The seller carry-back note market is thriving, and that spells opportunity for note investors. At the time of writing (2018), the latest public-record data showed a slight drop in the number of seller-created trust deeds and mortgages, but much better quality. Here are nine significant statistics from that data, and what they suggest for active, creative note investors.
Volume and size of seller carry-back notes
The first three numbers cover how many notes were created and how big they were.
| # | Statistic |
|---|---|
| 1 | 89,779 first-position seller carry-back notes (residential and commercial) were found in the public record. |
| 2 | The average note principal at creation, residential and commercial combined, rose 2%. |
| 3 | The average principal at creation on commercial properties rose 8% in 2017. |
Investor’s notes:
- 8% fewer seller-financed notes were created in 2017 than in 2016.
- The increase in the average principal amount offset the decline in the number of notes.
Ask yourself: Should I be concerned about this decline in seller carry-back volume?
Action item: Keep exploring your options in note investing, which is still an evolving and emerging market in many ways. If you aren’t already involved in commercial property notes, explore them.
Signs that note quality is rising
The next three numbers point to stronger buyers and more equity.
| # | Statistic |
|---|---|
| 4 | In 2017, notes had larger balances ($17.30 billion in 2017 vs. $16.97 billion in 2016) and offered greater equity. |
| 5 | Down payments had increased every year for the previous four years. |
| 6 | Almost $8 billion in private notes were created on residential properties during 2017. |
Investor’s notes:
- Larger down payments indicate that financially stronger buyers are purchasing properties with seller-financed notes.
- While market volume may be down slightly year over year, note quality is rising.
Ask yourself: Where can I find high-quality notes?
Fewer notes from repeat sellers
Statistics 7 through 9 compare who created notes in 2017 with 2016.
| # | Property sellers who originated… | Change vs. 2016 |
|---|---|---|
| 7 | One note | Up 5% |
| 8 | Two to three notes | Down 34% |
| 9 | Four or more notes | Down 66% |
Investor’s notes: The two categories with declining activity probably reflect investors, property flippers and developers, not mom-and-pop sellers. The drop is likely a combination of factors:
- Fears, justified or not, over the Dodd-Frank Act.
- In a stronger economy, they found qualified buyers who didn’t need a seller carry-back note.
- They may have recorded each note in a different name.
Ask yourself: Is there room in my business to take advantage of this emerging gap in seller-financed note origination?
Action item: Explore ways to help mom-and-pop sellers create high-quality notes.
