Be the Bank!

When I think of “safe and secure” I still envision a bank vault with armed guards. 

However, banks don’t operate this way anymore.  Most banks don’t even have a vault.  Why?  Because their money is everywhere, not somewhere.  Almost everything you see from a house, building, automobile, or farm is funded and essentially secured by a bank loan.

Therefore, if you want financial security you need to think and act like a bank.  But, not like a bank wants you to think…  Banks want you to give up your hard-earned money for a return of 1% so their invisible guards can keep it safe for you.  Meanwhile the bank lends your money to your neighbor to refinance their home at a higher interest rate.

Many times, we don’t feel we have the time to understand something fully enough to invest.  Although there are complicated investments out there, for the most part, it’s simple addition and subtraction.  For example, I invest in mortgages.  I either create a mortgage from a property I own, or I buy one at a discount.

For example, let’s say I want to earn 10% on my money. 

If I buy a property for $100,000 and sell it for $100,000 at a 10% interest only loan, I would make $10,000 yearly.  Now let’s say I buy it for $80,000 and sell it at $100,000 at a 10% interest only loan.  Now it’s $12,500… and I also have equity protection in case of a default!

The investments I look at resemble something like this.

Our firm purchases pools of non-performing and under-performing mortgages from banking institutions at a significant discount (highlighted in red above) Our objective is to use our outreach programs to help homeowners provide a solution that keeps families in their homes.   If we are successful, our returns to our investors are superior to other investments in two distinct ways:

One, if we are able to help the borrower re-perform on their mortgage or offer a loan modification we can create cash flow returns of 12.5-18% yearly.  Our investment is secured by the properties equity of 40-60% (ARV) and the borrower is vested with 80% LTV. (see example from above)

Second, there are three possible events that will allows to capture our equity created by our discount at acquisition of the loan.

  1. Borrower sells the property

  2. Borrower situation improves and qualifies for an outside mortgage

  3. Sell the performing loan to other note investors or banks at a higher value

Even with our firm’s flexibility compared to a traditional bank, some homeowners are unwilling to discuss solutions. If the only situation available is foreclosure than our network of experienced lawyers, loan services, Realtors, and loss mitigation team are prepared to act.

In the situation of foreclosure, we unlock the total equity of the property.  Our return on investment is greater, however, our valuable time and resources increase.  Our discount at acquisition takes into account that a number of these loans will end in foreclosure.

Therefore, each loan that is purchased has to meet our requirements of after repair equity of 60% of less.  Our firms fund is based on a three to five-year horizon.  Therefore, we plan to defer large capital gain tax consequence until the final disposition of the fund in year five.  The preferred method then is to create a new mortgage.  Instead of selling outright we spread our gains over the life of the loan.

Keeping families in their home or offering a family in need of non-traditional financing an opportunity to own a home is where our firm invests.  We help where banks won’t. We are not lenders but fixers in complicated banking system.

As the stock and real estate markets correct, this will create more complications and more opportunity to provide a secure investment that provides a social impact.  Although we are in the business to provide a return to our investors; it’s equally rewarding to make a difference in our community or communities like ours.

Email me today to discuss what we are doing to protect our investors in 2019. or 248-955-8222

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Kyle Zimpleman- Roller Coaster Ride through the Great Recession

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