Thoughts from the Desk of Bob Repass…

In my opinion, there is nothing more intense in sports than sudden death overtime in a deciding win or go home game in the Stanley Cup playoffs in hockey. A few things come close, like kicking the winning field goal down 2 with 3 seconds left to win the Super Bowl, or sinking a 6- foot putt to win the Masters Golf tournament.

Recently Angie and I attended Game 6 of the first round match-up in the Stanley Cup Play-offs between the Nashville Predators and the Dallas Stars. For the record, we are obviously Stars fans! The Stars led the series 3 games to 2 meaning if they won game 6, they clinched the series and advanced to round 2; however if they lost they would be forced to travel to Nashville for game 7.

The Stars fell behind 1-0 but battled back to tie it at 1-1 in the 3^rd quarter to force overtime. Talk about intense. The fans stood most of the 3^rd period and all of overtime as both teams had chances to win. During a break in overtime, Angie turned to me and said “this is crazy, I feel like I’ve been playing it’s so intense!”

Well with just 2:58 left in the first overtime, the Stars scored and the place went nuts! Now it’s on to the second round.

The intensity was matched by both team’s desire and perseverance. Neither team was going to give up. As an entrepreneur, if your attitude is to never, ever give up, you stand a much better chance of succeeding.

“You need a lot of passion for what you’re doing because it is so hard. Without passion, any rational person would give up.” – Steve Jobs

Game 6 was a reminder of the passion and drive it takes every day to be successful in the note business. Sometimes it is easy to fall into a routine and just be “satisfied” with whatever happens.

There will be ups and downs but staying focused on driving towards the best outcome on whatever deal you are working on takes the intensity of a winner. I encourage you to keep that in mind!

Let’s Go Stars!

Bob Repass
Managing Director

Stay up to Speed with Eddie

You Can Pay The Retail Price, If You Get Wholesale Terms

by Eddie Speed

Mike Tyson said, “Everybody’s got a plan, until they get punched in the mouth.” Real estate investors used to be able to make a lowball offer on a house, fix it up, then flip it for a big profit. They were buying at a wholesale price then selling at a retail price. And in a buyer’s market, lots of people got rich with that simple formula.

But if that’s your plan to succeed in 2019, you just got punched in the mouth. See all those little white things scattered on the floor? Those are your teeth.

Buying a property at a wholesale price and selling at a retail price is the way things used to be, but it ain’t the way things are now. Today’s sellers are not only tossing all the lowball offers into the trash, they’re tossing anything that doesn’t match their full asking price into the trash. Investors are having to make offers on twenty different properties for every one deal that goes through.

That’s a 5% success rate, and a 95% failure rate. City landfills are overflowing with real estate offers that never became deals!

Investors and house flippers call me all the time to complain about a lack of inventory even though they’ve doubled their marketing costs to get leads. They start with the moany-groany and the whiney-piney because they can’t find inventory at the low, wholesale prices they want to pay. But I tell them it’s not a lack of inventory – it’s a lack of people saying, “Yes, I’ll accept the offer you put on the table because it’s better than the other nineteen I got.”

If you could triple that 5% success rate, then you’d be really successful. You might still close one deal out of twenty the old traditional way, but you could close two more deals on top of that my way. You need to learn the art of architecting a seller financed deal on a property where you buy at a retail price, but structured with wholesale terms that are heavily in your favor as the buyer.

Yes, you can still make money when you pay the retail price… IF you know how to negotiate the wholesale terms! Some years it’s a buyer’s market, and some years it’s a seller’s market, but every year is a negotiator’s market! There are all kinds of ways to carve it up and still close a killer deal. For example, instead of getting a one-time check in fee income, you could get your fee income plus twenty or thirty years of checks on top of that.

When you have the training and knowledge to structure the financing to your advantage, and how to properly serve up your offer to the seller, you’ll have a huge leg up on the nineteen other investors whose offers end up in the landfill because the buyer said yes to yours.

I hope you’ve started planning for 2019, setting goals, and mapping out your strategy to grow your business. As you make your plans, remember this. One of the most important investments many investors overlook is the priority of investing in yourself. You need to keep learning and growing because the market keeps changing. Change is only scary to people who have stopped learning! A changing market will actually benefit the investor who keeps learning because he or she will be smarter than the investor still using tactics from three years ago.

Dogs graduate from their training, but investors never do!

Take me for example; I’m an old dog that’s still learning new tricks. After four decades and 40,000+ notes, I still learn as much as I can. As I plan for 2019, I’ll be attending several real estate events, plus four to five high-level masterminds with top people in real estate, where I’m the “Note Guy.” They invite me because creative financing is my thing and I show them how to bring creativity into their deals. But I learn just as much from them in their areas of expertise as they learn from me in mine, which is what makes masterminds great. You learn solutions to problems you never knew you had! Here at NoteSchool, we sponsor lots of masterminds throughout the year for investors to cross pollinate and learn from each other’s successes and failures.

Life is full of twists, turns, and surprises, plus a whole lot of punches aimed right at your face. There’s no way to predict how many times life will try to punch you in the mouth in 2019, but the smarter you are the more you learn how to bob and weave.

I can tell you from experience, the punch you dodge feels a lot better than the punch that lands.

Capital Markets Update

Warren Buffett’s Letter to Shareholders

By: Ryan Parson

Applying His Words to Our Own Personal Investment Philosophies

Earlier this year, in February to be exact, Warren Buffett, the legendary chairman and CEO of Berkshire Hathaway, sent out his “2018 Letter to Shareholders.” As in the past (he’s been publishing the letter since 1965), the letter was greeted with much fanfare by Berkshire investors, members of the media, as well as the broader investment community, who each await the Oracle of Omaha’s sage words of wisdom with high levels of anticipation.

Buffet revealed that his storied career as an investor began all the way back in 1942 at the ripe age of eleven when he purchased three shares of Cities Service preferred stock with the $114.75 he “had been accumulating at age six.” “I had become a capitalist,” he said, “and it felt good.”

Now, at 88, with 77 years of investment experience and unrivaled successes under his belt since that first purchase, Buffet sounds as excited as ever at the prospect of what the future holds for his massive assemblage of 66 operating companies and investments in 40-plus other companies.

As you might expect, his thirteen-page letter makes for compelling reading and is chock full of practical advice, quotes, and sterling insights on topics ranging from the new accounting rules (which negatively impacted Berkshire’s bottom line in 2018), share buybacks, acquisition goals, and the company’s succession plans given that Buffet’s Vice Chairman, Charlie Munger, is now 95.

I highly recommend that you take the opportunity to read it in full if time allows, but, for now, here are a few takeaways from the letter which summarize key components of Buffett’s own investment philosophy. As it applies to those of you operating in the high net worth investment space, I see great benefit in looking at Buffett’s mind at work as we consider how to develop our own philosophies of investment.

1. Gauging a Company’s Worth through Book Value is a Thing of the Past:

Buffett usually opens his letter with a discussion of how Berkshire’s per-share book value has altered. Book value is the essential measure of a company’s worth and helps us determine if a stock is worth buying. “The fact is that the annual change in Berkshire’s book value–which makes its farewell appearance on page 2–is a metric that has lost the relevance it once had.”

Buffett explains that book value was more relevant in determining a company’s worth when the stock market was comprised of industrial and manufacturing entities, but that’s no longer the case. Therefore, he says, “It’s now time to abandon that practice.”

Rather, according to Buffett, stock price is a more accurate gauge of how a business performs. In the case of Berkshire’s operating companies, their value is more accurately captured in stock price as opposed to book value since accounting policy dictates that they are reported at a lower value. Plus, book value does not take into consideration intangible assets or Intellectual Property. In other words, know the whole story, know the true value, a defining principle of Buffett’s ideology.

2. Repurchasing Shares:

According to Buffett, “Blindly buying an over-priced stock is value-destructive, a fact lost on many promotional or ever-optimistic CEOs.” In the fourth quarter of 2018, Berkshire bought back $417.5 million in stock at an average cost of $295,954 and those shares are now valued at $7K higher per share. This is in keeping with Buffett’s statement that, “We rejoice when management employs some of its earnings to increase ownership’s percentage.”

3. Berkshire’s Whole is Greater than the Parts:

As mentioned above, Berkshire currently has 66 operating companies and investments in 47 others with a stock portfolio of approximately $200 billion.

Buffett refers to his companies as “trees,” varying in size and scope from “twigs to redwoods,” and groups them into five sections “…each of which can be appraised, with reasonable accuracy, in its entirety.” However, he is well aware that some of these businesses, likely, won’t be around ten years from now.

As such, he says, “Berkshire’s value is maximized by being a single entity. This arrangement allows us to seamlessly and objectively allocate major amounts of capital, eliminate enterprise risk, avoid insularity, fund assets at exceptionally low cost, occasionally take advantage of tax efficiencies and minimize overhead. At Berkshire, the whole is greater – considerably greater – than the sum of the parts.”

4. Pearls for Thought — Some of Buffett’s Best Quotes:

“Berkshire will forever remain a financial fortress. In managing, I will make mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities. But I will never risk getting caught short of cash.”

• This quote echoes one of Buffett’s oft-quoted pearl of wisdom: “Rule 1: Don’t lose money; Rule 2: Don’t forget rule 1.” I, too, am a big believer in this notion.

“Certain shareholders will simply decide it’s time for them or their families to become net consumers rather than continuing to build capital. Charlie (95) and I (88) have no current interest in joining that group. Perhaps we will become big spenders in our old age.”

• Remaining disciplined and committed to your goals and investment philosophy is key here as Buffett suggests.

“2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster.”

• As Buffett suggests here, it’s important to continue to have passion for what you do and to be prepared when the right opportunity presents itself. His philosophy has always been based around investing in companies and businesses that he understands. He’s built an empire around 66 of these so-called “right opportunities,” and you can believe he’s prepared for the next one that comes along.

Wrap-Up

If you were asked to define your personal investment philosophy, how would you answer?

Moreover, who do you depend on to help you make decisions in the investment space? Although we can’t all work with Warren Buffett, we can strive to emulate elements of his best practices in our own investment decisions. If you’re currently in a quandary over where to invest or how to craft your own investment philosophy, let me know what we can do to help.

Just like Warren Buffett, I see it as my duty to share the knowledge and wisdom I’ve acquired over the years working in the alternative investment space. Armed with the right guidance and principles, we can be prepared both in times of market volatility and economic growth.

Best,
Ryan Parson

The Trading Corner

What Are Your Note Investing Needs (and were the Rolling Stones Note Investors)?

By: Tracy Z Rewey

When asked what kind of notes we like to buy it’s easy to rattle off a list of wants:

• Good Equity/LTV
• Low ITV
• High Rate
• High Yield
• Large Discount
• Good Payment History
• Nice Looking Property

But rarely does a note meet all our wants.

That makes pricing and analysis a constant balancing of the scales to get what we need – a profitable investment with sufficient exit strategies to make us whole in the event of non-payment.

When a note has a high LTV (Loan to Value) we can lower the ITV (Investment to Value) to reduce risk.

If a note has a low interest rate the yield might be lower but the discount can be higher. That makes for a nice upside in the event of early payoff.

When a note has a high interest rate and good equity the discount might be lower, making it a great option for a Self-Directed Retirement account.

When you look through the 3 NotesDirect case studies this month you’ll see the balancing of wants to reach the needs of a note investor.

Beloit Wisconsin Performing – Sold

BPO $51,700 March 2019

UPB $21,908 @ 10%, $251.76/mo, 156 months

Purchase Price $19,055 (87% of UPB)

Discount $2,853

LTV 42%

ITV 37%

Anticipated Yield 12.84%

Self-Directed IRA Purchase

Atlanta Georgia Performing – Sold

BPO $62,000 June 2018

UPB $70,770 @ 4%, $318.34/mo, 406 months

Purchase Price $40,550 (57% of UPB)

Discount $30,220

LTV 114%

ITV 65%

Anticipated Yield 8.96%

Investment Trust Purchase

Mission Texas Performing – Sold

BPO $110,000 Nov 2018

UPB $38,441 @ 8.9%, $443.81/mo, 140 months

Purchase Price $33,050 (86% of UPB)

Discount $5,391

LTV 35%

ITV 30%

Anticipated Yield 12.15%

Self-Directed IRA Purchase

Rarely does a note have it all but a lot of the time, we can adapt!

Or in the words of the Rolling Stones…

“You Can’t Always Get What You Want. But, if you try sometimes you just might find
you get what you need.”

The rumor is the song lyrics started over a cherry coke, but in my mind it could have been a note!

Happy Note Investing,

Tracy Z Rewey

In The Spotlight

The Trade Desk at Colonial Funding Group

By: Scot Tyler

Did you know that Colonial Funding Group, LLC purchases first position performing individual notes as well as portfolio of loans in all 50 states from note flippers (brokers), investors and individual sellers? Colonial has been principal buyer of real-estate secured notes for over 30 years. In fact, 2019 has been a great start for our trade desk closing 94 loans for a total unpaid balance of $5,339,195.00. Our note flippers have had a great start as well with CFG paying out $83,300.00 in fees for assets we have funded.

Scot Tyler is our Acquisitions Manager at Colonial Funding Group and runs our trade desk which purchases singles deals on single family residences, mobile home and land, land only, mixed use and commercial properties nationwide. Scot has been buying seller financed notes for over 25 years. Believe me, he has seen it all. If you’re a note flipper or an investor looking for a reliable source to liquidate a note be sure you reach out to our trade desk.

To submit a note for pricing you can email [email protected] or call Scot directly at (800) 969-1200 X102

Quote of the Month

“Those who dream by day are cognizant of many things which escape those who dream only by night.” – Edgar Allan Poe

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