Owner Financed Note Business Increases 56% since 2008!
Why the big jump? More importantly, where is the opportunity for note brokers and note buyers?
Call it a mini “State of the Note Industry” if you will, but here are a few points about the current condition of the cash flow note business.
Real Estate is Down
Sure, that was not an eye-opener to anyone reading this. There are still plenty of properties for sale out there (if you don’t believe me, just drive down any street).
But you have to remember that the Note industry literally exploded when it was hard to sell real estate.
Owner Financing Is Up
Back in the 1980’s the owner financing increase was due to high interest rates – now it is due to a flooded market – but the impact is the same. People have to carry back notes in order to sell a house in this market – that means more notes are being created.
How many more?
Bloomberg News reported a 56% increase in the number of US Homes purchased with various forms of owner financing when comparing 2008 to 2010.
Leading the nation for listings advertising seller financing were Michigan, Florida, Ohio, California, Wisconsin, Minnesota, and Texas.
(Source: Home Sellers Step Up as Last-Resort Lender to Poor-Credit Buyers, May 11, 2011, Bloomberg News)
More notes being created means more sellers.
Rates Are Going Up
Not bank rates (although that will have to happen at some point) but the rates that funders require to buy notes.
A higher yield requirement from note buyers will in effect create a higher discount.
For sellers that is not good news. But for those of you that are buying notes in your own portfolio, this will be great news! You might be able to get double-digit returns on low risk notes (something that has not happened for some time).
Why? Many players are out of the game or on the sidelines.
The fact of the matter is that the real estate (and Wall Street) tumble took out a few big funders in the note industry. Most of these were heavily reliant on lines of credit and securitization for their success.
With traditional investments yielding very low returns look for some new players to enter the market (and a few old faces as well). The industry has returned full circle to a heavy reliance on local private investors.
People Need To Sell Mortgage Notes
During the “Great Recession” you had a lot of people holding on to their cash flow note as long as possible.
Well, the time to sell has come for many.
People can argue “exactly” how long the economy has been hit, but, for the most part, we can agree that it has been for over 24 months.
With real estate and the economy still struggling to stabilize you will see more notes hitting the market from those that never really wanted to sell in the first place.
The Big Picture…
None of these things actually create “buyable” notes.
In other words, some basic underwriting still needs to be in play for a note to be sold (credit, equity, ITV, seasoning, etc.). But, with more notes on the market, more notes are bought and sold.
Want to participate in this great expansion? Learn to position yourself as the local owner-financing specialist. Make sure your business is up on the latest online marketing techniques for finding cash flow notes.
Now more than ever people are searching for note buyers online. This is a completely new way of marketing considering there wasn’t even Internet access when the last flood of real estate notes were created!