Note Pricing has gone up….BUT

11 Replies

The pricing for non-performing notes has increased the last few years, but I’ve still been steady buying because:

1) When you buy from sellers you have relationships with, there will always be inventory that makes sense.

2) I buy based on the borrower's ability to pay versus a focus on the property's FMV, so pricing has increased but so have the borrower's ability to pay in certain cases.

3) Pricing has gone up but so has FMV's around the country if you have to take back a property.

4) Last point is that there will always be sellers looking to liquidate their portfolio for whatever reason and folks, like myself, will be there to help this occur.

It feels like we are at a point when players are jumping out of the market due to lack of inventory. Good for the folks still in the mix, and I do encourage the newer folks to embrace the industry as it can change your life if you commit.

I agree @Martin Saenz .  There are so many ways to make notes profitable if you are willing to do the work and be creative.

I think it's undeniable that pricing has gone up and some price expectations are ridiculous. That and sellers basing their price expectation on outlandish BPOs. I'm not interested in gambling where if anything goes wrong (and with notes there's almost always something going unexpected) you break even or lose money.

The fact that most small-buyer-friendly companies closed or aren't selling is hurting, too. It used to be easy to purchase one-off notes but it's getting increasingly difficult.

@Patrick Desjardins Thank you for your insight on this.  Understanding the 1st have gone up in price, you are still probably better off than going to the auction.  I don't buy many 1st but I do see the trend.  My focus is always on the borrower and their ability to pay.  My income as a full time investor is based on loan modifications that pay me monthly.  Once I made that change in focus, I bought better notes and continue to thrive from the cash flow.  

Every 1st mortgage note I've bought myself has been a gamble even when pricing was better.  A 70k property can be worth 30k in a blink of an eye when you go to resell it due to numerous factors.  Again, appreciate your input.

You make a good point @Martin Saenz about someone always wanting to sell their portfolios.

I was watching a video of some guy I find interesting who teaches and has a school for teaching English as a Foreign language in Vietnam and he was answering a question as to whether the market is getting saturated.

He made the point that there is more people “discovering” Vietnam but people don’t stay there forever. They have their goals and then move on so there will be always be an need for new people.

Your point reminded me of that. It’s true actually anyway.

From what I've seen some of the new players are fix 'n flip refugees who are looking to buy the home at a large discount since they can't find decent yield in their traditional venues like REO purchases and FC auctions. Their exit is diametrically opposed to our desired exit to keep the borrower in the home and realize our profit from the P&I cash flow. Its a result from the acceleration of home appreciation and shrinking inventories of product for the traditional residential investors.

@Martin Saenz You make some very valid points. Before the NPN market resulting from the RE crash and subprime lending meltdown, the bread and butter of note investors was seller financed notes. As you mentioned there is still a decent supply of NPN but do you see that inventory slowly diminishing with a full circle back to the focus of seller financed notes for investors interested in cash flow? My thought is that is where the market is heading (again).

Originally posted by @Tracy Z. Rewey :

@Martin Saenz You make some very valid points. Before the NPN market resulting from the RE crash and subprime lending meltdown, the bread and butter of note investors was seller financed notes. As you mentioned there is still a decent supply of NPN but do you see that inventory slowly diminishing with a full circle back to the focus of seller financed notes for investors interested in cash flow? My thought is that is where the market is heading (again).

Hey Tracy, Marty Granoff just mentioned he connected with you on IMN. I'm so happy to be meeting up with everyone there soon. I feel the X factor is the pending and much anticipated real estate crash due to the average income wage not matching up to FMV spikes across the country. That would lead to more supply of NPN's with cash flow exits (i.e. loan mods). I spent 2017 and this 2018 taking down re-performers from folks selling off their inventory to do other things (bitcoin perhaps, lol). I see your point on the presence of 1st with the intention of an REO sold with seller financing. I'm personally gun shy on 1st for a number of reasons, so I'm going to continue to expand my network so note sellers know I'm the guy that will buy your re-performer or 2nd NPN with rapid speed. Hence I kind of look at inventory as an exposure game. The more people know me, the more inventory I create for myself.

Perhaps, I'll model off of Marty G one day although I get tired just thinking about how his mind operates:)

@Martin Saenz   There is truth in that.... When the median income can't afford the median home price there is trouble brewing.  Silly me, I thought it would take longer than 10 years for this cycle to potentially repeat itself... I'm not a doomsayer but when this happened before it was time to carefully monitor inventory and exposure.  I don't want anyone to misunderstand my comments.  I am big on note investing just thoughtfully and with strong due diligence that allows us to stand the test of time (as you have also expressed).

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