Note Investing: Opportunity Abounds in Specialized Real Estate Notes
InsightInvesting Strategies

Note Investing Opportunity Abounds in Specialized Real Estate Notes

note investing

Nine significant statistics for note investors in today’s market.

The seller carry back note market is thriving, and that spells opportunity for note investors. A study of the latest data shows that even though there is a slight drop in the gross number of seller-created trust deeds and mortgages, the quality is much better. I’ve identified nine significant statistics for note investors in today’s market. Below, we’ll walk through these numbers to expose the opportunities available to active, creative note investors.

Note Investing Statistic #1: 89,779 first position seller carry back notes (residential and commercial) were found in the public record.

Note Investing Statistic #2:
The average note principal amount on both residential and commercial at creation increased 2%.

Note Investing Statistic #3:
Average principal at creation on commercial properties rose 8% in 2017.

Investor’s Notes:

  • 8% fewer seller-financed notes were created in 2017 than in 2016
  • The increase in the average principal amount offset the decline in the number of notes

 

Ask yourself: Should I be concerned about this decline in seller-carry back volume?

Action Item: Constantly explore your options in note investing, which is still an evolving and emerging market in many ways. If you are not already involved in commercial property mortgage notes, explore this option.


Note Investing Statistic #4:
In 2017, notes had larger balances ($17.30 billion in 2017 vs. $16.97 billion in 2016) and offered greater equity.

Note Investing Statistic #5:
Down payments have increased every year for the past four years.

Note Investing Statistic #6:
Almost $8 billion in private notes were created on residential properties over the course of 2017.

Investor’s Notes:

  • Larger down payments indicate financially stronger buyers are purchasing properties using seller-financed notes
  • While market volume may be down slightly year-over-year, note quality is rising

 

Ask yourself: Where can I access high-quality notes?

Action Item: Review the chart below.


Note Investing Statistic #7-9:

Compared to 2016:

  • Property sellers who originated just one note in 2017 increased by 5%.
  • Property sellers who originated two to three notes in 2017 decreased by 34%.
  • Property sellers who originated four or more notes in 2017 decreased by 66%.

 

Investor Notes: The latter two categories posting declining origination activity probably reflect investors, property flippers and developers, not mom-and-pop sellers. I think the drop is a combination of factors:

  • Fears (justified or not) over Dodd-Frank.
  • In the stronger economy they found qualified buyers who did not need a seller carry back note.
  • They may have recorded each note in a unique name.

 

Ask yourself: Is there room in my business to take advantage of this emerging “gap” in seller-finance note origination?

Action Item: Explore your options for helping mom-and-pop sellers create high-quality notes.