Thoughts from the Desk of
Last month we hit the one-year mark of when our country, and for all things considered, the world went on lockdown due to the Covid-19 pandemic. This past year brought many changes in the world and in so many people’s lives.
Right before the country locked down, I was in Washington D.C. working the Hill for the Seller Finance Coalition and visiting my daughter Kristin. Before my flight home to Dallas, I found out that Angie’s sister had lost her years-long battle with cancer and I needed to change my plans and go to Raleigh, NC to be with Angie and her family for the funeral.
The day before the funeral we got a notice from American Airlines that our flight back to Dallas two days later had been cancelled. Things were starting to shut down. Fortunately, we were able to make it on a flight later the next day after the funeral service. The airport was eerily empty that day as we took one of the last flights out of Raleigh-Durham Airport.
Less than a week later, the state of Texas was shutdown and we had to transition our whole team to work remotely from home and at that time we had no idea how long that would be. Our circumstances were definitely changing quickly.
Even when we can’t change our circumstances, we can change our mindset. We are made to believe that the more we do and go and move, the more productive we are, but the pandemic proved that’s not always the case. Always being on the move doesn’t necessarily mean you are moving in the right (positive) direction.
I am happy to say that we pivoted our companies, NoteSchool and Colonial Funding Group, and adapted to working remotely and conducting events virtually to successes exceeding our expectations, not that we had any idea what to expect!
Looking back on that time, we attribute a lot of our success to the fact that we developed and embraced a culture of collaboration. Collaboration is the sharing of power and resources. It is leveraging relationships by sharing stories, resources and strategies. Throughout the year we continued to develop a stronger mission-driven collaborative spirit. I believe we continue to build on this sense of community and cooperation.
“Collaboration is multiplication.” – John Maxwell
Thankfully, today the situation is much improved. The economy is rebounding and jobs are returning. We are all looking forward to being able to gather again in person in the months ahead. Meaningful social connections i.e. networking are crucial, even more so in crisis. The pandemic didn’t reveal that relationships matter; it just put it in sharper focus.
The pandemic has taught us all not to take anything for granted. We owe a debt of gratitude to our fellow citizens on the front line, first responders, from health care workers to vaccine researchers, from those who kept grocery stores open to those who taught their children at home. The world still has a lot of healing to do, but if we stick together with love and kindness, we will move forward stronger than before.
Stay up to Speed with Eddie
What’s The Seller’s Pain?
by Eddie Speed
Seth Choate came to his first NoteSchool class only a year and half ago. He knew he needed to take his business to the next level.
And boy, has he taken it to the next level!
His first class was in Sacramento, California. As I looked out at the crowd I remember seeing him to my left, seated on the front row. He came because his wholesale flipping business had gotten very competitive, his marketing dollars weren’t paying off like they used to, and he was only closing about one or two deals out of twenty. He knew he needed to add creative financing to his skill set to stay competitive.
He liked what he learned, so he continued taking more classes and spending about six hours every week on our vast NoteSchool platform, watching videos and webinars that cover every facet of creative financing.
He now architects deals like a seasoned pro, and I want to tell you about one of those “trash can deals” that paid off big time.
THE STORY STARTS WITH A DEAL SAVED FROM THE TRASH CAN
Seth had his eye on a residential property in Oakdale, California, which is not far from Modesto where he lives with his family. The seller was asking 265K and Seth made a lowball cash offer of 180K. She told him to go pound sand. Most real estate investors would have folded their tents and moved on. But Seth wisely kept talking to her with several conversations—what I call the “talk off.” By getting to know the seller, he discovered her pain points. He learned what he would have to do to relieve her pain in order to close the deal.
Their conversations revealed that she was a burnt out landlord. Her last three tenants in the property had been bad experiences. She wanted to wash her hands of landlording but still needed monthly income to replace her rent checks.
Seth knew this made her a prime candidate for seller financing. She was firm on her 265K selling price, but she was asking for 5% interest, with payments of $1,500 a month; plus a big balloon payment ten years down the road.
Seth said OK to her asking price, but countered with $1,300 a month at 3% interest. Again he was told to go pound sand. So he called his pals at NoteSchool.
We identified that her pain point was not the interest rate but the monthly payment. She saw $1,500 a month as her retirement money. So if $1,500 was what she ultimately wanted we suggested he give her the 265K, and agree to pay her the $1,500 a month, but the note would be at 0%. Plus, instead of a big balloon payment after ten years, the monthly payments would bump up to $2,500 until payoff. The seller’s two most important boxes were checked off; sales price and monthly payment. So, she said OK and they inked the deal. By negotiating these terms at the 0% interest Seth saved $105,000 in debt service over the life of the loan.
Is a long conversation worth 105K? Well, does a one-legged duck swim in a circle? Absolutely!
As with any well-structured seller financed deal, Seth paid for her equity over time. As I often say, “It’s not the price you pay, it’s when you pay the price.”
NOW FOR THE BEST PART OF THE STORY
After buying the property, Seth quickly started the process to flip it. He placed a notice on Facebook Marketplace: “Owner financing available on residential property to well-qualified buyer with large down payment.”
His ad quickly caught the attention of a penalty box buyer. The guy had great income as a contractor but had no social security number. He was a resident alien with an ITIN (Individual Taxpayer Identification Number). If this guy could have gotten approved for a loan from a traditional lender—and that’s a big if—he would have paid interest out the wazoo.
The buyer agreed to a purchase price of $295K with $25K down. The remaining $270K would be financed at 8.62% with monthly payments of $2,100. Every month, Seth pays out $1,500 but gets $2,100 coming in, so he’s up $600 a month. Best of all, in 15 years (which is after Seth’s loan to the original seller will be paid off), Seth will get a balloon payment (which is completely compliant with Dodd Frank) of $211K!
This was a win-win-win for the seller, Seth and the buyer and as a result the buyer has spread the word within his community about the deal he got from Seth. Now Seth has a pipeline of buyers and needs more houses.
SETH IS A YOUNG GUY WHO THINKS LIKE AN OLD GUY
Most young guys have transactional income fever. They want their money now. But Seth showed how you can architect a deal to make money now, plus lots more later—which is how a seasoned investor thinks. He understands the importance of building long term wealth.
Overall, Seth stands to make $344,645 on the deal. Funny thing is, he only would have made a fraction of that if the seller had accepted his original lowball cash offer.
When Seth gets his final check for $211K, he’ll only be 46 but I’ll be 75. He’s promised to send me on a nice vacation as a thank you!
If you’d like to see the entire interview we did with Seth on NoteSchool TV, it’s well worth the 27 minutes you’ll invest to watch. You’ll learn even more details of this awesome deal, so just click here.
Capital Markets Update
Plan Your Finances as You Would Your Exercise
By: Ryan Parson
You Exercise To Benefit From Your Sweat Equity In The Future, Right?
Waking up early in the dark mornings of winter to exercise comes hard. Once your workout ends, though, you often begin the day with the payoff of a tremendous energy boost. Can the same process apply to your finances?
If you’re like most people, you exercise for many reasons and expect to benefit from your sweat equity in the future, not just in the current moment. We will all encounter health issues at some time and the medical world assures us that we’ll deal better with problems if we get – and stay – physically fit. Preparation matters.
So, what does exercise have in common with financial planning and investing? The answer: Very few individuals prepare to invest, except maybe when selecting from choices in a retirement plan.
Or not: One study shows that in 2020 – in the teeth of the COVID pandemic and perhaps the most volatile market year since maybe 2008 – most 401(k) retirement plan participants made no changes to their contributions.
Exercise Helps Limit Our Injuries
Getting back to the fitness analogy, exercise’s greatest benefits come from the stress we intentionally place on our muscles so that when a health problem arises, our bodies are in better condition to deal with the situation. With investments you also need a methodical (and regularly visited) regimen, both for taking in and processing market data and incorporating it into your plans. You also need a strategy to accommodate unpredictable yet inevitable future events, such as market downturns.
Don’t let random financial news clips guide your decisions when determining how to act. For the record, you need not re-allocate asset classes or otherwise change your portfolio just because something in the market changed.
You do need to be prepared to consider adjustments when the information dictates that conditions have shifted, A typical example is an unbalanced allocation in a particular investment class or security caused by rapid or unsustainable appreciation.
Your Planning Routine
We call this a Family Investment Policy. The policy outlines your holdings and specifies how you intend to respond to change with a disciplined approach aimed at particular objectives – as opposed to the usually heated emotions most of us feel in a suddenly rough market.
How are your holdings performing compared to similar alternative investments or benchmarks such as the S&P 500 Index? Specifically, at what point will market changes make you reconsider your allocations to mutual funds and/or various types of alternative investments within your portfolio?
Your policy also describes what you’re trying to achieve as an investor – pay for retirement or for college tuition, for example – and how you’ll react to market changes. You might plan to sell or buy only if there are certain shifts in the real estate industry or the S&P 500 hits a certain number or invest in oil if the cost per barrel drops to a pre-set price. A well-designed playbook keeps you from panicky decisions or from freezing up during unavoidable market gyrations.
Your investment policy should clearly document your investment information sources, the technology involved in your investing, and why you bought a particular investment. Remember: Great investment opportunities ebb and flow but only those that match your policy should be included in your portfolio.
At the gym, you can wander among the clanking weights or plan exactly how to invest your energy. You know which method works better.
Investing is no different.
To your financial independence,
The Trading Corner
Be the Loan Officer
By: Scot Tyler
It is hard to believe it is already April and the first quarter of 2021 is in the books. I hope the start to 2021 has gone well for you personally, as well as health and businesswise. We seem to start strong and need to continue to focus like we did in the first 3 months of the new year for the next 3 quarters. Review your short-term and long-term goals to make sure you are staying on track.
Last month I wrote about the mortgage origination/refinance world and the documentation requested/required in order to purchase a new home or refinance a current home. The mortgage company document list is miles long compared to what we request from a note seller to purchase a seller financed note. This got me to thinking about the assigned loan officer and that role compared to the note flipper role when submitting your seller financed lead to your investor/end buyer i.e. Colonial Funding Group.
During the processing time in my refinance, our loan officer was continuingly educating us on the process, determining different options we might have available based upon verbal financial figures and advising of ALL the pertinent documents needed to verify the stated figures. Once we gathered the documents and submitted them it was the loan officer (not the underwriter) who was confirming/verifying all the information we discussed verbally was the same as the financial documents we submitted. The loan officer was confirming all items before submitting to the underwriter for review. Loan officers are aware to NOT leave any items submitted in a grey area and to spell out the deal to the underwriter so there is no confusion. Doing this makes for a much smoother and seamless transaction.
This same loan officer process also needs to be applied to the note flipper process. When a note seller submits their documents to you for processing are you reviewing and confirming the items discussed verbally match the documentation submitted? Are you reviewing the note to confirm the original amount financed, note interest rate, first payment date, payment amount and maturity date? Are you reviewing the closing statement to confirm the down payment amount that was stated? Are you confirming the property address, property type and borrower information?
I know these sound like minor details but just like the loan officer, the note flipper does not need to submit the documents to the investor with inaccurate information that was originally discussed. Just like the loan officer, building this process into your procedures will insure a much smoother and seamless transaction. It is the note flippers responsibility to verify all the information received is accurate and if there are any discrepancies the note flipper should always clear them up with the note holder before submitting. The flipper should always eliminate any grey areas the investor will ultimately find causing issues and delayed timelines closing your transaction. The note flipper should not rely on the investor to confirm the loan information you discussed for pricing. “Be the Loan Officer”.
Here is a note that came across our trade desk that we recently funded. If you’re interested in purchasing it, email me at: email@example.com
Performing Loan – Single Family Residence – Owner Occupied
BPO $180,000.00 – April 2020
$170000 sales price with zero down payment
$170,000 / 5.0% / $1,344.34 for 180 months
34 made / 146 left
Current UPB $146,798.71
Until next month.