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Home Inventory

When one evaluates investing in a non-performing note, it makes sense to think in terms of a safe investment to value ratio with a solid exit strategy. These two factors are affected by the value of the collateralized asset (house, manufactured home, etc.). The value of these are underlying assets are typically broken into low and high price bands.

Since the real estate financing crash, our focus at NoteSchool and Colonial Capital, has been trading notes backed by properties in the lower price band. The lower price band is generally considered to be properties that have a value under $150,000.

Non-performing notes in this price band offer the best value because they have the:

  • Lowest purchase price point
  • Lowest investment to value
  • Largest inventory

They also offer several solid exit strategies including:

  • Loan modification
  • Short payoff
  • Deed in Lieu (DIL)
  • Foreclosure (FC)

When a property is acquired through DIL or FC, the extended exit strategies include:

  • Selling it as is
  • Renovating and then selling it
  • Renovating and renting it
  • Renovating, renting and selling as a tenant occupied rental

Normally an investor would do some number crunching on all of these options and go with what makes the most sense for them. Along with other variables, the specific market demand would play a role.

Lower price band properties are within the definition of affordable housing. Affordable housing means that there are more potential buyers if you acquire the property.

What about the Lower Priced Band Market today?

Market conditions have changed significantly since the initial crash of 2008. Prices have changed as a result of shifts in supply and demand. New rules and regulations have changed banks lending practices. The greatest effect has been on affordable houses and the people who want to buy them.

Sam Khater, VP & Chief Economist at CoreLogic recently did a presentation where he indicated that the inventory for affordable home is low and declining. His numbers indicated just over a 3-month supply in homes in the $50,000 to $125,000 price range.

Conclusion and Opportunity

The conclusion here are pretty simple: supply for lower price band properties is low and declining. Many real estate investors, however, will miss the opportunities of this conclusion because they have not incorporated real estate notes into their business strategies.

If you combine this data with other sales, lending, pricing, and renting data you will recognize a void in the market that can be filled.

Logically, if supply is low, and demand is strong, prices will go up. Even as prices in this lower band go up, they are still below the loan amount that numerous banks and other lenders will lend. If potential buyers are currently renting and looking to buy they will not buy if down-payment requirements are too high and interest rates are going up.

Supply and demand is working in the investors favor. The opportunity here is to offer financing alternatives. The void here is the financing! Alternative financing always fills the lending void. The way to sell these assets at top-of-the-market prices is to offer:

  • Seller financing (seller carry-back loans)
  • Lease options with seller financing

There will be no shortage of buyers if you offer the right terms. Having said that, you always want to create notes to “qualified” borrowers. You always want to create a quality seller financed note by considering:

  • Underlying collateral value (real estate)
  • The buyers/borrowers equity (skin in the game)
  • The buyers/borrowers financial qualifications (credit, income)
  • The terms of the note (Interest rate, payback period)
  • Buyers/borrowers payment history
  • Proper legal paperwork (compliant and recorded)

As always, at NoteSchool we are constantly researching the market looking for adjustments and opportunities. We have already modified our training classes to reflect these and other market conditions. Learn more at


Kevin Shortle

Dir, of Training and Research




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