Marco Bario of Porch Swing Funding: How We Are Helping To Make Housing More Affordable

Photo Credit: Erik Borzi (erikborzi.com)

The thoughts in my head work for me, not the other way around — There was a personal growth exercise I participated in once where we were given what looked like a children’s coloring book drawing of a bus. We were asked to write the names of all the voices in our heads into the various seats.

In many large cities in the US, there is a crisis caused by a shortage of affordable housing options. This has led to a host of social challenges. In this series called “How We Are Helping To Make Housing More Affordable” we are talking to successful business leaders, real estate leaders, and builders, who share the initiatives they are undertaking to create more affordable housing options in the US.

As a part of this series, we had the pleasure of interviewing Marco Bario.

Marco Bario is the President of Porch Swing Funding, a mortgage note investment firm specializing in seller financing. Before becoming a full-time real estate and real estate note investor, he worked for many years as a Producer and Executive in the Hollywood entertainment industry. Moving from the world of storytelling to becoming a part of people’s personal stories through real estate is something he wishes he began earlier in life.

Thank you so much for doing this with us! Before we dig in, our readers would like to get to know you a bit more. Can you tell us a bit about your “backstory”? What led you to this particular career path?

I began my professional life working in the Hollywood entertainment industry. Like many before me, I started as a “Runner.” I picked up lunches, delivered scripts, and was motivated to work hard to pursue bigger opportunities.

I worked my way up quickly. In not too many years, I became a “Line Producer” — the person responsible for turning each week’s new script into a finished television episode. I lasted in that role for two seasons, but I was young and in over my head. Even if I’d been older at the time, I don’t think that job was the ideal role for me. My superiors agreed. Although I walked away feeling I’d been punched in the gut, the experience was invaluable.

From “production,” I shifted to “post-production.” I was approached to take a role with a large company called Technicolor (they invented color film over a century ago.) It was an exciting time because digital processes in film post-production were beginning to take over the old laboratory “optical” processes. We were among those at the forefront with new technology and the talent that made it sparkle. Suddenly, I was responsible for generating revenue and part of the team that managed profitability. I loved it.

Working at Technicolor planted my early entrepreneur seeds, but the post-production industry requires lots of capital, and technology becomes outdated faster and faster. Also, as much as I enjoy working with teams of people, I’ll admit I also developed the itch to think for myself and work more directly with clients and customers.

This led me down a path of trying different entrepreneurial pursuits until I found what fit. Real estate is actually about people more than property. Understanding the finance side of real estate allows me to support homeownership, and choosing the seller-financed world as I have takes banks and other large institutions out of the equation. It’s about people working with people. I realize most transactions aren’t seller-financed, but last year (in 2020), almost $24B worth of seller-financed real estate transactions closed. That’s a big enough market for me.

Can you share the most interesting story that happened to you since you began your career?

Yes. I still smile thinking about it.

My primary business involves marketing to individuals who sold a house and agreed to accept payment in installments over time. That’s what seller-financing is. When the sale closes, the seller no longer owns “property.” Instead, they hold “paper” secured by the real estate they once owned. Their loan is another type of asset that can be bought or sold just like a house, car, or anything else.

Anyway, when noteholders call to inquire about selling their loan, I always ask why they are interested in selling.

A seller told me that she and her now-deceased husband had owned a home in Ohio, but she decided to move to Utah to be closer to her daughter and grandchildren when he passed. She sold the house in Ohio and carried back the financing to have an interest-generating income stream.

When she arrived in Utah, she soon understood how busy her daughter was working as a nurse practitioner, not to mention being a busy Mom. My client didn’t get the time with her daughter she’d hoped for.

Meanwhile, during that time, my client (who was adopted) took a DNA test which revealed that she had a large group of biological family members living in Arizona. She decided to visit them. Upon discovering that she enjoyed their company, she decided to move to Arizona!

My client was selling her mortgage note to raise money to purchase a house in Arizona near her biological family, who she had never met until recently.

Are you able to identify a “tipping point” in your career when you started to see success? Did you start doing anything different? Are there takeaways or lessons that others can learn from that?

70% of my business involves marketing and talking with individuals. I love talking to individuals, but marketing is a grind. In the beginning, I’d start and stop marketing. But I have a couple of mentors who emphasize consistency. Of course, they are right. When I began marketing more consistently, it began to look like a business.

The transition I’ve made has involved continued learning about real estate and investing. However, that’s just the start; it’s also involved learning about marketing, and most importantly, learning about myself so that I can course-correct mindset issues as they arise.

None of us are able to achieve success without some help along the way. Is there a particular person to whom you are grateful who helped get you to where you are? Can you share a story about that?

Part of this will sound strange, but I’m going to share it anyway.

My mother grew up in a tiny town in Michigan yet found her way to a career working in Washington DC for one of Michigan’s most prominent senators, then as a deputy press secretary in the White House. After that, she became an entrepreneur.

My mom worked in politics. I worked in entertainment. We both became entrepreneurs. I feel she modeled a path similar to what I’ve followed.

However, my mother’s influence didn’t stop with the example she set. Almost every other mentor or influential person in my professional and personal life has been a woman exhibiting the qualities of my mother. I’m sure she has channeled her energy through others over the years.

Do you have a book, podcast, or talk that’s had a deep impact on your thinking? Can you share a story with us? Can you explain why it was so resonant with you?

“Rich Dad, Poor Dad” by Robert Kiyosaki has taken its share of criticism over the years. Still, it’s the first book that made me look differently at money and realize that I had received almost no financial education in the first 40+ years of my life.

Today’s popular concepts like passive income and defining wealth as having enough income-generating assets so that you no longer “need” to work are all offshoots of the book.

I would never have started my own business if not for “Rich Dad, Poor Dad.”

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

Here’s what being an entrepreneur, and so many other things, is to me:

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

― Theodore Roosevelt

Ok super. Let’s now shift to the main part of our discussion about the shortage of affordable housing. Lack of affordable housing has been a problem for a long time in the United States. But it seems that it has gotten a lot worse over the past five years, particularly in the large cities. I know this is a huge topic, but for the benefit of our readers can you briefly explain to our readers what brought us to this place? Where did this crisis come from?

Like a fast pitch baseball traveling in slow motion, the issues have been coming on for some time:

1. Today our economy relies more on services, information, and intellectual property rather than the production of physical goods as it once did.
2. Real estate demand follows jobs. The companies that drive our economy are clustered in and around large urban areas. Think Bay Area, Los Angeles, Eastern Corridor, etc. You’re also seeing migration by companies and, therefore, workers to tax-advantaged and lower-cost locations like Austin, DFW, Phoenix, and Las Vegas. Housing prices in those areas are rising accordingly.
3. By 2030, all 73 million of our baby boomers will be age 65 or older. Not only are there a lot of them, but our seniors are remaining at home longer than previous generations. This has made a significant impact on the single-family housing market.
4. Affordable housing also includes the rental market. Now we’re talking single-family and multifamily (apartment buildings) housing. When it comes to multifamily, the land is expensive in urban areas, and regulations, permitting, and land use entitlements drive new construction costs higher. This creates a situation where development projects are only viable at the “A” level.
5. Finally, when interest rates are low, and we increase money creation, as has been the case for many years, asset prices rise quickly. You see it in the housing market as well as the stock market. Those who owned assets emerging out of the great recession rose with the tide. Those who didn’t were separated further by a growing wealth gap. The US Federal Reserve has only recently begun to talk about it.

Can you describe to our readers how your work is making an impact to address this crisis? Can you share some of the initiatives you are leading to help correct this issue?

For a buyer to obtain bank or other institutional financing, the stars have to align:

1. Sufficient down payment, or prepared to pay mortgage insurance premiums
2. Proof of W2 income or a significant income history as a business owner
3. Sufficient credit score and history
4. Sufficient “debt to income” level (the total of your monthly bills vs. your income)
5. Property that will pass the underwriting process. Mobile homes with land, older houses needing lots of repairs, and some other types of properties will not. Very rural properties can be an issue as well.

Especially in the affordable housing market, many people and properties do not meet the criteria. Potential buyers may be self-employed, they may pay all their bills on time but not have a credit history, or they may be short on the down payment. However, handled correctly, a seller wanting to create a win-win situation can utilize a third-party loan underwriter to verify a potential buyer’s ability to repay and generate income for themselves by offering seller-financing.

Last year, in 2020, there were more than 84,000 1st position seller-financed real estate notes created.

I’m in that count somewhere, because last year I also sold a house with seller-financing. In my case, I sold an old New England farmhouse that no institutional lender would have been able to finance due to the outdated electrical wiring and other issues.

Knowing that the house needed work and wanting to give an opportunity to new homeowners, I sold to first-time buyers who were up for the challenge of bringing an old beauty back to life. The husband builds houses for a living, and the wife owns a business that cleans them. It was a perfect match.

But I do more than just create the occasional seller-financed note. My company buys seller-financed mortgage notes from individuals wishing to sell their loans. Having a secondary market where one can sell a note motivates sellers to create more of them.

I also consult (often for free) with homeowners and investors interested in offering seller-financing. I’m exploring ways I can scale this up. There are advantages for buyers and sellers alike. Some of the benefits for sellers include faster closings, receiving monthly cash flow and interest income, and potential tax advantages (talk to your advisor.) I’d like to get that word out there. I’d like to see more individuals directly helping other individuals in their communities or elsewhere. It’s hard to cut through the marketing budgets of the largest institutional lenders–but in addition to building more housing, offering seller financing is a way to put deserving first-timers in affordable homes.

Can you share something about your work that makes you most proud? Is there a particular story or incident that you found most uplifting?

I’ve already shared the story about the woman I helped live close to her biological family. That made me proud.

What also makes me proud is that I found something I love to do that relates to something as important as people’s homes. There’s someone in my industry who I admire who often says, “there’s a heartbeat in every home.” So true. There’s also a story, which often I’m lucky enough to become a part of.

In your opinion, what should other home builders do to further address these problems?

I don’t build homes, but I am a businessperson, and I know what it means to worry about keeping the doors open to fight another day. Builders can only invest when they feel comfortable they will see a return.

I’d like to see a collaborative environment for builders where economics support building affordable housing. Communities, local governments, and federal officials need to make it a priority. We’ll have to address wages too. Unless we do both of these things, the wealth gap will continue to widen, and the homeless situation will worsen. Where I live in Los Angeles, our homeless problem is a big crisis that seems to be getting bigger.

Can you share three things that the community and society can do to help you address the root of this crisis? Can you give some examples?

1. This may not be the answer you’d expect, but I review many borrower credit reports in my line of work. When borrowers are in trouble, it’s too frequently due to unpaid medical bills. I’m no expert in the solution, but I can tell you that a household already paying upwards of 50% (many do) of income toward housing expenses can’t take on the burden of unexpected and significant medical costs. I’ll get to affordability in the following two responses, but things will continue to worsen unless we get a handle on medical expenses.
2. Urban areas need more housing and to upgrade their transportation systems. The housing statement is obvious, and I believe it is as simple as fast-tracking land entitlements and permits and providing financial incentives to developers who build affordable housing. I’m not naïve, however, and I understand putting this into effect is difficult politically. Upgrading transportation allows more people to live further from the urban center where land is cheaper but not feel like they’re losing out because of commute times.
3. Finally, I’d like to see more homeowners and buyers educated about the opportunities seller financing provides. Think of the benefit to our communities when sellers support buyers by giving them a secured opportunity that doesn’t involve institutional funding. And think of the investment benefits to sellers who would otherwise hold the sale proceeds as cash or in something such as a low-interest paying CD. Seller financing isn’t suitable for every buyer or seller, but it could be more significant than it is. I realize the mortgage industry wouldn’t be happy if it were. This is the biggest hurdle.

If you had the power to influence legislation, are there laws which you would like to see introduced that might help you in your work?

Great question. The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in 2010 to curb Wall Street abuses, which led to the Great Recession of 2007–2010. Unfortunately, there was collateral damage to the “mom and pop” world of seller financing.

Following guidelines, an individual wishing to sell their residence to another using seller financing must hold a mortgage loan origination or similar license. So long as the seller follows precise underwriting procedures and avoids specific loan terms, said individual may sell up to 5 properties in a 12-month period.

One family member may not sell to another using seller financing without following the guidelines. Also, a real estate investor who builds or rehabs affordable properties with the intent of selling and offering financing is limited to a small number per year.

An industry group is working with legislators now on a law that would address Dodd-Frank issues relating to seller financing. Of course, they have my support.

What are your “5 things I wish someone told me when I first started leading my company” and why? Please share a story or example for each.

VIDEO HERE: https://vimeo.com/549796293

1. The thoughts in my head work for me, not the other way around — There was a personal growth exercise I participated in once where we were given what looked like a children’s coloring book drawing of a bus. We were asked to write the names of all the voices in our heads into the various seats. I realized then that my “critic” voice was driving my bus. To get where I wanted to be, I needed to be in that seat. There are times still where I visualize myself dragging my critic from the driver’s seat to one in the very back of the bus.
2. Smile — I talk to a lot of people on the phone. Before starting every call, I turn my head to the side and force a huge smile. It works with emails too. I find that it puts me in a better space, and those I’m communicating with respond to the shift.
3. Invest in experience — I didn’t start my current career until well into my 40s. I knew what I wanted to do, but I was scared to the point of feeling paralyzed in the beginning. I then began to think about how elite athletes train. How many pitches must a power hitter swing at to achieve mastery? How many races will a sprinter run before they win gold medals? This mindset shift enabled me to pursue opportunities without feeling I needed to hit each one out of the park. Instead, I view each as another valuable turn at-bat.
4. Invest in failure — At times, I’ve failed. I still work at it, but today I’m much better at viewing each failure as an investment. In real estate, sometimes there can be real money attached. I’ll say to myself: “Well, that was a $5,000 lesson,” or whatever the dollar amount. I try hard to minimize the lessons that cost money, but I expect there will be more.
5. You have to kiss a lot of frogs — The saying is, “You have to kiss a lot of frogs to find your prince.” Sometimes investors, especially new ones, have analysis paralysis. When that happens, I can spend too much time looking for the perfect deal and end up doing no deals at all. I’ve learned to go for singles and doubles rather than try to make each deal a home run. When I do, the occasional prince will emerge. It’s a welcome surprise when he does. Also, this motivates me to pursue as many leads and marketing methods as possible. I never know where each new at-bat could lead.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

I’m a fan of Habitat for Humanity’s model, where new homeowners participate in constructing their homes and then make affordable mortgage payments once they move in. More of this, please… where community members support one another and those receiving the most significant benefits contribute directly.

Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might just see this, especially if we tag them. :-)

Magic Johnson. He’s used his influence to invest in communities where others never wanted to. Also… I mean, he’s Magic Johnson ;)

How can our readers further follow your work online?

I love to talk real estate and seller financing. Please do feel free to reach out.

My business is Porch Swing Funding: https://porchswingfunding.com

I’m also in the early stages of launching a website dedicated to seller financing and creative real estate investing. Stay tuned for that.

This was very meaningful, thank you so much, and we wish you only continued success.

Thank you for touching on the topic of affordable housing. I’m honored to have contributed.