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Top Five Notes Predictions For 2020

GDNI 91 | Notes Predictions For 2020


2020 is right around the corner. Flying solo in this episode, Chris Seveney gives us his top five predictions for 2020 in the notes industry. While the market can be very unpredictable, it is never a bad thing to throw a dart in the chart of stocks to predict its rise or fall as analysts do. Chris does that in this episode, providing some of his great insights over the past year and what is to come. You might want to take note of what Chris has to say because the next year can turn ugly if you are not careful.

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Top Five Notes Predictions For 2020

What Just Happened

It’s going to be a pretty interesting episode. As we approach 2020, I’m going to provide my top five predictions. In twelve months’ time, I’ll probably come back, take a look and see how horribly wrong I was. As they say, similar to investing in the stock market, you have as good a chance as throwing a dart in the chart of stocks in predicting its rise or fall as analysts do. I’ll provide some of my insights for some things I’ve seen over the past year and so forth. Hopefully, everyone enjoys it. Before we get going in that, as always, we like to start off with what happened topic. For me, I got a lot going on personally and professionally. I’ve been going through a bunch of assets where I got deed in lieus on properties and going through that process and cancellation of land contracts. An interesting thing that came up in a conversation with the cancellation of land contract is a lot of us use a generic template or form for those.

This is part of my Note and Bolt also. I’m combining them both at the front end. It’s making sure that in cancellation, there’s language for the borrower not to come back after you for anything later on. It’s interesting because usually the language I’ve seen in the past and used, it’s saying that a land contract is canceled. Working with my attorney, Brian, we came up and added some language in there to make sure that they’re waiving all their rights for coming back after us as the lender. It’s part of those documents. Adding language and having a facsimile copy is acceptable or a digital signature on it as well. Some interesting things. Just food for thought I wanted to throw out there for people in case you’re getting cancellations. A lot of times, I’ve seen other attorneys just provide a standard cancellation, but we do want to make sure that there is some type of language in there releasing them from their legal remedies or legal rights. With that, let’s get rolling.

Quality Of Assets

I want to talk about the top five predictions coming for 2020. Three topics I do want to cover is going to be quality, quantity and cost for assets. Let’s start with quality of the assets that I expect to see in 2020. I think you’re going to continue to see assets that are a little more challenging. What I mean by challenging, I know a lot of people tend to look for areas in a major metropolitan market with a house value of X and near a university or certain criteria that makes it appealing. Since there’s less of that product, which we’ll get into, I think you’re going to see less of that and it’s also going to cause price increase. For people who are newer into this business, I think you’re going to have a very difficult time finding this specific asset that is going to fit your perfect criteria. More importantly, to try and buy it as a one off is going to be even more difficult.

What you’re going to see with sellers coming into next year is they’re going to want people to take multiple assets on including some that might be hairy just for them to get them off their books. They include that in the price where you may discount some other pricing. Be cognizant that the one-off trades, I’m starting to see less and less of and seeing more investors wanting larger bids or more assets taken at a time. I also think the amount of work just to sell off a one-off and people getting into the business who are trying to buy one-offs but then not coming through with the deal, it has posed some challenges for sellers. Along with that, I wouldn’t be surprised. I was talking to Martin Saenz about this. He brought it up about where there’s a potential also for you guys to start seeing sellers try and pre-qualify people.

I know in the past there hasn’t been a need for proof of funds. You may start seeing that. There’s a lot of activity right now where people are backing out of deals at the last second because they don’t have the funding in place. For newer investors, 2020 is going to be more difficult for them to get into the market for note buying. Along with that, we touched upon some of the quality aspects of it. I also think you’re going to see more assets that have a little more hair on the collateral side. Having an understanding of how to repair those defects is imperative as well. That can also cause people a little more heartache and concern when looking at assets because it does increase the risk.

You have as good a chance as throwing a dart in the chart of stocks and predicting its rise or fall as analysts do. Click To Tweet

Quantity Of Assets

With that quality, there was the quantity aspect of it, but you saw some decent assets at the beginning of the fourth quarter. As we tailed off, I haven’t seen a lot of decent assets to acquire. I’ll be honest that I wasn’t actively shopping because of the fund and the pools took down in the third quarter. From a quantity perspective, I’m starting to see a lot less product on the market from people. I think it’s going to continue to be more difficult as the economy is still doing very well. I was at a meeting with a very well-known economist here in the mid-Atlantic region. He used a joke from the movie Aladdin and gave an economist three wishes and could he grant all three of those wishes.

Those wishes were low inflation, which we have right now, increased the wages, which we have wages increasing right now as well, and the low unemployment. When you look at record, low unemployment, wages increasing and low inflation, this is the first time potentially ever in the country that they’ve had that all three of those. Between how the Federal Reserve is managing it, I’m not going to get involved and why or how that’s the case because that could be argued all day long. In this instance, people were doing a little better. Inflation is low and there are more jobs out there right now than there are people to fill them. With that being said, you’re going to see probably less defaults.

You’ll hear about credit card debt, personal debt and student loan debt. A lot of those individuals aren’t actively shopping for homes and with some of the Dodd-Frank restrictions, ability to repay, they’re holding some of those people back. It’s a defense against some type of catastrophic default numbers that come out. You are seeing some defaults, but in the same token, banks have the ability to manage the amount of defaults they have. They do have asset managers that handle that. A decade ago, they were just overwhelmed. What they have in-house has been something they can manage, which is why you don’t see a lot of banks looking to dispose their assets. Most of the assets you’ll find in 2020 are more from hedge funds and funds that are closing out. From a quantity perspective, I still think the note market is going to be a little difficult. It’s not going to be massive quantities coming to next year.

Another topic I want to talk about on quantity is the number of note investors. I am starting to see now a lot of people who were involved in the business in the beginning or middle of the year shy away from it. I think it’s many of those reasons. Another component is this is not an easy business to be in. I’ll talk more about that. It’s very difficult and it’s very hard to make money in this business, especially if you don’t have a large amount of capital. If you have $20,000, you might make 20%, but it’s $4,000 for the effort you put in. After you pay taxes on it and all of a sudden you made $2,500 for 100-plus hours, it’s like, “I made maybe $20 an hour.” Is it worth that risk? Something I am seeing as well is I don’t see as many people actively shopping for notes at this point in time.

Cost Of Acquiring An Asset

The next one I wanted to touch upon as we continue to move forward is cost. Where are we with the cost of acquiring an asset? For the most part, many of us would agree the cost has continued to rise and there’s still opportunity out there, like any market. You have to focus more on bulk versus the one-off. Performing notes, CFDs, 15% to 18%, then the beginning of 2019, 12% to 15% and now I think it’s down to about 9% to 13%, 9% to 11% maybe for performing note and 10% to 13% for CFD is where you’re seeing those on the performing side of things for yields is what I’m talking about. On non-performing side, the nonperforming notes, a lot of them are all over 50% in the first for the most part from what I’ve been seeing.

GDNI 91 | Notes Predictions For 2020
Notes Predictions For 2020: Make sure that in cancellation, there’s language for the borrower not to come back after you for anything later on.


Contract for deeds, they’re anywhere from $0.30 to $0.70 on the dollar as well. It depends on the equity and many other factors, but stuff that you’re buying for maybe $0.25 before probably is increased by over 30%. You’re paying over $0.30 on the dollar for those. I do think costs are still going to increase in 2020. Along with that is the quality isn’t going to be as good. You’re paying more for higher risk. A lot of warning signs are starting to pop out, I’d say. I’m somewhat saying for people who are looking to get into this business and doing it on their own, it’s not the most ideal time. I’m being completely honest with you. I’m not pushing people away from this business. I love the business. I think it’s a great business, but I’m just telling people, be careful. You may want to look to partner with somebody to get a better understanding of things. I’m just telling people warning signs are off where you’re getting assets that are hairier with collateral issues on them or borrower issues and you’re paying more for them.

Education In Note Investing

If you’re not sophisticated and not been involved with a lot of the things that can go on in this business, it can turn ugly pretty quickly. In 2019, I think we’ve seen that happen to many people. I’ve got many calls from people who invested with others that lost assets at tax sale. The JV partner walked from them. They had to take the assets back. This isn’t just new investors. This is people who are well known in the industry. I’ve run into problems in 2019. In 2020, it’s probably somewhat going to continue because of what I’ve been talking about regarding quality and price. It’s things to be careful for. I’m not trying to make this a doomsday blog. It sounds like it honestly. I’m trying to educate people about the risks involved in this business because too many people make it seem like it’s very simple and anybody can do it. I’m rolling into my number four. We talked about one is quantity, two is quality, three is pricing and four is education.

A lot has gone on in the education in note investing for many people who are close to the industry. In 2020, for people who are getting into this business, people are going to try and take advantage of some of the things that happened in 2019. You’re going to probably see what I’ll call more pop-up training. What I mean by that is individuals coming up with training courses whether in person or online or weekend seminars to try and make some additional cash. I see this because the note business is going to be a little more difficult in 2020 to grow and manage a business where people are going to look for alternatives to try and make some money. What’s the next best thing? I’ll go run a training course.

You’re going to see a lot more people pop-up in training who probably could be questionable whether they should be doing training, to be honest. For me, I’ve been asked in the past, would I create training or do training and the answer for 2020 on that is a hard no. I will not be creating any type of training program or any type of teaching program for a fee to people in 2020. The reason why is I want to focus on my business. Training gets you off on another tangent. Plus, it’s one of those things where if you’re going to do it, you got to be all-in. I don’t think I have the time to be all-in on it, to be honest. I love helping people. This is why we have the podcast. This is why we give away a lot of stuff. Also, it’s something that I’m not interested or looking to do at this point in time.

For me personally, for people who should be educated to be a trainer, the person should have not bought, but made a profit of over $1 million in their career in something before they teach people how to do it. People made $50,000 in a year since they started and bought 10, 20, 30 notes personally. Their training, I question it. That’s my personal opinion. I’m not pointing fingers at any specific person out there because honestly, I don’t follow who’s doing what in the training scenario or education component anymore. I’ve seen so many of them pop up honestly. That’s something to be careful of. A lot of the information is still available online for free from that perspective.

It doesn't matter what side of the political spectrum you're on, businesses don't like change. Click To Tweet

State Regulation And Oversight

We’ve just wrapped up that component of training. The last one I do want to talk about is a state regulation and oversight, another major important factor in this business. In 2019, we started in certain states, Indiana, Ohio and some of the Midwest states that many of us invest in heavily have started to add regulations, certain licensing criteria. That will continue in 2020. You’re going to have to see people more and more to get licensed in certain states. As somebody who invests heavily in contracts for deeds, I have over probably 150 active contract for deeds. Truth be told, I would love to convert every single one of them into a note. I love contract for deeds. They can be profitable and they have risk. Also, the reward factor is great on them. They definitely need to be aware of a lot of what can go on with them. With contract for deeds, people think it’s a great avenue for borrowers and for the lenders in that aspect.

What’s happening in a lot of locations, and I’ve had this happen to me, is you’ve got borrowers who will take contract. They’d be on a contract for deed and turn around and put a lease option on it or try and sell it or put another contract for deed on it. Us as investors, 99% of us try and do the right thing and try and follow the rules. There are lots of people out there who don’t. They don’t know the rules, so they just buy a house at tax sale and throw up something at 15% owner financing. The house was worth $20,000 and try and sell it for $50,000. That’s who states and so forth are focused on going after. On the flip side, you’re also seeing a lot of states go after a lot of these entities at Fannie Mae was selling loans to. Vision Properties is currently involved in a lawsuit in Pennsylvania.

They had one in Wisconsin, a Harbor portfolio in Pennsylvania. Their name keeps coming up saying they go hard after the land contracts in that state. You’re starting to see in some of these other states too the Harbors and the Visions. I haven’t seen much about Window Rock. I know in Chicago, the city hit them pretty hard on properties, but that is going to continue, especially if we start to see some slowing in the economy. They’re trying to place blame somewhere on someone. You may see that come through, but people need to make sure they’re educated. If there’s licenses are required, I strongly recommend you get them. They’re not cheap. A lot of them may spend $1,000 or $2,000 and get the license, but typically you have to get a surety bond as which could be anywhere from $100,000 to $250,000, which adds basically another $1,000 to $2,500 to your bottom line on that.

If you’re buying a few notes, it’s making it a little more difficult for the average investor to get into the business. I asked my attorney a question about it why it’s so difficult sometimes for individuals get licensed or it’s so expensive. It’s simple. He said, “Nobody ever envisioned that banks would turn around and sell off their loans to hedge funds who then in turn would sell it to some main street investor.” You’re starting to see states and so forth catch up on that because it was never thought of. Nobody ever thought, “I could sit there and go buy somebody’s mortgage.” Typically, they thought it would all stay within the regulated industry and it’s somewhat unregulated. That’s been a major component of focus moving forward, especially since Dodd-Frank did make it more difficult for banks to lend on these lower value homes. It’s caused a lot of individual investors to come in and step in.

One other thing I’ll mention for people in 2020, just overall economy, when I did listen to this economist. Some of the thoughts he had were first half of 2020 probably will remain strong. Right now, the economy is more focused I think on the politics to see what is going on. It doesn’t matter what side of the political spectrum you’re on, businesses don’t like change. Businesses like to know what is going on six months from now. You, as you run a business, like to know what the rules are going to be in six months. Think of a multibillion-dollar corporation, like a Blue Cross Blue Shield or an Amazon. With some of these trade wars going on and healthcare debates as we get closer to the election, you’re probably going to start to see the economy slow down from a growth perspective. It’s because of uncertainty. I mentioned BlueCross because, depending on who is a front running candidate, I’m not giving an opinion whether it’s right, wrong or indifferent, but certain candidates want to get rid of private healthcare.

GDNI 91 | Notes Predictions For 2020
Notes Predictions For 2020: If you’re not sophisticated and not been involved with a lot of the things that can go on in this business, it can turn ugly pretty quickly.


If that candidate or one of those candidates is at the forefront and might get the nomination, do you think Blue Cross is going to be upgrading office space or adding office space or adding employees or a lot of the people in the healthcare, what do you think they’re going to do? If they’re smart, which not many of them are, they’re just going to pause and wait and see what happens. You’re going to see a lot of businesses come towards the middle and then the next year to do that. Will that have a major impact on the economy? Probably not, but I think you’ll start to see growth and stop or there won’t be as much growth. You might see people start pulling out of the stock market and looking for other avenues to invest in. It could be an opportunity for raising money from people.

I know this has had a lot of gloom and doom and all the red lights, flashing warnings for newer investors, but there’s still opportunity. I think that that will be a very good opportunity looking at. People might start to look to pull out from some of the stock market wave we’ve been riding. I also think that as time continues, the borrowing of money is still going to be cheaper. I know a lot of people would do JV deals on 50/50 deals, but if you provide partials or more of a debt side equity into deals and so forth, the rates will continue to go down. I know hard money loans where high 12% to 15%, and you’re starting to see some of those now in the single digits. People are looking more for safer avenues to place money. Trying to get money for deals could be more affordable. What that means is that will offset some of the potential risk of paying a little more or taking on asset with a little more risk.

If you’re doing straight 50/50s, then it’s somewhat of a moot point. If you’re doing stuff like that, just be careful what type of returns you forecast for people during that time. With all that being said, wanting to mention all of that, I hope you enjoyed this. If you have questions, comments, please feel free to reach out to us. Also feel free to join us on our Notes and Bolts Facebook group as well as we have a lot of information and free stuff on that as well. Thank you all. We had targeted, hoping to get 12,000 downloads and we ended up surpassing that by getting over 55,000 downloads. It’s been a great year. We couldn’t have done it without you. As we continue to look to grow in 2020, one of the things we’ll look more from you as investors on is what would you like to hear about and what are some of the topics you’d like to cover.

As we roll into 2020, our Thursday night open mic nights, which are 8:30 Eastern time, we are going to have lots of guests coming on in early 2020. We’ll have James Wise who’s a property manager and realtor in the Cleveland area. If you don’t know James, go on his YouTube channel. It is awesome. He’s got tenants from hell and he also did a great documentary about Clayton Morris as well. Information on some things going on in Indianapolis with that. He knows everything about Cleveland and provides heat maps for areas to invest in Cleveland. We’ve got a lot of investors who invest in Ohio, especially in that Cleveland market. We want to bring somebody on who is a specialty there. We’re going to roll into Brian Gallagher from Council Baradel, who’s the Brian I’ve been talking about as our attorney.

We keep trying to get him on and finally I’m going to be able to get Brian on to answer any and all questions people have. He’s not going to be representing you, but he can answer things in overall standpoint. We’re going to have other entities on like property preservation. We’re going to have on solo 401k advisors, self-directed IRA investment advisors coming on board as well. It’s going to be a great year in 2020. Before we get to 2020, I want to say thank you one last time for everybody out there. We couldn’t have done it without you. 2019 has been a great year for my company as well, as I know for Gail’s, and we look forward to continuing to build upon the successes that we’ve had. Thank you all and go out and do some good deeds.

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