Thoughts from the Desk of Bob Repass…
I have always been a big advocate of staying connected to what is going on in our industry as well as all around us on what can impact our lives, businesses and investments. Keeping your finger on the pulse by keeping up with the news, subscribing to newsletters and podcasts, as well as being a part of groups on social media such as Facebook and LinkedIn.
I can tell you in the last 30 days I have seen people reacting to things that just are not 100% accurate. While it is crucial, we prepare for what might be coming down the road, now more than ever it is important that people are sharing Facts not Fear about what is being done.
In that spirit, I put together a summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was passed into law last week. This historic fiscal stimulus package will provide an economic boost for small businesses, workers and families.
I broke it down into 3 areas: (1) what it means to us as real estate and note investors, (2) what it means to us as small business owners who are the lifeblood of our economy and finally (3) what it means to us as consumers as well as our borrowers, co-workers and employees of companies we rely on each and every day.
What Does this Mean for Real Estate & Note Investors?
- The legislation also has relief for individuals worried about losing their home or being evicted from their apartment. The law, along with guidance from federal housing regulators, gives temporary housing stability as we restart the economy and get back to full capacity.
- Specifically, the CARES Act prohibits foreclosures on any federally backed mortgages for 60-days; allows borrowers affected by Coronavirus to shift any missed payments to the end of their mortgage, with no added penalties or interest, for 180 days; and halts evictions for renters in properties with federally-backed mortgages for 120 days. NOTE: This only pertains to federally backed loans. But that is not what our borrowers will and have heard. Contact your servicers and make sure you are on the same page as to how REAL hardships will be addressed.
- Consumers who are economically impacted by the virus should not worry about damage to their credit score due to late payments or financial forbearance because of a loan accommodation agreed to with their lenders. The legislation requires consumer credit scores to be maintained as “current,” or the status reported prior to the accommodation, if a lender agrees to make accommodations for a consumer impacted by Coronavirus.
What Does this Mean for Small Businesses?
Small businesses across the country are shuttered due to unprecedented social distancing measures and directives from federal, state and local governments to close non-essential operations. This legislation will help businesses stay afloat, retain their workforce and come out strong on the other end of the crisis. Specifically, the legislation creates a small business loan program, facilitated by a business’s existing bank, that will provide short-term relief as businesses weather this crisis.
- The small business loan provisions now in law will provide federally guaranteed loans for eight weeks of assistance to small businesses, certain nonprofits, sole proprietors, independent contractors and self-employed workers.
- Businesses with 500 employees or fewer, and certain franchisee businesses, are eligible for loans of 2.5x monthly payroll, up to $10mm.
- The amount of the loan used for payroll costs, rent, utilities and other obligations over an eight-week period will be forgiven.
- To incentivize businesses to retain their workers, the amount of loan forgiveness will be reduced proportionally according to any reduction in workforce.
- The law also expands access to the Small Business Administration Express Loan program, which includes an expedited application process to get capital to businesses as soon as possible.
- Small businesses should work directly with their lenders on the terms, conditions and options for relief.
What Does this Mean for Consumers?
- With the CARES Act, Americans will receive direct cash assistance. In order to receive this federal money, the individual must have a valid Social Security number –meaning that those who receive Social Security benefits are also eligible for this assistance. Individuals who are in the country illegally are not.
- The full credit amount is $1,200 for individuals/$2,400 for couples who file their taxes jointly with income at or below $75,000($112,500 for heads of household), and couples with income at or below $150,000. And if you have children, you will receive an additional $500 per child.
- Your tax rebate amount will be reducedby$5 for each $100 your income exceeds the above income limits. That means for those without children, an individual will not receive any rebate if their income exceeds $99,000; and the same is true for couples with more than $198,000 of income.
- The rebate does not count as taxable income.
Unemployment Insurance: The CARES Act takes the extra step to assist those who have not normally been eligible for regular unemployment insurance:
- Creates a new Pandemic Unemployment Assistance program to help those not traditionally eligible for UI, such as the self-employed and independent contractors, like gig workers and Uber drivers, as well as those who are unable to work or telework as a result of the coronavirus public health emergency.
- Provides funding to reimburse nonprofits and government entities that are not part of the state unemployment system for 50% of the costs they incur through December 31, 2020 to pay unemployment benefits.
- Provides an additional $600/week payment to each UI or Pandemic Unemployment Assistance recipient for 4 months beginning April 1through July 31, 2020.
- Provides funding for the 1st week of unemployment for states to waive the traditional “waiting week” before benefits begin.
- Provides an additional 13 weeks of unemployment to help those who remain unemployed after weeks of state unemployment are exhausted.
- Provides states with temporary, limited flexibility to hire temporary staff or re-hire former staff to quickly process unemployment claims.
- Provides funding to states to help them maintain short-time compensation programs to prevent layoffs, as well as expand these work sharing programs in the future.
Loosens Rules on Retirement Accounts
- Required minimum distributions (RMDs) from retirement accounts will be suspended for 2020 so seniors are not required to cash out. Additionally, the legislation waives the 10% penalty on coronavirus-related early distributions from 401(k)s and IRAs for 2020
I know that is a lot of information to digest. All of us at NoteSchool, Colonial Funding Group and Colonial Capital Management are committed to keeping you informed so that we can all overcome the uncertainty and fear so that we will be in a position to see the opportunities that will be there for us.
Stay home, stay safe and wash your hands…
Stay up to Speed with Eddie
Don’t Let This Virus Steal Your Mind or Your Creativity
by Eddie Speed
Even if you don’t have the coronavirus, it’s affecting all of us. It’s messing with our heads!
I’ve gotten more “What if” questions in the last two weeks than I normally get in a year. Everybody’s biting their nails (which isn’t sanitary) and wondering what’s going to happen—and if I knew I’d be the first to tell you. It’s a different world today than it was just a month ago, and a month from now it could be very different from what it is now. Things are happening at lightning speed that are beyond our control.
But as every sailor knows; even though you can’t control the wind you can adjust your sails.
It’s not a time to panic just because the wind changes. You can ask “What if” until you’re blue in the face without getting answers to all your questions. So how’s a person supposed to stay sane?
My good friend Pat Precourt (of www.patrickprecourt.com ) recommends a simple activity we should all do to help us stay calm and focused. Draw two columns on a sheet of paper. On the left side, list the things you can control, and on the right side list the things you can’t control. Then focus on the things you can control. You’ll be amazed how this helps reduce your anxiety over the things you can’t control.
Pat also advises people to, “Think about what you’re thinking about.” Each of us can choose to be in charge of your day. You have the power to decide how you’ll respond to whatever comes along. You’re never at the mercy of the twists and turns a day can bring (unless you choose to be). We might not have much certainty, but we can be rich in “emotional currency.”
FOCUS ON THE OPPORTUNITY, NOT THE PROBLEM
I can’t say that any of us have lived through anything quite like what we’re going through at the moment. But during my forty years in the note business, I’ve lived through some serious downturns in 1980, 1986, 1998, 2008, and now 2020. (It’s safe to say that the interruption of cash flow for a couple of months is not the same as 2008.) During those downturns I’ve made a lot of money in distressed situations by staying nimble and watching for the opportunities hidden within the problems. As a note investor, you’ll either take advantage of the situation or the situation will take advantage of you.
Having said that, I don’t mean you should take advantage of people who are hurting. I encourage you to be extra lenient on people who have lost their jobs because of COVID19. I don’t think any attorney would take an eviction case in the next thirty days. But there will be note owners who will want to sell at a big discount, and there will be burned out landlords who will want to unload properties. There are 18 million more rental properties today than in 2010. Nine out of ten landlords own five properties or less, so it’s a safe bet that a whole lot of rental properties will hit the market in the near future.
To start preparing your potential passive investors for what’s around the corner, now’s the time to nurture them instead of doing a hard sell. They’ll want to continue to invest in real estate but without any headaches moving forward.
Fortunately, we’ve recently launched the perfect solution to this problem just in the nick of time. It’s a program that connects active note investors with burned out landlords who want to become passive investors. The construction of this market funnel is in production right now.
For many years, we’ve been teaching people how to buy and sell nonperforming notes, plus other strategies to use during a market downturn. Now is a great time to pull those old skills off the shelf.
BE THE ANCHOR FOR THOSE AROUND YOU
Your family, friends, and coworkers are scared. Now is the time to be their anchor to help them withstand the storm. People are watching their life savings dwindle by the minute. People are scared, and they’re looking for stability and leadership. A good leader is the one who faces the elephant in the room instead of running away from it. Our families, businesses, and communities need leaders who maintain composure and optimism.
People are freaking out, but life goes on and we’re still buying and selling notes.
There are probably people in your life who seem determined to make you as worried and agitated as they are. So you might need to do some “social distancing” from them so you don’t catch their worry syndrome.
Worry is more contagious than any virus. But fortunately, so is confidence!
Capital Markets Update
Top Takeaways from the February Symposium
By: Ryan Parson
The past few months, especially in the timeframe from February to March 2020, have been interesting given the significant amount of volatility we’ve seen in the traditional stock markets. It’s been a remarkable bull run. This has also been reflected in the large rise in real estate values over the last decade and as a result, we’ve moved into this arena of needing to be more focused on preserving our wealth. This was the core focus of many discussions we had at the most recent Mile Marker Club Symposium.
Financial Planning and Knowing Your Why
One of the big areas that we talked about at the recent Symposium was the purpose of planning and planning to your specifications. This means knowing your “why.” Why have you worked so hard to accumulate your wealth? Why are you working so hard to preserve your wealth?
The scary statistic is that less than 5 percent of Americans remain millionaires throughout their retirement, whether it’s the result of making bad deals, investments going south, or a lack of financial planning. Some people might think that once they break through that millionaire threshold, they’ve achieved financial freedom. However, becoming a millionaire is not the hard part. The hard part is staying financially free.
If you choose to go the route of placing the direction of your wealth into the hands of a traditional financial planner, you’ll find that they tend to plan your financial life to their specifications. Not yours. It’s a cookie-cutter approach and the reality is that there’s no one-size-fits-all financial plan.
Wealth-Building for Future Generations
Throughout our three days together at the Symposium, we talked at length about the process of planning to be independently wealthy, especially for high net worth individuals who have alternative investments in their portfolio and are bold enough to forgo the traditional financial planning industry for a more customized approach. What’s important to remember here is that most people are not simply accumulating wealth for themselves in the here and now – most people are thinking about how their wealth will be used two generations down the line. We heavily explored the significance of wealth and understanding how to use passive income as a way to create opportunities that will propel our children’s dreams.
This led us to discuss identifying trends in your portfolio and determining when to make transitions with various types of assets or alternative asset classes to secure greater predictability of your passive income.
Incorporating Technology into Your Financial Planning
We also shared some of the key technologies that high net worth investors need to have at their fingertips so that they can stay focused on the big picture of their wealth goals. Today, investors live in the internet age when an abundance of technological devices have been designed to make our lives easier, but there are very few applications that understand the high net worth family ($3-$30 million of net worth) that is:
- Not abdicating control to Wall Street
- Taking full control of their wealth
- Has a significant amount of their wealth in alternative investments
- Working with a community of like-minded investors
While it might seem like technology is widely available, real technology to help the investor really project and protect their wealth to sustain it for multiple generations is absolutely crucial today.
We’re incredibly excited about the next Symposium taking place the last weekend of June in Western Colorado. It’s a truly beautiful time of the year to be in the Rocky Mountains! We’ll be expanding even further upon these ideas, especially as we continue to see volatility in both the traditional and alternative investment marketplace.
Looking forward to seeing you there!
In the Spotlight
Now is Not the Time to be Silent
By: Martha Speed
In times like these it is imperative to communicate, in fact over-communicate, particularly with your investors that have entrusted you with their capital. Here is an example of one of my letters of communication I recently used.
I hope this email finds you and your family well. As cities are imposing new recommendations to protect everyone, our personal and business environments are changing. In anticipation of this, Colonial and affiliate entities have prepared to work remotely to monitor accounts and carry out business as usual if necessary.
Colonial has built a sound business and a team fully capable of monitoring all loans under management with technological capabilities and to continue business while taking safety precautions. We have heard from many businesses, vendors and servicers we work with that have also taken action for employees to work remotely.
As companies adjust for safety concerns, some borrowers may be economically affected and we will be working with them on a case by case basis. In addition, as we learn more about government assistance, we can help borrowers qualify and apply for funds available depending on the circumstances. We will keep you posted on individual accounts if any issues arise.
The Colonial team thanks you for your support and understanding during this challenging time. Please follow CDC guidelines to keep you and your families safe and in good health.
The Trading Corner
By: Scot Tyler
As I’m writing this we’re experiencing a pandemic that is sweeping our cities, country and world. We’re facing different challenges during this trying period and all of our stress levels have risen way above normal to say the least. We want to lessen that stress as much as possible in our personal life, as well as in our business life.
First and foremost is ensuring your family/personal life comes first. As many of us have lived through crisis before “this soon will pass” just like the last crisis did. That’s not to say it will be easy, painless or not difficult because it will be but there’s no doubt we’ll come through this on the other side. It’s important to stay positive, keep your family safe and do what’s in your power to contribute.
Once you’re family is in place let’s tackle what we can do with the “business stress”. Here a few helpful tips.
Start each day with a list of tasks you need/want to accomplish so you have a plan on how you want to handle them. List them as a priority from 1-10. As you complete a task mark it off your list as this will help motivate you to complete another. With all the distractions currently going on I’ve found that working tasks keeps me focused on business and not listening to the outside noise I have almost no control over.
Make sure you’re not getting pulled in different directions. If you’re working on a task and another issue comes up, evaluate where on the priority list does it land? Does it need to be moved into the list for today or is it a less pressing issue that can go on the list for later that same day or tomorrow. Once your day is complete and there’s still a task or two not completed, start another task list for the following day placing the two uncompleted tasks as top priority. Doing this simple task list will hopefully help you eliminate some of the daily stress and help you rest easier knowing you’ve accomplished pressing items that day. The more stress we can eliminate the better off we’ll all be!
Here’s a loan that came across our trade desk that we recently funded. If you’re interested in purchasing it, email me at [email protected]
Performing Note – SFR-O/O
$82,000 sale with $2,500 down
$79,500 / 5.50% / $755.39/month for 144 months
29 made / 1150 left
Current UPB $67,402.03
Until next month.
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