fixed figure: the return is the difference between what you pay for the non-performing loan and what you recover. With a good purchase discount and solid collateral, the margins can comfortably exceed those of traditional real estate investment.
What does the return on an NPL depend on?
Mainly on four factors: the discount at which you buy the debt, the quality of the collateral (the property that backs it), how long recovery takes and the condition of the property if you end up taking it over.
Is investing in NPL risky?
Yes. It offers high margins in exchange for greater complexity: court proceedings with uncertain timelines, collateral that must be verified and possible occupations. That is why each transaction should be analysed with judgement rather than invested in blindly.
Is NPL more profitable than buying a bank-owned flat?
NPLs usually carry a larger discount because you take on more management and uncertainty. Buying the already-repossessed property (REO) is simpler but with less margin. The best option depends on your capital and your risk tolerance.