What Matters Most in Investments Now: Deals Vs. Sponsors

Jun 15, 2020

Now that we may be on the back side of the COVID-19 pandemic, these are the factors influencing the space. Many of them may actually be surprisingly good news for real estate and note investors.

Check them out…

1. Rising Property Prices

Many expected that by this point property prices would be in deep decline. There has been a lot of talk about unemployment, struggling businesses, and stalled transactions. Yet, recent data suggests home prices in some places are rising at the fastest pace in two years. Even in markets which had begun to slump prior to coronavirus restrictions.

Seattle is a great example of this. A housing market which appeared to peak in mid 2018, with an average home price of $750,000, and 55 days on market. Prices there were down at least 3% in January. As of May 2020, Zillow was reporting average prices now up to a new record high of almost $770,000. Average marketing time even fell to just 44 days.

Dig into the data, and you may find similar trends from Southwest Florida to the Northeast and pockets of California.

Obviously, not all property types are going to grow, or at the same rates. COVID-19 has certainly shifted demand. Yet, it is great news for mortgage note investors.

2. Distress In The Shadows

Some parts of the US have enacted eviction and foreclosure moratoriums. Millions of American renters and property owners have probably made some type of alternative arrangements with their landlords and lenders. With the incredible amount of non-essential shopping we’ve seen happening in the last couple of months we must assume that either the population is far more flush with cash than expected and can simply catch up on their housing payments with no problems, or they are setting themselves up for disaster. Once those deals end, many could find they owe at least 3 or 4 months of back payments all at once. If they spent everything on new TVs, cars, and toilet paper, they may never be able to get back on track.

It’s quite likely that there is a significant amount of distress behind the scenes, and which could create at least a modest wave of evictions and foreclosures in the next 24 months.

This doesn’t necessarily mean a new housing crisis is imminent. If this strong demand for housing continues, it could absorb this new inventory and create balance.

3. Less Competition

Just two weeks into the lockdowns and we saw even the largest US banks wavering. Chase and Wells Fargo were among those tightening up and shutting off certain types of loans. Other banks started limiting cash withdrawals to avoid runs. Many gurus and investors went from talking a big game to clearly being shaken, unable to operate outside of their offices, and hiding under a rock somewhere. They may still be out there. They may not have gone bankrupt yet, but they have clearly lost the confidence of their followers and customers.

That has certainly cleared out a lot of the competition. Investors won’t take them seriously anymore. Hopefully you were one of the few who stepped up more than ever, invested more in marketing, stayed visible and showed people you were different. Those that did stand to gain a lot over the next few months and beyond.

4. It’s All About Mindset

It really is. Like markets in general, if you choose for it to be a good day, to see the positives and see challenges as opportunities to grow and create better solutions, you’ll get what you believe in. We can see that right now, as some of those individuals and organizations that choose to live by fear have become victims of their own beliefs and actions. While others are busier than ever, and are thriving.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Image by moerschy from Pixabay