Our company was founded on the market opportunities associated with the acquisition & disposition of distressed real estate. In 2007, when the great recession occurred, we began purchasing lender-owned properties (REO’s) from banks, servicers, hedge funds, etc. We forged relationships with many of these institutions, which enabled us to purchase thousands of properties at significant discounts. And even after the recovery, as government recession relief programs slowed the release of REO’s, we continued to see new “pots” of REO’s hitting the market. But these new opportunities have been slowing down significantly. In fact, after extensive research, we are convinced that this pipeline has essentially dried up for the foreseeable future. Over the last fifteen months we had seen volume drop, competition
increase and the profit margins of these assets thin significantly.
Unfortunately, we now find ourselves in a position where some of our properties have not performed as projected. In addition to the market friction described above, there are two additional factors contributing to this situation. One, some of our purchases were made in regions of the country where the local real estate market has flattened or slowed significantly, with little prospect for recovery in the near term. Secondly, some of the due diligence which we received from contracted third parties was inaccurate. We have relied on many real estate valuation companies, realtors, and software tools for this intelligence, but we found that the overall quality of information is lacking. This has been frustrating, as we have put a considerable amount of effort and resources into improving this aspect of our business.
When margins were greater, we had a buffer against these factors, but the current reality affords much less room for error and therefore creates additional risk. Due to these factors, we recently made the decision to discontinue purchasing REO’s from the auction companies. We have instead focused our efforts on our “consumer direct” division, which affords higher profit margins and less risk. We have been working diligently in this area and have seen good results. But a key challenge is whether we can source properties in sufficient volume, as each purchase must be negotiated individually. This process requires additional time and resources.
As we continue to liquidate assets in our portfolio, there will be some challenged assets in the mix along with our quality assets. This will put downward pressure on our returns. However, I fully expect the fund to ultimately turn around as the “consumer direct” properties wind through the process to a final exit.
Featured property of the quarter is located at 14 Royal Cir, Newburg NY 12550. The property is a 1,716 sqft Single Family home built in 1968 with
3 bedrooms and 2 baths. It sits on a 0.48 acres lot.
Investment Stats (rounded):
- REO Purchase Price: $122,655
- Expenses: $21,179
- Sold Retail:$169,000
- Gross Profit: $25,166
|Performance Since Inception|
|Land Contracts Summary|
|Face Value of Notes||$139,922|
|Non-performing Notes Summary|
|Modified Notes Summary|