Notes from a Seminar (Day 2) – the best laid plans …

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We discovered yesterday that internet access at the venue was a bit spotty, and my machine was spottier than most. Here’s what happened after I left off yesterday morning:

Business Alchemy: The Game

We spent the afternoon playing the Business Alchemy game. The game helps people explore themselves and the members in their group, with a goal of finding the intersection of talent, passion and product.

As this was the first time we have introduced this game into a seminar, we were excited (and a little nervous) at how participants would react. Fortunately everyone rose to the occasion and played full-out. Coming back for the final wrap, here’s just a few of the many comments people had about their experience and their a-ha! moments:

Lin didn’t know about her personal assets. She was amazed, touched and gratified that her group was able to point out things she didn’t even realize about herself.

Rob found that his group was made up of business owners in various stages of success. But regardless of where they were on the ladder, his group was authentic. Their willingness to give was natural, and their humanness came out for everyone to see. It was cool to see those qualities shine through.

Craig learned that his common denominator to achieving his goals was fear. Each time he conquered a fear and got past it, he could then go on to achieve his goal.

Tony’s group had an interesting session. His a-ha! moment was that there is risk in everything, and when you become transparent the risks increase – especially with new people you are building a relationship with. The opportunity to become transparent is special, because the more you open up, the more that can come to you.

Shahab’s a-ha! moment was discovering that achieving a goal begins with being very specific about what you want to achieve. He’s had great success in his life, but didn’t know why he was unhappy. During the game he learned that he was bored. He’d achieved his goals, but hadn’t remembered to make new ones. Without something to strive for, he got stuck.

How to Induce a Collective Staff Heart Attack

It’s not often that you can leave an entire seasoned seminar crew completely speechless. We had set up some communications gear at the front of the room, and camouflaged underneath a small black box. Coming to the stage, Sharon Lechter remarked on our “pedestal” and climbed up on it to take a better look at the audience. What she didn’t realize was that the box was made out of collapsible cardboard! It happened so fast we couldn’t do much more than gasp, while visions of injured guest stars flashed across our minds. Fortunately, both Sharon and our communications gear survived the experience. In fact, we’re not even sure she knew it wasn’t a real pedestal. But just in case, we’ll locate that particular piece of gear somewhere else next time!


Sharon’s encore performance this morning featured her new passion, the YouthPreneur project. This new program is designed to teach financial literacy and early business skills to our children. This is an area sadly lacking in the U.S. education system, where only 7 states require even a rudimentary financial education course to graduate. By not educating our kids about money we fail them. 80-something percent of boomer parents are supporting adult children financially, and yet 94% of young people report their parents as their only source of financial education. It doesn’t take a degree in rocket science to see that we aren’t teaching them what they need to know.

What Do Mortgage Bankers Think About on Sunday Mornings?

Back from a break, Morgan Smith and Aaron Van Trojen came to the stage. For those of you who haven’t (yet) had the pleasure of making their acquaintance, Morgan is a financial genius who created a mortgage brokerage business shortly after graduating from college and went on to build it into a major market force, providing loans in the billions of dollars and opening some 275 branches along the way. Where other mortgage companies floundered or sunk altogether, Morgan’s company prospered until its sale in late 2006. Morgan is currently amusing himself by creating his own private bank, and buying up failed banks along the way. Aaron Van Trojen was Morgan’s very first branch manager, and has also been bitten by the banking bug. Not to be outdone, Aaron is also in the process of finalizing his own mortgage bank.

The way Morgan sees it, we’re on the edge of a fantastic investing opportunity for smart investors who are positioned financially. Their goal today was to help participants understand the state of the market, and how to make it work for them.

Like Sharon, Morgan and Aaron had some frightening numbers. A year ago, 75% of loans were being made to investors, and were outside Freddie Mac, Fannie Mae, or Ginny Mae. Today that number is closer to 10%. A year ago Aaron wasn’t originating any loans through Freddie, Fannie, or Ginny – he was working exclusively through portfolio lenders. Today those numbers are 75% originating with Fannie May and 25% come through Ginny May (the FHA). Portfolio lenders are nowhere to be seen on this picture.

Of course, given that all three of these companies are propped up by government money, the rules around who gets a loan are getting tighter, not to mention confusing, as both government and private lenders interpret the rules a little differently. Stated income loans are illegal in several states, and the spectacular failure of mortgage investors (from 1700 two years ago, to 10 today) has taken most investors out of the market altogether.

Despite the doom and gloom, both Morgan and Aaron see signs of hope – so much so that they’ve created a new real estate business to buy undervalued, distressed properties and get people back into homes. There are still some financing alternatives, even for stated income investors. While devaluation has taken its toll, properties at the low end of the market are moving, even in places like Phoenix, which saw some of the most rapid appreciation (and the deepest depreciation). Rent-to-own deals, which were impossible just two years ago (when anyone could get a mortgage) are now back in full swing. Regardless of the foreclosure rate, one thing remains constant: everyone’s gotta live somewhere. Investors just have to work harder than before.

Are You a Real Estate Professional or Not?

After lunch, Diane came back to the stage with information the state of the IRS. She explained how the IRS was turning the old rules around what did and didn’t count as real estate activities on their heads, and how the IRS now distinguishes between activities that count for real estate professional status, and activities that are considered regular investment activities. She also made it clear to the attendees that there are TWO tests to meet … the 750 hour test and the material participation test. Most people have been so focused on meeting the 750 hour test that they have often overlooked the material participation test. This hasn’t gone unnoticed by the IRS, who have discovered that rigidly enforcing the new material participation rules equates to more dollars in the treasury.

Just as with financing, the secret to meeting the new rules is knowledge – understand how circumstances have changed, and change with them.

And now, Taxes!

Moving from real estate professional tax status to taxes generally, we spent most of the remaining time discussing tax changes. If it feels like we’re all getting picked on … well we are! Our state and federal governments are broke, and the next big fights are shaping up to be interstate tax issues, along with increased payroll and social security taxes. Both presidential candidates are talking about increases to personal taxes, yet both are also talking about decreasing corporate taxes. Changes to alternative minimum tax over the years have made it more or less inapplicable to businesses, even as it hits more and more Americans personally each year. Just as real estate investors seem to be falling out of favor with the government, business owners seem to be coming into favor.

Other things to watch for were independent contractor challenges (the IRS is making it easier than ever for independent contractors to claim employee status instead) and destination taxing (traditionally sales tax applies at the point of sale; under destination taxing it is applied at the point of receipt). Business location and entity location are going to become important again, as states position themselves to attract more business.

We closed out the seminar with a discussion of charitable causes and philanthropy. One of the greatest parts of growing a successful business is the ability to share the good times with people around you. David Kennedy-Cooley shared news about the orphanages in Juarez, Mexico, that his charity, Thunder Mission, supports. There was good news and bad news on that front, which was bittersweet.

Coming Soon

We’ll be making the audio available for free to all participants, along with some other goodies, including Sharon Lechter’s Powerpoint presentation, the Business Alchemy Game Rules and a special new product, “1000 Tax Deductions, Credits and Saving Opportunities.” For those of you who want to learn more and experience the weekend from beginning to end, you’ll have an opportunity, too. We’ll be making the audio (and more) available for purchase through our site soon!


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