Thoughts from the Desk of Bob Repass…
The Seller Finance Coalition held its first annual fly-in event July 18th and 19th in our Nation’s Capital. What an impact we made! There was close to 40 attendees from all over the country on Capitol Hill for a day and a half telling the story of how seller financing can impact consumer’s ability to become homeowners as well as its effect on stabilizing neighborhoods.
The theme of affordable housing and providing access to private capital in underserved markets such as inner cities and rural communities was well received from members of Congress on both sides of the aisle.
The group had an experience to remember as we heard from four Congressmen and one U.S. Senator on their latest on where they stand on regulatory relief and their support of The Seller Finance Enhancement Act known as H.R. 1360.
The event was kicked off by one of the co-sponsors of H.R. 1360 Congressman Tom Emmer from Minnesota who energized the audience with his own story of being a small business owner who understands the consequences of excess regulations. “The world is run by those that show up” summarized Emmer at the conclusion of his talk.
Next up was co-sponsor Andy Barr of Kentucky, who emphasized hard work and providing more opportunities to consumers “We need more upward mobility” stated Barr.
Colorado Congressman and another co-sponsor of our bill, Scott Tipton, may have had the quote of the day when he said “You can’t have capitalism without CAPITAL!”
Senator Mike Rounds of South Dakota and member of the Senate Banking Committee not only confirmed his support of our efforts but provided an update on the challenges and priorities of the Senate from healthcare to tax reform to regulatory relief.
Original bill sponsor and champion of our efforts, Congressman Roger Williams from Texas, wrapped up the general session talks and left us with a couple of nuggets “Live the American dream not in some bureaucratic scheme” stated Williams. And as a final reminder as to how important our consistent presence and visibility on Capitol Hill is Williams exclaimed “If you’re not AT the table, you’re ON the table.”
The event also included panel discussions as well as meeting with over 70 Congressional and Senate offices including meeting with another of our original bill sponsors Henry Cuellar (D-TX) and Chairman of the Financial Services Committee, Jeb Hensarling.
This is just the beginning of our journey and your support both financially and from a grassroots effort are needed. Show your support of H.R. 1360 The Seller Finance Enhancement Act by joining us at http://www.sellerfinancecoalition.org/join-us/. To keep up with all the latest also follow The Seller Finance Coalition on its social media channels @SFCdotORG on Twitter and on Facebook go to www.facebook.com/sellerfinancecoalition
There’s nothing more American than Baseball, Apple Pie and Seller Financing!
Be Discerning In All Your Deal Making
by Eddie Speed
I’ve seen hundreds (or more like thousands) of brokers who went through the long, drawn out negotiation process to finally buy a note, complete the stack of paperwork, and then they proudly bring the note to us and plop it on the desk to see if we’ll buy it. In two minutes we look at it and say, “Who would buy this?”
This has heightened my sensitivity to understand that outsourcing notes is more than just the process of buying and selling. All too often they leave out the most important part – discernment.
Some note brokers have worked really hard, but they’ve created a pile of junk. I say let it be their junk, not mine. I’m not in business to re-underwrite their mess.
At NoteSchool, we don’t just teach people how to make deals. We teach people how to make smart deals. And a smart deal beats a dumb deal any day.
To survive in the note business, you have to learn the art of filtering. And you need to learn it fast. Lots of note people learn it too late, dig themselves into a financial hole, and end up leaving the business before getting their act together.
What is filtering? It’s identifying issues that at the end of the day tell you it won’t make sense to do this deal. You have to learn to sift through all the potential deals that suck up too much energy without enough benefit. Time is money, and if you’re wasting your time you’re wasting your money. The guy who makes the most of his time tends to make the most money.
When you filter through notes to discern whether a note is good or not, you have to consider if someone else would put their money behind it, which is underwriting. Most brokers I have seen will learn underwriting if they survive long enough. You should learn underwriting early in your career; otherwise you’re chasing deals hoping some other investor will fund it and bail you out of your mess. Being able to quickly filter out the bad notes will drastically affect where you spend your time, and make you far more productive and far more profitable. Every seasoned note buyer will say, “I don’t need to practice closing another deal that I can’t sell.”
As you’re considering buying a note, imagine yourself trying to sell it to someone else. Early into your due diligence, as you examine the credit rating, the paperwork, the collateral, etc., always be asking yourself, “Am I pursuing a note that someone else would put their money behind? No? Then why should I pursue it?” If you don’t plan to keep it yourself, and you don’t think you could sell it, then stop chasing this deal and move on!
Here’s an example of what I mean. I’ve bought probably 8,000 notes on mobile-ready lots from various sellers in East Texas throughout Johnson and Parker counties. I didn’t put the seller on the stand like Perry Mason, but I tactfully asked about the details of the properties involved. I would start out talking with a guy who said he had twenty notes on mobile-ready lots. I’d get around to asking What about restrictions? “There are none.” Obviously, I knew instantly this was a bad indicator. These places would look like something out of the old Green Acres TV show. Without any restrictions this was likely to be a “Galvanized Ghetto,” with tires on top of the metal roof so it won’t rattle in the wind. This gave me a good idea from the get-go whether or not to pursue this deal. My decision was made without having to waste my time visiting the property or wading through stacks of documents, records, and so on.
The goal is not just to make deals. The goal is always to make smart deals.
Here’s another example of having to separate the chaff from the wheat. In the late 1990’s and early 2000’s, subprime lending was running amok. If you could fog a mirror you qualified for a mortgage. As a result, there were lots of lenders who had to offer second liens (known as Piggy Back Seconds) for buyers who couldn’t qualify for the main loan. Mortgage insurance only insures the top 20K of the loan, which was in lieu of a big down payment the buyer didn’t have. Of course, thousands of these loans defaulted. During this time, there were education companies teaching people techniques on how to find and buy up these notes, which were mainly Piggy Back Seconds. These notes were plentiful and they were deeply discounted, so people would buy these bad notes but couldn’t sell them to anyone else. These people were taught how to buy and sell notes, but they weren’t taught how to filter them. They had no underwriting knowledge and couldn’t tell if a note was investment grade. They spent all their energy chasing deals that would never make it to the finish line. So they got out of the business as fast as they got in!
As for today’s red flags to watch out for, be sure to find out if a property is in a high-crime area. Learn how to decipher crime analytics. The crime situation makes a neighborhood unstable, so it could affect a homeowner’s long term ability to pay.
Filtering means that your antennas are always up, so that you’re looking for deals an investor would go for. And if an investor won’t take it, then you probably shouldn’t take it either. Getting a person to sell you his note when no one else would buy it is pointless.
In the note business, get used to wearing several hats, and switching quickly from one hat to the next. For every deal you make you’ll need your Negotiator’s Hat, your Seller’s Hat, and your Underwriter’s Hat.
One last thing. Yes, there have been times when I bit on a deal that I realized later was a bad decision. I make it a point to learn from my mistake, dust myself off, and get back in the game smarter than I was before.
It’s dumb to be dumb, but smart to be smart,
The Trading Corner:
Permission to reprint granted by First United Bank and Jennifer Henagar VP/Director of Financial Well-Being
Escaping debt is a very important element of Financial Well-Being. One out of every three households carries credit card debt from month-to-month, according to the 2016 Consumer Financial Literacy Survey by the National Foundation for Credit Counseling, or NFCC.
For some households, debt is a burden that has them dodging creditors’ calls and struggling to pay the minimum monthly payments. If you’re overwhelmed by debt, or just ready to be debt free then keep reading as we want to share two proven strategies to help you on your debt free journey.
The “Debt Snowball” and the “Debt Avalanche” strategies focus on applying the most money possible to the lowest balance (snowball) or the highest interest rate (avalanche), while paying the minimum monthly payment on all other loans.
The goal of the debt snowball is to pay off the smallest debt first.
To create a debt snowball, you will list your debts in order of amount owed – from smallest to largest based on your payoff balances. Note: You will not include your mortgage loan at first as you can focus on that after all of your other debt is paid off.
Each month, make the largest payment you can afford to the debt with lowest balance (throw every dollar you can at it until it’s gone). Continue making only the minimum monthly payments on all other debts. When the smallest debt is paid off, repeat the process with the next smallest amount owed. Be sure to apply the payment you were paying to the paid off debt along with the minimum payment you’ve been paying so the payment keeps getting bigger with each payoff.
The debt snowball will help get you out of debt while giving you some quick wins and allowing you to build up momentum which can help to stay focused as you work through your list of debts. This is truly about behavior modification. The snowball has human psychology on its side.
Becoming debt-free can feel impossible, but the debt snowball has two advantages. First, it provides you with a clear plan. Second, you will be able to start marking progress quickly.
The goal of the debt avalanche method is to pay less interest overall which can save you money.
To create a debt avalanche plan, list debts from the highest interest rate to the lowest interest rate. Note: You will not include your mortgage loan at first as you can focus on that after all of your other debt is paid off.
Each month, make the largest payment you can afford to the debt with the highest interest rate (just like the snowball method you will throw every dollar you can at it until it’s gone). Continue making minimum monthly payments on all other debts. When the debt with the highest interest rate is paid off, repeat process by paying off the debt with the next highest interest rate (use payment amount from paid off card to apply with minimum payment and any extra amount you can find in your budget).
The debt avalanche has math on its side. Also, this method generally results in paying less interest, thereby saving money.
Tips for Escaping Debt
- If you find that you’re in debt, stop borrowing and begin paying with a debit card or cash instead. We have to stop the bleeding and live on a budget.
- When you have more expenses than income you have three options: 1) earn more income 2) spend less by cutting down on our wants and sticking to our needs 3) try a combination of the one and two.
- Try your best to pay more than the minimum required payment each month to get yourself out of debt. Consider selling things you do not need to bring in some extra income.
- Look for a credit card with a lower interest rate and do a balance transfer, if possible but know that you cannot borrow your way out of debt. Budgeting really is the key.
- Seek assistance from a Financial Coach as a coach can support you, provide tools, and be an accountability partner during your debt-free journey. First United Bank offers financial coaching.
- When you pay off a debt, put that money toward paying off another one, as this will help you to become debt free. Don’t increase your spending until your debt is paid off.
- Save for purchases rather than using credit. If you can’t afford to pay cash for it then wait and save until you can. Start with a small goal then keep increasing it with time. The joy of paying for something you have saved up to buy can be very rewarding.
Which method is best for you?
The key to becoming debt-free is sticking with a plan. The snowball method is incredibly appealing when you want to taste success quickly because your focus narrows over time on the biggest debts. If you feel like you need quick wins then the snowball might be best for you. But there is no disputing that you will save more money if you use the avalanche method and have the discipline to stick to it. If you don’t need the psychological boost of the snowball, consider using avalanche and attack those high interest rate balances first.
For more information, please feel free to contact [email protected], or check out these free calculators to help you start paying off debt:
In The Spotlight
Seller Finance Coalition First Annual Fly-In
Capital Markets Update
Estate Planning: Knowing What You Own & Why
By Ryan Parson
“Know what you own, and know why you own it.” – Peter Lynch
This month we’re looking at the importance of having an estate plan along with some valuable steps that will protect your wealth under a wide range of scenarios.
One of our primary goals at the Mile Marker Club and Heritage Capital USA is to help you develop strategies to maximize your wealth. But an equally high priority is that you have been appropriately directed in the event of a life-altering occurrence and at the time of death.
Part one of our multi-part series on estate planning addresses the value of having a plan, proper record-keeping, beneficiary designations, and the role of fiduciaries.
Developing an Estate and Legacy Plan
Regardless of the size of your estate, you should have a written estate and legacy plan. Without a Will or Trust (some sort of written, notarized expression of your wishes), an estate, regardless of its size, may be subjected to the whims of the courtroom in your state of residence. So, if you don’t draft a Will, your home state will provide one for you.
The other reality is that sometimes as hard as it is to talk about death, those who avoid the topic are at a disadvantage. In fact, avoiding the topic is part of the reason most families’ wealth is gone by the end of the third generation. Having an estate plan means taking the initiative both for how assets are directed and who oversees their direction.
Additionally, being very clear about what you want to happen to your assets can relieve a significant amount of pressure from the shoulders of your beneficiaries (children, charities, or churches for example) about your intentions. The last thing you want to do is leave a legacy marred by inter-family squabbles or legal battles fought over unclear intent. This is a particularly important step if your wealth and estate is comprised of a business you own and operate.
As covered in our recent series “How the Wealthy Maintain their Wealth,” those disciplines are not just applied to how the wealthy make investment choices; the wealthy are not just thinking about wealth through their personal lens, but they’re doing so from a multi-generational outlook. Adapting that mentality is a key step in assuring that your wealth will be able to sustain itself for a long period of time, even after you’re gone.
Maintaining Proper Records
Having a complete list of all your family information, documentation, and assets and liabilities is part of the first step in creating your estate plan.
An organized balance sheet is a key piece that allows you to manage your wealth efficiently. It’s this sheet that becomes the basis of your estate plan because it thoroughly lists all assets that need to be transferred to your heirs and beneficiaries. Furthermore, it also properly lists all liabilities that need to be taken care of and paid off prior to transferring those assets.
It’s not uncommon to either undervalue or overvalue assets that comprise your entire estate. Yet, when you keep up with wealth management over your lifetime, creating and administering your estate plan is much easier.
One element that we tend to see missed when determining the gross estate is the face amount or death benefit of all life insurance policies owned.
While it is generally true that death benefit proceeds from a life insurance contract pass to the beneficiary income tax free, those proceeds, if owned by the decedent, are actually part of the gross estate tax and can be very much taxable at the estate level.
While there are many reasons why we need life insurance, we certainly don’t want to solve the liquidity issue that it brings while simultaneously creating a greater estate tax problem.
Finally, by having all assets and liabilities and family information properly organized it makes it significantly easier for your advisors, your heirs, and their advisors, to help settle your estate in the most efficient manner possible in accordance with your wishes. One way to do this efficiently is to have an electronic system where you store all of this important information so that it can be easily accessed from anywhere, at any time by you and others that would need quick access to it.
Updating and Confirming Beneficiary Designations
Many of the assets and accounts that you hold inside your portfolio will have a beneficiary designation. Individual retirement accounts, pension plans, employee benefit plans, life insurance policies, trusts, bank accounts, and 401k plans typically include beneficiaries. These are worth reviewing from time to time to make sure they’re serving the greater good of your estate plan.
If you’ve had any significant life events such as the death of a previously listed beneficiary or the birth of a new beneficiary, reviewing the aforementioned accounts is recommended because whoever is listed as the beneficiary (whether you intended or not) has rights at the time of your death. You want to make sure that your beneficiaries are in concert with the vision of your overall estate plan.
Further, there can be some significant tax advantages by being strategic with your beneficiary designations, especially when it comes to individual retirement accounts.
Naming and Engaging Appropriate Fiduciaries
A fiduciary is a person you entrust and designate to handle your financial considerations, assets, business, and personal affairs. From an estate planning standpoint, this individual may be an executor or trustee, and both of these roles come with certain obligations and responsibilities. Therefore, giving careful consideration to whom you list to serve in these capacities is paramount.
Simply listing someone is not enough. It’s important to have a series of conversations to make sure that the person you’re considering is willing to participate as a fiduciary, has the knowledge necessary to carry out your affairs, and is in tune with your values. After establishing such a relationship, ongoing conversations are important to determine that your values and the complexities of your estate are being handled in accordance with your standards. You also want to have assurance that your designated fiduciary wishes to continue fulfilling their assigned role.
We’ll continue our discussion of estate planning next month by looking at the necessity of properly titling assets, planning for contingencies, properly structuring gifts and inheritances, funding and administering trusts, and reviewing and updating your legacy plan.
If you’re reading this newsletter, I hope it’s given you pause to consider the current state of your estate plan. Our Mile Marker Club is a strategic place to participate in a meaningful conversation about estate planning amongst other financial and investment considerations.
I hope to see you on the road for this year’s Motorhome and Money Tour. It’s always meaningful to see our readers in person and share additional educational strategy during these Tour stops.
Quote of the Month
“If you can’t do the little things right, you will never do the big things right.” – Admiral William H. McRaven
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