Cash Flow Business Tip of the Week- Hedge Funds and Private Equity firms are a huge source for notes

private-equityHuge, deep-pocked private equity firms and hedge funds are gobbling up available homes literally by the truckload… in one case, 1,400 homes were bought in ONE city in a SINGLE day by ONE firm who paid ALL CASH. The entry of these types of firms HAS ALREADY changed the entire real estate market AND THE NOTE MARKET as well (which is the part you don’t read about very often because the focus of most articles centers around physical PROPERTY changing hands).

As a cash flow practitioner, you should make it a point to FOCUS on developing relationships with hedge fund managers and reps, as there is a ton of money to be made in notes (I’ll get to that in a second).

First, you need to understand the real estate side of all this. You see, most real estate investors were blindsided by the entry of these firms into the marketplace who have swooped in and are not only buying up the lion’s share of distressed properties (effectively muscling out the smaller investor who used to live off of these), REOs foreclosures, etc. BUT ALSO are buying up non-distressed “regular” homes at a prolific rate with the intention of renting them out. This is widespread. Check it out for yourself. Google “Blackstone”, hedge funds, rental-backed securities and you’ll see what I mean.

Now, here’s- the big key for you and me: As large a scale as this is with respect to home sales, there is a huge underlying opportunity in performing and non-performing real estate NOTES. The note marketplace is MUCH larger than the REO market EVER was during the entire crash… currently it is estimated at over TEN MILLION notes. Try and grasp the enormity of that for a second. Hedge funds are buying these notes up as well on a massive scale and I want you to understand that THIS is the area where smaller investors (and note brokers) have entrée like never before.

You see, the KEY DIFFERENCE in this case between the real estate market and the NOTE market is the WAY in which these large private firms are buying up note portfolios from banks.  They buy them “by the case” and sell them “by the bottle”, to INDIVIDUAL investors in many cases. They’re bought at somewhere around 10-15 cents on the dollar from financial institutions (if non-performing) and then they’ll resell within weeks for somewhere around 30 cents on the dollar in many cases (if made into a re-performing note, could be around 60 cents on the dollar– still very, very brokerable).

NOTE BUYERS who buy and hold have a voracious appetite for this product. This is where you come in as a cash flow practitioner. All you have to do is develop alliances with these funders– the type that our Elite members enjoy, for example– and then go turn over a few rocks and start marketing your services to these private equity firms. It’s all in the MARKETING– you’re not using your own money. All you’re doing is putting buyer and seller together and right now this is a virtually unlimited source of product.

Key takeaway: again, let me reemphasize– You don’t need to use your own money to make this happen. Just set yourself up with the right funders, the right guidance, market the right way, know what to say, know how to follow through and deliver on what you promise.

P.S. As large as these private equity firms are, they still represent only a fraction of the available business out there for us. Fact of the matter is because these firms are paying all cash for all of these available homes, they are contributing to the “lending crunch” as now only the most sterling buyers can quality for a conventional loan. That puts seller financing front and center and there is a ton of paper being taken back. Be sure to work your marketing lists and be sure to market to lawyers and private note sellers.

Go forth and prosper.

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