GDNIP Ep 10: Business Planning: Focusing On Your Goals For The Year

A goal without a timeline is just a wish. Stop wishing and start planning. To hit that goal, what are the things you need to be doing? As you continue to build and grow that wealth, as with any business strategy, business planning should be catered and customized to you specifically, especially considering the risk you’re willing to take on certain things. Chris and Gail share the three-step process of business planning to help you create wealth and grow your business.

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Gail Anthony Greenberg & Chris Seveney Business Planning: Focusing On Your Goals For The Year

Business Planning: Focusing On Your Goals For The Year

We hope you’re all doing well. Gail, how are you?

Very well. Thank you, Chris. How about yourself?

Things are going well. Another productive week on the investment front and some deals I have including some with you and so forth.

We have an announcement here. We realized we have so much to say about this that we get a little lost in our thoughts. We babble on and on and I thought wouldn’t it be nicer for everybody if we split each of our podcasts into actual segments and had a sleeker delivery here? Not that we don’t love to visit with everybody, but we want to be respectful of everyone’s time and deliver quality in a more pelletized form. From this point on, we’re going to try and make our episodes each about half an hour long and we’re going to divide them into three segments. The first one is called, “What just happened?” It’s a chance for Chris and me to share the latest outrage that has taken place. Sometimes it’s a good thing, but it’s more fun to rant about the bad things. Then the “Donut hole” in each episode will be our main topic, which is the preplanned part that we aren’t making up on the fly. We hope to close each time with some useful tidbit or takeaway, something you can use down the road in your business.

I’ll let you take it away with the first installment of “What just happened?”

I’ve got a lot of kooky things going on. The quick overview is that I have four houses under renovation right now. One of the things that happened is that I have a house and that occupant was ordered to vacate. I am very far away so I asked someone to go over there and figure out if they vacated. Initially, you don’t break the door down if someone’s actually still living there even if you have a court order that they should vacate. This very helpful person went over and peered in the windows and there’s a ton of stuff everywhere. They left. Nobody answered the door, but they saw a lot of stuff and they were like, “I think someone’s living there.” I was sitting here hundreds of miles away thinking, “What do I do?” We don’t know if someone is there or not. It got somehow resolved because a week and a half went by and I finally asked a more aggressive person. I said, “Can you go look and see if anyone’s there?” I don’t know how to bring this to some conclusion. Even if I was there, I would just be peering in the windows too and wondering. I also wondered, “What would I do if the people hadn’t moved out?” I don’t even know the procedure for that.

It’s interesting because I have a property that’s similar where I have a former borrower who is living in it and unfortunately, the property got foreclosed upon. They have been extremely nonresponsive. The court order based the motion to evict. I’m going to ask the same question. I’m like, “Does the sheriff go and drag them out?” I’m curious what the actual process is. I’m trying to work out a deal with the borrower that hopefully comes to fruition.

I’m doing due diligence on a contract for deed in Indiana where the borrowers have been in the house for more than two years. They bought it in February of 2016. I have some tapes where we look at, the note information will tell you how long was the term of the loan and this was a 30 year so, 360 months. How many months are still left on it? In this case, keeping in mind that these people have been in there for eighteen months now. There are 360-month loan has 358 months left on it. They made one payment or they made two, but they probably made the first one when they signed. I normally feel a lot of sadness and hesitation about saying to borrowers like, “I’m sorry, you’re going to have to leave.” In this case, I looked at the servicing notes and there are no conversations with these people. They have not made themselves available to explain any of this. They’re living there happily and the place looks great. They’re taking very good care of it. They’re enjoying their life. I’m afraid a bad day is coming for them if I buy this.

Maybe a good day where they realize who was calling and the servicer that you have gets in touch or a demand letter and gets them to wake up a little bit and all of a sudden they start repaying again.

The original amount of this was $37,000 and they currently owe over $9,000. It will be quite a shock I’m sure. What’s going on in your world? What happened with Chris Seveney?

A goal without a timeline is just a wish. Click To Tweet

We’ve got a deal together that we have up in the Northeast where the borrower essentially hasn’t made a payment in a year. We bought this land contract and reached out to the borrower. We gave him some options of reinstating or Cash for Keys and so forth. We requested him to get back to us after a week or two weeks. He got back to us with a nonresponse and then we reached out and offered him another counter offer, which he pretty much responded again with somewhat a nonresponse. After having a few conversations with him, I said, “We’re here to help and if you can’t afford the place, let us know and we’ll work something out.”

His biggest concern was on the Cash for Keys, the move out date and I said, “That’s your challenge. Let us know and we can work with you. You can get us the paperwork back. We’ll extend the date but you’ve got to start somewhere and at least get us the information back.” We didn’t hear from him for a few days and then I get a text message showing me a picture of the signed documents with a USPS label on it. I was like, “Okay.” I didn’t expect that coming. The paperwork is in Elkins Park, Pennsylvania out for delivery. That’s what I got going on in our world and it goes back to try and work out with borrowers. It’s understanding people’s situations on what they have or what they’re going through and trying to do what’s in everyone’s best interests.

People would be interested to know that before we bought that contract for deed, we had read the servicing notes. We had seen conversations going on between this borrower and the servicer where he asked multiple times about how he could go. I don’t remember had they ever offered him cash or had they stonewalled him about that?

No, they never offered him cash. This borrower was wanting out. The property is a few hours from Boston and I believe he’s driving back and forth to Boston every day. They did offer him a short payoff of the loan. The individual is in the car four hours a day and living there as well and trying to find somebody to sell it. I don’t think he wants to use an agent. He was in a situation where he wanted out.

When we came along, we thought he was not living there first and then it turned out he was living there. His job circumstances might have changed because we go in and see all these notes saying, “I want to go. I can’t afford it.” We were like, “We’re prepared to give you your freedom from this house,” and he was like, “I don’t have any place to go and I can’t move.” Customizing our offer to his needs, we were like, “Unlike the previous people, we are prepared to give you money to help you make a new start and we’re also prepared to work with you to pick a move out a date that you can work with.” We started talking to them at the beginning of November and we had offered him at that time that he could live there until the end of December. We thought two months was a good amount of time but it turned out as he was dragging his feet that he was having trouble finding a place to go.

What we negotiated with him was we’ll still pay him the money half when he signs the documents, canceling his land contract. The other half when he moves out and we’re giving him extra months until the end of January. He will have three months to resolve his house issues and hopefully, that’s enough. You always want to be as generous as you possibly can. In this guy’s case, it feels he needed to be pushed to understand the reality of his situation that he couldn’t afford the house. He already had said that before we bought it and you’re not going to get a better package that we’re offering you a cash plus lots of time to find a new place. Thankfully he finally agreed that that was his best option.

Business Planning: Working out with borrowers is understanding people’s situations on what they have or what they’re going through and trying to do what’s in everyone’s best interests.

Why don’t we roll into the main segment of this episode, which is we’re going to talk about business planning?

I have learned a lot from you over the short months of our partnership. One of the biggest things I’ve learned from you is that I have never ever going to be on your level when it comes to planning tools, but at least I am now a planner. In the past, I didn’t do a lot of planning because the things that I did in my business were never consistent enough where you felt like you could predict like, “I can do these many deals and that can happen if I put the effort there.” I was too scattered for that but as the wise man says, “A goal without a timeline is just a wish.” Now, I’m going to stop wishing and I’m going to start planning. It was very interesting when you and I both started our end of the year planning process for next year. The way we attacked it, you immediately stayed up to all hours of the night creating incredibly complicated planning tools that do all sorts of projections. Thank you for sharing them with me. I’m going to print them out and I’m going to use them to dust the furniture because I can’t figure out what to do with them.

What Gail’s referring to are the three main components I use as part of business planning. I haven’t shared with you the third one yet, what’s called the SWOT analysis, which talks about your strengths, your weaknesses, your opportunities, and your threats. I read the book, Traction, by Gino Wickman and a former company I used to work for followed that mantra and created a one-page business plan. How it works is you focus on what are your goals for the year? You should minimize your goals. You don’t need 30 goals. What are the three to five biggest things you want to do? You break that down into quarters. To obtain that goal, this is what I need to do in the first quarter.

To hit that goal at the end of the first quarter, what are the things I need to be doing? It’s a three-step process that puts us together. I’ll be more than happy to share the templates of this and the other thing I provide is I do budgeting and forecasting. I do that all day long for my day job and I’m dealing with budgets in the tens, hundreds and millions of dollars. Forecasting things three to five years out, especially on construction projects. That comes naturally for me. What I’ll do is I will put together an income revenue and expense budgets for what’s it cost to run my note business. Putting together all the expenses, all the memberships I have, all the monthly costs to understand how much does it cost to feed the train, to keep your business going. When you get to a certain point, that number gets up there pretty quick as you’ve seen on mine, Gail.

You have to have big goals that inform all the small decisions that you make. Click To Tweet

I am a freelancer and I do notes full-time. Chris has a very demanding full-time job plus young children. For him, time is at a premium. You spend more because you have less time and I do more things myself so I’m out of pocket less but I’m also recognizing that some of these are foolish savings. They are savings that are costing me because I’m spending time doing fairly low-level things instead of the higher-level things that will build my business. The thing that’s very interesting beyond the tools that we normally use to do planning is that we have very different goals based on our ages and what we’re trying to do in our lives. I am trying to retire in three years because if it can be done in five years, it can be done in three years. I don’t want to give myself that extra two years.

I want to try as much as possible to hit my income target in three years. I’ve had a shift in my thinking since we started having these conversations about what it is that we’re trying to achieve. Up until weeks ago, I was all about notes. I was never going to invest in anything else. I didn’t see any point of anything else, but I did something surprising for me. I looked at the income in my note portfolio and it’s substantial at this point, but if I’m going to retire, I’m definitely always going to do notes because it’s fun and easy. You don’t need to spend a whole lot of time doing it once you’re at a certain level.

In terms of income, I have my note portfolio and in my IRAs, my note portfolio is generating about $10,000 a month if everything was paying. I’m thinking like, $10,000 a month, I’m all set for retirement since we have other income too. I don’t know how long all of these notes are going to be paying assuming the borrower stay and keep paying. I plotted out on a spreadsheet the amount of each note per year. Based on how long these notes are going to keep paying, I just grafted out and I discovered that things look pretty good for the next seven, eight years and after that, things start to change quite a bit.

I also created that forecast spreadsheet. I was thinking of the budget spreadsheet, the forecast spreadsheet as well is another tool in the arsenal. Have you used that or looked at it?

You’re going to explain to me what to do. In ten years, my income is going to drop. Even when we buy distressed houses and sell them, most of them don’t have more than a ten to fifteen-year term. I don’t want to be one of those little old ladies who wakes up one day and realizes I don’t have any money anymore. It’s hard to get a job when you’re 80. This is not that many things. All those hard labor jobs that pay so well are not available anymore. I realized as much as I love notes and only want to do notes, if I want to have income forever because I’m a mom, I also want to be able to leave something to my kids. I have to start buying rentals, which I already have a few, but I have to start getting very serious about investing some of my note proceeds in rentals.

Business Planning: Timing is important when you’re acquiring anything in real estate.

The timing is also important when you’re acquiring anything in real estate. I have a few rentals right now and I would love to continue to pick up a few if I could ever get a good property manager. From a timing perspective, that’s also key in critical because if you start looking at the reports coming out on housing, you’re going to start to see some softening. You might see also some jobs where places might have people who become delinquent on the rentals. You might start seeing landlords looking to dump on some of these properties and things right now are trading at cap rates of between 5% and 10%. I know back in 2009 and 2010, you were getting cap rates significantly higher because of the vacancy factors and stuff. What I always recommend is it’s always good to diversify and have a mixed portfolio. Like anything in real estate, it comes down to timing and what you buy it at.

My first strategy is when I get a land contract house back, rather than resell it on a land contract, I’m going to keep it as a rental and see how that goes. I want to try to focus on a couple of areas because property management is the make or break on owning rentals, particularly rentals far from where you live. I’m staking a claim in Indiana and probably a couple of other places where I already have a couple of properties. I’ll try and make those my focus areas.

What other things caught your eye as part of planning? One of the things I want to bring up as part of planning is I don’t hear a lot of people talking that financial side of things. I hear people talking, “I want to buy 30 notes next year. I want to do this,” or they’ll set some goals. I don’t see a lot of them chatter on what is that getting you for revenue? What are your expenses and what’s your long-term plan? It’s critical for most people because if you’re making or buying without a plan, it comes to a point where you got to look at your portfolio and understand to manage that risk perspective. Also to focus on those long-term goals that you’re putting out there to get to that number you’re looking to get to. A lot of people say, “I want to buy 30 notes because I want to have cashflow of $10,000 or $20,000 a month.” Some of these might only be paying for three, five, seven years. Some of them, people may want to look at and sell off after twelve or eighteen months of performing but then you got to look at how are you reinvesting that capital? Where are you reinvesting it? What types of returns are you focused on or anticipating on getting? There’s a lot that goes into this.

Being the engineer and the analytical side of things, I break it down to sheets. I’m going to buy this note in January. I assume it’s going to be reperforming in four months and then I’m going to keep it for eighteen months or I may keep it for five years or a certain percentage goes to foreclosure. I can forecast a rough idea or a ballpark because the reality of it is percentages will fluctuate all the time. You don’t know what’s going to happen with these deals. You’re consistently not buying the same amount every month. They shift from one month to the next but overall it gives you an idea or a timeline of is it a three to five-year, a five to seven-year or is it I need ten years before I get to where I get to, based on where I’m at?

People have the bragging rights side of having a lot of notes. You have to be strategic at every stage because even what you buy, what kind of returns you require, you need to have a game plan and have criteria. You have to have big goals that inform all the small decisions that you make. I’ve been a freelancer for many years in marketing and for many years, everything was fine. Then 9/11 happened. My husband was also a freelancer at that point. Nobody did any advertising or marketing for a long time after that and as things were starting to normalize a little bit, the crash happened. It’s been very difficult. My entire focus, particularly heading into a retirement scenario is I need cashflow. I don’t care how much money I have in the bank. The only reason people care about having money in the bank is that they’re afraid they don’t have enough to live on. I want my money to be invested in things that are always going to generate a cashflow. You’re in a very different stage because you’re very young and you’ve got a lot of great earning years. You’re doing well in your career. You’ve got young kids who are going to be in college and getting married and doing all kinds of things. The way you look at what you need is completely different.

Resist the urge to be reassured by people who have a vested interest in you being reassured. Click To Tweet

That’s a good point too because a lot of people listen to others or see posts on Facebook that, “I need to do what this person’s doing.” That’s not the case. Every situation is extremely different and it should be catered and customized to you specifically especially considering, “What’s the risk you’re willing to take on certain things?” For the people who worked in 9:00 to 5:00 job, when you get out of college and you started that job, they always tell you for your 401(k) to put it in the aggressive funds because you’re young and there’s not much in there to lose, but you can get higher returns. It comes to a point in time where you go from the aggressive to the moderate down to the conservative as you continue to build and grow that wealth. It’s no different in any business or any strategy. It’s custom for every person’s situation and it needs to be looked at that way. If you try and follow somebody, it’s probably not the right path that you should be going down. Their goals could be completely different.

Do you have a big overall plan like, “I’m going to buy as many notes as I can and get my cash up? Over the next five years then I’m going to start hopefully buying rentals or multifamily.” What is your plan?

Business Planning: When you have any kind of unusual situation, it’s always a good idea to find a professional in that area and have a conversation with them.

Right now, it’s a three-year plan. For me, it’s to continue to build the cashflow in a manner to get me to a point where I’m using those funds to pay for college education. That’s my goal. That’s I’d say the 10,000-foot view. I’d be more than happy to do a webinar. I’ll do a webinar on how I did my one-page business plan, how I got the numbers from that plan on my budget sheet that I created and use as well as my forecast sheet. Putting those three together in showing people how it’s done could be very helpful for people as they start to look at their business plan and grow. It takes time to get that initial cashflow going. It’s when it starts compounding is when you can start to see a lot of benefits and gain. Like everyone says, this isn’t a get rich quick business by any means. It takes time. It’s like a train. Once you get that momentum behind you, you can start to move that needle.

Let’s think about what are tidbits that we can leave everyone with. This may never come up for some people but we are looking to buy a house in Rural, Indiana and there is a septic system on there. I don’t know anything about septic systems but we found out that if there’s anything wrong with the septic system, we’re in big trouble because it would cost a minimum of $18,000 to replace it. What I learned from this and what I want to share with everyone is that it’s always a good idea, when you have any kind of unusual situation, to find a professional in that area and have a conversation with them. We are going to test this. We’re going to get this thing inspected and we’re going to know for sure before we pull the trigger and buy this house what we’re in for. There was a point where the seller was assuring me that all was fine and I was listening to it because I liked the house. You have to resist the urge to be reassured by people who have a vested interest in you being reassured.

My tidbit is when you’re evaluating a tape, make sure to look at all the factors including the principal and interest payment. I’ve seen individuals get notes under an agreement where the principal and interest payment was very low because of the interest rate on it. The note was pretty much performing. It was a few months behind but then the seller came back to me and said, “This one’s under an agreement for this price.” I almost fell off my chair because the payback on it was about twenty plus years before they would get the money back. There are, of course, extenuating circumstances in every aspect of the business for what I target and returns. I was talking with an investor and he targets 40%. I was like, “There’s no way you can get it,” but his business plan is different because if he takes the property back, he’ll renovate it and he’ll fix it. He’ll either rent it for six months a year and sell it or he’ll sell it. You’ve got that factor in it as well.

When you hear people talk about what they’re getting for returns, it can be completely a variation on what their business plan is because doing what that person does is the most profitable when you look at it holistically. You’ll also look at how much time did they have to put in to get that money and would you be better off using that time elsewhere? It completely depends on each person. I’m not knocking it anyways. I know this person. He’s a good friend and I trust him in this business and he’s killing it right now.

Let’s plan to have him on to talk about it and we’ll pick it apart. Thank you so much, Chris. It’s been great chatting with you again. To all our audience, thank you for tuning in. We love seeing those views and knowing that you’re out there. From me and Chris to all of you, go out there and do some good deeds.

Thank you.