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RE and Notes Are Connected

Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital

Your favorite Master Note Buyer – Straightforward, Honest, Fair…

Of course they are! Real Estate and Notes are definitely connected. After all, real estate is the security for the notes we buy and broker.  If you know me at all, you already know I keep very detailed statistics for my note business.  There are also tons of statistics on the real estate side of the business and I watch those as well to compare them to my statistics and look for trends, patterns and nuances for growth and survival. In this article, I would like to share with you a few of the real estate statistics that I look at and very briefly tell you what they might mean to us in the note business.  Here we go:

Real Estate Market Overview – There are approximately 115 million occupied housing units in the United States, according to the 2011 American Housing Survey. The typical owner-occupied home was built in 1976; the typical renter-occupied home was built in 1972. The typical home size is 1,800 square feet, built on a 0.26 acre lot.  The typical home owner is 54 years old, and has lived in the current home for 11 years. 5,090,000 existing homes were sold in 2013, according to data from the National Association of REALTORS®.

The above information tells us about a “typical” home, so when we get a call from a note holder and they are giving us the description of the property and it is not typical we can ask them more questions AND we can inform them since the property is “atypical” that the value of their note may be less.  Since most of our transactions are on residential real estate it is nice to know how many are sold and to whom as well.

Home Buyer Statistics – First-time buyers: 38%, Median age of first-time buyers: 31, Median age of repeat buyers: 52. The typical home purchased in 2013 was 1,900 square feet in size, was built in 1992, and had three bedrooms and two bathrooms. Among those who financed their home purchase, buyers typically financed 90% of the home price.

Information sources used by home buyers in searching for a home include: Real estate agent: 89%, Yard sign: 51%, Mobile, tablet, website or application: 45%, Open house: 45%, Print newspaper advertisement: 23%

NAR’s 2013 Profile of Buyers’ Home Feature Preferences found that the feature that had the highest dollar value buyers were willing to pay more for was a waterfront property.  53% of home buyers undertook a home improvement project within 3 months of buying, typically spending $4,550 in improvement projects. Source of above: 2013 National Association of REALTORS® Profile of Home Buyers and Sellers

The above stats and info can be used in many different ways in the note business. Knowing the median age of sellers and buyers can help us understand a little bit more of what we might be stepping into when we are initially analyzing a note for purchase.  Asking sellers what method they used to sell their home can enlighten us even more as to the type of buyer they found.  The above stats can also give us an idea of the value of certain collateral understanding the fact that people will pay more to live on a waterfront property.  The statistic that over half of home buyers do some kind of home improvement within the first 3 months of buying a home is of interest to note buyers when we are looking at a note that has been seasoned for more than 3 months we can guess that half the time the buyers may have already put some money into the property and thus may have more “skin in the game”.

Home Seller Statistics – The typical home seller in 2013 was 53 years of age and lived in their home for 9 years. 88% of sellers were assisted by a real estate agent when selling their home. Recent sellers typically sold their homes for 97% of the listing price.

These statistics give us an idea of our target market of note holders and coincide directly with my personal statistics that over 70% of the note transactions I have purchased and brokered over the last 23 years were from note holders older than 55!  If 88% of sellers were assisted by real estate agents then we can safely assume that 12% were not and that some of those probably carried back notes (see below).  And if property sellers are typically getting 97% of asking price that tells us that the value realtors are giving to homes is fairly accurate for the current market.

For Sale By Owner (FSBO) Statistics – FSBOs accounted for 9% of home sales in 2013. The typical FSBO home sold for $184,000 compared to $230,000 for agent-assisted home sales. FSBO methods used to market home include: Internet (online classifieds, FSBO websites, social media and MLS websites): 43%, Yard sign: 36%, Friends, relatives, or neighbors: 28%, Open house: 14%, Print newspaper advertisement: 7%, Direct mail (flyers, postcards, etc.): 1%, Video: 1% and Other: 2%. Keep in mind that most use multiple methods. Source of above: 2013 National Association of REALTORS®

The 2013 National Association of REALTORS® Profile of Home Buyers and Sellers also found that the most difficult tasks for FSBO sellers included: Not knowing how to actively market home: 32%, Understanding and performing paperwork: 18%, Getting the right price: 13%, Preparing/fixing up home for sale: 12%, Helping buyer obtain financing: 3%, Attracting potential buyers: 3%, Selling within the planned length of time: 7% and having enough time to devote to all aspects of the sale: 6%.

As a note broker and buyer these FSBO stats are some nice pieces of information as a lot of notes are created by this group. They give us some insight as to the possible value of collateral, as to the type of buyer and potential payor they might have and as to the frustration level of the sellers themselves in just trying to sell their own home (which is something we can use when negotiating with these types of Note Holders).

Some Other Recommended Sources for Data on Real Estate:

The Economists’ Outlook blog provides insight into NAR Research’s reports and analyzes how various economic indicators affect the real estate market.

NAR’s State-by-State Economic Impact of Real Estate Activity examines real estate markets in each state and analyzes their contribution to the economy.

The Research & Statistics section of includes links to recent surveys and reports available from NAR.

U.S. Housing Market Conditions is published quarterly by the U.S. Department of Housing & Urban Development, providing numerous housing market statistics from the federal government and other organizations.

The State of the Nation’s Housing, from the Joint Center for Housing Studies of Harvard University, is an annual review of housing markets in the U.S., including data on demographic trends and economic conditions.

In an attempt to keep this article short, these above stats are just a few of the many I thought I would share with you to get your wheels spinning and get you thinking.  There are so many tools we can use these days to get insight into the note business as far as educating ourselves, learning about the seller and the payor, learning about the property, learning about different areas and learning different real estate patterns and trends.  It has been said that Note Investors are some of the most real estate knowledgeable investors in the country because we buy notes all over the nation and need to keep up with all of the different markets and be able to ask questions to get the information that we need to get that warm and fuzzy feeling and make informed decisions as to the value of the note we are about to buy. Did you know that we spent time researching this kind of stuff? Now you do. Remember success demands action, keep on marketing, it’s going to work!  TWITA! (That’s What I’m Talkin’ About!) J

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