Thoughts from the Desk of Bob Repass…
I guess it all started back in the early 2000’s when, although our family has been Dallas Cowboys season ticket holders since 1999, my daughter, Kristin, has never liked the Cowboys and declared she was a Tom Brady “fan.” So much so, that when we got a puppy in 2006, we named her Brady. So, I guess you can say, I am also a big Tom Brady fan!
In full transparency, I have continued to put off writing this column. When Brady first announced last year that he was leaving the New England Patriots after 20 seasons to go play for the Tampa Bay Buccaneers, I thought about writing this for the April edition of The Buyline. Then right before the 2020 NFL season started and he had convinced his former teammate Rob Gronkowski to join him in Tampa, I had this teed up for the September issue.
I thought about using it in December, but Tampa Bay lost their final two games in November bringing their record to 7-5 and I had second thoughts. The Bucs won their last four games of the year to finish 11-5 and qualify for the playoffs, so in January, I was ready to roll this out. But then I thought what if…
What if Brady led the Bucs to the Super Bowl? They were a wildcard team and most likely would have to beat Drew Brees and the Saints and Aaron Rodgers and the Packers, but I had waited this long and either way it was turning out to be a great story. Unbelievably, Brady led Tampa to 3 playoff wins and was going to the Super Bowl!
Last month’s Buyline came out on Thursday February 4th, Super Bowl LVI was scheduled for Sunday, February 7th so I decided I had waited this long, so I might as well wait to see if he really could win his 7th Super Bowl by defeating the favored Kansas City Chiefs.
Well, the wait paid off! Brady led his team to the Super Bowl Championship rolling the Chiefs 31-9. Tom Brady has won 7 Super Bowls which is more than any team has: his former team, the Patriots, have won 6 as have the Pittsburgh Steelers.
Tom Brady somehow is one of those love him or hate him athletes, but he is the GOAT (greatest of all-time) hands down in my opinion.
By now I am sure you are saying, all this is great Bob, but what does this have to do with the note business? I’m glad you asked. The genesis of this column came after reading an article that came out around the time Brady announced he was moving on to Tampa Bay.
ESPN spoke to several of Brady’s former teammates for tips on how best to work with him. As I read that story, I thought how does that relate to improving our note business. I make it a practice to see how I can apply tips and strategies I read from any source, to make our note business more successful. Here are the 6 tips Brady’s former Patriot teammates had for his new teammates.
- Don’t get caught “Brady-watching.” In the note business think of it this way, stop worrying about and comparing yourself to others in the industry, especially those that have more experience and have been successful for a period of time. Be true to your risk tolerance, your financial modeling, and your goals.
- Rookies need thick skin. When you are new to the business, you will make mistakes. You will find it harder at times that you thought it would be. Keep in mind why you decided to be in this business and stay determined and persevere.
- He needs honest feedback. Nobody likes to get smoke blown up their “you know what.” It is important that you surround yourself with mentors and peers that you can confide in, will hold you accountable and will feel comfortable providing you with the constructive feedback you need to be successful. That is one, if not THE, main benefit of being a member of our NoteSchool community.
- He demands perfection from teammates and himself. A word of caution on this one, as you are building your team whether it is hiring employees or outsourcing to VA’s or vendors, you must realize no one is more invested in the success of your business than you are. Have a high bar, expect excellence from all but understand that may not always happen, which leads us to #5.
- He knows when to pick teammates up. It is important to recognize when your team is struggling. It is your job to be an encourager! Send a thank you note to someone who goes the extra mile or send a gift card to a vendor that goes above and beyond. I can tell you it does make a difference.
- Watch out when he gets too fired up. On the other hand, there will be times when the stress gets to everyone. Recognize this and know when to back off and let things cool down. Nothing should ever be personal. Situations can definitely be frustrating, but always respect the others involved. That is the key to developing and maintaining long-lasting relationships.
I will sum it up like this, a true winner seeks continual growth. To paraphrase Proverbs 10:4 “The process of the diligent makes one successful.”
Stay up to Speed with Eddie
Nobody Has Seen A Market So Good And So Bad At The Same Time
by Eddie Speed
For a long time now, I’ve been saying there’s a crash coming in slow motion. But lots of other people in the real estate industry are enjoying the positive aspects of today’s market and living high on the hog.
Nobody has ever seen a market so good and so bad at the same time. This black swan has a split personality!
Speaking of birds, am I like Chicken Little telling everyone the sky is falling when there’s really nothing to worry about? To answer that question, let’s take a deep dive into the data. (Your view of tomorrow is shaped by how deep you look into the data today.)
The top layer of the data onion looks good. But the more layers you peel off the smellier it gets, and the more you’ll want to cry. On the surface, things are looking good; home prices are up, days on the market are low, mortgage rates are affordable, and more than half of all houses for sale receive multiple offers. That’s why so many real estate investors have a smile on their face. But in the deeper layers of data, the current state of the industry shows some major red flags. And the deeper you look, the future of the industry looks downright scary.
I’m not wired to be a data geek, so I surround myself with people who are. I’ve brought in highly experienced data analysts to Colonial Funding Group who are all over the data like white on rice.
Here are some of the warning signs the data is telling us:
- 17 million households are delinquent on their rent or mortgage payment.
- 2.1 million households are 90 days or more delinquent on their mortgage.
- 5.1% of all mortgages are in forbearance.
- Because loan servicers have to continue to pay taxes and insurance on mortgages that aren’t being paid, they’re shelling out $4.5 billion a month more than they’re taking in.
- The government’s moratorium on foreclosures and evictions is now set to expire June 30, 2021.
- The default rate for rent payments owed to hobbyist landlords (who own one to five rental properties and don’t tend to thoroughly vet their tenants) is double the default rate of professional landlords.
- Refi applications are now down 72% because most of the people with perfect credit have already refinanced.
- Commercial real estate values have dropped, while vacancy rates have increased sharply thanks to companies needing less space as employees work from home with no immediate plans to return to the office.
That’s ugly stuff!
I explain these statistics in detail, plus lots more information in this recent episode of NoteSchoolTV: CLICK HERE
I’m not about to circle a day on the calendar and proclaim: “This is when the Day of Reckoning will arrive.” But I know it’s coming. And like a snowball rolling down the mountain, the longer it takes to get here the bigger impact it’ll make.
Why is it taking so long for the crash to get here? It’s because the government has been propping up the real estate industry. They’ve been printing truckloads of money to subsidize GSE (Government Sponsored Enterprise) lenders (such as Fannie Mae), while blocking foreclosures and evictions to struggling homeowners and tenants. The financial situation is being stretched to the limit, but eventually it’s going to snap. How much longer can they keep it up? It sounds like 2008!
If you only listen to people who haven’t taken a deep look into the data, then you probably think things are fine. I have a very strong desire to warn people and help them get ready for what’s coming (even though some people are looking at me like I’m crazy). We constantly make adjustments to our NoteSchool curriculum based on what we see coming down the pike to help prepare our students for how to be ready.
In spite of everything I’ve said so far about the future of the industry, this is a great time to boost your net worth! You need to look for the opportunity zones and avoid the danger zones. Plus, when you understand all the tools in the creative financing toolbox, you’ll know how to structure deals with terms that are favorable to you. You’ll know how to offer today’s inflated asking price but pay with tomorrow’s shrunken dollars. (By the way, earlier in this article I mentioned how badly the hobbyist landlords are getting slammed. Hobbyist landlords quickly become burnt out landlords—and they are prime candidates to become passive investors who can fund your note deals.)
Can you, as a real estate investor, survive and thrive when the crash comes? The short answer is yes, but here’s the longer answer. As you know, I live in the Dallas/Fort Worth area so you wouldn’t be shocked if I told you I’m a Dallas Cowboy’s fan and have been for a long time. Back when Jimmy Johnson was the head coach, he was being interviewed on a local radio show just before their appearance in the Super Bowl. He was asked if he thought they could win, and I’ll never forget his response: “You can put this headline in 4-inch letters. WE WILL WIN!”
And they did. I truly believe that same level of confidence is available to any investor in any market condition who understands how to architect their deals with creative financing.
Capital Markets Update
By: Ryan Parson
We’re going to be talking about turbulence — specifically related to turbulence in the marketplace and the ensuing turbulence that causes disruption in our financial plans with our wealth and our financial independence.
2020 and 2021 have been a turbulent time. Much of that is due to the pandemic — both in our personal lives as well as our financial lives and the impact that COVID has had on domestic and foreign markets across the globe. Investment distributions have been very erratic and inconsistent for both traditional and alternative investments. We’ve seen evidence of this with interest rates and the fluctuations in 401k and IRA accounts many of our members have experienced over the past year.
Despite the turbulence of the market, many investors have seen the value of their portfolios continue to go up and up. This trend can be seen with the Dow Jones and S&P 500, as well. Which has many investors and advisors wondering when the turbulence of the current market will drop. We’re sitting at the edge of a waterfall, and as everyone who rode out the 2008 financial crisis will know, the market can’t go up indefinitely.
Understanding where your portfolio is and how resilient your investments are to turbulent market conditions is one of the keys to riding out a fluctuating market with your financial freedom intact. Instead of looking upwards at the continual rise of a long run many of us have been experiencing both in traditional and alternative investments, particularly in the real estate realm, as high net worth investors we need to take a look down below and consider the supports we have in place.
It’s a counterintuitive way of thinking — that when the market is on the upswing you should be taking a look at your financial situation to ensure that your wealth boat won’t go tumbling over the edge of the waterfall in the event of a market downturn.
Life and asset shifts are an expected occurrence, although there are more common triggers than market volatility in the midst of a global pandemic. Typically, there are three different types of triggers that encourage investors to take stock of their wealth situation:
- Life events – Life events include big changes in your day-to-day financial life like divorce, having a child, getting married, or a major or unexpected health event.
- Investment events – Investment events are big shifts in your portfolio, including a deal gone awry, a sudden investment value change, or income change.
- Financial event – A financial event includes selling a business or retiring from your position in corporate America.
When one of these events occurs, it encourages us as investors to take stock, as the way you position your wealth going forward may look different than the way you’ve been managing over the last decade or so. And whether you’re taking a look in response to turbulent market behavior or a triggering event, one of the first places to start truly understanding your wealth is with your net worth.
In turbulent market conditions, it’s important to be organized — to know exactly what comprises your net worth, and how much you have. Depending on how you have it constructed, and quite frankly, the more of it you have, the more of a cushion you’ll have in a volatile market.
That idea may not seem terribly earth-shattering.
But there are reasons to know the extent of your net worth. Many high net worth investors don’t know as precisely as we could which tends to make us a little more conservative in our investment selection because we don’t know how resilient our net worth actually is.
When you really know the resilience of your net worth, you can be more opportunistic about your investing decisions. And in a turbulent market, knowing you have a resilient cushion is a way to smooth out some of the turbulence your portfolio may be experiencing. A well-steered boat can make it over choppy waters.
We can still afford to take appropriate investing risks, even in a turbulent marketplace. And those investments can continue to be a compass towards financial freedom in this market cycle, the next, and future market cycles after that.
Last month, I talked in-depth about creating a net worth that can be the boat sailing you towards smoother waters in a turbulent market. We spoke about liquidity and understanding how well your net worth can perform. We touched on how strategic liquidity can influence your ability to jump at new investment opportunities — discounted opportunities that only show up for a short period of time, which is typical in turbulent market cycles. I spoke about repurposing and what that looks like in real estate and in every investment industry. It starts with a dynamic financial plan. A net worth you know and nurture.
I want to hear from you. Tell me if your portfolio is experiencing any turbulence, positive or negative. How buoyant and dynamic is your financial plan? Let’s talk about how well you can navigate and capitalize on turbulent market waters.
To your financial independence,
The Trading Corner
Too Much to Ask?
By: Scot Tyler
We are all aware that the current mortgage rates are hovering around record lows and just how busy the mortgage originators are with refinances or cash out refinances. Recently I spoke to a loan officer and he mentioned being just swamped with new applications and loan requests due to these historical rates. So, what did I do? I completed a loan application for a refinance on my personal home and engaged in the refinancing process. Yippee!
I am sure many of you have taken advantage of these low rates, also refinanced and if you did you are fully aware of the loan documentation requested from you to enter this process. My loan officer requested copies of driver license/social security card, last 2 pay stubs, last 2 years tax returns, W-2’s, P&L (my wife is self-employed), 2 to 3 months bank statements for personal, business and savings accounts, statements of assets (retirement accounts, stocks, bonds). That was just the first items requested. Man, what a list. This mortgage company will know everything in the world about my financial situation and my ability to repay the debt.
Entering into this refinancing process got me to thinking about what we (note buyers) request when we are considering purchasing a loan that is already in place. A typical seller financed file is a skeleton compared to a conventional loan. Normally we receive a copy of the note, mortgage or deed of trust, closing statement, proof of homeowner’s insurance, and proof of payments made such as copies of bank statements proving buyer payments being deposits into the seller’s bank account. We will also pull a credit report to review the buyers outstanding debt and how they are paying everyone else. We will order a drive-by BPO on the subject property and order title to insure there are no liens, judgements, delinquent taxes, and our seller is the owner of the note. Other than that, this is basically all we get to decide on whether the borrower has the ability to repay and if we want to purchase the loan.
What if I requested all of the conventional documentation that a refinance company asks for from a note seller? Do you think the seller would be receptive? Probably not since in most cases the seller does not obtain the information before seller financing. I have now decided to work this into my documentation talk off. Moving forward I am going to be sure to either educate or remind my sellers that the documentation is very minimal compared to a refinance and is what we are requesting “Too Much to Ask?” Based upon my experience in processing a seller financed note purchase and the recent refinance experience I would say definitely not. Next time a seller is giving you grief about the documentation you requested please remind them that we could be asking for much more!
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 – Singlewide Mobile Home/Land Owner Occupied
BPO $73,000.00 – April 2020
$65,000 sales price with $7,000 down payment
$58,000 / 8.0% / $500.00 for 224 months
57 made / 167 left
Current UPB $50,172.47
Until next month.