Over the last two weeks, I’ve talked to you about two of the three trends that have changed the real estate landscape.
The first one is what I call the Blackstone Effect.
Investors are pouring cash into the real estate market at an incredible pace. According to a recent Goldman Sachs study, almost 60% of all real estate transactions are now conducted in cash. Back in 2008, less than 20% of real estate transactions were conducted in cash.
Imagine that, a 40% jump!
Clearly, cash buyers constitute a majority of the real estate purchase activity in the U.S. And they’re predominantly private equity firms, foreign investors, and other private investors looking for alternatives to the stock market. And there’s just no way you can compete against guys like Blackstone.
The second trend is the changing attitude of banks and government-sponsored entities (GSEs) like Fannie Mae, Freddie Mac, and the Federal Housing Authority (FHA). These guys are shifting away from real estate owned (REO) and foreclosure sales. Instead, they’d rather sell mortgage-backed notes on the properties in question. In fact, it’s become policy.
In September 2013, the FHA launched the Distressed Asset Stabilization Program in an effort to allow lenders to place some of their non-performing notes into mortgage pools, which could then be sold to investors on the open market. Since then, the banks and GSEs have kept up a steady pace on this plan, selling 26,000 notes during the recently-ended fourth quarter.
And as I said last week, that creates the perfect opportunity for you… which brings me to the third trend.
With so many notes flooding the market, yields are at historically high levels!
While most property investors are happy to pick up the actual property at around 75 cents on the dollar, real estate note investors are buying performing notes at 60 to 70 cents… and for those willing to roll up their sleeves and do the necessary due diligence and workout to get the borrower paying again, are able to pick up non-performing notes as low as 30 cents and 40 cents on the dollar.
The existing inventory of notes, currently estimated at around 10 million, is massive. It’ll probably take anywhere from five to seven years to be depleted. And that’s why I believe this is a long-term trend that will persist.
Be sure to take advantage.
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