PERSPECTIVE: NOTE INVESTING
Noteworthy Markets 10 greener pastures for investors of nonperforming notes
at $415 million, but lowest out of these 10 states on an ARM ratio at 5.8 percent ($1,363 average monthly rent/$281,000 average home value). With these types of numbers, focus on vacant primary or sec- ondary homes where the borrowers won’t contest the foreclosure. The one market to avoid currently would be Atlantic City, as unemployment is rising and property values are falling due to trouble with the major employers (casinos) in the area. #9 NEVADA Nevada has long been a target of Cali- fornia investors and homeowners looking for more affordable homes and rental properties. One out of 859 homes is still facing foreclosure even with the Silver State being a faster, nonjudicial foreclo- sure state and having over $202 million in HHF. While values have increased to an average of $257,000, rents have not rebounded as fast, resulting in just a 6.2 percent ARM ratio ($1,336 average monthly rent). This is why you see note investors choosing to foreclose as the
primary exit strategy for nonperforming notes in Nevada.
in the home state of the Magic Kingdom through appreciation, modifications and the expedited foreclosure time frames for noncontested foreclosures. #7 NORTH CAROLINA One of the more popular nonjudicial foreclosure states over the past years, North Carolina currently ranks sixth in funds allocated through the HHF programwith over $700 million (and $223 million in the final round) given to the state to incentiv- ize modifications. When you combine the faster foreclosure time frame with increas- ing values (average of $187,700), along with a rental rate of $1,063, you can understand why note investors are capitalizing on the 6.8 percent ARM ratio for modifications and fast foreclosures for REO flips. #6 SOUTH CAROLINA North Carolina’s neighbor to the south has not been as popular a market for investors based on the 12-month judicial foreclosure time line. Nonperforming-note investors continue to see the Palmetto State as a popular destination in which to invest, as home values continue to improve (up to an average of $173,000) along with average rents ($1,047) and markets like Columbia, Clemson University and coastal regions gaining more traction. Investors who buy in Florida are also adding South Carolina to their wish list. With an ARM ratio of 7.25 percent, $317 million in HHF and one out of every 938 homes still facing foreclosure, “Carolina” is attracting more investors from across the country who are looking for deals. #5 INDIANA One of the biggest states to rebound and attract investors from outside its borders over the past few years is Indiana. Many investors are targeting markets besides Indi- anapolis as a way to leverage their dollar by tapping into South Bend, Fort Wayne and other cities where values and job growth have both increased. With an average value of $170,000 and rent rates at $1,007, the ARM ratio of 7.12 percent gets an extra bump with the large amount of “zombie foreclosures” (10 percent of all homes). Nonperforming-note investors are convert-
#8 FLORIDA The Sunshine State (or “God’s Waiting Room”) was once considered one of the worst markets to invest in as the 12-month- plus foreclosure time frame scared off many investors looking for faster results. The housing market has rebounded strongly with average values returning close to where they were in 2007, at over $203,000. Florida still ranks high on the current foreclosure list with one out of 738 homes facing fore- closure. The recent changes to how Florida distributes HHFs has investors looking to tap into the $1.1 billion in funds made available to modify homes. The reduced value over the past few years has led both domestic and international investors to put their money in Florida with the Miami and Tampa markets leading the way. While the ARM ratio has dropped to 6.3 percent as values increased faster than rents ($1,063), short-term, student and vacation rentals are attracting investors to find magical returns
by SCOTT CARSON
M any real estate investors are look- ing to expand into new markets as backyard deals become scarcer and thinner based on demand for product, reduced HUD foreclosures and property values recovering from the mortgage meltdown. While new investors struggle to find local deals, seasoned and savvy investors are moving into new states to help quench their thirst for higher returns by leveraging their investment dollar. Those investors exploring newmar- kets are also looking to get out of “brick and mortar” and into the paper game. The ability to find deals six to 12 months ahead of REO investors (depending on the foreclosure time frames of states)—along with better pricing of deals—is driving note
investors into newmarkets. While fast fore- closure states like Texas, Arizona and Geor- gia will always draw premium pricing, they may not be the best markets for an investor’s bottom line. When you add in the multiple exit strategies associated with nonperform- ing notes and the extra money available in specific states due to the Hardest Hit Funds, nontraditional markets are popping up as popular pastures in which to invest. These 10 markets offer note investors the biggest bang for their buck based on several factors: • Amount of available distressed assets to source. • Availability of Hardest Hit Funds pro- vided to the state from the Department of the Treasury for the Home Affordable
Modification Program (HAMP). • The state’s average rent vs. market value ratio (annual median rent average vs. average home value) or ARMRatio as a basis for potential loan modification rates as associated with comparable three-bedroom home market rents. #10 NEW JERSEY The Garden State has long been avoid- ed by note investors due to the lengthy foreclosure timetable. While it still leads the nation in foreclosures at one out of every 559 homes, the expedited foreclosure time frame for noncontested foreclosures has led to a surge of fix-and-flip investors targeting vacant or zombie foreclosures for REO flips. Jersey ranks seventh in HHF allocation
8 | INVESTOR REVIEW
SEPTEMBER/OCTOBER 2016 | 9
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