Thoughts from the desk of Bob Repass…

I’ve just returned from several weeks on the road attending various conferences and events. It brought to mind the two things I value most when attending any industry event: CONTENT and CONNECTIONS.

At a recent forum on crowdfunding the content presented provided excellent information I could take back and use to analyze how notes can fit into this platform. At another conference I was able to connect with 18 different clients and potential clients over the span of 2 days. Now that’s maximizing time and resources! So, if you’re looking for valuable information in a setting that enables you to connect with other people in the same environment, then we have some upcoming events you need to check out.

The 2015 NoteSchool Summer Summit for mentoring students only will be held May 14th through May 17th at the Alexis Park All Suite Resort in Las Vegas, NV. There will be highly interactive sessions covering content such as Completing Due Diligence, Overcoming Title Issues, Closing the Loan Purchase, Boarding & Managing Assets, Creating & Using Your Self-Directed IRA, Buying & Selling Partials, Finding & Sourcing Capital, Setting Up Meet-Up Groups, and Crowdfunding. Plus each day will conclude with a networking reception where you can connect or re-connect with other NoteSchool mentor students from across the country!

This year’s Summer Summit is FREE for all NoteSchool Mentor Students, but you MUST register.

Not already a NoteSchool Mentor? Want to find out more about note investing? Then sign up today for our Rich Rewards 3-day training class (also at the Alexis Park All Suite Resort). It runs from Friday the 15th through Sunday the 17th. Register now.

If you cannot join us in Las Vegas be sure to mark your calendars now for THE Note Event of the Year – NoteExpo 2015, November 6-7 in Dallas. Visit NoteExpo.com for details. This event will be the ultimate in content and connections!

Bob Repass
Managing Director

The Trading Corner

Where’s The Money?

By Martha Speed

The majority of individuals that opened a Self-Directed retirement account consulted a financial professional or financial planner when rolling over assets or opening retirement accounts to help them create a retirement strategy. These individuals are seeking “Help” for long term investment strategies and want to feel secure they have enough money put aside for future retirement expenses.

The majority invested in Mutual funds as their primary strategy. Other holdings such as real estate or real estate notes are a very small two percent of the overall investment strategy. While we hear of mutual funds earning 12% and above, according to Forbes, over a ten year annualized return these mutual funds seriously underperform barely exceeding the rate of inflation. See the chart below for performance on various types of accounts as of April 2014.

According to the Investment Company Institute, Individual Retirement Accounts have become the largest pool of retirement assets today controlling 28% of retirement funds either in self-directed or defined plans. Next in line are 401k’s at 25% of the total 21.9 trillion dollars in retirement funds. These numbers reflect that almost one-half of Americans have retirement accounts.

Where’s the Money??

Recent press releases show significant number of Americans are not investing in the stock market. Even with new growth in the stock market people are fearful of reinvesting in stocks. As we all know Real Estate was the investment choice for many who bailed out of the stock market crisis. However, with the increased price and shortage of inventory, where do they go from here? Real Estate Notes is the answer!

Don’t miss this year’s Summer Summit workshop on Sourcing and Raising Capital. Come learn How to Source Other People’s Money! You don’t want to miss it!!!

MarketPulse

States Will Pay $2.6 Billion to Real Estate Note Investors That Help Homeowners Stay in Their Homes

By Kevin Shortle

Five years ago, the Treasury Department gave 18 states and the District of Columbia a total of $7.6 billion to create and administer locally-tailored foreclosure prevention programs. Because of unemployment and foreclosure rates, these states were deemed the hardest hit states.

Each state’s Housing Finance Agency (HFA) decided how the funds would be distributed and who would qualify. The funds could be used for:

• Mortgage payment assistance for unemployed or underemployed homeowners
• Principal reduction to help homeowners get into more affordable mortgages
• Funding to eliminate homeowners’ second-lien loans

How Do Note Investors Get Paid?

The funds are paid directly to the note investor by the state HFA on the delinquent borrower’s behalf. The funds will pay to catch someone up on their arrearage account (unpaid back payments), their mortgage payments moving forward and even taxes and insurance.

Florida’s HFA, for example, will pay a note investor up to $42,000 to catch a delinquent borrower up on their arrearage account. In addition, they will also pay up to 12 months of mortgage payments on the borrower’s behalf. Arizona will pay up to $100,000 and 60 months!

It doesn’t matter what you paid for the note.

For example, one of our NoteSchool students paid $7,100 for a non-performing note in Tennessee. He had the owner apply for Hardest Hit Funds. The Tennessee HFA did the following:

• Wired him $25,600 to catch the borrower up on their arrearage account
• Paid the $3000 in late property taxes
• Paid $785 for property insurance
• Paid 18 months of mortgage payments on behalf of the borrower
• And, he still owns the original note with 300 payments left!

Spending Will Be Accelerated

These Hardest Hit Funds did come with the condition that any unspent funds would need to be returned to the Treasury by the end of December 2015.

The Monthly Congressional Report shows that as of December 31, 2014, only two states, Oregon and Rhode Island, have utilized all of their funds. The remaining states will have to accelerate their spending or risk sending it back.

8 States have spent less than 60% of their funds over the last 5 years.

These states will need to get the funds flowing!

No state or elected official will want to send it back, so expect to see some easing of the restrictions. In fact, a recent article in the Orlando Sentinel quoted this:

“Initially, even before I was even on the board, our underwriting parameters were conservative compared to those other states, so our money has gone out a little more slowly,” said Bernard.

“Barney” Smith, chairman of the board of the Florida Housing Finance Corp., which oversees the state’s money.

In the same article, Cecka Green, a spokesperson for the Florida Housing Finance Corp., indicated that new program guidelines have the state headed in the direction of spending all of its funds before the deadline.

11 states have spent more than 60% but have a lot of money left.

Using the numbers from the latest Congressional Report, we calculated how much each state would need to spend every month to exhaust their funds by the deadline. Most of these states have never spent that much money per month under this program.

$ Needed to Spend Per Month to Exhaust Funds By December 2017

Opportunity

What a great opportunity to become a note investor. You can make money while helping people keep their homes.

The program is win-win. The investor is motivated to help homeowners keep their homes, the neighborhood property prices are spared another foreclosure, and the local taxing authority collects property taxes once again.

Employee Spotlight

The Top Ten With…

There are many people behind the scenes that drive the engine to make our companies successful. In our continuous Top Ten series, this month we turn the spotlight on one of these people so you can get to know them better. This month the spotlight is on our Senior Asset Manager, Jennifer Dawley.

How long have you been with Colonial Funding Group/NoteSchool?
1 year

What is your role at Colonial Funding Group/NoteSchool?
Senior Asset Manager

Favorite Color?
Pink

Favorite Food?
Steak and potatoes

Favorite TV Shows?
Biggest Loser

Favorite Movie of all-time?
Steel Magnolias

Last Book You Read?
The Art of Racing in the Rain

Favorite Sports Team?
Dallas Cowboys

The 3 people you would like to have dinner with (dead or alive)?
My mom, Oprah Winfrey, & the person who invented the Golden Retriever breed

What do you like best about working at Colonial Funding Group/NoteSchool?
Knowing that I can positively affect the company’s bottom line by aggressively monitoring our servicers’ performance.

Capital Markets Update

“Yield Drag”… Does Your Portfolio Have It?

by Ryan Parson

I’ve had a number of conversations of late with investors who continue to sit on a lot of cash pulled from the markets in the wake of the 2008 financial crisis, and while I understand their caution in returning to the mainstream market given its general unpredictability, characteristic volatility, and historical ebb and flow, one of my primary concerns is that this reluctance to reenter the investment arena has caused “yield-drag” on the overall returns of many investors’ portfolios.

That’s not to say that there aren’t legitimate reasons for the trillions of dollars that were taken out of the market during and after the meltdown. It’s totally justified, and smart investors will do well to act cautiously in regards to entering into the mainstream world of stocks and bonds again. But, despite the economy having shown continuous improvement over the last few years, numerous investors are still sitting on a lot of cash, watching from the sidelines, waiting and hoping for a high-yield deal of a lifetime to come along. I’m one of the first to agree that those types of deals are to be had, but I’m also concerned that an unwillingness to deploy capital in either the short term or with a long term goal in mind is dragging down portfolio values.

If you’ve recently come into a sizable amount of cash you need to redeploy, don’t wait too long to do so. Perhaps you sold a business, sold other assets, inherited money, or received a large performance bonus. Regardless of where your cash came from, don’t hold out indefinitely, as you will begin to feel the “yield-drag” pain of not otherwise keeping your capital sufficiently deployed.

What has to happen in order to correct this kind of “yield-drag”? There comes a point in time where you’re simply better off having your cash constantly deployed even if it’s in a lower yield deal rather than waiting for a super high yield one to come along. Simply biding your time and waiting for a better deal can work to the detriment of the overall long term success of a private portfolio.

Fortunately, the current market conditions for private, alternative assets are providing great day-to-day opportunities with attractive, risk-adjusted returns, desirable time horizons, and predictable distribution structures. All of these objectives are in support of optimal capital deployment, which is yield drag’s worst enemy.

So, if you’re not managing your portfolio in the day-to-day loop of activity, choosing instead to retreat and let your money sit idle, you may be missing out on some acceptable opportunities. Let me know what you are doing to keep your capital consistently working for you.

Quote of the Month

“Not all readers are leaders, but all leaders are readers.” – Harry Truman

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