Thoughts from the Desk of Bob Repass…
As 2016 comes to a close, I hope that everyone had a successful and prosperous year. The year brought about many changes and opportunities to the note industry, setting the course for the future. 2017 promises to be just as exciting and full of opportunity.
I want to kick off the year with a quick look at three issues I’m keeping an eye on that I think will have a significant impact on our industry in the coming year. First is the impact of the new administration and Congress on both the regulatory environment and the overall housing market.
Secondly, what is going to happen to interest rates and their effect on homeownership? Finally, is history primed to repeat itself? With real estate values increasing and mortgage credit availability softening in the form of low down payment, lower credit score mortgages is another “crisis” on the horizon?
In 2017, I will continue to use – The Buyline – to cover not only these three topics but other important industry-related matters, as well as keep you up-to-date on the latest goings on across our various business verticals at NoteSchool, Colonial Funding Group, Colonial Capital Management and NotesDirect.com.
I’ve never been a big fan of New Year’s Resolutions, probably because I never make it more than a week or so before breaking them! However, I came across the following the other day and I thought not only would I try to answer these three questions as we head in to the new year, but I would challenge each and every one of you to do the same.
- What will I leave behind in 2016?
- What will I take from 2016 to 2017?
- What will I create in 2017?
With that I say hello to 2017! I wish each one of you a tremendous and blessed year.
Stay up to Speed with Eddie
Knowledge + X = Long Term Success: But What is X?
by Eddie Speed
There’s no way a person will succeed in the note industry without the right knowledge. But there are people who have the right knowledge who don’t succeed over the long haul. For long term success over many decades with unpredictable swings in the economy you need to have what I call the X Factor.
What is the X Factor? It’s more than just the mechanics of structuring notes. The X Factor is something that is more caught than taught. It’s not installed – it’s awakened inside each of us. Knowledge can be installed from the outside into a person’s mind. But the X-Factor has to be activated and inspired from within. That’s what I hope to impart to my readers in 2017.
I’ve taken all kinds of courses and training in all phases of real estate, and they’ve taught me a ton. But most teachers really don’t spend much time addressing this undefinable issue, and it’s every bit as critical as learning the mechanics. At NoteSchool, we do a great job of teaching the mechanics of every phase of the note business. But at our higher levels of training, I always try to go beyond the mechanics.
I first learned the note business and caught the X Factor from the same person – my father-in-law. Not everybody has both knowledge and the X Factor, but he sure did.
I’ve seen a lot of people come and go from the note industry over the years. I’ve known a lot of people who were smarter than me and had better mechanics than me that have long since thrown in the towel and gone away. And I think I know why.
It might surprise you, but some of the superstars that I’ve met and even trained over the years haven’t necessarily done as well over the long haul as the people you might have thought could never do it to start with. Why is that? The X Factor.
You can plan for some of the obstacles life will throw at you, but not all. There are obstacles in your future that no one can predict or prepare for. Some obstacles are common to us all, like swings in the economy. But other obstacles are unique to each person, like maybe a health crisis. Your X Factor determines how you well you react.
So how do you define the undefinable X Factor? It’s a combination of many traits, and I’ll start with these five:
- You have emotional control. To paraphrase the poem If by Rudyard Kipling, you need to be able to keep from losing your head when everybody around you is losing theirs. You’re only as big as whatever it takes to make you mad. I’m seen people lose their temper over the most trivial things like getting their coffee order wrong. Well, if getting your coffee order mixed up makes you lose it, how are you going to respond when there’s a real problem? Successful people stay cool under pressure.
- You think like an entrepreneur – not a wage earner. When I met my father-in-law, I was working as a state horse inspector making $1,000 a month and living in a mobile home. He knew I had the potential to do better. He told me, “Son, I’m going to tell you something, you’re going to make a lot more money with a pencil than you can wiping sweat.” There’s certainly nothing magic about pencils, but there is something magic about changing the way you think. By thinking like an entrepreneur, you’re not at the mercy of somebody else’s whim as to whether you get hired, fired, or promoted. Thinking like an entrepreneur means taking control of your destiny.
- You have a vision for where you want to end up. You can see where you want to get to well before you’re able to see how you’re going to get there. You start with the end result in mind. If you don’t have a clear picture of where you want to end up, you sure as heck won’t know how to get there. A clear destination helps guide every step.
- You can always find a way. At some point there will be a huge rock in the road that you didn’t know was going to be there. When everybody else sees a dead-end, you find a detour. There are times when you’re trying to solve a problem, and logic will tell you this ain’t gonna work. The self-proclaimed smart people will tell you it can’t be done, but what they really mean is that they don’t know how to do it! When you find yourself on a trail where the maps haven’t been written yet, or when there’s no bridge across the next river, your X Factor kicks in. Your inner voice tells you that you can and will persevere. While everyone else is saying no way, you find a way.
- You never give up. With all the unpredictables in life, no one can avoid getting knocked down, but lots of people avoid getting back up. Getting back in the game is hard, especially when you get knocked down again and again. You have to swallow your pride and admit you didn’t see it coming. That’s why most people quietly crawl away. But you’ll be glad you dusted yourself off, stood tall, and got back in the game. No crisis is identical to the one before, so be willing to reinvent yourself, which I’ve had to do many times. You have to be tenacious about succeeding.
That’s a sample of the kind of things I’ll be writing about in 2017. I hope you’ll be on the lookout for every article, because I’ll be talking about things that can change the way you think, and when you change the way you think you can change the course of your life.
The Trading Corner
More Investors Buying Outside of their State
by Kevin Shortle
Several years ago Eddie identified a trend, which indicated that real estate investors were increasingly looking for opportunities outside of their state. These investors however faced obstacles due to market inefficiencies.
These inefficiencies included:
- Market data to identify solid rental markets
- Issues hiring contractors and other vendors
- Property supply issues
- Availability of financing
These inefficiencies create opportunity
Once Eddie recognized the inefficiencies, he immediately started creating solutions, which ultimately led up to the creation of our turnkey flipping model. In this model, you can supply the huge demand for rental property from out of state investors by providing loaded rental properties WITH seller financing.
How big is this trend?
Attom Data Solutions just provided updated information (http://www.realtytrac.com/news/realtytrac-reports/investment_homes/) that shows that 3.4 million single family investment homes (non-owner occupied) nationwide are owned by an out-of-state investor. That’s 16 percent of all single-family investment homes.
If you have listened to Eddie’s trainings on this topic, you know that he always refers to the “California investor” when referring to out of state investors. Well, the data confirms that California investors lead the nation when it comes to buying real estate investment properties outside of their state. In fact, 24% of all investment homes owned by Californians are located out of state.
The Triple Crown: Individual Health Savings Accounts
by Martha Speed
The Self Directed Retirement account specifically for health care cost is the Health Savings Account (HSA) which is another great way to grow tax free income for future expenses.
Accounts must be open or contributions made on or before April 15 of each year. Contribution limits for 2017 are $3,400.00 for individuals and $6,750.00 for families. Those over 55 can contribute an extra $1,000.00 per year catch-up contribution.
HSA Pros, The Triple Crown:
- Annual Contributions are tax deductible
- Money withdrawn is tax-free for qualified medical expenses
- Money earned on investments grows Tax Free
Funds in a HSA can be invested and self-directed in a wide variety of assets including real estate or real estate notes, precious metals, public and private stock
- A High Deductible Health Insurance Plan which must be in place prior to opening your HSA
- You can only have One health care policy
- You cannot be enrolled in Medicare
- You cannot be claimed as a Dependent on another person’s tax return. For example, children can be covered on the parent or family HAS
Example of Premium Comparison:
2004Deductible $250.00Monthly Premium $1,200.00
2016Deductible $10,000.00Monthly Premium $800.00
Savings over 10 years on premiums with High Deductible:
$400.00 difference in premium x 120 months = $48,000.00
- Pay directly out of the HSA account
- Pay expenses personally then issue a Direction of Investment for your custodian to reimburse yourself when and if you want to from the HSA account
Withdrawals must be strictly for Medical Expenses until age 65, when withdrawals for expenses other than medical are treated like a traditional IRA and taxed
Withdrawals before age 65 are subject to income tax plus a 20% penalty
The biggest hurdle is paying for present day medical expenses out of pocket as they are incurred. One strategy is to make a short term investment and use profits for current medical expense and put the original contribution back to work again in another investment.
Distributions don’t have to be taken in the year the expense is incurred. This allows you to grow the account and at a later date use the tax-free dollars, at your discretion, maybe an overseas trip with Walter, by claiming those prior year health expenses in one lump sum.
You can view a quick list of eligible expenses and deductible limits at www.hsacenter.com. Even “over-the-counter” medications can be expensed with a written prescription on file in addition to vision, dental, long-term care and more.
A recent study by Fidelity Insurance reported the rising health care cost in at $220,000.00 for a retired couple. This may be a great time of the year to compare health plans, eligibility and the rules and regulations for another Tax Free Income Account or for use as an Emergency Backup Fund.
In The Spotlight
Last year we started the New Year off with something a little different in the “In the Spotlight” column, and this year we will continue this new tradition. Once again I reached out to some of my colleagues here at NoteSchool, Colonial Funding Group and Colonial Capital Management and asked each of them to share their best advice heading into 2017 for anyone in the note business. I’m not sure you will find any better advice all in one place than the following!
Capital Markets Update
Is Your Credit Optimized?
By Ryan Parson
In previous articles, I have talked about who you have on your team. This ranges from your attorney and broker, your financial planner and your insurance agent, to your accountant and banker. These are the key players you depend on and whom largely help shape your financial plan and future.
We have also talked about the amount of debt you carry (including your mortgage, car, RV, etc.) and how important that amount is so you can sleep comfortably at night.
These are two topics I consider very important to the overall success of your WealthCare plan:
- Who is on your team?
- How much debt do you manage?
Today, I want to look at someone I consider to be a bit of an unsung hero. It is someone whom frankly, we do not talk about often enough. This individual is that team member who keeps your financial reputation and “fundability” optimized.
You’re probably thinking, “Who and what the heck is that?”
Let’s start by defining what and who it’s not. We are not talking about credit repair (the typical things you think of when you hear of credit reporting).
Rather, it is that credit-based intangible designed to aid those of us who are investors. It is how we utilize our personal credit profiles to fund our alternative investment deals, so that when we go to get credit, we qualify for the most inexpensive credit rates out there.
Banks are willing to give us credit—at what we believe are the best terms—and then, in turn, report our credit history to the credit bureaus.
Unsecured Loans for Credit Optimization
As I have embarked on a journey to optimize my own credit and fundability in which I’ve continuously looked for the best credit, I am always looking for terms that are unsecured. You don’t typically get unsecured loans at extremely favorable pricing and terms—like 3% percent—in fact, if you get a 5%-7% fixed rate, that’s really great.
Believe it or not, you can get a 3% percent unsecured loan, and you do it through implementing a credit funding optimization strategy.
Most of the debt we get in a typical deal becomes secured against that deal. If the deal goes south, the bank gets the whole asset back, including the amount you put into as a down payment. This could be as high as 40%. In this unfortunate scenario, you lose your 40% equity to satisfy the bank’s 60% loan.
Imagine a deal that is 3% interest and unsecured in which you don’t lose your equity AND you can still preserve your excellent credit. Now that’s credit optimization!
We certainly aren’t talking about not making good on your debt obligations. However, when you have debt structured on more favorable terms, it can buy you precious time to turn a deal around that may have otherwise ended with a not so desirable outcome.
Favorable Credit Deals
Another example of credit optimization has to do with the types of credit cards you utilize. The type of card you are using in your wallet is possibly working against you and perhaps preventing you from optimizing your credit. It might actually be harming you and your ability to pay back your debt and get the most optimal terms.
More than half of high net-worth investors don’t have car loans or mortgages. However, the loans they do have might not be with the right type of bank. This too can prevent you from getting favorable credit deals and terms so you can take advantage of alternative asset deals.
Do you feel like you are paying too much in interest in the traditional, institutional banking market? Do you have your credit optimization advisors working to maximize your fundability?
I’ve asked my friend Merrill Chandler, Chief Strategist and Founder of Credit Sense, who’s been in this industry for 25 years helping people manage their credit fundability and designing customized optimization strategies, to help us better understand what optimization is. Here are some of his thoughts:
What is Credit Fundability Optimization?
Credit Fundability Optimization is the process of evaluating every aspect of your credit profile and taking advantage of every possible score producing activity the credit system allows down to the most simple of tasks. For instance, did you know that you get a boost in credit score points by opting out of the credit bureau mailer systems for advertisements?
Did you know that most Americans could boost their credit scores 15 to 30 points by creating a Permanent Credit Identity that creates certainty in both scoring and underwriting?
Credit Fundability Optimization creates the highest possible positive yield for positive accounts while at the same time reducing the negative drag on every negative account. It’s about creating highly fundable profiles not just raising scores.
If you’re going to continue to be successful in securing alternative investment opportunities while maintaining the most favorable lending terms in the marketplace, find out more about how credit funding optimization will make that happen.
Who’s the credit funding optimization expert on your team?
Quote of the Month
“I try to read about a book a week on average. Even when my schedule is out of control, I carve out time for reading.” – Bill Gates
Connect With Us
Are you on Twitter? If so, be sure to follow us on Twitter @NoteSchool and @ColCapMgmt, if not, why not?