Thoughts from the Desk of Bob Repass…
The pandemic has not only reshaped our daily lives, but it also created an unprecedented shape to the stock, housing, and real estate markets as well as the note industry. Lost in all that has been Covid-19, I bet you forgot 2020 was a leap year. Little did we know on February 29, 2020 what the next nine plus months would look like.
Now it is time to turn the page on 2020. (Did I just hear a giant “exhale?”). Are you prepared to tackle the opportunities that lie ahead? Let’s look at 4 steps you should take as we LEAP from 2020 into the new year. Learn, Engage, Apply and Produce.
Learn: Whether you have been in the note business 30+ years like I have or are just getting started, I have found that to be successful you must always be learning. Stay informed on what is going on in the industry. By the way, congratulations you have taken the first step by reading The Buyline! Today there are an unlimited number of resources available to you. Newsletters, blogs, YouTube videos, webinars, and podcasts. It is easy to get overwhelmed by it all. I suggest you create a routine and “subscribe” to a variety of formats that best fit your lifestyle.
Engage: You cannot survive in the note business by being alone. It is imperative that you engage with likeminded entrepreneurs and investors as well as industry experts and service providers. This allows you to share best practices and develop relationships that you can leverage as you grow your business. One of my favorite scriptures is “As iron sharpens iron, so one person sharpens another.” Proverbs 27:17 which is a reminder that engaging with each other makes us all stronger and better.
Apply: I have met a lot of people that get in the note business, they study and learn all about it. They go to conferences, meet people and make connections, the problem is they never apply what the learn. There is a level of fear that they cannot seem to get over. Sometimes it’s what we refer to as “paralysis of analysis” they just never get to the point of pulling the trigger on a deal, other times it’s the “shiny object” syndrome. Before they can apply what they have learned in the note business they are already off to the next exciting possibility. I can tell you from experience once you get your feet wet, there is nothing more exciting and satisfying than being in the note business. Which brings me to my final step…
Produce: If you have taken the time to learn the business, engage with other people in the business and apply what you have learned it will produce the desired results you want. Whether it is generating income now or creating generational wealth or BOTH!
I challenge you to identify several “nuggets” you have discovered in 2020, whether it’s ideas you have learned, relationships you can engage with, or strategies that you can apply and LEAP into 2021 and produce better results than you can imagine!
As we wrap up 2020, Angie and I want to wish all of you a very Merry Christmas and Happy Holiday season! Remember we are all Stronger Together, Better Together…
Stay up to Speed with Eddie
WHAT HAPPENS IF YOU DO NOTHING?
by Eddie Speed
The real estate world in 2020 has been as crazy as it’s ever been. That’s why record numbers of real estate investors have been taking our training to get information on what to do next.
But information without action is useless. It’s like knowing all the numbers on a winning lottery ticket ahead of time but not buying one.
There are lots of variables in every black swan market, but there’s one thing you can know for certain—there will always be a huge transfer of wealth. Some people will gain while others lose.
So as you plot your investment strategy and your next moves, what happens if you do nothing? Even though I don’t have a crystal ball, I can look in my trusty rearview mirror and tell you exactly what will happen. This market’s going to give you a stompin’! You’ll be in the group that loses wealth instead of the group that gains.
We’ve been teaching people how to be on the receiving end of the wealth transfer, and how to take safeguards to avoid losing the wealth you already have. I’ve said many times, the best time to double your net worth is during a black swan market when other investors are biting their nails.
What used to be normal isn’t normal anymore. If you keep doing things the same way you’ve done them for the last several years, you could meet your financial waterloo.
When will the craziness end? I wish I knew. And I won’t be the guy making predictions about when it will all end. Here’s what I do know: The longer it goes, the worse the economic effects will be.
There’s a huge snowball rolling down the hill, and it’s getting bigger and bigger. The government has been handing out money to employers to keep people employed, and to people who have lost their jobs. But that is going to stop at some point. Millions of homeowners are behind on their mortgage payments. And millions of renters are behind on rent, which means the mailbox money flowing to hobbyist landlords is drying up. They’re going to get fed up with the headaches of landlording and sell their properties to invest in other ways. The upsurge of shadow inventory caused by defaults and foreclosures is sure to hit eventually. And when it hits, you need to be prepared.
Lots of real estate investors think things are fine because prices in many regions haven’t dropped. The low inventory is a “surface problem” and they’re not looking below the surface. They don’t see problems on the outside because they haven’t looked at the x-rays to see what’s on the inside.
They blissfully think we’ve all dodged a bullet, but that day of reckoning is eventually going to get here.
So far, prices have remained fairly stable in most regions of the country because inventory has been limited. Why is it limited? For two main reasons. One, because foreclosures and evictions have been postponed much longer than normal. And two, because homeowners have been hesitant to put their homes on the market. They’re nervous about opening their homes for potential buyers who might have coronavirus and will be touching every light switch and doorknob. And I don’t blame them!
Eventually, this ever-enlarging snowball will hit the market. That’s when prices will take a dive and lots of investors will never know what hit ‘em.
So, if you decide to do something instead of nothing, what do you do? The first thing you need to do is to look at problems as opportunities.
To protect the wealth you already have, consider unloading your properties with seller financed notes before the value drops. With prices that are still stable and plenty of investors who think everything is fine, you should be able to find qualified buyers. When the property values take a hit, your notes will still maintain their full value.
You also need to make data-driven decisions. As investors, there’s no excuse to bury your head in the sand and stay ignorant. We’re blessed with far more industry data to guide us today than we had 20 years ago. For that we can thank the hedge funds. The hedge fund managers are data fanatics who don’t even blow their nose unless the data says OK. They only invest in A-grade properties, while hobbyist landlords own properties that are much further down the alphabet.
As inventory floods the market, you need to know how to buy on terms instead of price. Stop thinking about what you pay and focus on when you pay. You may be surprised to learn that 60% of hobbyist landlords paid cash for their rental properties. They’ll be highly motivated to sell, and you can buy the seller’s equity today with tomorrow’s dollars if you know how to architect deals in your favor.
And as ol’ Doc Holliday would say, that’s your huckleberry.
Capital Markets Update
INVESTOR ENGAGEMENT AND FINANCIAL INDEPENDENCE
By: Ryan Parson
Investor engagement levels play a big role in your ability to remain financially independent throughout inevitable changes in the market cycle and pass that wealth onto future generations. While your income might be passive, your approach to wealth management should be active. Financial independence is having all of the income you need from sources that do not require your personal service and time that more than comfortably cover your lifestyle. Most importantly, financial independence is when your cash flow and lifestyle living can sustain different market cycles — both reasonably anticipated (typical market fluctuations) and more dramatic ‘black swan’ type events (a global pandemic).
Oftentimes, investors build their wealth in a good market period and think they have the wealth accumulation to live a financially independent life. They get lulled into a false sense of security that their wealth will remain and don’t proactively plan for market fluctuations. This is why a plan with a strong focus on wealth management to sustain your wealth over an extremely long period of time and various market circumstances by engaging the right techniques and strategies allows investors to thrive.
A concern for investors today is increasing levels of financial, commercial, and consumer debt in the United States. The government’s debt has skyrocketed as a result of the pandemic, and many commercial businesses and individual consumers are feeling the stress of increased debt, as well. When you have a debt cycle like we’re in right now, something’s going to break, which can impact high net worth investors and threaten your ability to remain financially independent. The last ten years have been a time of tremendous financial growth for many of us, but it is negative market fluctuations that really test your investor engagement and wealth plans.
All of our portfolios at some level will be facing the effects of market fluctuations due to low interest rates, real estate management issues and temporary covid regulations around foreclosures and evictions, and more limited credit financing from traditional financial institutions. If you’re truly financially independent, can your passive income in your investment portfolio handle these and other market changes? If the answer is no or you’re not sure, you might not be proactively managing your wealth the way you need to in order to maintain your financial independence. As markets fluctuate, many investors may realize that they don’t have the proper guardrails around their wealth.
Proactive Investor Engagement
A changing market means changing investor demands and engagement. Less than 96% of investors can sustain a million dollar plus net worth portfolio to pass on to the next generation, let alone two or three generations. Realizing that many of you have the aspiration to pass some portion of your wealth to family and future generations, which means we need to be able to see and understand where market shifts are occurring and what the post-pandemic marketplace looks like. We utilize and work with alternative and creative wealth strategy and planning, so that when one approach or strategy is adversely affected by market conditions, other strategies are still prospering, and beyond just investing.
Components of Wealth Management
There are three components that contribute to your proactive wealth management:
- Deal Management: How are you proactively finding new and desired investments to enhance your portfolio, per your objectives and desired outcomes?
- Asset Management: Who is overseeing your assets and portfolio? Are you actively managing your wealth yourself? Do you have trusted assistance from a wealth manager so you play a more passive role in day-to-day management of those chosen investments?
- Financial Management: How are you strategically implementing new investments, techniques and regularly reviewing established investments and objectives to maintain a holistic wealth plan?
I’ve had the privilege of working with high net worth investors for 20 years and seeing first-hand how family wealth has been passed down over different generations. Using these components of proactive wealth management and preparing for market downturns alongside the market successes has enabled so many of our Mile Marker Club members to reach and sustain financial independence in the present and for generations to come.
Reach out to us, by CLICKING HERE, to learn about our unique approaches to partnering with our members to be more actively engaged with their wealth and ensuring their financial independence.
To your financial independence,
Continue to be safe and well!
The Trading Corner
By: Scot Tyler
Last month we talked about setting seller expectations as to how the process of purchasing their seller financed note would go from pricing to closing. What we never seem to talk about and what is necessary for a note to be an attractive investment for an investor is the seller duties “before” the note purchase. So many times, I will speak with a note seller and ask questions about their loan and am shocked how unorganized they are at tracking or doing their “duty” as the noteholder.
One of the first questions I will ask a note holder is where is the original note? Answers are typically all over the place. I think it is in my filing cabinet in the garage or it might be with my attorney or in the safety deposit box down at the bank? 90% of the time the seller has to “go find” the original note. First and foremost, it is the responsibility of the noteholder to keep the original note in a secure location. The note is the actual asset the investor is purchasing and without it causes issues, delays, and headaches. Like I have said in previous articles, when you tell the seller without the original note your unable to fund the deal i.e. send them the money they somehow find it. Imagine that! Bottomline is the seller needs to know exactly where their original documents are located.
Many of the seller financed noteholders service their loans themselves. They do not hire a 3rd party servicer to collect the payments. Part of an investors due diligence is reviewing how the borrower has been paying the seller. Collecting the monthly payments is a huge responsibility of the noteholder. Collecting, documenting, and keeping an accurate up-to-date payment history is vital. Each seller should make copies of the monthly payments, copies of the deposit slips (front & back) and bank statements showing those payments being deposited into the sellers account each month. The payment history should reflect due date, paid date, amount paid and current balance after each payment.
Not only do most note sellers not use a 3rd party servicer to collect their payments, in most scenarios they do not collect for escrow (property taxes & insurance) each month. In these cases, the responsibility falls on the note seller to track and verify the annual property taxes have been paid on the property. Most counties have this information on-line and if not, the seller must call the county direct for confirmation the property taxes have been paid and are not delinquent. Many times we find out during due diligence that the property taxes are delinquent and 99.9% of the time the seller had no idea.
Just like property taxes, the homeowner insurance needs to be tracked. The seller must verify the property insurance is current and has been renewed whether the policy is quarterly, semi-annual, or annual. I cannot count the files that I have received with expired insurance declaration pages. When asked about it the seller says they just assumed the borrowers renewed. As the old saying goes “trust but verify”. I would hate to see a property fire and seller lose their collateral due to not tracking the hazard insurance.
Speaking of collateral, it is the seller’s responsibility to make sure the borrower is taking care of the property. Sellers need to occasionally drive-by the property to make sure their collateral is still standing. Just a figure of speech but seriously the seller should know how the property looks, are there any noticeable damages or issues that can be seen from the street. Is the borrower taking care of the property? In some instances, the sellers are no longer near the property, so they are unable to drive-by. When this is the case, it is important that the seller have a family member, realtor or someone drive-by the property and send pictures. Does the borrower have a pride of ownership or does it look like it has been abandoned? This is suggested even if the borrower is current on the account. The seller still needs to know what his collateral looks like on a regular basis.
It is important that a seller maintain these responsibilities when acting as a noteholder. Remember this; the note he holds is one of the most valuable assets he owns.
Here is a note that came across our trade desk that we recently funded. If you’re interested in purchasing it, email me at: firstname.lastname@example.org
Performing Loan – SFR O/o on 1.81 acres
BPO $180,000.00 – April 2020
$170,000 sales price with zero down payment
$170,000 / 5.0% / $1,344.35 for 180 months
30 made / 150 left
Current UPB $149,701.77
Until next month.