To understand the current market for real estate notes it helps to go back in time.
Years ago the country was in a financial crisis. Gas was expensive. There were numerous political battles in Washington, DC. Houses were not selling. Interest rates were high.
Yep, interest rates were high. Double digits.
These high rates made it virtually impossible for people to qualify for bank loans. And those that did qualify were going to pay dearly for that borrowed money.
Enter Private Mortgage Notes (aka Seller Financing)
Although not new, private mortgage notes hit their stride in creation during the 1980’s. Not because anyone wanted to carry back a note – it was because they had to. It was one of the only chances they had to sell their house in a tough market.
Eventually the bank rates came back down to reasonable levels and the creation of notes subsided. But not before a whole cache (or is that “cash”) of notes were created to be brokered and purchased for investment.
Flash forward to now and we are in the same boat.
Gas is expensive, politicians are doing their best to blame each other and not get anything done, and banks, well, they are just not playing. Even though rates are now incredibly low the underwriting standards are incredibly tight.
It is also true today that selling a property is pretty tough…but getting easier.
2012 has a big advantage over 2011 and 2010. Properties are starting to move. The drops in value across the country have stabilized. Sure, we are not vaulting back up to the levels we were seven years ago…but we don’t need to.
In a nutshell, sellers are out there creating notes as we speak. Notes that we can buy or broker. With real estate values stabilizing it just may point to 2012 – 2013 being a banner year in the note industry. In fact the real estate note statistics are already indicating a 40% increase in the note business.
It is not a matter of being “optimistic” or “wishing” for something to happen. It is just the natural order of things. The economy does rebound. People need to sell houses and people need a place to live.
When banks don’t lend, people create their own methods. Eventually the sellers that use owner financing will look to sell their payments for cash. Note buyers and brokers help fill this important void.