Is it Time to Buy Florida and California Notes? |
| California and Florida were particularly hard hit by the collapse of the real estate bubble in 2008. Massive divestment followed a wave of foreclosures, and both states are still reeling from the results. As we close the book on 2009 and the market slowly recovers, it's time to ask a critical question: Should we invest in real estate from these states again? |
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If trends in the public real estate market are anything to go by, the answer is "yes." In November, the Wall Street Journal reported that Torreno Realty Corp plans a $400 million IPO built on reinvesting in California real estate. The article noted that Torreno was part of a larger trend where investors have returned to California to take advantage of depressed real estate prices in preparation for the inevitable return to value. The fact is that prices in "crisis" states may now be at the point where they're too low and don't match returning demand.
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| This situation is great for investment groups, who can sweep up property cheaply and finance it for the returning home buyer market, but it's also good for individuals who opt to invest with seller-held deeds of trust and mortgage notes. In fact, as a private note holder you have some decided advantages over investment groups. Chief among these is flexibility - you can customize the notes you fund to a greater degree than large institutions.
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Real estate investment groups must institute cautious "one size fits all" policies to not only manage large pools of notes, but persuade investors that their "product" is safe and stable. Your seller held mortgage or trust deed is based on a custom relationship with the borrower. This doesn't mean you take greater risks, but you can dig deep into the borrower's situation and make decisions on a case by case basis. As a result, you can more easily offer terms to fit a borrower's needs without sacrificing financial prudence. For example, you can approve successfully self-employed borrowers who are present a low actual risk, but whose self-employed status is a hindrance.
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| This puts seller financing at the "tip of the spear" for the real estate recovery in states like Florida and California. While larger firms but up properties en masse and struggle to mortgage them according to investor-friendly polices, private note buyers can meet the recovering demand faster, and with more appealing terms. If you have a good real estate lawyer and the discipline to finance a mortgage or trust deed yourself you could be open to extraordinary opportunities. And if an emergency or lifestyle change interrupts the process, remember that you can always contact a note buyer to turn your note into cash flow.
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