Is 2009 a Good Time to Buy Owner Financed Real Estate Notes?

This question is on the minds of many investors right now. With real estate values down and banks restricting credit, there are more seller-financed notes available. Although there is never a crystal ball, if you buy notes at a good ITV you have the opportunity for high yielding investments. Here are a couple things to look for…

One, there are still not a lot of note buyers back in the game. Many of the institutional investors were tied to Wall Street funds (see State of the Note Industry) and it will most likely be at least another 12 months for some of these to get back in. For the private investor, that means notes will be available at a slightly better return or yield.

Two, get a current estimate of value. The prior sale price may be irrelevant, especially if it was in the last four years. Make sure you know today’s value.

Third, stay mindful of liquidity.  Understand you may need to hold notes for some time rather than making a quick return flipping notes. Know where your competition is pricing notes in the event you need to sell a note for cash.

Lastly, if you normally buy notes at a 75 or 80 ITV perhaps 65-70 ITV would be a better benchmark – just in case values go down. While real estate values have been hit hard there is no telling if we are at the “bottom” everyone is hoping for.

Remember, just because there are a lot more notes to purchase right now, don’t put aside common sense underwriting. Stick to your plan and the next couple years may prove very profitable for the note investor!

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