Diana Olick of CNBC.com reported on March 1, 2023:

• Mortgage applications have hit a 28 year low
• Mortgage rates have moved 50 basis points higher in the past month
• Mortgage rates were in the 4% range last year – now around 6.7%
• Re-fi applications are 74% lower today than same time last year

This data presents a wonderful opportunity for a real estate investor. There are loads of people who want to buy a home, and some of them are a prospect for you if you have a property in a nice neighborhood and can come to terms that are attractive for your buyer and protective for you. Talk to the realtors and mortgage brokers in your area – maybe they can find your next buyer.

Here is how you protect yourself when you decide to sell a property and carry the note:

1. Know Your Buyer. Either you or your real estate agent need to play the role of detective. Ask a lot of questions. Why can’t the buyer get a bank loan? How long has he been with his employer? Why does he want to live in this neighborhood? What kind of car does he drive? What is the condition of that car? What is his credit history? Who will live in the property with him? Will anyone else contribute financially to the note payments? Does extended family live in the area? If you are agreeing to be tied to the note for as many as 30 years, please get to know your buyer.
2. Max the Down Payment. A down payment is protective equity for the seller. The bigger the down payment, the more protection. The more committed is the buyer. Always negotiate the largest down payment possible.
3. Shorten the Term. If I lend money to a friend, do I want my money back sooner or later? If a note buyer invests his funds in a promissory note, would he prefer to get his money back sooner or later? Most folks do not want to wait 20 or 30 years. Negotiate the shortest term possible.
4. Up the Interest Rate. Normally, the reason a buyer can’t get a bank loan is because either he or the property don’t meet the lender’s standards. That leaves the seller 2 options – find an all cash buyer or carry the note. Experienced note investors will demand an interest rate above current mortgage rates in order to be compensated for not cashing out.

The idea is to sell the property, of course, but the focus should be on finding the right buyer and agreeing to strong terms. Then, you are protected if you keep the note for income or sell for cash.

On January 13, 2023 U.S. News published a lengthy report based upon interviews with several housing economists. The general consensus was that mortgage rates are expected to decline by the end of the year.

Fannie Mae sees rates going from 6.5% in the 1st quarter to a flat 6% by year’s end.

Freddie Mac agrees, seeing rates at 6.2% by the end of the year.

Mortgage Bankers Association sees rates at 6.2% in the 1st quarter, sliding down to 5.2% by year’s end.

National Association of Realtors envisions 5.7% by year’s end.

Realtor.com is an outlier, seeing the mortgage rate at 7% throughout the year.

Redfin sees the rate declining to about 5.8% by the end of the 4th quarter.

They all agree that affordability continues to be a big issue, with a housing shortage exacerbating the situation and 1st time homebuyers being squeezed because their earnings are $30,000 less than the income needed to purchase a starter home.

Stay tuned!

Welcome to 2023!

Let’s start off the year with a note refresher. Last month I had several conversations with new noteholders. Some of these folks had no idea there were people like me who would buy their note. So, they had the obvious questions: How does this work? How much will you pay me? How long does it take?

To get a price for your note is simple. You will provide a copy of your note and closing statement, I will do some homework, ask you some questions, and give you a price for your note.

Should you decide to sell, you will provide the following documents:

1. Original Signed Promissory Note
2. Recorded Deed of Trust
3. Title Policy
4. Proof of Insurance
5. Proof of Payments Received
6. Final Closing Statement signed by your Escrow Officer
7. Contact info for your buyer

Our average closing time is 28 calendar days. We have closed as fast as 7 days.

If you or someone you know is considering selling your note, call me and let’s get you some pricing for you to consider.

I repeat many times that the note business is a “niche industry” in the real estate industry. There are many folks in the real estate field that have no idea what we do.

To illustrate how niche we are, let me refer to a 2022 report provided by Scott Arpan, owner of Advanced Seller Data Services. Scott provides statistics to the note industry. Based on 2021 data from 2236 U.S. counties, counting 1st position owner carry notes with a minimum balance of $30,000, here is what Scott found:

89, 678 notes were created. 84% of these were created by a seller doing just 1 note – not multiple notes. The average loan-to-value was 77% for residential notes, 71% for commercial notes, and 70% for land notes.

Where are these notes being created? Here are the Top 5 states:

1. Texas 23.1%
2. California 9.9%
3. Florida 9.4%
4. North Carolina 5.0%
5. Arizona 4.9%

We are truly a niche industry. With my investors, we purchase notes in these states and all other states. We focus on owner carry, 1st position, performing notes secured by residential or commercial property – or a business. We can help if you are interested in securing cash for your note or want to have a conversation about possible terms for a property sale you are considering. We are here to help, call me.

I have had hundreds of conversations with noteholders over my 14 years in the note business. You may be interested in the most common reasons people give me for NOT selling their note. Here is what they say:

1. I did not know there was an industry where people would buy my note.
2. I like – and need – my note income.
3. I do not have a good use for the cash if I sold my note.
4. I don’t like the price being offered for my note.
5. I had a bad experience with a note buyer. Not sure I trust note investors. I feel I need to protect my borrower.

For 14 years, my investors and I have prided ourselves on being honest, straightforward and professional with noteholders. You are always free to talk to me about a potential note situation of yours, note terms to consider, pricing options, etc.

Most people who sell a property and carry a note do a really good job. But, as in any business, there are some folks who just “shoot themselves in the foot.” How? They make some crucial mistakes. So, DON’T DO the following:

1. You Don’t Know Your Buyer. You are selling a property and decide not to use a real estate agent. You may not actually meet with your buyer. You do not know his credit history or worthiness. You think you know what he does for a living, but you do not know who his employer is, and thus you have not talked to his employer. You are not certain if his current income can easily support his debt structure and the note payment. you don’t know what kind of car he drives. You don’t know his marital status. You don’t know who will be living with him or what their relationship is. You have agreed to stay tied financially to this person for 10-20-30 years and you know little about him. You are shooting yourself in the foot!
2. You Get Little Or No Down Payment. You are so anxious to sell your property you agree to accept little or NO cash down payment. The most important element of an Owner Carry transaction is Protective Equity for the seller. Ask for 20%, maybe you will get it. If not, negotiate for the most cash you can get.
3. You Agree To A Balloon Payment. Balloon payments are common in commercial property sales, but not residential sales. If your buyer cannot get a mortgage loan – for whatever reason – how will he come up with the balloon payment when due? If you have made financial decisions based upon receipt of this payment, what will you do? Renegotiate? Foreclose? Extend? Is your life upended? Best bet is to avoid a balloon payment if you are selling a single family residence.
4. You Agree To An Interest Only Note. No, get principal payments. you want commitment. If you think you can sell your note, you will find “little interest” in your “interest only” note.
5. You Agree To A Below Market Interest Rate. Interest rates fluctuate over time. Yet, some sellers will agree to an interest rate as low as 0% with “family members” or people they barely know. The interest rate should be commensurate with the risk. 1-3% above current market rates is reasonable.

A year ago, business was booming for Touchstone Living Inc. The Nevada builder had a list of 639 qualified buyers who wanted homes in its development about 15 miles North of the Las Vegas strip.

Today, that list has shriveled to about 30. Many would be buyers are unable to qualify for loans since mortgage rates have surged to 6.94%, their highest level since 2002 and more than double the rate of a year ago.

Little of this is good news for Touchstone or its owner, Tom McCormick. But Mr. McCormick said his new company has less debt and fewer lenders than his former company did heading into the 2007-2009 recession, and has grown more slowly and bought less land.

“I’ve learned my lesson,” he said. Still, “I’ve never seen it change this fast,” referring to the rapid decline in sales.

This year’s rising mortgage rates, said Mr. McCormick, slashed the number of would-be buyers for his homes. “They still had the good credit, they still had the good job. But rising home prices and rates just squeezed them out of the market.”

The summer slowdown was a scary reminder to Mr. McCormick of how easily the market can turn. He was the owner of Astoria Homes, one of the biggest privately owned home builders based in Nevada during the early 2000’s housing boom. He built up to 1000 homes per year. When the sub-prime mortgage crisis erupted in 2007, Astoria shrank from 170 employees to 3, including Mr. McCormick. A few of its lenders were taken over by the FDIC, and Mr. McCormick, who had made personal guarantees on Astoria’s debts, spent years settling them.

He is hoping Touchstone’s prices give his company an advantage in a slow market. Their homes sell for between about $315,000 and $433,000. The region’s median new home closing price in August was about $492,000, according to Home Builders Research. In September, Touchstone decided to start renting out some of its properties because it expects home-buying demand to stay slow.

“People still want to own homes, but they simply can’t afford it,” said Mr. McCormick. “So the business plan has to change.”

Reported by Nicole Friedman in the Wall Street Journal on October 24, 2022.

The housing market will shift in favor of home buyers by the end of 2023, according to 44% of 107 economists and housing experts polled by real estate company Zillow for its newly published “Home Price Expectations” Survey. And, 12% of these experts believed that shift will happen sooner – that is, this year!

The median price of an existing home in the U.S. dropped to $389, 500 in September, down from $403, 800 the previous month, according to the National Association of Realtors. Most of the housing experts surveyed noted that the markets most likely to see home prices decline over the next year include pandemic boomtowns like Boise, Austin and Raleigh. If you recall, these cities saw a huge jump in sales amid the earliest days of the pandemic.

What is an Odd Cash Flow? Here are a few examples:

• Personal Injury Settlement
• Medical Malpractice Settlement
• Wrongful Death Lawsuit
• Sexual Harassment Lawsuit
• Wrongful Termination Lawsuit
• State Lottery Winnings
• Television Game Show Winner
• Disability Income Payments
• Hole-in-One Winner at a Charity Golf Tournament

The commonality here is that a person has been wronged or won a potful of money. The “payor” of these monies may be an insurance company, large corporation or a public entity. They are stable with millions or billions in assets. The recipient has a large degree of certainty that he will receive the money awarded.

These situations are typically litigated and the settlements may involve large sums of money. Consequently, the final arrangement may not be a lump sum payment, but rather periodic payments over time. Sometimes, the recipient may become unhappy with the payment schedule or have a pressing need for cash.

What to do?

Many of these “payors” will allow their structured payout schedule to be interrupted with a lump sum or series of lump sum payments. We have a long standing relationship with an investor who purchases these odd cash flows. If you or someone you know is in this situation, please call me and let’s see what we can do to help.