Thoughts from the Desk of Bob Repass…

I am proud to announce my daughter, Kristin, has recently accepted a job in Washington, D.C. Of course this caused an immediate frenzy around our house as we had only two weeks to plan her relocation. Naturally, Angie was immediately googling places to live (in the safest areas of course!), then when she found a place she liked, she called and got a leasing agent on the phone. As expected, Angie was asking him a ton of questions, finally he said “do you have an iPhone?” When Angie said yes, he said “would you like me to go to several of the available units and Facetime with you so you can see them?” “That would be awesome,” Angie replied. This was a huge help and made the process much easier. When Angie relayed this to me, it made me realize how valuable some technology apps we use really can be.  Between Google and Facetime we found a great studio apartment, in a safe area within a mile of her new office. With this in mind I asked our members of our NoteSchool/Colonial team to share with me “What Software App Could You Not Do Without?” Our team’s answers can be found In the Spotlight column below.

Speaking of Washington D.C., the Seller Finance Coalition’s first summer fly-in event is set for July 18^th and 19^th in our Nation’s Capital. This is an opportunity to hear from industry leaders as well as Congressional legislators on the latest on regulatory relief. I want to invite you to join us at this important event. For all the registration details visit http://www.sellerfinancecoalition.org/summer-flyin/

Confirmed speakers include: U.S. Representatives Bobby Rush (D-IL), Roger Williams (R-TX), Henry Cuellar (D-TX), Scott Tipton (R-CO), Tom Emmer (R-MN) and U.S. Senator Mike Rounds (R-SD). We are in the process of finalizing more speaker appearances including representatives from the Trump Administration.

The General Session starts at 3:00pm on Tuesday, July 18^th in the U.S. Capitol Building and runs through 5:00pm on Wednesday, July 19^th and includes meetings with your Congressional Representative and their staff on Capitol Hill in support of H.R. 1360 The Seller Finance Enhancement Act.

This is a coalition fundraising effort so each participant needs to contribute a minimum of $1,000. It’s a very limited event – only 50 participants max. Your support will have a tremendous impact on not just our efforts, but on each of you who attends.

Getting Dodd-Frank out of seller financing is doable with where we are today, the Bill is currently moving out of the Financial Services Committee in Congress. We just need more bandwidth from a few folks, both in terms of contributions but also your industry influence.

Let’s Make Seller Financing Great Again!

Bob Repass
Managing Director

Stay up to Speed with Eddie

The Selling Cycle for Winning over Single Note Sellers

by Eddie Speed

You’re not good at the art of selling if you don’t learn the art of engaging.

As I’ve written about already, there are basically two categories of seller carried notes you can target in your note business:

• People with one note
• People with whole portfolios of notes

I’ve been telling you about why I started putting more emphasis on finding people with entire portfolios of notes. But I never abandoned the people with only one note.

These people with one note might post a nice testimonial about working with me, but they aren’t likely to bring me repeat business with more notes down the road, and probably can’t refer me to friends with notes to sell. Even so, I’m happy to talk to them because the note they have is often a good quality note. There’s more potential per-note profit than when dealing with portfolio sellers. It’s the same reason why a real estate investor looks at the one house someone has to sell – it might be a really good house.

What I want to explain today is that you have to talk to people with one note differently than how you talk to portfolio sellers. I learned this, like most things, the hard way. When I started at around 20, I tried a lot of approaches I thought were clever but got me nowhere. My journey to learning how to sell was more like “Lewis and Clark” than “GPS.”

I’ve learned to talk like a note buyer, not a note quoter. What’s the difference? Anybody can learn to use a calculator to quote terms and numbers. That doesn’t mean the person on the other end is saying yes. You can come up with the value to quote a note in less than a minute. But technical skills don’t close deals. I’ve seen great technical guys who couldn’t even close a door, much less a deal. If you’re using a bunch of business jargon they don’t understand, then you’re only talking to yourself.

The seller wants to know how much you’ll pay for their note, and they usually want you to answer their question in about 15 seconds. It’s sort of like if they want to sell a car, but don’t want to take the time to tell you what year it was made, how many miles it has, or how many wrecks it’s been in.

You must develop the skills to slow down the conversation. This is not trickery. It’s essential. You can’t give the note a value until you learn a few things. And there are things you have to do to prepare them to hear your evaluation. They have to first like you and trust you before you give them the bad news. The bad news is coming. It’s called the price.

To them, it’s not logical why you estimate their 100K note is only worth 75K. If you deliver that bad news before establishing your foundation of trust, don’t expect to close the deal.

When you want somebody to trust you, the worst thing you can do is tell them, “Trust me.” When you keep telling a person how honest you are, they’ll start wondering, “Why does this guy have to keep telling me how honest he is?”

As you slow the conversation down, find some common ground. Engage with them on other things in their life. This is the social aspect of the business that is often ignored by the note quoters. I’ve seen dozens of calculator-ninjas with zero people skills.

I take every potential single note customer through what I call it my Selling Cycle, and it boils down to these three simple steps:

1. Like
2. Respect
3. Logic and Reason

LIKE: If the person doesn’t first like you, you won’t get them to respect you. And if they don’t respect you, they won’t listen to your logic and reason.

The average person that owns a note is 65 years old, not 35. So find commonality. Take some time to get to know the person and take an interest in what they’re interested in. They may be very sophisticated and knowledgeable in their particular field, but not when it comes to notes. You’re interested in notes, but they may be more interested in tomato plants. Or fishing. Or their favorite team making a run for the Super Bowl. This may sound corny, but this simple conversational exchange can get them to like you. So if you’re a Dallas Cowboys fan, don’t trash talk their Philadelphia Eagles! Adjust your conversation to fit the person – are they a college professor or a watermelon farmer?

There are two kinds of people in this world: “Here I am!” people, and “There you are!” people. Learn to become a “There you are!” person. Some of the best note buyers are not the life of the party, but you don’t have to be. Show genuine interest in what the note owner is interested in instead of just talking about yourself. This will make you go up on their “like meter,” which paves the way to getting them to respect you.

RESPECT: To gain the respect of your potential note seller, they have to believe that you know what you’re talking about, which means you have to explain the complicated variables of evaluating their note in a way they can easily understand.

To be able to evaluate their note, you have to learn as much as you can about it. You have to ask some probing questions without coming across as nosy or invasive. You’ll need to separate the assumptions from the facts, and it can help people if you talk about the issues in third person so they don’t feel like you’re putting them on the spot. If you’ve gotten them to like you, they’re a lot more likely to open up. You’ll need to tactfully ask:

• Is the property insured?
• Are documents needed?
• Are taxes due?

For some questions, it’s best to keep the questions open ended. Such as:

• How do you know the taxes have been paid?
• What do you know about the person making the payments?

Another way to gain respect is to always be on time. If you say you’ll be there at 2:30, don’t show up at 3:00 or 2:45. Staying on schedule is one way you keep your word. It’s a subliminal trust factor. And like you’ve heard before: Faithful in little things, faithful in big things. If they can’t trust you to keep your appointment, why would they trust you to evaluate their note?

LOGIC AND REASON: The confused mind always says no. Politicians get elected based on how clearly they can address the voters.

Telling a note owner why their 100K note is discounted to 75K doesn’t sound logical, and if you can’t explain it in a way they can understand they’re likely to tell you to take a hike. There are complicated ways to explain this, or simple ways. Here’s a very logical story I’ve used many times to explain a complicated issue so anyone can understand it:

You have a note payable over the next 25 years, and payments are a thousand a month. Payments due in the first year of a note are more valuable than the payments due in the last 10 years. Here’s why. Go to Walmart. Get a cart. Ask how many carts can you fill up with a thousand dollars? They’ll say maybe four or five. Then I ask how many carts would a thousand dollars have filled up ten years ago? They might say six or seven. Then I ask how many carts it would fill up ten years in the future? They might say three or four. What about 25 years from now? Maybe one or two, who knows? That’s an easy way to explain the complicated aspect of evaluating a note. If I can see they understand then I know I have a better chance of closing this deal. If they still don’t trust me, or think I’m trying to cheat them, then I’ll only be able to close the deal if they’re really desperate.

If someone is on the fence, one of my favorite questions is: “What happens if you do nothing?” This always makes them think and if I can keep their mental wheels turning there’s still a chance I can close the deal.

But when I can’t close the deal, rather than take no for an answer I make sure to create a situation that leads to the next conversation. I’ll say something like, “Once you check the answer on the taxes, let’s talk again. How about next Tuesday at 2:30?”

As you can see, this Selling Cycle is not brain surgery, but it can make all the difference in closing a deal, so I want you to benefit from my experience. I’ve trained people with very technical personalities how to buy notes, and non-technical personalities how to buy notes, but I had to fine-tune what I taught depending on their personality. Just think of it as you and the seller taking a walk together one step at a time down a road – an acceptance road. You know where you want to end up, but you don’t get to the destination in one step.

Keep on keepin’on,

Eddie

The Trading Corner:

Affordability Challenges to Homeownership

By Kevin Shortle

As home sales have cooled, it seems that “affordability” has become a concern and focus for many institutions, consultants and real estate companies.

On June 9^th, Lawrence Yun, Chief Economist for the National Association of Realtors, joined Rosen Consulting Group and Berkeley Hass Real Estate to provide information regarding the new white page report from RCG titled Hurdles to Homeownership: Understanding the Barriers.

Adam DeSanctis, of NAR blog, highlights the conclusion to the barriers as:

• Post-foreclosure stress disorder
  • There has been long-lasting psychological changes in financial decision-making for some of the 9 million homeowners who experienced foreclosure and the 8.7 million people who lost their jobs during the Great Recession.
• Mortgage availability 
  • Credit standards have not normalized following the recession.
• Growing burden of student loan debt 
  • Student loan debt makes it extremely difficult to save for a down payment, qualify for a mortgage and afford a mortgage payment, especially in expensive markets.
• Single-family housing affordability 
  • Many markets are experiencing decaying affordability conditions because of soaring home prices and rents and a lack of single-family housing inventory.
• Single-family housing supply shortages 
  • An insufficient level of homebuilding has created a cumulative deficit of nearly 3.7 million new homes over the last eight years.

Yun gave a presentation June 16^th titled Affordability Challenges to Homeownership. The presentation provided informative information about equity, job growth, and overall supply and demand.

Following are some the highlights from Yun’s presentation according to DeSanctis:

• Home equity has doubled since 2009.
• Job creation is far outpacing housing starts.
• Home sales are at a decade high and would be higher if there were more supply.
• There’s a mismatch between what’s for sale and what households can afford.
• Affordability challenges will remain because of low housing supply.
• Home prices up 5.0 percent.

Conclusion

Thinking through the above information should lead one to summarize that lack of supply and financing are holding the market back. On the positive side, more people are working, credit issues are being slowly turned around and people would buy if the terms and prices were affordable.

As a note investor you should recognize this as an opportunity to fill a void in the market place.

Large supplies of homes are sitting vacant. These homes are not on the market for sale but rather are in idle position while the non-performing loan works its way through the system. Once the non-performing loan is acquired and the note holder repossesses the property, putting it on the sales market with seller financing will lead to a quick sale.

Note investors have access to the inventory (supply) and the ability to fill the void (demand) in the market by offering attractive terms to potential buyers.

Kevin Shortle

Dir, of Training and Research

NoteSchool

In the Spotlight

What Software App Could You Not Do Without?

Excel and Twitter are the apps I use most so I guess I could not do without them. – Bob Repass, Managing Director

Google & LastPass – Both are an integral part of my day! – Susan DeLaGarza, Vice President of Operations

I would have to go with Twitter – great for keeping up with the news (politics, sports, world news, etc.) – Ronnie Jewell, Intern

Outlook is the app I couldn’t live without – Ben Haught, Training Instructor

Twitter – Alec Tyler, Social Media Associate

PowerPoint and Camtasia – Kevin Shortle, Director of Training & Research

Google & Google Maps – Linda Risk, Servicing Specialist

Pandora, I listen to a lot of music. Slack & Teamwork are probably most important. Slack makes it easy to communicate with our team working remotely, basically text messaging on your computer. Teamwork helps with project management and team collaboration on projects. – Riley Goff, Marketing & Customer Service Representative

For work I would have to say “I can’t do without” would be excel. Personal life I would have to say YouTube because I use it for videos to show me how to fix stuff.  – Scot Tyler, Acquisitions Manager

Facebook!  How would I keep up with all the happenings of friends and relatives across the country if I didn’t have Facebook??? – Angie Repass, Trade Desk Coordinator

E-Money. When it comes to money management and running your wealth like a profitable business, there is nothing better on the market today to match its powerful application! – Ryan Parson, Director of Investor Relations

PowerPoint.  I love working through it to make our message clearer.  For fun use its iTunes & iBooks. – Joe Varnadore, Director of REIA Relations

Here are my top 5 fav’s: fncalculator.com – free financial calculator, ShackShout – Home or property search site, LastPass – free app password saver, yelp – free app for all business in an area and Zedge – free ringtones, themes and wallpaper…. just for fun – Rachel Suttles, Sales Administration

OneNote is the one app I could not do without – Nathan Cheung, Trade Desk Analyst

HP 10bii Financial Calculator – Kevin Moore, Training Instructor

Capital Markets Update

Wealthy in the United States: Part 3

By Ryan Parson

This is the culmination of our three-part series on the habits of the wealthy. The final installment deals with finding opportunity and adding value, building passive income, co-investing with other families, and treating your portfolio like a business. Enjoy!

 Part 1: Finding Opportunity and Adding Value

Looking for discounted investments? Then don’t look to the stock market. Whatever the price of a stock is on the day you’re looking to buy or sell, the assumption is that the market factors all the relevant information about value of that stock into the current price. In the public stock markets, price almost always reflects value, and ALWAYS reflect the value the market perceives or believes.

By contrast, when it comes to certain private investments, there is a much less comprehensive and sophisticated system for valuing and “pricing” investments that are not frequently transacted, and thus it is possible to acquire assets at attractive discounts that allows the overall value of your portfolio to grow more quickly.

HGTV has popularized a common form of this value-add approach: house flipping. House Flipping is simply acquiring (often at as much as a twenty or thirty percent (20-30%) discount), rehabbing (adding 5-10% in value), and then selling the home for more than acquisition price plus the rehab costs. By identifying an undervalued asset and adding value to it, you’re able to create a significant amount of income or increased net worth.

And this approach isn’t just for real estate…Let’s say you invest in a private offering with a company that provides a proprietary, FDA-approved, technology for easing chronic pain. By investing in that business and its infrastructure, you play an important role in adding value to patients’ lives while adding wealth to your balance sheet.

Takeaway: When growing the value of your portfolio, look for opportunities that give you the ability to add value, and you’ll often find these in the private market.

Part 2: Focusing on Passive Income

Earned income comes from work; passive income is created by exchanging your dollars for more dollars. The hallmark of passive income is that its income that regularly comes in (monthly, quarterly, or annually) based on an investment choice you made at some point in the past.

Part of the process of amassing wealth and keeping it is that you do the heavy lifting once and get paid continuously. When we retire, we hope we’ve accumulated enough wealth to kick off the income we need without having to work for it.  What the wealthy know is that, first, they never really “retire,” and second, it’s good to create passive income sooner than what we normally think of as retirement age…and then continuously add to it…

Examples of passive income, for now and for the future

One way to create passive income now is via investing in a private debt opportunity that has a fixed payment and a long-term payment period. This allows you to enjoy the income by only making the investment selection one time while the income continues to flow from it for many years.

Passive income doesn’t always come in the form of regular payments. Think not only of systematic income but also of other opportunities that allow you to make significant chunks of future income. An example of planting seeds for future harvest could be making a private equity investment in a growing business that has the potential for a large liquidity event in the future, such as some type of public offering.

Takeaway: Seek to create as much passive income as possible now, before retirement, whether via investments that spin off regular payments or those with future upside.

 Part 3: Grow with Those You Know

Going it alone, in business and investing, means that you’re limited in your own available capital, time, and expertise. Partnering and/or co-investing within trusted relationships can help you grow your wealth exponentially because you’re leveraging others’ capital, expertise and investment opportunities.

These relationships aren’t easy to find and develop, so being in an environment with other high net worth and sophisticated investors that are experienced can go a long way in helping grow your wealth via shared ventures.

For example, let’s say you’re a real estate investor who finds that this sector is too expensive at the moment. Investing in real estate in a “frothy” market just doesn’t make sense to you. So what can you do?  How about partnering with another family with expertise and opportunities in, say, the healthcare or energy sector? Co-venturing with this family allows you to get your capital deployed into another sector, and it’s common for the other family to reciprocate as your preferred sector comes around and becomes a little more desirable to acquire, particularly as their sector becomes too frothy for them. Co-investing across market sectors is a great way to avoid yield drag in your preferred sector.

Takeaway: Don’t go it alone. Find and develop trusted relationships, particularly ones that allow you to diversify into private opportunities in other sectors.

Part 4: Mind Your Own Shop

Look at the highest net worth families in the country, and you’ll find that their wealth originates in ownership of some kind of business.  Not everyone wants to run his or her own business, but what I’m suggesting is that you should mind the business of your wealth.

View your wealth like a business and run it as such.

Even if you don’t have direct experience running a business per se, find groups and develop relationships with those who do. I believe that part of the appeal of our Mile Marker Club to its constituent families is that it makes these connections easier to create.

Takeaway: Treat your wealth like a business.

Wrap up

I hope this series on the successful habits and behaviors of the high net worth in this country can provide a guide as you think about your wealth. A big part of success with the accumulation and preservation of wealth involves right action based on right knowledge.

As always, thank you to all of the high net worth families who continue to engage the Mile Marker Club and Heritage Capital USA. We appreciate the opportunity to co-invest alongside you, and we look forward to continuing to work for you to find off-market, multi-sector opportunities to grow our mutual wealth.

Wishing You CONTINUED Success,

Ryan

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