" />

Real Estate Note Buyers

and Seller Carry Consultants

You are here: Home / Selling Mortgage Notes Learning Center

TRENDS IN REAL ESTATE & INTEREST RATES

By

Advanced Technical Analysis of the Financial Markets 

This past Thursday I had the distinct pleasure of spending 4 hours with Stan Harley, the publisher of The Harley Market Letter. He shared some interesting insights in two canary in the mine real estate markets – Los Angeles and Phoenix and further detailed what can be expected for interest rates in the future. What was astonishing to me is just how powerful market cycles are and how they can be used to hedge one’s bets and to be proactive and not just reactive. Many of the seasoned real estate investors understand there are cycles to all business activity, but few understand simple analysis can be utilized to avoid game changing and unexpected shifts in the market place. Mr. Harley believes that even external events really have no bearing on the math.

Most business strategists and real estate professionals failed to identify the key pivotal turns for the housing market in 2006 and 2012.  Market timing –  as  most are well-aware –  is an extraordinarily difficult task.   The foundation  which underlies the basic principles of his analytical methodology is that market behavior can be described  (and predicted) through a combination of  simple cycles of differing periods.  Cycles are the essential factor in determining how long a trend should run and when to expect reversals.

 

“The knowledge and exploitatin of cycles embodies one of the most powerful analytical tools available for identifying trends and forecasting their reversale.”    Stan Harley

CASE-SHILLER HOME PRICE INDEX

The Case-Shiller home price index tracks the value of residential real estate  in 20  metropolitan   regions across the United  States. There are multiple Case-Shiller home price indices: A national home price index, a 20-city composite  index,  a 10-city composite index, and twenty individual  metro  area  indices. The index is published on the last Tuesday of each month, with a two-month lag. The graph  above depicts home  price data from 1890  through  the present. The lower graph reflects data for the Phoenix, AZ area region through Q3 2016.

Data for the Phoenix region is somewhat limited compared to the national data as well as data for the southern California region. Because the economies of Arizona and Southern California are inextricialby linked – and the cyclical funcitons for both etch-out similar wave forms – a detailed analysis of the Los Angeles region can tell us alot about the market timing functions for the Phoenix area region. A cyclical analysis of the Los Angelia area region, the largest in the United States, is depicted below. Data for Phoenix  and the rest of the country are very similiar.

(Editors note: I forwarded  slides from the local AZ Real Estate Investors March market presentation(some of which were from the Cromford Report). Mr. Harley was not surprised they matched up.)

 COMPOSITES ARE BACK TO THEIR WINTER OF 2007 LEVELS

 

Editors Comment–The Canary is in the coal mine.

HOME PRICES ARE PEAKING

Since his last review of the Case Shiller index Mr Harvey has revised his cyclical modeling to the numbers shown in the box above. The baseline cycle appears to be 196.8 months or 16.4 years. Notice  how  this  cyclical  function  defined  the  June  1990  – Sept 2006 peaks and the March 1996 – February 2012 lows.
The analysis points to a peak for the Los Angeles area – as well as the National Index overall – in the December 2016 time period.  Because of the two month lag in the publishing of the data,  we won’t  know whether home prices have peaked for several more months.  He also noted a narrowing in the range of the monthly price bars  –  a phenomenon that also occurred at the prior cyclical highs. However, based on the updaded data from the AZREIA slides for the period ending February, 2017, the trend is esclating.

At this point Stan Harvey is predicting a minimal drop of 12% in housing prices.

The Harry Dent team is suggesting a drop of 20% in housing prices.

Personally, I have noticed Days on Market are increasing. One of the local reps of a national title company here in Phoenix suggested they have seen a dramatic slowing in pricing for homes in central Phoenix.

Another title company rep noted their March has been VERY slow. A sales rep from a large local lender said their applications for March are way down.

Long term, Mr. Harley is predicting the big one in February, 2023

INTEREST RATES

Mr. Harley made one basic statement on interest rates. They will come down. Period.

HOW DOES THIS IMPACT NOTE BUYERS?

For note buyers keep your powder dry. Only buy notes with a strong equity position behind them. Another words be patient, and  buy notes with a loan to value of less than 70%, preferrably less than 65% – all of which is subjective to mitigating factors. If one maintains that cardinal principal, then even with a potential property value drop of 20%, the chances of a payor walking are minimal.

HOW DOES THIS  IMPACT NOTE SELLERS?

Make sure you get at a minimum of 10% down, preferrable 15% – 20% down from your buyer. Continue to require at least an 8% interest rate on your note from your buyer–preferrable 10%, but stay in line with the Dodd-Frank Act requirements. There are multiple posts regarding The Dodd-Frank Act on this site.

HOW DOES THIS IMPACT IRA INVESTORS?

It is all positive. Be conservative and positive. If market interest rates drop as forecasted, seller financed notes continue to be a rewarding investment alternative.

PS–It is all about being proactive and NOT reactive. Alot of money can be made in a down cycle–more than in an up cycle.

How to Find a Note Buyer / Note Broker You Can Trust

By

Selling your mortgage note is not all about or just about price. It is also about working wit a buyer who will follow through and actually close at the agreed price. If you have a note to sell and you are not sure who to call, who to trust or what to look for yo will want to watch this short 9 minute video

What’s My Note Worth?

By

What’s My Note Worth?

A question all note sellers have and have a right to know.

Timing Your Mortgage Note Sale is everything.

So, when is the correct time to sell your mortgage note?

 

 

REAL ESTATE PRIVACY–PROTECT YOUR ASSETS

By

The following utube video with my friends Walter Wofford and Jim Ingersoll is so to the point as to the value of trusts in any form of a real estate transaction.

They discuss the ultra importance of transactional privacy and how that helps with asset protection.Under what circumstances would you want the general public to know the properties you own?

Trusts provide privacy and effectively separate all of your investment assets.  They are not hard to use and provide tremendous privacy in your deals as a trustee is used to hold title and the trust agreement is not recorded at the courthouse.

Under what circumstances would you not like the public to know that you own a property?

What are the benefits of using trusts?

1.  Privacy – Keep your name and LLC out of public records

2.  Liens and judgments

3.  Probate benefits

4.  Sell the entity, not the property

5.   Personal property trusts for IRAs, cars, boats, etc

 

Borrowing our way out of Debt

By

Today I cam across this article title,” The Three Ds of Doom: Debt, Default, Depression”.  Without sounding negative, it certainly makes one think about the current economy. Everything appears to be booming, at least here in the greater Phoenix Metroplex. But………..what is under the covers. What goes up always comes down. It is a fact of life. Now apply this to the niche business. It is the paper side of real estate.

In the very near future, Capstone will be launching a Utube note training series on buying Notes. One of the topics as part of the due diligence series will be a deep dive into Investment to Value and Loan to Value.  In other words, what is the note buyers safety net in the event of a downturn. How to minimize the pain in your portfolio. The only way I know is to have an EQUITY SPREAD. For instance, if a note has a $100,000 unpaid loan balance (aka UPB), what is your risk tolerance. What safety net do you require? The Capstone safety net is an Investment to Value (ITV) not exceeding 65% and a Loan to Value not exceeding 70%. Some say this is too big a filter. I guess time will tell. Anyway–moving on to the article.

The Three Ds of Doom: Debt, Default, Depression

July 17, 2019

“Borrowing our way out of debt” generates the three Ds of Doom: debt leads to default which ushers in Depression.

Let’s start by defining Economic Depression: a Depression is a Recession that isn’t fixed by conventional fiscal and monetary stimulus. In other words, when a recession drags on despite massive fiscal and monetary stimulus being thrown into the economy, then the stimulus-resistant stagnation is called a Depression.  Read more

AUGUST PHX NOTE INVESTORS FORUM MEETUP

By

The August 7th  Note Investors Forum Meetup  focus on:

TOPICS:      Several New Case Studies
             Where Does a New Note Investor Begin 

Bring your questions, This will be an interactive meeting.

     The Next Note Investors Forum Meeting will be
              Wednesday, August 7th 11:30am-1:30pm
La Famiglia Restaurant, SE corner of Dobson & Guadalupe, Mesa

Ask about Partnering and/or Coaching on Note Opportunities

Case-Shiller: National House Price Index increased 3.7% year-over-year in March

By

Case-Shiller: National House Price Index increased 3.7% year-over-year in March

by Calculated Risk

S&P/Case-Shiller released the monthly Home Price Indices for March (“March” is a 3 month average of January, February and March prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: S&P CoreLogic Case-Shiller Index Shows Annual Home Price Gains Continue to Weaken

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.7% annual gain in March, down from 3.9% in the previous month. The 10-City Composite annual increase came in at 2.3%, down from 2.5% in the previous month. The 20-City Composite posted a 2.7% year-over-year gain, down from 3.0% in the previous month.

Las Vegas, Phoenix and Tampa reported the highest year-over-year gains among the 20 cities. In March, Las Vegas led the way with an 8.2% year-over-year price increase, followed by Phoenix with a 6.1% increase, and Tampa with a 5.3% increase. Four of the 20 cities reported greater price increases in the year ending March 2019 versus the year ending February 2019.

(NOTE: The Phoenix Market did a complete u-turn NORTH. 45% of all inventory was sold in April. What was a down turn, is now back on track. The Phoenix area is growing by 86,000 people every year. Maricopa County is the fasted growing county in country. CLICK HERE FOR THE LOCAL REIA STATS

THE COMPLETE ARTICLE CAN BE VIEWED HERE

New to Market – New Performing Notes

By

Property Locations

IL  IN   MI   OH  TN
    
BPO Range: $33,000 – $70,000
UPB RANGE: $17,785 – $34,860
PURCHASE PRICE RANGE: $19,000 – $26,200

PRICING RANGE:  76% to 90% of UPB

Re-Performing Loans & Seasoned Performing Loans
Click Here to Access

Case Studies ~ Buy A Performing Note – Then It Goes South — Part 3

By

CASE STUDY 3

This post is a 3rd in a series of 4 regarding how a perfectly good performing note goes south due to life event situation.

This particular note was in the small town of Marshall, IN. The note -Contract for Deed- was originated in 2009. The payors significant other passed in 2010. My IRA purchased the note in 2015. The note was scheduled to mature in June, 2019. I was unaware of the loss of the male payor. The payment history evolved into a rolling 120 days, meaning after 4 months the payor paid the balance or part of the balance to stay out of the forfeiture procedure. However this payment history caught up with the payor in that there was a $5,000 unpaid balance balloon that went beyond the due date of the note.

Fast forward to February, 2019, I was tired of constantly contacting the payor. I did not want to go thru the forfeiture process as to take back the house –due to condition, was not a viable option. Plus 9 months and $3,000 in attorney fees were not viable. In prior conversations, it was discovered she was the caregiver of her mother and was not working. He current husband was not working. After multiple conversations, she realized she needed help. Her Dad was brought into the conversation. He agreed to help her out. They agreed to bring the payments current. In exchange to removing the deceased payors name from the CFD, they agreed to a loan modification which extended the term 12 months, and stay current. If they ran late past 15 days, the newly executed Quit Claim deed would be recorded and my IRA would own the house.

It was a win-win. The payor benefited by having the deceased partner removed from any claim of ownership, the loan was brought current, I avoided the possibility of a 9 month forefeiture procedure and the payor will own her house free and clear in 12 months with the extension of the balloon due date.

Even though the remaining balance was small, the solution was perfect for all.

I have learned, if one works with the payor and developes a dialog, future unfortunate events can be worked out much easier. But, it is all about how can the payor feels and appreciates that they are being helped so they will be open to a solution which also benefits the note holder in the event needed.

This case study was presented at the May 1 Note Investors Forum Meetup

Case Studies ~ Buy A Performing Note – Then It Goes South — Part 2

By

As discussed in my prior blog, Note workouts are not rocket science. It is a matter of treating every party fairly.

CASE STUDY 2

This 2nd case study happened on a 2nd Mishawaka, IN property. My

partner & I bought a non-performing note(NPN) in October, 2014. The payor had become functionally unable to do anything due to a debilitating disease and had been out of the house for 2 years. We tried a workout which was not viable but did get a deed in lieu of foreclosure with cash for keys.

After fixing the place up, we found a recently divorced lady. She was happy with a probtionary rent-to-own for 12 months a and Seller-carry to follow with 10% down. She was also qualified by an RMLO oer Dodd-Frank. We sold the 1st note to a partial note investor and kept the second.

Fast forward, the payor stopped paying due to illness. Again we developed a good working relationship with her. After a series of discussions, she confirmed that she really did want to stay and agreed to a loan modification. The “we” was the partial note buyer.

The end result is after consulting with our legal counsel and her daughter, the payor signed a Quit Claim deed to be held in escrow and agreed to a payoff schedule for her to get caught up on the back payments. If she falls behind on any payment for more than 15 days we can record the Quit Claim deed. My company will own the house. We have avoided the the foreclosure process to boot. The bottom line: the payor is happy and agreed to bring the loan current, the partial buyer is happy as she is geting paid, my partner is happy as we are both collecting on our second and have avoided a negative situation –the long forfeiture process.. This was/is a total win-win.

Potentially, we may have to record the deed and rehab, but for now it is all good.

Case Studies ~ Buy A Performing Note – Then It Goes South — Part 1

By

I have been in the note space in various ways since 1985 with the purchase

of 20 acres in Scarborough, ME which was developed into 17 house lots. The last lot I sold with seller-carry.

To that point, in the last 14 months 4 notes have taken a turn for the worst and required developing a work out strategy to protect my interests or if a partial to protect the interests of the partial buyer.

Currently I buy, keep, create partials and broker notes from around the country. Mostly performing notes | Contract for Deeds. Very rarely do I purchase non-performing notes. It just is not my thing. However, notes can and do go bad. The payor has personal issues, etc. Life just happens.

CASE STUDY 1

I purchased a performing note in Mishawaka, IN in 2015. Great #’s great pay history. Good colateral. I found a buyer to fund the purchase via selling a partial and in effect a double close. It was good for them and good for my ROTH. Fast forward to April, 2018, the payors health took a turn for the worst. They called the servicer stating they would not continue paying and were going into a Bankruptcy. My 1st challenge was to keep my partial investor whole. I made up 4 months to the partial buyer, completed a deed in lieu with the payor, rehabbed the house and resold it in February, 2019 at which time the partial buyer was made whole. Throught the process, the partial buyer was in the loop and concurred with the workout and dispostion. They were made whole at the COE. A couple of months later they thanked me stating it was all good especially the net 11% return. To boot my ROTH cleared $20k on a small value asset of < than $70,000. It was a win for everyone. Even on a lower value property.

Note workouts are not rocket science. It is a matter of treating every party fairly.