After the subprime lending fiasco, real estate investors large and small had the ability to pick up foreclosure properties at a substantial discount. Home prices had dropped, interest rates took a nosedive to historic lows, and inventory was plentiful — especially in the foreclosure market. Real estate investors could buy these properties at a discount that would allow them to renovate and sell for a profit. For the buy and hold investors, purchasing these properties from the banks or via short sale provided them the ability to reposition these properties for generous cash flow.

Over the past couple of years, we’ve seen a shift in the distressed real estate market. The ability to buy distressed properties at a low enough discount to earn a healthy profit or rental return is diminishing. The banks are releasing less REO inventory and what is put on the market at any reasonable discount is getting picked up quickly either by hedge funds or even the savvy owner/occupant looking for a bargain.

There has been a shift with the financial institutions including FNMA, FHA and HUD from foreclosing on their non-performing assets and then selling them as REO’s, to selling their debt – which are the mortgage notes on their books.  There are a variety of reasons lenders prefer to sell their non-performing notes rather than go through the foreclosure process. Selling a note is often a much quicker process than foreclosure for a lender and it also enables them to avoid paying insurance and real estate taxes on a foreclosed property.

The resulting opportunity for an investment firm like us, is to acquire these non-performing mortgage notes at attractive discounts.  Such discount(s), along with the nature of the non-performing asset itself, creates options and multiple exit strategies, which are not typically available with REO disposition.

We realize that uncertainty creates opportunity. From an investor perspective, the volatility of the stock market and impending fears of inflation are causing many investors to look for other options. The long-term value of real estate is attractive, and the historic drop in value has created a significant opportunity in the distressed real estate asset market.

Investment opportunities are available to our investors who may not qualify for a typical investment, either because of lack of sufficient liquid capital or low net worth. The capital contribution necessary to invest in distressed assets is lower particularly when investing in our target markets.

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