Owner financing during a recession - Posted by Mike

Posted by Redline on January 10, 2001 at 21:23:38:

True - the recession is gonna hit as soon as “W” hits office. It’ll all be his fault. Bad luck I guess … just like dear old dad. Shame. :wink:


Owner financing during a recession - Posted by Mike

Posted by Mike on January 10, 2001 at 13:19:58:

I’ve seen several posts on this newsgroup and a few others related to real estate investors and the potential recession ahead of us. My main focus in the real estate market is rehabbing. I like to buy, fix and sell, but I can definitely understand the sentiment that many others have spoken about. That is, it is going to get more difficult to liquidate when the job is complete, but should be easier to find good deals.

I’m interested in getting some perspective as to how the owner financing market is going to be affected by the economy. I’m seriously considering the idea of starting to offer financing for my buyers and then sell the notes off afterward to get my money out of the deal, but I’m wondering if many of these note buyers are going to be drying up due to the lack of buyers in the marketplace. On the other hand, I can see the secondary mortgage market flourishing because it may be the only game in town for a huge number of sellers. In fact, how will the lending industry as a whole be affected by a real estate downturn?

Any advice is appreciated.

Re: Owner financing during a recession - Posted by JPiper

Posted by JPiper on January 10, 2001 at 22:51:45:

My opinion on this is that it will depend on the type of recession (assuming there is one). Some are worse than others. But I think the potential is there for sizable problems in the subprime market. I think some of the loose criteria that these lenders have used is going to come back to haunt them. And to the extent this is true, I believe it will equally impact note buyers. I don?t think that selling owner financed notes is going to be much of a solution under recessionary conditions.

I think the demand for rehabbed housing will always be there?.and perhaps even increase in a recession for borrowers with problems such as credit difficulties, etc. The problem in my opinion will be that the lending industry for these people will dry up?and so will the note buying industry?.as the lending industry tightens out of fear of the weakening borrower condition. For those who can figure out ways to hold houses and carry those borrowers on lease/options or owner financing I think the market will be fine.

I think there will also be a good market for those who can rehab and sell at a value under comps to A type borrowers. This will take buying even cheaper than the standards for a good buy today. That means sharpening your pencil?perhaps even not doing the deal that you might do today.

But understand that no one truly knows the future?including all the eminent economists and forecasters of today. Keep your choices conservative?.and understand that a recession simply means that some of the excesses of the past are going to be boiled out. The process will simply change some of the ways we do business today.


Seriously, how much different is a… - Posted by dewCO

Posted by dewCO on January 10, 2001 at 22:21:20:

slower market, or buyer’s market, than what we’ve had for years with raging appreciation, for getting a LO for instance and then getting out of it with a profit on the back end in a year or so. (I assume not much of a difference for subjet to, except more plentiful.)

Re: What is all this - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on January 10, 2001 at 20:40:17:

talk about a recession?

Isn’t Bill Clinton still the presedent?

Isn’t everybody working (who wants to flip burgers).

Aren’t jobs plentiful (lots of folks have two or even three of them.

Didn’t the FED just lower interest rates to assure the people who have jobs running banks and stock brokerage firms that they would make a lot of money, and Bill Clinton will have a nice legecy.

What about the price of FOOD, FUEL, and ENERGY?
(never mind…we don’t use those figures any more).

So what is all this talk about a recession (just can’t happen, at least not this week).

Re: Owner financing during a recession - Posted by Bud Branstetter

Posted by Bud Branstetter on January 10, 2001 at 16:55:11:

It will it as it is now a regional market for supply and demand. The sale of mortgage notes will be more national and probably at a similar premium to conventional rates. One difference between conventional mortgage rates and selling notes is the unregulated nature. More brokers can say I want this return to buy a certain note versus a conventional market where the rates reflect more of what FannieMae is paying.

Lenders raise their rates but loosen their requirements so they can still get borrowers. Then they tighten their requirements as rates go down. While the national economy may have 2 quarters in a row where the GDP goes down(definition of a recession) locally is more important for a individual rehabber. More important would be MLS sales, days on market, jobs created, etc to determine if it is going to be harder to get your buyer financed.

You might try posting on the financing board to she if Ed Garcia has an opinion. My opinion is that there is so much profit built into rehabs that a little additional financing cost is not going to change the process.