Thoughts from the Desk of Bob Repass…
Honestly, how many of you have heard of the word or know what it means? I came across the word “chillaxification” this spring when I downloaded the latest album Cosmic Hallelujah from one of my favorite artist, country singer Kenny Chesney. One of the tracks on the album called Bucket List written by Brett James and Craig Wiseman tells the story of a guy who finally got so fed-up and worn down by being stressed out all the time that he made the decision to relax and sit back and “order up a six pack of chillaxification!”
Who knew that the act of chilling out or relaxing is called chillaxification? So what is all this about? Angie and I recently went on our summer vacation. We spent 8 wonderful days on Grand Cayman Island.
While down on the island, we celebrated our 35th wedding anniversary and as an added bonus, we had our son Robbie, our daughter-in-law Emma and our daughter Kristin fly down for a couple days during our time there to celebrate with us. Family, food and fun -who could ask for anything more!!
This time away gave us a chance to “unplug” from all the hectic things going on each and every day and just relax and enjoy spending time together. Just think for 8 days the only shoes I put on were a pair of flip flops! Now if that isn’t the definition of chillaxification then what is?
With just four months left in 2017, things are hectic once again. I am so thankful we took the time to recharge and get ready for the ride.
The Trading Corner:
The Impact & Aftermath of Hurricane Harvey
by Bob Repass
As I write this, the disaster along the Gulf Coast due to Hurricane Harvey continues to unfold. Hurricane Harvey is one of the most catastrophic hurricanes to ever hit the United States and its impact will be felt for years to come. Our friends and families in Southeast Texas are struggling due to storm damage and flooding that continues to devastate homes, properties, and entire communities.
Hurricane Harvey hit South Texas as a Category 4 storm, the first major hurricane to make landfall in the U.S. since 2005. In addition to the lives tragically lost, estimates show the damage could total in the tens of billions of dollars, according to a report, RMBS 2.0 Exposure to Hurricane Harvey Affected Counties, released by Kroll Bond Rating Agency.
Currently 58 counties are under Texas’ disaster declaration and an estimated 450,000 victims will ask FEMA for disaster assistance. However, according to CoreLogic, a leading global property information, analytics and data-enabled solutions provider, 52% of residential and commercial properties in the Houston metro are at high or moderate risk of flooding, but are not in a Special Flood Hazard Area as identified by the Federal Emergency Management Agency.
If you or anyone you know was affected by the storm, you can find out about all of the assistance options here: https://www.disasterassistance.gov/
What is and is not covered by insurance is a very confusing issue in times like these. Most likely, unless the homeowner’s policy has an additional endorsement or rider for flood insurance, damages caused by ground water or a flood will not be covered; however an insurance claim still needs to be filed as a denial letter from the insurance carrier specifying what is denied is needed to then open a claim with FEMA. Unfortunately the painstaking process of dealing with insurance claims will continue for months and probably years for some.
Hurricane Harvey Mortgage Relief
Fannie Mae and Freddie Mac announced on August 29th that each of the government-sponsored enterprises is suspending foreclosures and evictions in affected areas. Specifically, each of the GSEs is implementing a 90-day foreclosure sale suspension and a 90-day eviction suspension on borrowers whose homes are located in eligible disaster areas.
HUD, through FHA will also implement a moratorium on foreclosures and forbearances. In addition special new loan programs will help people rebuild or buy another property. It’s currently estimated that 400,000 homeowners have FHA insured loans in the disaster areas. HUD will provide support to homeowners and low-income renters forced from their homes due to Hurricane Harvey. They have redirected millions of dollars to address critical needs such as housing and other services for disaster victims. Details of the programs that are available can be found here: https://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2017/HUDNo_17-068
If you own a real estate note secured by a property in any of the impacted areas, you need to reach out and contact your loan servicing company. They will be fully aware of the necessary protocols in place that must be followed when dealing with the borrowers and properties affected by this natural disaster.
For those of you who are not directly impacted by Hurricane Harvey, I urge you to determine the charity of your choice that you are going to generously give to, it is in times like these that we all need to come together and take care of those in need. Yes the local, state and federal governments will be there to do their part, but we should all step up and help our fellow citizens.
It is moving to witness the outpouring of love and support from surrounding communities in Texas, as well as the entire United States. Americans from states all across our country have traveled great distances to assist victims in any way they can. It also amazes me the number of local law enforcement and health professionals who chose to stay behind and brave the storm in order to help those who were unable to help themselves. Because of individuals like these, many were saved who would not have been otherwise. I will continue to pray for the victims, their families, and all of those who have been displaced from their homes.
IF YOU FOLLOW THE HERD, MOST OF THE GRASS IS ALREADY EATEN
by Eddie Speed
I’ve crisscrossed from one end of the country to the other talking to people in all facets of the real estate industry. The more I traveled the more I came to realize that most people in the business are copycats. They think like copycats because they learned from copycats who just did things the same way somebody else did it.
There’s an old story about a factory next door to a church. For years they never interacted, until the day the foreman of the factory happened to meet the pastor of the church around town. The foreman said, “You don’t know this, but we set our lunch whistle by your church bell.” The pastor said, “That’s funny. We set our church bell by your lunch whistle.” They were both just copying each other, and the same thing happens everywhere in all phases of real estate.
Over the decades I’ve done business with people all over the U.S. People in one region of the country do things the same way they’ve seen the guy down the road do it. In Texas, I’ve seen all the guys selling land tracts with notes at 12.5% interest. But in South Carolina, they were all offering 14%. In Florida, they were all at 8%. Why? Because they were copycats that didn’t realize the value of thinking creatively.
I’ve seen people who had done thousands of transactions, but they did them all just one or two ways. It was like a mechanic who carried a toolbox that only had a hammer and a screwdriver inside because that’s what all the other mechanics had in their toolboxes. Each of these regional players thought that their way of doing it was the only way of doing it. But they were only seeing their little corner of the note world. They were playing Monopoly while looking through a keyhole, so they could only see a couple of squares on the game board. But since I’ve been in the note business a long time and done deals all over the country, it gave me a view of the whole board.
Half of the people I’ve seen who do real estate, if they let me teach them how to have a better view of the whole board they would make drastic tweaks in the way they do things. They’d be a lot more creative and they’d make a lot more money.
Of course, before I could teach people how the note business worked, I had to learn it myself. There was never a rule book, and I never met a single person who said, “Here’s what you’re going to find.” There were specialists who did just one small niche in the note business but knew almost nothing about other areas. But I was involved in every trench. The way I see it, I have the most expensive education in this industry. Not because I have a long list of PhDs, but because I’ve been in school for 37 years. I’ve been learning the note business a long time… and still am! Over the years I’ve had between 12 and 60 employees – lots of these were highly-paid A+ players. Not cheap. And overhead was expensive.
In the 1990s, about 10 of the people that worked for me did nothing but chase portfolios of notes. Not singles – portfolios. Some were on the road traveling, and some in the office dialing the phones. In that era, it took me to a level where we closed a lot of portfolios and become well recognized in the industry. By late 90s I had as good of an understanding of the variety of the people who owned notes as anyone in the business.
As for my typical portfolio client, there was nothing typical about them. They were all unique. I had to evaluate and identify who my customer was on the inside – what made them tick – then I had to figure out whether they had the kind of notes I wanted to get involved with. I worked with land developers, mobile home guys, repo guys, fix & flippers, owner financed home builders, guys selling recreational land tracts, and so on. All of ‘em sold unique real estate, and they weren’t sold traditionally through realtors or financed through a bank. Most dealt with private capital. Everything about these guys was untraditional. That was my customer – my avatar – but he was creative. Some people I came across were not always super reputable, and some took shady shortcuts, so I had to filter them out and stay the heck away so as not to tarnish my own reputation.
One of the most important things I learned was how to understand your customer. If you can’t see things from their point-of-view, you’ve got no way of transitioning them. I had to teach them the advantages of creating better quality notes from the beginning so I’d have a better chance of selling those notes later on. I had to get some sense of understanding of each customer’s thoughts, beliefs, and strategies. I have to know why he knows what he knows and believes what he believes. I have to get into his head to see why he’s doing things a certain way. Then I have to present my case in a way that connects with how he thinks. I’ll only be able to change his mind if I can make it logical, not just because I’m sincere. Ask any pastor and they will assure you that’s true. Nobody will follow your beliefs just because they think you’re sincere. It has to make sense.
I can show every investor some things that will change a piece of their business, and with one third of those investors I could drastically change their entire business. But I have to present it in a way that makes sense to him.
I was doing this all before there was such a thing as NoteSchool, but I was running NoteSchool before I was running NoteSchool! It got frustrating, so I wrote the book! In 2003 Streetwise Seller Financing came out, and it was the first book on creating seller financed notes that most people had ever seen.
If you want to avoid being a copycat, you need to see opportunities before everybody else sees them. So I’ve recently focused with a vengeance on a couple of niches I have known and taught a lot in the past, but I did not focus on it until the last several months. The stars have aligned that make these two niches the ones to focus on at this moment. Why? Because of the huge amount of dry cash (uninvested funds). We’re sitting on more cash today than ever before – retirement cash, also. I feel like the next 5 years in the note business is full of opportunities. What are these 2 niches?
Buying property with seller financing
Seller financing isn’t just for when you’re the seller. You can reverse engineer the financial terms offered by the seller even when you’re the buyer. You can pay the price they want, but create soft terms that work in your favor. I recently did a deal where we bought some undeveloped land and negotiated 0% interest from the seller for 20 years.
Sub 100K properties
This is a niche the banks and mortgage companies aren’t chasing. Since these loans aren’t being financed, it has become a huge underserved market, and they’re desperate for loans. Traditional fix & flip houses above 100K are closer to the top of the market than the bottom. What was a bargain in 2010 probably isn’t today. But by staying below 100K, you have much less competition from other lending sources.
Smart investors don’t wait around to see what everyone else does. They recognize the market voids that aren’t yet on the radar of other investors. They see the opportunity and are rewarded for their insights. (That’s what made Warren Buffet rich.) Once everybody says, “I gotta get in,” the seasoned people are thinking, “I gotta get out.”
Keep on learning,
In the Spotlight
The note industry event of the year NoteExpo 2017 is less than 60 days away. Are you going to be there? Here are just five great reasons not to miss this:
- Keynote Address by Real Estate Investor & Entrepreneur Kent Clothier
- Panel Discussion with top industry experts on:
- Asset Management
- Capital Markets
- Self-Directed IRA Investing
- Exhibit Hall with over 30 vendors and sponsors
- Friday Night Welcome Reception sponsored by FCI Lender Services
- Over 500 attendees to connect & reconnect with – Network, Network, Network!
Capital Markets Update
The Importance of Maintaining a Solid Estate Plan
By Ryan Parson
This month, we’ll consider the importance of correctly titling assets, planning for incapacity, structuring gifts and inheritances appropriately, and properly administering & funding trusts. These steps are essential to take into consideration when establishing and administering an estate plan.
Correctly Titling Assets | Getting them to the Desired Beneficiary/Legatee
Failing to title your assets properly can have disastrous outcomes. For example, jointly held properties between a husband and wife, MAY, BUT WILL NOT AUTOMATICALLY, pass from one spouse to the next upon the first spouse’s death. In order for jointly held properties to pass to the other joint owners, there must be “rights of survivorship” or “rights in the entirety”. Otherwise, the joint ownership is severed at the first death and the tenancy of the deceased passes to WHOMEVER the decedent leaves the asset in the decedent’s will or trust, or if no written devise exists, then whomever the law determines is the devisee gets the asset. All the more reason that proper titling of assets, AND HAVING A WILL OR TRUST, is of paramount importance.
Correctly Titling Assets | Avoiding Probate
Titling assets properly and in accordance with your family’s wishes and desires can also help to avoid probate upon your death. For many high net worth families, this is particularly appropriate when you hold and own real estate outside of your home state. It becomes very helpful titling the assets properly to avoid a multiple probate situation.
Correctly Titling Assets | Minimizing Estate Taxes
Another advantage of titling assets properly is to minimize estate taxes; by doing so, you can take advantage of both state and federal estate tax exemptions that may be available to you, while providing benefits and reduced costs to your desired beneficiaries.
Planning for Incapacity
When we think about estate planning, we typically think about what happens at death; however, estate planning also involves everything about your assets during your lifetime. One thing we all need to plan for that can deal a serious blow to our wealth is incapacity to any key stakeholder in our plan. Be it your spouse, your child, or your fiduciary, having a contingency plan is critical for you to carry out your estate goals.
Should incapacity strike you or your spouse, having a durable Power of Attorney (“POA”) is critical to assure that someone else can make the appropriate financial decisions for you. Additionally, having a health care or medical POA is ultimately necessary in the event you cannot articulate your intentions about your health care. Having a living will as part of your estate plan allows you to outline your choices regarding your medical care, ongoing care, or end of life decisions that may become necessary.
Without the appropriate documents in place, all your hard work could go awry, not because of anyone’s bad intentions, but because not being prepared leaves you exposed. Much like running a business, standard operating procedures in your estate plan are necessary.
Structuring Gifts and Inheritances Appropriately
Regardless of the size of your estate… what it is today or what you project it to be 20 years from now, we all have beneficiaries in our lives to whom we wish to provide additional support. Each of those beneficiaries is different with different needs. Therefore, how you structure an inheritance plan at the end of your life is very important. Structuring your inheritance plan needs to list not only who will receive your assets and when that will occur, but also the manner in which they will receive your assets.
In some circumstances, “gifting” using different forms of trusts, may be more beneficial rather than an outright gift of an asset.
This is most commonly used if you have minor children or grandchildren when you want their gifts of inheritance to be held until they reach a certain age. Or, if you have a special needs beneficiary – those assets would have specific instructions on addressing medical care, for example.
Additional use of trusts is important to provide further levels of protection from creditors, a divorce, or situations where beneficiaries may want to disclaim their inheritances. Whatever your desire for gift and inheritance strategies, these also require a well-stated plan that should be executed when the time comes.
While there continues to be a significant amount of talk about changing or repealing the Estate Tax, ultimately you want your assets to go to those you have designated in the most efficient manner possible.
Properly Administering & Funding Trusts
Something we discuss frequently is life insurance. While in most cases life insurance is purchased to provide liquidity when it is most needed, the proper ownership of it is also necessary to avoid an unexpected estate tax consequence that could occur.
One example to consider is using an irrevocable life insurance trust.
This has the effect of providing the necessary liquidity without being added back to your estate. However, like any trusts that are established for specific planning purposes, it’s not just establishing the trust that is important. Most families do get the necessary trust established, but challenges exist where funding is concerned as well as re-titling assets into that trust.
Establishing the trust but failing to fund it is like going out and buying an umbrella, and leaving the umbrella at home when you’re out walking in the rain. Once again, outlining and executing your estate plan along with the necessary strategies is the only way your desires and wishes will be carried out.
With whatever trust(s) you may currently have in your estate plan, have you properly titled and transferred assets to it/them? If you’re not sure or if your circumstances have changed since you established it/them, now may be a good time to conduct a review of the trust(s).
Keep in mind that 94% of family wealth is gone by the end of the third generation. Having an adequately outlined estate plan is a significant measure that can be taken to avoid the destruction of the wealth you have been so diligent to create. Regularly reviewing your estate plan is a key strategy to not only maintaining your wealth but allowing it to thrive for generations to come.
Quote of the Month
“If I have seen further than others, it is by standing upon the shoulders of giants.” – Sir Isaac Newton