HARD TO SELL ASSETS. A blog about a confusing assortment of topics including: buying and selling; minerals; money; jointly held property; real estate notes; other odd investments; and life in West Texas.
My wife and I made it a goal to pay off our home in our mid-thirties and it took a while for it to fully sink in when we accomplished our goal. It was a wonderful feeling to know that the bank no longer owned our home. It gives me great satisfaction to know that my wife and children will be able to stay in our home should something happen to me. The weight that is lifted off of you when you don’t owe anything to anyone is amazing. The sense of freedom you experience when car payments, student loan payments and mortgage payments are in your rear view mirror is something else.
There is a mathematical argument for taking more risks with investments when you are young and going for a higher rate of return than you can get by paying off your mortgage. You don’t have to be a financial nerd like myself to see that a 10%+ return in the stock market is better than paying off a mortgage with a 4% interest rate from a purely mathematical standpoint. The truth is, that a lot of folks who buy into the mathematical argument either underestimate risk or don’t actually invest the funds they would otherwise put on their mortgage. It is hard to spend year after year making extra payments on your debt when it seems like everyone around you is putting their extra income into consumption/lifestyle. Although it is not for everyone, we certainly do not regret going down that path.
So how did we pay off our student loans and mortgage by 35?
- We worked hard to avoid “lifestyle creep”. I’ve been very blessed to have worked in prestigious law firms. A very nice income is a huge asset when you are paying off debt. When we went from being poor college students to having a nice income we noticed that most of our friends that also had nice incomes wanted a prestigious law firm lifestyle. The “normal” thing for a new lawyer with undergrad and law school debt to do after joining a law firm and making a nice salary is to go sign up for more car debt, get as nice of a home as they can afford and invest heavily in their lifestyle and appearances. When you have sacrificed to “make it big” it is easy to justify spending thousands of dollars on clothes, amazing vacations etc. It is easy to justify buying timeshares, joining cruise clubs, and generally paying for a lifestyle that shows you have arrived. My friends who enjoy a very high standard of living have a lot of fun and some of them have made a calculated and intentional decision that they will never make a serious effort to pay off debt. That may be fine for them, but something that is very important to me is having a lifestyle that is easily sustainable because it gives me so many more options for the kinds of things I want to do…such as helping others pay off their debt that desire to do so, allowing my wife to be a stay-at-home mom and spending more time with my children than I could otherwise.
- We have thick skins. Sure, we got made fun of from time to time for not “living like a lawyer” or “living like an attorneys wife”…but we had a goal that was more important to us than what other people thought.
- We sold stuff. While we were working hard to pay off debt we didn’t keep many of our difficult to sell assets – we found ways to get them sold, even if it didn’t seem like there was a market. We got creative in figuring out ways to find the value and markets for assets such as small real estate notes, small non-producing mineral interests and undivided interests in real estate and minority interests in closely held entities. It can take a huge amount of time and effort, but finding a way to sell your stuff that most people don’t want to buy can help create cash to pay off debt or fund your own dreams or needs. So now we have a side business helping people do just that.
- We were blessed. Financial challenges during the time we were working to pay off our debt included the birth of three children, large unexpected medical expenses and going from a two income household to a one income household. Despite a few setbacks, we were blessed in having a good income and not having any catastrophes. Lady Luck certainly has a role in meeting any goal. One thing that helped us avoid small road blocks becoming bigger obstacles, was our commitment to always keeping an emergency fund of 3 to 6 months of expenses.
We have been very fortunate to be able to meet our goal of becoming debt free at a relatively early age. It may not be for everyone but it was a very rewarding and worthwhile goal for us.
We recently had an appraiser value an undivided interest in West Texas ranch land. The appraiser discounted the interest by 50%. So that means that if the whole value of the land would have been worth 100,000, a 25% interest would be worth $12,500 rather than 25,000. Why would that be? Well, the truth is a jointly held interest is rarely worth the full value of the whole underlying property.
For example, let’s say you own the 25% interest in the ranch land above. Maybe for $10,000 of court and survey fees you can partition off your part of the land to sale. Assuming you are now able to sell property you own 100% of for $25,000, you are still out the 10,000 of expenses which brings your net down to $15,000. And that wouldn’t take into account all the time and effort involved in a partition proceeding, hiring an attorney, hiring a surveyor etc. On top of that you run the risk that the piece of the property you end up with will not sell for as much per acre as the whole ranch. Perhaps the ranch land has fences and once you partitioned your property you would have to build more fences to demand the same price per acreage you might be able to demand for the whole property.
SRR, well known professional appraisers, published a great, detailed article on discounts for undivided interests:
Overall, the lack of control associated with an undivided interest leaves the unsatisfied investor with one of three options with respect to achieving liquidity: 1) sell the ownership interest to the other co-tenants; 2) attempt to locate another willing investor; or 3) if possible, conduct a potentially protracted and expensive partition lawsuit.
An undivided interest also suffers from a lack of marketability when compared to a fee-simple interest. This lack of marketability is primarily attributable to the following:
- No established market for undivided interests
- Obtaining financing for an undivided interest is more difficult than for a fee-simple interest
- Co-tenants may be jointly and severally liable for the debt obligations of the asset
- Negative consequences associated with suing for partition of the asset
- Creditors of individual co-tenants may be able to force the sale of the asset
I recently had the pleasure of having a conversation with Mr. B, a gentleman in his late 80s who I know to be happy, wealthy and wise. Most people would consider Mr. B. a success by any standard. He is a warm, thoughtful and intelligent man with a lot of life experience. When he told me he had 5 tips for success and happiness I had to hear them and share them.
Religion. Mr. B is a Christian and believes that his Christianity has greatly contributed to his happiness and success. Being involved in his church and being a man of faith have helped him immensely.
Being Married and picking a good spouse. Picking great spouses and being married is something Mr. B. considered to be a great part of his success. He pointed out that men especially benefit in this area. Mr. B. recommended that his children and grandchildren looked for educated, stable spouses. He also said be sure to look for someone with a stable family if possible. Studies back up that married men typically are happier, live longer, have better health and make more money than single men.
Passion for accomplishing your goals. Mr. B. told me that for ultimate success and happiness he felt you must be persistent and passionate about setting and reaching goals. If you don’t set goals you are unlikely to stumble into success. If you don’t have passion you may get close to your goals but you are less likely to reach them.
Education. Mr. B. is a firm believer in the value of education. Both formal and self-taught education can create tremendous opportunities. But see: Article in the Times saying formal education has not been linked to happiness. I’ve certainly seen both very happy and very successful people with little formal education. Most successful people with little formal education have done a great job of educating themselves.
Community Involvement. Finally, Mr. B. believes it is extremely important to be involved in one’s community. He said that the real value you find in life is in what you can do for others, whether that is by providing useful expertise, volunteering at your search, being involved in city government etc. The ties that we have to others are what matters in life.
Those are five wise and beneficial tips for success and happiness courtesy of Mr. B. What would be in your top five?
Have you ever noticed abandoned or severely dilapidated houses that stand apart from their communities? I’m talking about the homes you see where someone clearly spent significant money to purchase them or to pay off a mortgage over a number of years. How do these homes come to a point of such severe neglect that they lose so much of their value and ultimately become unlivable? My theory is that many of our abandoned and severely neglected homes are the result of people inheriting undivided interests in the home. An undivided interest is defined as a “…claim of ownership of commonly-owned assets or property where each co-owner has unrestricted claim to all the assets or the entire property but no co-owner has exclusive claim to any single asset or part of the property.” It is definitely something we see here in Midland, Texas and in West Texas in general.
Inheriting an undivided interest in a home has become extremely common. There are two ways this typically happens here in Texas. One common occurrence is for someone to draft a will that leaves their children or their children and their spouse an equal share in their property. An even more common occurrence is for someone to pass away without a will, leaving an undivided ownership in their estate to their heirs. If everyone gets along and agrees to sell the house or share expenses in maintaining the house this can work out for the families. Unfortunately, things can and often do, become much messier.
Here are a few examples I see often:
(1) Stepmom has a homestead right to live in the house for the rest of her life can not afford or chooses not to maintain the home. Children do not want to go to the significant expense of maintaining the home for the rest of Stepmom’s life and the home falls into disrepair.
(2) Children inherit undivided interest in a home together. Only one child wants to live in the home. Child promises to pay rent to siblings but never does or doesn’t for long. Child can’t afford to maintain the home and siblings who get no benefit from the home have no reason to maintain it. Once again the home falls into severe disrepair.
(3) Children inherit an undivided interest in a home and no one lives close enough to maintain it. One child prevents the sale of the home for sentimental reasons. Other children do not want to pay for an expensive partition lawsuit to force a sale and the home falls into disrepair.
More often than not, heirs who do not or are unable to come up with a plan to sell or maintain a property will find that the property will succumb to neglect and lose more and more value each year. I believe that many of the abandoned homes you see are the result of families unwilling to take action to salvage the value of a property. It isn’t surprising why many people never see any benefit of their inheritance of an undivided interest in a home. They go to a realtor and are told they can’t sell without the other heirs agreeing to the sell. They go to the other owners and are rebuffed. They go to a lawyer and are asked to put down a large retainer for an expensive lawsuit in which they must sue their relative. In the past they may have even looked for someone willing to by their undivided interest and found no one.
Part of why we started this business was that we could not find anyone willing to buy undivided interests in homes or other real property online or otherwise. We bought the domain name undividedinterests.com (as well as hardtosellassets.com) and decided we wanted to be part of the solution to helping people move towards financial freedom by letting them know that we willing to make offers on undivided interests in homes and other real property that others might snub their nose at. Sometimes we make cash offers and sometimes we offer to pay for an option to purchase the property while we investigate ownership and options. In most cases it is best to sell as soon as possible before the property falls into severe neglect. Even undivided interests in property which has fallen into severe neglect may have value, but it is almost always easier to help save a property than to bring it back.
Special thanks to to FriendinPetrochemicalIndustry for writing this guest article
Universal Truths of Selling: Know Your Market, Fill a Need and Follow Through
I am very proud of my longtime friend and his business partner who started this side business that combines their skills and passion to help people in West Texas offloading their Hard to Sell Assets.
As someone who has contemplated embarking on a similar endeavor (starting my own business) and has consulted with private business owners within the petrochemical industry for guidance, I would like to share several insights I was given and things i have learned along the way. These are generic guidelines that are applicable across multiple industries (and to one’s personal life as well):
Know your product / market
Knowledge of one’s product is important. If you can’t answer technical questions there at least should be someone within the company who can. Having technical knowledge will always differentiate somebody who is only pushing product by price. Aside from knowing a product’s use, knowing what alternatives there are and what the competition is promoting is also important. Keeping up with industry trends, prices, technologies and more is always helpful.
Fill a need / solve a problem
There are many deciding factors when purchasing decisions are being made, among them: price, quality (includes a product’s reliability, reputation and lifespan), lead time, and much more. These factors apply to purchasing a car or home and in the business sector. Yes, price matters, but it is not the only factor. What customers need and want is for their need(s) to be met and/or problem(s) to be resolved. Ask your customer about problems they are facing and what they are looking for. Present them with options and explain to them what your product or solution does for their problem(s).
If there is no need for a product, it can’t be given away (e.g., non-Texas Tech merchandise in Red Raider Nation).
As you help your customers out by filling their needs and solving their problems one becomes indispensable and one’s reputation for getting results grows.
Keep your word / follow through
Many times people try to oversell their product and in the process make promises they can’t’ (or don’t intend) to keep. This hurts one’s reputation and business in the long run. As Warren Buffet famously said… “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently”
Whether one is in real estate, retail, or other type of business, a lot of new business comes from referrals. Clear lines of communication and setting realistic expectations helps avoid unmet expectations (and losing recurring business). Never forget that your reputation is your currency.
Although these may be generic guidelines they are helpful reminders as to the core of a business that sells assets – meeting a customer or buyer’s needs. That really is the core of well-run businesses in every industry. I am glad to hear that hardtosellassets.com is meeting a need in the Permian Basin.
What is “financial freedom”? For some people financial freedom means paying off all of their debt. Dave Ramsey, radio host and author of books such as The Total Money Makeover, is a huge advocate of paying down debt. Dave tells fans to live like no one else so later you can live like no one else. Robert Kiyosaki, author of the Rich Dad Poor Dad series, sees financial freedom as obtaining income streams sufficient to meet all of your personal goals. I see financial freedom somewhere in between…paying off enough of your debt and creating enough passive income to have the security of knowing that the basic needs of yourself or your family can be met. Obtaining such independence usually requires setting goals and deciding which assets help you on the path to financial freedom and which assets hold you back or keep you from paying down your debt.
When we were working through Dave Ramsey’s baby steps my wife and I evaluated our assets when we were in the stage of paying off debt. Ramsey tells listeners that when you’re getting out of debt or building up your emergency fund you should “…sell so much stuff the kids think they’re next!” We realized we had all kinds of stuff around the house we didn’t use and that it was easy enough get rid of that by having garage sells. Other assets that weren’t making us money took much more hard work and creativity to liquidate. We realized we needed a team with a background in law, finance, real estate, and oil and gas. As we worked through selling tiny interests in closely held entities and very difficult to sell real estate we realized that we had put together a unique skill set and that we might actually be able to make a living helping other people liquidate hard to sell assets and help them unlock value in those assets to meet their own goals.
Financial freedom is still possible in America. Midland, Texas and West Texas in general are full of opportunities and potential. The reality is that most people do not luck into financial freedom. We are blessed to already be in a land of opportunity. Financial independence normally requires sacrifice, hard work and intense focus. It may require working really hard to get things sold. It may require people questioning your sanity when you dedicate money and effort towards your goal of financial freedom rather than immediate gratification. At the end of the day though, moving toward financial freedom and the things you learn along the way may be even more satisfying than obtaining it.
I was recently asked if we will buy distressed properties that are in the foreclosure process or about to be sold for delinquent taxes. The answer is yes, sometimes we can offer cash for a property that is about to be foreclosed on or sold due to past due property taxes. Sometimes we can even work out a way for the seller to remain in a home as a tenant. It just depends on the situation. The most important thing to remember about these types of situations is that time is of the essence. Once the foreclosure process is finalized and eviction notices have been issued, there is usually nothing we can do. Don’t delay in contacting us and don’t waste a potential solution for a bad situation.
Interesting Article in the news today from Quicken Loans: Buying a House with Friends
“In order to remove your name, you’ll need to either sell the house or refinance the loan under the other person’s name. Both are time consuming and costly. You might not be able to sell your home, and your friend might not be able to qualify for a refinance on their own. Like it or not, you might be stuck with your portion of the bill.”