Opportunities To Buy Good Paper Are Here Now

Tough economic times in the 1980′s produced a lot of paper. The paper I’m talking about is Private Mortgages, Trust Deeds, Land Contracts, etc. This type of paper is created when one entity (person or company) sells Real Estate to another entity and carries back a mortgage from the buyer payable to the seller, also known as “Seller Financed Paper”.

During tough economic times you will see much more of this type of paper created. The 1980′s was such a time. Many of the holders of this paper (the sellers) didn’t really want the paper; however, it was the only way they could sell their property. In addition, in tough times is when people’s credit gets hurt and they can’t get regular bank or Mortgage Company financing, thus another reason for Seller Financing. Therefore, an abundance of paper was created during this time.

The 1990′s saw Institutional Investors discovering this multitude of paper and becoming involved in very aggressive buying of this type of paper. Private investors were buying it as well; however, the institutions (with more money and willingness to buy at lower yields) made it more difficult for the private investors who found fewer amounts of paper that they could buy.

For example, during the 90′s and early 2000′s, my company bought and sold over 200 million dollars in paper. Then in the late 90′s and early 2000′s Congress pressured the banks and Mortgage companies into making home loans almost to anyone who could fog a mirror. The result = The Sub-Prime mess funded by Fannie-Mae and Freddie-Mac. This affected Seller Financing greatly. No longer were buyers hard to find who could qualify for a bank loan, so sellers didn’t have to finance the property for the buyers. So what happened? You all know; Foreclosures by the millions and the creation of another severe economic downturn. THANKS, CONGRESS.

So, the cycle has come full circle. There is an abundance of paper being created. Just check the “Homes For Sale” in your local newspaper, and see how many ads offer Seller Financing. Now we have, and are going to have, more and more Seller Financed paper available for investors to buy.

The prudent paper investor, who does due diligence, can buy paper to produce 10% – 14% Yields. Compare this to 2% of whatever the banks are paying.

So, I would advise that if you are an investor or have investor clients, consider getting in the paper buying business. Sure beats the crap-shoot in Wall Street.

If you are interested, review some of my earlier Posts about doing diligence and how to find good paper @ www.RealEstateJack.net

These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.