Market News & Commentary by Chris McLaughlin, September 29, 2008
http://www.shortsalesriches.com/welcome.html
Financial and credit markets are in crisis. Congress failed to pass the Administration's bailout today. Fear, panic, and calamity overcame investors as many threw in the towel after the US House of Representatives gave a stunning rebuke to the Bush Administration as well as Congressional leadership. The Dow Jones Industrial Average plunged 777.68, nearly 7%, and the S&P 500 dropped 8.79%.
Investors were wondering what bank was going to be next after Citigroup announced that it would scoop up Wachovia for just $1 a share (Wachovia shares plunged over 81% today). But Citigroup is not necessarily getting the bank for cheap--it must write down much of Wachovia's $312 billion loan portfolio.
So let's take a deep breath. All within a month Fannie Mae, Freddie Mac and AIG are owned by the government. Washington Mutual is gone, bought on the cheap by JP Morgan. Lehman Brothers is history. Bear Stearns was already history. Wachovia's shareholders have been wiped out and are now Citigroup shareholders for pennies on the dollar. Brand names that Americans recognize are gone. All within a month. Wow.
What's next? You can see that regional banks are under intense pressure. Banks like Fifth Third dropped '43% today, First Federal Financial dropped 25% and KeyCorp plunged 33%. "Who's next?" is now the topic of conversation across the nation.
If you're trying to get a sense about the level of anxiety about economic activity, just look at energy prices. Crude oil dropped $10 a barrel today as many believe that with the slowing economy so too will there be less gasoline and oil used. Crude oil has dropped over 20% in just the past two weeks.
Now, on to our Realtor and investor education section...
Now that the stock market is in utter chaos, typically investors look again to "hard assets" like gold and housing to invest in. Many of you reading this are either investors or realtors ... so let's take the approach of understanding how to best advise clients to get into real estate versus gold.
On September 17th, gold recorded the largest ever advance as it soared $120 within a 24-hour period. Just a few months ago, gold reached a record-breaking $1,000 plus per ounce for a short period of time. Considered by many to be "Gods Money," gold has enjoyed a long and illustrious career as a "hedge" during periods of rapidly escalating inflation or other economic uncertainty but does it deserve the reputation? Should you run to liquidate holdings and buy gold bullion? Most of all...how does it compare to real estate when the going gets tough?
To answer these - and maybe a few other burning questions - today we will spend a little time discussing real estate and gold as a hedge during uncertain economic times. Every portfolio has room for both but use these facts when deciding what percentages to allocate to each:
Fact #1: Real Estate as an Index. The Gold Standard is long gone. Whatever your opinion of removing the dollar from the gold standard, the fact is the dollar is a fiat currency without a gold backing. That has been - and remains - the current state of affairs. The fiat - or paper currency - has not been backed by gold for decades and despite the occasional lone voice crying in the wilderness, little serious attention has been given to restoring the currency to a gold-backed standard.
During a period of time when many doom-and-gloom types are calling for a complete collapse of the dollar, savvy real estate investors may well turn to the Weimar Republic as a working example of what happens after a currency collapses: Germany turned to real estate (rather than gold) holdings as the foundational index for the newly created currency!
Fact #2: Shelter is a Primal Need. As any student of psychology or human behavior knows, during times of uncertainty, people tend to seek out the most basic needs of food, clothing and shelter. Although gold is an item of intrinsic value, it does not compare to that of shelter. The worse the economy - the more people return to the values of home and hearth.
In fact, much of the value of gold is due to its ability to be used as a unit of exchange for food, clothing and shelter during times of need. On the other hand, if you own real estate - ie, shelter, land able to grow food, water and other essentials then you have the most sought after commodity of all.
Fact #3: Gold can - and has - dropped significantly in the past. Like all recent investments, gold has seen highs and lows. Real estate has experienced 20 percent drops in price but so has gold. Looking back at the late 70's and early 80's, gold momentarily reached a high of $845 per oz only to steadily decline for the next 20 years when it finally bottomed out at approximately $250 per oz...NOT adjusted for inflation!
On the other hand, while real estate also experienced a sharp price increase during the late 70's and early 80's it then remained stagnant for approximately a decade - barely keeping pace with inflation (but still managing to hang on). Those who held gold rather than real estate - lost.
Remember, those who don't learn from history are doomed to repeat it. Learn the lesson from Weimar Germany, the United States in the late 70's and early 80's and even man himself...men steal gold but go to war for land.
So let's get this straight. Mom and Pop don't have much money anymore, but what little money they do have is now losing money and now banks aren't safe. Credit has tightened beyond all recognition and the thought of getting a loan that isn't government backed is laughable.
But it is the single biggest gift many of us will ever be given in our lifetime! Wherever the public runs one way, I say run the other. And I have made a lot of money because of it. It is time to buy foreclosures and start understanding how short sales can build major wealth. It is time to get excited about being a Realtor or real estate investor again!
So we're going to do it again tomorrow night (Tuesday). We're hosting a Webinar (you need a computer and a phone to participate). Last week's webinar was nearly sold out, so if you're interested in learning how to make money in this market jump on this now and register while we still have openings:
https://www2.gotomeeting.com/register/759612505
The webinar will be both Nathan and I discussing how you can turn this crazy market into the biggest opportunity in a lifetime. It begins at 9 PM ET (6 PM PST) so that our friends on the West Coast can join us, too. Sorry if you're East Coast you might have to stay up a little late but the fr.ee content is well worth it!
So remember ... in this market, you can now buy low, and not only sell high, but sell fast. And that means less risk, less holding costs, and money in the bank. But you have to do more than read this and agree ... you need to take action, too.
See you at the top!
Excuses Be Gone
Monday, September 29, 2008
Friday, September 26, 2008
Bye Bye WaMu. It was nice knowing you.
Bye bye, WaMu. It was nice knowing you.
Washington Mutual finally went bust - everyone was expecting it, and its stock had been in the tank for months. But it finally happened. Any who benefited? Certainly not WaMu shareholders...but it looks like JP Morgan Chase will be the winner here. JP Morgan Chase bought WaMu's $307 billion in assets and $188 billion in deposits for a mere $1.9 billion, which actually goes to the FDIC. The bank will also re-capitalize by selling some of its stock to raise $8 billion.
The combined entities will have 5,400 branches in 23 states. JP Morgan shares jumped 10% on the news, as investors believe the company continues to gobble up assets on the cheap that will ultimately provide a solid shareholder return.
But the fall of WaMu certainly could put more investors in a panic and tighten up liquidity. The good news is that the White House says that by Monday a deal should come together.
In the latest political twist, a group of conservative house Republicans, led by Representative Boehner, said that instead of buying the illiquid securities the government should just insure them. Other proposals have reduced the proposed $700 billion to $250 billion with another $100 billion provided at the President's discretion and a final $350 billion would be provided after the next President is elected (subject to Congressional approval). We'll know more Monday.
Wachovia also tanked today, as shares slid 31%. Investors are still nervous that Wachovia's 2006 purchase of Golden West Financial, which has $122 billion in exposure to subprime mortgages, could lead to the company's ruin. But in after-the-bell news the New York Times reported Wachovia is in early talks with Citigroup to be acquired. Looks like the only ones making money these days in New York are the mergers & acquisition attorneys.
In real estate news (although all this news is related to real estate!), KB Home reported a 56% decline in revenue. "These difficult conditions have now been exacerbated by the recent, unprecedented turmoil in financial and credit markets," said Chief Executive Jeffrey Mezger. The company lost $144.7 million for the three month period ending August 31st. But in typical Wall Street fashion, the results weren't as bad as some were expecting, so the stock closed up 1.89% today.
Now on to a real estate discussion...
I'm still hearing from people, Chris, how does this all affect my business? I'm a realtor...I'm a real estate investor. Or I'm thinking about getting into real estate investing. Is now the best time?
Folks, there's never been a better time! When equity markets are awful, and investors are looking for hard assets, where do you think they are going? Well, precious metals that's for sure. But don't forget about bricks and mortar. Some investor pulls out $500,000, does a self-directed IRA into real estate, and gets a 8% to 10% return on the cash just based on rent alone. Then they get the upside appreciation, too.
I'm telling you. Read me loud and clear: when financial markets plunge, the real estate market will be the beneficiary. Just watch. Only so much money can go to gold.
Or better yet, start taking action!
So who gets us out of this mess? You do. If you're reading this, you're probably a real estate agent or investor. Once you get going, and do your thing, and start telling people that the real estate market is A LOT more stable than the stock market, you'll begin to make sense.
And guess what else? Banks are tanking. They have to unload nonperforming assets. So short sales will become easier. REO's will become plentiful. And realtor bank accounts will start filling up, not depleting.
So hang in there. Sure it is painful for your 401(k), but you better be able to make it back in spades with the opportunity you've got in front of you.
See you at the top!
Washington Mutual finally went bust - everyone was expecting it, and its stock had been in the tank for months. But it finally happened. Any who benefited? Certainly not WaMu shareholders...but it looks like JP Morgan Chase will be the winner here. JP Morgan Chase bought WaMu's $307 billion in assets and $188 billion in deposits for a mere $1.9 billion, which actually goes to the FDIC. The bank will also re-capitalize by selling some of its stock to raise $8 billion.
The combined entities will have 5,400 branches in 23 states. JP Morgan shares jumped 10% on the news, as investors believe the company continues to gobble up assets on the cheap that will ultimately provide a solid shareholder return.
But the fall of WaMu certainly could put more investors in a panic and tighten up liquidity. The good news is that the White House says that by Monday a deal should come together.
In the latest political twist, a group of conservative house Republicans, led by Representative Boehner, said that instead of buying the illiquid securities the government should just insure them. Other proposals have reduced the proposed $700 billion to $250 billion with another $100 billion provided at the President's discretion and a final $350 billion would be provided after the next President is elected (subject to Congressional approval). We'll know more Monday.
Wachovia also tanked today, as shares slid 31%. Investors are still nervous that Wachovia's 2006 purchase of Golden West Financial, which has $122 billion in exposure to subprime mortgages, could lead to the company's ruin. But in after-the-bell news the New York Times reported Wachovia is in early talks with Citigroup to be acquired. Looks like the only ones making money these days in New York are the mergers & acquisition attorneys.
In real estate news (although all this news is related to real estate!), KB Home reported a 56% decline in revenue. "These difficult conditions have now been exacerbated by the recent, unprecedented turmoil in financial and credit markets," said Chief Executive Jeffrey Mezger. The company lost $144.7 million for the three month period ending August 31st. But in typical Wall Street fashion, the results weren't as bad as some were expecting, so the stock closed up 1.89% today.
Now on to a real estate discussion...
I'm still hearing from people, Chris, how does this all affect my business? I'm a realtor...I'm a real estate investor. Or I'm thinking about getting into real estate investing. Is now the best time?
Folks, there's never been a better time! When equity markets are awful, and investors are looking for hard assets, where do you think they are going? Well, precious metals that's for sure. But don't forget about bricks and mortar. Some investor pulls out $500,000, does a self-directed IRA into real estate, and gets a 8% to 10% return on the cash just based on rent alone. Then they get the upside appreciation, too.
I'm telling you. Read me loud and clear: when financial markets plunge, the real estate market will be the beneficiary. Just watch. Only so much money can go to gold.
Or better yet, start taking action!
So who gets us out of this mess? You do. If you're reading this, you're probably a real estate agent or investor. Once you get going, and do your thing, and start telling people that the real estate market is A LOT more stable than the stock market, you'll begin to make sense.
And guess what else? Banks are tanking. They have to unload nonperforming assets. So short sales will become easier. REO's will become plentiful. And realtor bank accounts will start filling up, not depleting.
So hang in there. Sure it is painful for your 401(k), but you better be able to make it back in spades with the opportunity you've got in front of you.
See you at the top!
Thursday, September 25, 2008
Market News & Commentary Compliments of My Friend Chris McLaughlin of ShortSalesRiches.Com
Market News & Commentary by Chris McLaughlin, September 25, 2008
http://www.shortsalesriches.com/welcome.html
All eyes were on Washington, D.C., today as President Bush urged lawmakers to come together in a bipartisan manner to back the Administration's $700 billion Mortgage Bailout Plan. Bush met with lawmakers and invited both Presidential contenders Barrack Obama and John McCain to the White House for a full briefing.
Investors were pleased with the progress, sending the Dow Jones Industrial Average up 197, or 1.8%. But after the market closed, Senator Richard Shelby, a Republican from Alabama and Chairman of the Senate Banking Committee, emerged from the White House and said that there was no bailout agreement reached during the meeting. He then proceeded to strongly speak out against it. So hold on to your hats -- tomorrow's market may send a different signal if the plan is in trouble.
In real estate news, new home sales continued their downward slide. A government report shows that new homes sales were at their lowest point in 17 years, at a seasonally adjusted annual rate of 460,000, which was down from 520,000 in July. Only 39,000 new homes were sold in July, the lowest since December of 1991. The report also noted that median new home prices continued to slide, down 5.5% to $221,900, from $234,900 in July.
In a positive sign, inventory continued to shrink to 405,000, a level not seen since August of 2004. This drop in inventory is a positive sign for most Realtors and investors, as there will be fewer brand new homes selling at fire-sale prices from developers unable to make their interest payments.
Now on to our Realtor and investor tips, tricks, and traps for Realtors and investors...
Short Sales and Valuation Models
When it comes time to prepare a short sale offer, many novice investors or buyers are uncertain how to demonstrate a proper valuation model. Chances are your bank will prefer one method, the property tax office another and (of course) you will want to use the model which most benefits your position.
Take time to run various scenarios before making your final offer or when presenting your financial portfolio for review. Depending upon the situation, the numbers can present a dramatically different picture.
Here are a few alternative valuation models to consider:
Replacement Cost. This works very well when adding an older property or a major "fixer" to your portfolio. For example; an average price of a 1,000 square foot home in the late 70's or early 80's was often only $40 per square foot or $40,000. Today, the starting price to replace the same home would be at least $100 per square foot or $100,000. To calculate the replacement costs, you can use insurance industry averages or calculate the current cost to rebuild the property on the same lot including impact fees, labor, supplies, taxes etc...
Tax Assessed Values. This can work for or against you so be cautious. Properties that were recently sold at higher prices may have inflated tax assessed values which can make them appear more valuable than the current market price. On the other hand, when purchasing a short sale or foreclosure for resale, a high tax assessed value may make your asking price seem very competitive.
Comp Values. Most real estate agents use comparable sales data to determine home prices. Comp values are simply the average sales prices of similar sized homes within the same general area.
Income Potential. Another alternative valuation model is to determine the income potential of the property; essentially, what would the property rent for if placed on the market? If the rental rate plus anticipated vacancies, repairs, maintenance plus PITI would cover the mortgage then it is considered a strong "buy" opportunity.
Return on Investment or ROI. Another common method typically used by commercial investors is to calculate the return on investment or ROI. Using a simple example, if the total out of pocket cash expenditure was $20,000 and you made $2,000 then the ROI would be 10 percent - a rate considerably above the stock market this year!
Whatever valuation model you select, remember to maximize the numbers when showing banks or financial institutions your numbers and minimize when negotiating the purchase price of a property.
More tomorrow...
See you at the top!
http://www.shortsalesriches.com/welcome.html
All eyes were on Washington, D.C., today as President Bush urged lawmakers to come together in a bipartisan manner to back the Administration's $700 billion Mortgage Bailout Plan. Bush met with lawmakers and invited both Presidential contenders Barrack Obama and John McCain to the White House for a full briefing.
Investors were pleased with the progress, sending the Dow Jones Industrial Average up 197, or 1.8%. But after the market closed, Senator Richard Shelby, a Republican from Alabama and Chairman of the Senate Banking Committee, emerged from the White House and said that there was no bailout agreement reached during the meeting. He then proceeded to strongly speak out against it. So hold on to your hats -- tomorrow's market may send a different signal if the plan is in trouble.
In real estate news, new home sales continued their downward slide. A government report shows that new homes sales were at their lowest point in 17 years, at a seasonally adjusted annual rate of 460,000, which was down from 520,000 in July. Only 39,000 new homes were sold in July, the lowest since December of 1991. The report also noted that median new home prices continued to slide, down 5.5% to $221,900, from $234,900 in July.
In a positive sign, inventory continued to shrink to 405,000, a level not seen since August of 2004. This drop in inventory is a positive sign for most Realtors and investors, as there will be fewer brand new homes selling at fire-sale prices from developers unable to make their interest payments.
Now on to our Realtor and investor tips, tricks, and traps for Realtors and investors...
Short Sales and Valuation Models
When it comes time to prepare a short sale offer, many novice investors or buyers are uncertain how to demonstrate a proper valuation model. Chances are your bank will prefer one method, the property tax office another and (of course) you will want to use the model which most benefits your position.
Take time to run various scenarios before making your final offer or when presenting your financial portfolio for review. Depending upon the situation, the numbers can present a dramatically different picture.
Here are a few alternative valuation models to consider:
Replacement Cost. This works very well when adding an older property or a major "fixer" to your portfolio. For example; an average price of a 1,000 square foot home in the late 70's or early 80's was often only $40 per square foot or $40,000. Today, the starting price to replace the same home would be at least $100 per square foot or $100,000. To calculate the replacement costs, you can use insurance industry averages or calculate the current cost to rebuild the property on the same lot including impact fees, labor, supplies, taxes etc...
Tax Assessed Values. This can work for or against you so be cautious. Properties that were recently sold at higher prices may have inflated tax assessed values which can make them appear more valuable than the current market price. On the other hand, when purchasing a short sale or foreclosure for resale, a high tax assessed value may make your asking price seem very competitive.
Comp Values. Most real estate agents use comparable sales data to determine home prices. Comp values are simply the average sales prices of similar sized homes within the same general area.
Income Potential. Another alternative valuation model is to determine the income potential of the property; essentially, what would the property rent for if placed on the market? If the rental rate plus anticipated vacancies, repairs, maintenance plus PITI would cover the mortgage then it is considered a strong "buy" opportunity.
Return on Investment or ROI. Another common method typically used by commercial investors is to calculate the return on investment or ROI. Using a simple example, if the total out of pocket cash expenditure was $20,000 and you made $2,000 then the ROI would be 10 percent - a rate considerably above the stock market this year!
Whatever valuation model you select, remember to maximize the numbers when showing banks or financial institutions your numbers and minimize when negotiating the purchase price of a property.
More tomorrow...
See you at the top!
Market News & Commentary Compliments of My Friend Chris McLaughlin of ShortSalesRiches.Com
Market News & Commentary by Chris McLaughlin
The Presidential candidates both fell over each other today trying to see which one could be the most bipartisan. Democratic nominee Barrack Obama called Republican nominee John McCain offering to issue a joint statement on the proposed Bailout plan. McCain then beat Obama to the punch a few minutes after the phone conversation and announced to the media that he was all for a joint statement, while also suggesting that the debate this Friday be delayed so that they could work together on the economic problem the country faces. "It has become clear that no consensus has developed to support the administration's proposal," McCain stated. "I do not believe that the plan on the table will pass as it currently stands, and we are running out of time." McCain said he would return to Washington this Thursday to focus on putting a deal together. No word yet on Obama's plans.
In real estate news, the National Association of Realtors (NAR) announced that national home sales dropped 15% in August from the year ago period and the median price declined 9.5% to $203,100. There was a 2.2% decline for the August over July period. Lawrence Yun, NAR chief economist, noted that interest rates rose in August from July, but the recent bailout of Fannie and Freddie has led to a significant drop in interest rates, which should help housing affordability.
"However, home sales will be constrained without a freer flow of credit into the mortgage market. The faster that happens, the sooner we'll see a broad stabilization in home prices that in turn will help the economy recover," Yun said.
Now for our educational tidbit today ... we're going to focus on things that show up at the last minute when doing short sales...
When it comes to short sales, there are a few lions and tigers and bears for the buyers to be aware of but with a little planning and preparation you will have nothing to fear. In fact, use this quick checklist to stay alert to potential profits while walking away from common pitfalls that trip the unsuspecting.
1. Taxes. Taxes come in all shapes and sizes when it comes to short sales, bankruptcy and foreclosure; from property taxes to Federal Income tax liens, the property may be encumbered by a variety of taxes which could impact the deal. While property taxes are relatively easy to deal with, large Federal income tax liens may not be worth the hassle and headache required to clear the property, although we have done several where the US Treasury was willing to do a lien release (and partial lien release). Do your homework to determine the viability of the project and be sure to set aside funds to cover any taxes that become your responsibility with the transfer of the property.
2. Liens. Make no assumptions when it comes to liens; even brand new homes may have mechanics liens from builders or developers that failed to pay sub-contractors. Homeowners may have contracted improvements or work ranging from simple repairs to full blown upgrades. Other common liens include HOA fees, utility assessments, etc... Liens often become the responsibility of the buyer so take time to investigate potential liens when negotiating for the purchase price of the home. And I can tell you one thing about HOAs: they are a pain! Think about it: these typically are retirees with way too much time on their hands. They will spend $2,000 in legal fees putting a lien on a property for a $350 lien. I've seen it time and again. Recently we faced a situation where the HOA wanted to charge $200 for a payoff letter that would be given to our title company. I always advise my clients that if they are able, PLEASE STAY CURRENT on HOA fees, they are more trouble than they are wo
rth when it comes to eliminating them at closing.
3. Permits. Improper work permits, zoning violations and other irregularities have resulted in higher than anticipated expenses for more than one buyer; understand what work was done, by whom and in accordance to what standards before making an offer. Work performed without proper permits or out of accordance to modern building standards should be considered a liability rather than an asset in today's competitive market.
4. Easements & Restrictions. Know what you are buying before making an offer. Although it sounds simple enough, irregular parcels, easements and other restrictions can be tough to track down especially in rural areas or when property was transferred within a family. Homeowners associations frequently place restrictions on the use or transfer or property which may also impact your plans - take time to understand what is and isn't allowed before making an offer.
5. HELOC's, 2nd's and Other. Distressed homeowners may have Home Equity Lines of Credit, 2nd or even 3rd mortgages plus a host of other potential liabilities that could impact the deal. Make a point of understanding - and explaining - how each is likely to impact the outcome of the deal for you and the current owner. Not only is it the right thing to do but it also increases the likelihood of a successful closure. I know of one sad situation where a homeowner was unable to make their first payment but had enough to make their payment on the 2nd. Not understanding the priorities of lien, the homeowner stayed current on their 2nd mortgage but not on their first! It is important that you NEVER tell any client to not make their payments, but in a situation like the one described you can explain lien priority and the client can draw their own conclusions.
More tomorrow...
See you at the top!
Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
e-mail: info@shortsalesriches.com
P.S.: Did you hear about our amazing Webinar that we're doing tomorrow night at 9 PM ET (6PM PST)? It is f.ree of charge to you! Nathan Jurewicz and I will be live on the web explaining the Top 5 Traps to Short Sales Investing, and we'll have some new information that you won't want to miss out on. We only have room for 20 more seats, so if you're interested please go now to: https://www2.gotomeeting.com/register/798484502
P.P.S.: Have you thought about building an investor-focused short sales business? There's never been a better time. Go now to http://www.shortsalesriches.com/html and take action today! Call me on my cell at (863) 698-6592 if you have any questions. Call anytime.
The Presidential candidates both fell over each other today trying to see which one could be the most bipartisan. Democratic nominee Barrack Obama called Republican nominee John McCain offering to issue a joint statement on the proposed Bailout plan. McCain then beat Obama to the punch a few minutes after the phone conversation and announced to the media that he was all for a joint statement, while also suggesting that the debate this Friday be delayed so that they could work together on the economic problem the country faces. "It has become clear that no consensus has developed to support the administration's proposal," McCain stated. "I do not believe that the plan on the table will pass as it currently stands, and we are running out of time." McCain said he would return to Washington this Thursday to focus on putting a deal together. No word yet on Obama's plans.
In real estate news, the National Association of Realtors (NAR) announced that national home sales dropped 15% in August from the year ago period and the median price declined 9.5% to $203,100. There was a 2.2% decline for the August over July period. Lawrence Yun, NAR chief economist, noted that interest rates rose in August from July, but the recent bailout of Fannie and Freddie has led to a significant drop in interest rates, which should help housing affordability.
"However, home sales will be constrained without a freer flow of credit into the mortgage market. The faster that happens, the sooner we'll see a broad stabilization in home prices that in turn will help the economy recover," Yun said.
Now for our educational tidbit today ... we're going to focus on things that show up at the last minute when doing short sales...
When it comes to short sales, there are a few lions and tigers and bears for the buyers to be aware of but with a little planning and preparation you will have nothing to fear. In fact, use this quick checklist to stay alert to potential profits while walking away from common pitfalls that trip the unsuspecting.
1. Taxes. Taxes come in all shapes and sizes when it comes to short sales, bankruptcy and foreclosure; from property taxes to Federal Income tax liens, the property may be encumbered by a variety of taxes which could impact the deal. While property taxes are relatively easy to deal with, large Federal income tax liens may not be worth the hassle and headache required to clear the property, although we have done several where the US Treasury was willing to do a lien release (and partial lien release). Do your homework to determine the viability of the project and be sure to set aside funds to cover any taxes that become your responsibility with the transfer of the property.
2. Liens. Make no assumptions when it comes to liens; even brand new homes may have mechanics liens from builders or developers that failed to pay sub-contractors. Homeowners may have contracted improvements or work ranging from simple repairs to full blown upgrades. Other common liens include HOA fees, utility assessments, etc... Liens often become the responsibility of the buyer so take time to investigate potential liens when negotiating for the purchase price of the home. And I can tell you one thing about HOAs: they are a pain! Think about it: these typically are retirees with way too much time on their hands. They will spend $2,000 in legal fees putting a lien on a property for a $350 lien. I've seen it time and again. Recently we faced a situation where the HOA wanted to charge $200 for a payoff letter that would be given to our title company. I always advise my clients that if they are able, PLEASE STAY CURRENT on HOA fees, they are more trouble than they are wo
rth when it comes to eliminating them at closing.
3. Permits. Improper work permits, zoning violations and other irregularities have resulted in higher than anticipated expenses for more than one buyer; understand what work was done, by whom and in accordance to what standards before making an offer. Work performed without proper permits or out of accordance to modern building standards should be considered a liability rather than an asset in today's competitive market.
4. Easements & Restrictions. Know what you are buying before making an offer. Although it sounds simple enough, irregular parcels, easements and other restrictions can be tough to track down especially in rural areas or when property was transferred within a family. Homeowners associations frequently place restrictions on the use or transfer or property which may also impact your plans - take time to understand what is and isn't allowed before making an offer.
5. HELOC's, 2nd's and Other. Distressed homeowners may have Home Equity Lines of Credit, 2nd or even 3rd mortgages plus a host of other potential liabilities that could impact the deal. Make a point of understanding - and explaining - how each is likely to impact the outcome of the deal for you and the current owner. Not only is it the right thing to do but it also increases the likelihood of a successful closure. I know of one sad situation where a homeowner was unable to make their first payment but had enough to make their payment on the 2nd. Not understanding the priorities of lien, the homeowner stayed current on their 2nd mortgage but not on their first! It is important that you NEVER tell any client to not make their payments, but in a situation like the one described you can explain lien priority and the client can draw their own conclusions.
More tomorrow...
See you at the top!
Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
e-mail: info@shortsalesriches.com
P.S.: Did you hear about our amazing Webinar that we're doing tomorrow night at 9 PM ET (6PM PST)? It is f.ree of charge to you! Nathan Jurewicz and I will be live on the web explaining the Top 5 Traps to Short Sales Investing, and we'll have some new information that you won't want to miss out on. We only have room for 20 more seats, so if you're interested please go now to: https://www2.gotomeeting.com/register/798484502
P.P.S.: Have you thought about building an investor-focused short sales business? There's never been a better time. Go now to http://www.shortsalesriches.com/html and take action today! Call me on my cell at (863) 698-6592 if you have any questions. Call anytime.
Wednesday, September 24, 2008
Tuesday, September 23, 2008
Real Estate vs Bonds and the Flight to Safety
Wall Street continued to send its messages of anxiety to Capitol Hill today, with the Dow Jones Industrial Average dropping 161.52 to 10,853, or 1.47%. But in a positive sign for the Bush Administration, legendary investor Warren Buffett told CNBC's Becky Quick, when asked about the $700 billion bail-out: "It's what I would do if I were there."
In real estate news, the Office of Federal Housing Enterprise Oversight's House Price Index showed that home prices slipped 5.3% over the last 12 months ending in July and slipped .6% from June to July. This is the largest decline since another period that ended in April 2007 (the index began in January 207). All regions were affected, giving further proof that the decline in prices is a national rather than regional issue.
Now, on to today's real estate educational tip...
Real Estate versus Bonds and the Flight to Safety
The recent financial crisis has many investors seeking "safety" above returns as the emphasis shifts from creating above average returns to preserving capital. As millions of Americans watch their stocks, bonds, retirement accounts and general investment portfolio's drop by 10 or even 20 percent (or more) they are turning to the safety of Treasury Bonds. Is this the best an investor can hope for? Is it even wise? Let's take a critical look at short sales versus the "safety" of Treasury Bonds to see if the numbers really add up.
Treasury Bonds
The flight to government securities has taken on a new urgency as investors seek safety above returns. While it is true that the principle amount is guaranteed by the "full faith and credit of the United States government", not everyone would agree that government bonds are truly safe. In fact, some may argue they are some of the most risky investments possible.
Few people would argue the low yield of Treasury or Savings Bonds leave much to be desired especially when adjusted for inflation. Even if you agree with the governments estimated rate of inflation as recorded on the CPI, the real return on government securities is close to zero...in fact, last week it went negative for a short period! Since inflation is not calculated into the "profit" but rather the nominal rates only, taxes earned on the "profit" further reduce yield leading to an actual loss of purchasing power. Let's use a deliberately simplistic example to demonstrate.
Assume you had $100,000 to invest into treasury backed securities with a current rate of inflation at 5 percent and a yield of 4 percent. At the end of one year, the balance in the account would grow to $104,000 showing a "profit" of $4,000 which is then taxed at a minimum of 15 percent or $600 for a total of $103,400.
However, inflation of only 5 percent (the government estimate is higher and most analysts put it into double digits) means that $103,400 can now only purchase $98,230 worth of goods. In only 12 short months you have actually lost nearly $1,800 of purchasing power. Unfortunately, the actual numbers are much worse since inflation is rising rapidly. As the real rate of inflation approaches double digits, the actual loss of purchasing power can reduce your investment by half in as few as five to seven years!
Short-Sales & Real Estate
Now let's examine real estate. Let's assume you had the same $100,000 to spend and used it to put 20 percent down on five short sale properties (a nice hefty sum to be sure...and with the Short Sale System something you can likely avoid) with an average price of $200,000 each. Let's further assume that each of these properties was formerly priced at $250,000 and have each lost $50,000 prior to being indexed to the current rate of inflation. Since this is a short sale, we will assume the sales price is close to the actual value of the property today but notice, even if it continued to fall for a short period of time, you have other options available to offset the losses (tax incentives for example).
You now control $1 million of real estate. "Real" or physical assets tend to increase in value with inflation as it drives the cost of goods and services to higher and higher levels. Using the same 5 percent rate of inflation, the holdings would grow by 50k in just the first year alone...nearly ½ your total cash outlay!
This is a very simplistic example but it demonstrates the power of inflation to build or destroy wealth. Throughout history there have been two primary means to building wealth in this nation: building a corporation or building real estate holdings.
So where do you go with this information? What are you doing right now to help investors understand that it is time to move money away from equities and into real estate? Are you continuing on the sidelines of real estate hoping for a market rebound, or are you mastering the market of the moment and learning everything you can about short sales and REOs? I hope it is the latter.
See you at the top!
Republished with permission from the following:
http://www.shortsalesriches.com/welcome.html
In real estate news, the Office of Federal Housing Enterprise Oversight's House Price Index showed that home prices slipped 5.3% over the last 12 months ending in July and slipped .6% from June to July. This is the largest decline since another period that ended in April 2007 (the index began in January 207). All regions were affected, giving further proof that the decline in prices is a national rather than regional issue.
Now, on to today's real estate educational tip...
Real Estate versus Bonds and the Flight to Safety
The recent financial crisis has many investors seeking "safety" above returns as the emphasis shifts from creating above average returns to preserving capital. As millions of Americans watch their stocks, bonds, retirement accounts and general investment portfolio's drop by 10 or even 20 percent (or more) they are turning to the safety of Treasury Bonds. Is this the best an investor can hope for? Is it even wise? Let's take a critical look at short sales versus the "safety" of Treasury Bonds to see if the numbers really add up.
Treasury Bonds
The flight to government securities has taken on a new urgency as investors seek safety above returns. While it is true that the principle amount is guaranteed by the "full faith and credit of the United States government", not everyone would agree that government bonds are truly safe. In fact, some may argue they are some of the most risky investments possible.
Few people would argue the low yield of Treasury or Savings Bonds leave much to be desired especially when adjusted for inflation. Even if you agree with the governments estimated rate of inflation as recorded on the CPI, the real return on government securities is close to zero...in fact, last week it went negative for a short period! Since inflation is not calculated into the "profit" but rather the nominal rates only, taxes earned on the "profit" further reduce yield leading to an actual loss of purchasing power. Let's use a deliberately simplistic example to demonstrate.
Assume you had $100,000 to invest into treasury backed securities with a current rate of inflation at 5 percent and a yield of 4 percent. At the end of one year, the balance in the account would grow to $104,000 showing a "profit" of $4,000 which is then taxed at a minimum of 15 percent or $600 for a total of $103,400.
However, inflation of only 5 percent (the government estimate is higher and most analysts put it into double digits) means that $103,400 can now only purchase $98,230 worth of goods. In only 12 short months you have actually lost nearly $1,800 of purchasing power. Unfortunately, the actual numbers are much worse since inflation is rising rapidly. As the real rate of inflation approaches double digits, the actual loss of purchasing power can reduce your investment by half in as few as five to seven years!
Short-Sales & Real Estate
Now let's examine real estate. Let's assume you had the same $100,000 to spend and used it to put 20 percent down on five short sale properties (a nice hefty sum to be sure...and with the Short Sale System something you can likely avoid) with an average price of $200,000 each. Let's further assume that each of these properties was formerly priced at $250,000 and have each lost $50,000 prior to being indexed to the current rate of inflation. Since this is a short sale, we will assume the sales price is close to the actual value of the property today but notice, even if it continued to fall for a short period of time, you have other options available to offset the losses (tax incentives for example).
You now control $1 million of real estate. "Real" or physical assets tend to increase in value with inflation as it drives the cost of goods and services to higher and higher levels. Using the same 5 percent rate of inflation, the holdings would grow by 50k in just the first year alone...nearly ½ your total cash outlay!
This is a very simplistic example but it demonstrates the power of inflation to build or destroy wealth. Throughout history there have been two primary means to building wealth in this nation: building a corporation or building real estate holdings.
So where do you go with this information? What are you doing right now to help investors understand that it is time to move money away from equities and into real estate? Are you continuing on the sidelines of real estate hoping for a market rebound, or are you mastering the market of the moment and learning everything you can about short sales and REOs? I hope it is the latter.
See you at the top!
Republished with permission from the following:
http://www.shortsalesriches.com/welcome.html
Monday, September 22, 2008
King Henry & The Great Bailout: What's next for Short Sales???
Dear Robert,
You gotta love John Stewart regardless of your politics. He kinda summed it up best:
"Funny story. You know all that money that we've been giving to the banks. They don't have it anymore." -- John Stewart, The Daily Show
Before we get started, I think it is important that we talk about real estate, Realtors, and investors. Frankly, we got into this business because of the freedom it gave us, the tremendous satisfaction of being our own bosses, and the fun of closing the deal. Most of us never really enjoyed doing HUDs and preliminary closing statements; we don't particularly like math, right? Hey, I have a MBA from Georgetown, but even I don't really like math that much.
So what I'm about to talk about doesn't involve a bunch of math, but it involves some concepts that every single real estate professional needs to understand. Why? Everyone is going to be talking about this, and you need to understand it! You need to understand why there is a crisis in confidence, why capital markets are frozen, and how this all impacts housing and Main Street, not just Wall Street. Arguably the most powerful man in the world is not George Bush today, but rather US Treasury Secretary Henry Paulson. You're going to start hearing him called "King Henry" and other terms indicating his power and the rise of big government ... but you need to know why. It is time to get educated as a real estate investor on topics that really matter to your bottom line. He's gone from relative obscurity to a name that will be as well known as Obama or McCain before this is all over.
Let me be very clear. This is the worst financial crisis our nation has ever faced since the Great Depression. We're talking about a lot of things in jeopardy. Home loans, retirement accounts, 401(k)s, pension funds, credit card debt, and job creation. So please forward this e-mail on to your colleagues at your real estate firm. As long as you provide attribution to www.shortsalesriches.com/blog you can post this anywhere and everywhere. My goal is real estate investor education ... and hey, if I sell a few more courses of our short sale system courses, all the better.
Now, let's get busy talking shop...
I received an interesting question from a reader over the weekend:
"Chris, you are a lawyer, so can you tell me what the difference between the RTC that helped bail out the S&L and with this proposed huge $700 billion bailout. How will it affect me as a real estate investor doing short sales? How will it affect the realtors that I use to help re-sell my properties? Will we have less inventory?"
First, let's make sure folks understand the difference between the RTC and the proposed bailout. When the RTC was formed, it actually took possession of the assets and sold them. They would hold auctions and if you can recall, they had some nice fire sale prices for them.
Have you ever done a short sale and the loss mitigator says "Well, I have to check with the investor and I'll get back with you..." You see, the mortgage that Countrywide might be negotiating isn't necessarily owned by Countrywide Home Loans. It could very well be Mortgage Backed Security #122433542 owned by a Singapore or Hong Kong investment bank for all we know.
In this case, the government isn't going to own real estate. It will own the actual derivatives or securities that own the real estate. They will then give this mortgage backed-security to another lender to run on their behalf. So perhaps the government will say, "Ok Goldman Sachs, you run this $60 billion dollars worth of mortgage back securities on our behalf." So who wins? A lot of people. The bank or investor that is saddled with securities that aren't liquid will now have a purchaser - the government. Then they can turn around and get hired by the government to sell these. They then continue to hire realtors to perform REOs and continue to hire loss mitigators to get the pre-foreclosures off the books, too.
But let's add up our spending related to bad home loans, ok?
$700 billion for mortgage assets
$85 billion for AIG
$300 billion for Fannie Mae & Freddie Mac
$300 billion for FHA insurance for loans
$29 billion for Bear Stearns
For a total of approximately $1.3 TRILLION dollars. Wow, that's a lot of cash huh?
But before you start thinking we're all spending this money, let's remember that King Henry used to be the CEO of Goldman Sachs, the venerable real estate investment firm. He doesn't like to leave money on the table or lose it. So the $700 billion for mortgage back securities isn't a total loss of $700 billion. The government will buy them cheap, then try to resell them at least for what they bought them for. The government is buying illiquid assets which are clogging up the financial system.
The taxpayer isn't necessarily on the hook for $700 billion. This is money purchasing illiquid assets. The assets will be held and resold. The ultimate cost will be well below $700 billion. The effort is to stabilize the market, not to solve the crisis right away.
How will this impact us as realtors and real estate investors?
Folks, we just received another gift of the market shift. Why? Now you're going to start seeing banks actually lend again. Within the year you'll see banks come out with loan products that compete against FHA. Why? Now that their balance sheets will be improved, and the financial system will get unclogged, the banks will begin to lend again and take some amount of risk. So that person with a 700 credit score, who can't obtain 100% financing but has a track record of making her payments, will get that loan again.
So financing is going to become more available ... but guess what else is going to happen? In my opinion, more and more Americans are going to fall victim to this economy. Oil just spiked with a record $25 to $130 increase today over all the anxiety surrounding this bailout. The Dow Jones Industrial Average tanked 372 points today (Monday). Consumers just don't feel "wealthy" anymore as the equity in their home ... as well as the equity in their 401(k) has vanished. So get ready for a lot more short sales ... and a lot more REOs. We're in this for the next few years at minimum. That's great news for Realtors who are focused on this market and great news for real estate investors. For others ... well, we won't go there.
More tomorrow ...
Happy Production!!!
P.S.: The best way to get ahead of the curve in this economy is to master the market of the moment. That market is short sales and REOs. If you've been sitting on the sidelines and want the competitive edge to get your business back up the speed and start making serious money, check out http://www.shortsalesriches.com/welcome.html
You gotta love John Stewart regardless of your politics. He kinda summed it up best:
"Funny story. You know all that money that we've been giving to the banks. They don't have it anymore." -- John Stewart, The Daily Show
Before we get started, I think it is important that we talk about real estate, Realtors, and investors. Frankly, we got into this business because of the freedom it gave us, the tremendous satisfaction of being our own bosses, and the fun of closing the deal. Most of us never really enjoyed doing HUDs and preliminary closing statements; we don't particularly like math, right? Hey, I have a MBA from Georgetown, but even I don't really like math that much.
So what I'm about to talk about doesn't involve a bunch of math, but it involves some concepts that every single real estate professional needs to understand. Why? Everyone is going to be talking about this, and you need to understand it! You need to understand why there is a crisis in confidence, why capital markets are frozen, and how this all impacts housing and Main Street, not just Wall Street. Arguably the most powerful man in the world is not George Bush today, but rather US Treasury Secretary Henry Paulson. You're going to start hearing him called "King Henry" and other terms indicating his power and the rise of big government ... but you need to know why. It is time to get educated as a real estate investor on topics that really matter to your bottom line. He's gone from relative obscurity to a name that will be as well known as Obama or McCain before this is all over.
Let me be very clear. This is the worst financial crisis our nation has ever faced since the Great Depression. We're talking about a lot of things in jeopardy. Home loans, retirement accounts, 401(k)s, pension funds, credit card debt, and job creation. So please forward this e-mail on to your colleagues at your real estate firm. As long as you provide attribution to www.shortsalesriches.com/blog you can post this anywhere and everywhere. My goal is real estate investor education ... and hey, if I sell a few more courses of our short sale system courses, all the better.
Now, let's get busy talking shop...
I received an interesting question from a reader over the weekend:
"Chris, you are a lawyer, so can you tell me what the difference between the RTC that helped bail out the S&L and with this proposed huge $700 billion bailout. How will it affect me as a real estate investor doing short sales? How will it affect the realtors that I use to help re-sell my properties? Will we have less inventory?"
First, let's make sure folks understand the difference between the RTC and the proposed bailout. When the RTC was formed, it actually took possession of the assets and sold them. They would hold auctions and if you can recall, they had some nice fire sale prices for them.
Have you ever done a short sale and the loss mitigator says "Well, I have to check with the investor and I'll get back with you..." You see, the mortgage that Countrywide might be negotiating isn't necessarily owned by Countrywide Home Loans. It could very well be Mortgage Backed Security #122433542 owned by a Singapore or Hong Kong investment bank for all we know.
In this case, the government isn't going to own real estate. It will own the actual derivatives or securities that own the real estate. They will then give this mortgage backed-security to another lender to run on their behalf. So perhaps the government will say, "Ok Goldman Sachs, you run this $60 billion dollars worth of mortgage back securities on our behalf." So who wins? A lot of people. The bank or investor that is saddled with securities that aren't liquid will now have a purchaser - the government. Then they can turn around and get hired by the government to sell these. They then continue to hire realtors to perform REOs and continue to hire loss mitigators to get the pre-foreclosures off the books, too.
But let's add up our spending related to bad home loans, ok?
$700 billion for mortgage assets
$85 billion for AIG
$300 billion for Fannie Mae & Freddie Mac
$300 billion for FHA insurance for loans
$29 billion for Bear Stearns
For a total of approximately $1.3 TRILLION dollars. Wow, that's a lot of cash huh?
But before you start thinking we're all spending this money, let's remember that King Henry used to be the CEO of Goldman Sachs, the venerable real estate investment firm. He doesn't like to leave money on the table or lose it. So the $700 billion for mortgage back securities isn't a total loss of $700 billion. The government will buy them cheap, then try to resell them at least for what they bought them for. The government is buying illiquid assets which are clogging up the financial system.
The taxpayer isn't necessarily on the hook for $700 billion. This is money purchasing illiquid assets. The assets will be held and resold. The ultimate cost will be well below $700 billion. The effort is to stabilize the market, not to solve the crisis right away.
How will this impact us as realtors and real estate investors?
Folks, we just received another gift of the market shift. Why? Now you're going to start seeing banks actually lend again. Within the year you'll see banks come out with loan products that compete against FHA. Why? Now that their balance sheets will be improved, and the financial system will get unclogged, the banks will begin to lend again and take some amount of risk. So that person with a 700 credit score, who can't obtain 100% financing but has a track record of making her payments, will get that loan again.
So financing is going to become more available ... but guess what else is going to happen? In my opinion, more and more Americans are going to fall victim to this economy. Oil just spiked with a record $25 to $130 increase today over all the anxiety surrounding this bailout. The Dow Jones Industrial Average tanked 372 points today (Monday). Consumers just don't feel "wealthy" anymore as the equity in their home ... as well as the equity in their 401(k) has vanished. So get ready for a lot more short sales ... and a lot more REOs. We're in this for the next few years at minimum. That's great news for Realtors who are focused on this market and great news for real estate investors. For others ... well, we won't go there.
More tomorrow ...
Happy Production!!!
P.S.: The best way to get ahead of the curve in this economy is to master the market of the moment. That market is short sales and REOs. If you've been sitting on the sidelines and want the competitive edge to get your business back up the speed and start making serious money, check out http://www.shortsalesriches.com/welcome.html
Thursday, September 18, 2008
Short Sales in Real Estate vs. Short Sales on the Stock Market - An Explanation
News & Commentary, September 19th, by Chris McLaughlin
http://www.shortsalesriches.com
What a week! Aren't we glad it is Friday? If you thought as a Realtor or real estate investor you had a tough week, imagine if you worked at Lehman Brothers, AIG, or any number of major financial institutions. It was truly a historic week. And many are glad it is over.
But today was a better day than most this week. Wall Street investors applauded US Treasury Secretary Henry "Bail 'Em Out" Paulson after he announced yet another massive bail out initiative. He's bailed out Bear Stearns, Fannie Mae, Freddie Mac, and AIG. And today Paulson announced that he would form a new entity similar to the Resolution Trust Corporation (during the S&L crisis in the late 80s) that would oversee the orderly liquidation of bad mortgage related debts. This was by far the biggest move to date, as Paulson suggested that it would be "hundreds of billions of dollars." But specifics weren't available, and Paulson plans to meet with members of Congress over the weekend to start shaping the plan.
What else happened? Well, it looks like Securities & Exchange Commissioner Christopher Cox didn't like hearing chuckles from all his friends that Presidential Candidate John McCain would fire him if elected President (I guess we know who Cox will vote for in November, huh?). So Cox made a dramatic move today to show that the SEC is doing something: banning short sales of 799 financial stock.
"This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress," Cox said. The ban went into effect immediately and expires at midnight on October 2, 2008.
NOTE: THIS HAS NOTHING TO DO WITH REALTOR AND INVESTORS NEGOTIATING A SHORT SALE, OR REDUCTION IN PRINCIPAL AMOUNT OWED ON A LOAN.
Let me make this very clear: this ban on short sales has nothing to do with real estate short sales that we're primarily focused on. PLEASE FORWARD THIS E-MAIL TO REALTORS AND INVESTORS YOU KNOW, AS THERE IS MASSIVE CONFUSION RIGHT NOW. A short sale when it comes to the stock market is generally considered this: short sellers borrow stock in a company that they don't actually own and then sell it, hoping that they can buy the stock back at a lower price and make a spread on the difference. This leads to wild swings in a stock price, and perhaps an exaggerated movement--and such was the case this week when financial stocks plunged.
And a final note... As I was walking down the hallway, one of our realtors here at Keller Williams, Alison Terry, grabbed me and said: "Hey Chris, doesn't this meltdown on Wall Street mean that more people are going to be interested in real estate again?" To which I responded that she needed to go to my blog, since I mentioned that earlier in the week. Folks there is only so much gold someone can buy. Americans aren't stupid, they are incredibly smart. They will begin moving more and more assets over to things they can touch and feel. They can't touch and feel stock in Morgan Stanley, but they can touch a foreclosure they bought on Morgan Street and Stanley Drive, right?
So, stay tune in for more commentary and announcements next week. It has been a truly exciting and memorable week. And real estate will be a huge beneficiary of all the events of late.
This posting compliments of www.shortsalesriches.com/blog.
http://www.shortsalesriches.com
What a week! Aren't we glad it is Friday? If you thought as a Realtor or real estate investor you had a tough week, imagine if you worked at Lehman Brothers, AIG, or any number of major financial institutions. It was truly a historic week. And many are glad it is over.
But today was a better day than most this week. Wall Street investors applauded US Treasury Secretary Henry "Bail 'Em Out" Paulson after he announced yet another massive bail out initiative. He's bailed out Bear Stearns, Fannie Mae, Freddie Mac, and AIG. And today Paulson announced that he would form a new entity similar to the Resolution Trust Corporation (during the S&L crisis in the late 80s) that would oversee the orderly liquidation of bad mortgage related debts. This was by far the biggest move to date, as Paulson suggested that it would be "hundreds of billions of dollars." But specifics weren't available, and Paulson plans to meet with members of Congress over the weekend to start shaping the plan.
What else happened? Well, it looks like Securities & Exchange Commissioner Christopher Cox didn't like hearing chuckles from all his friends that Presidential Candidate John McCain would fire him if elected President (I guess we know who Cox will vote for in November, huh?). So Cox made a dramatic move today to show that the SEC is doing something: banning short sales of 799 financial stock.
"This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress," Cox said. The ban went into effect immediately and expires at midnight on October 2, 2008.
NOTE: THIS HAS NOTHING TO DO WITH REALTOR AND INVESTORS NEGOTIATING A SHORT SALE, OR REDUCTION IN PRINCIPAL AMOUNT OWED ON A LOAN.
Let me make this very clear: this ban on short sales has nothing to do with real estate short sales that we're primarily focused on. PLEASE FORWARD THIS E-MAIL TO REALTORS AND INVESTORS YOU KNOW, AS THERE IS MASSIVE CONFUSION RIGHT NOW. A short sale when it comes to the stock market is generally considered this: short sellers borrow stock in a company that they don't actually own and then sell it, hoping that they can buy the stock back at a lower price and make a spread on the difference. This leads to wild swings in a stock price, and perhaps an exaggerated movement--and such was the case this week when financial stocks plunged.
And a final note... As I was walking down the hallway, one of our realtors here at Keller Williams, Alison Terry, grabbed me and said: "Hey Chris, doesn't this meltdown on Wall Street mean that more people are going to be interested in real estate again?" To which I responded that she needed to go to my blog, since I mentioned that earlier in the week. Folks there is only so much gold someone can buy. Americans aren't stupid, they are incredibly smart. They will begin moving more and more assets over to things they can touch and feel. They can't touch and feel stock in Morgan Stanley, but they can touch a foreclosure they bought on Morgan Street and Stanley Drive, right?
So, stay tune in for more commentary and announcements next week. It has been a truly exciting and memorable week. And real estate will be a huge beneficiary of all the events of late.
This posting compliments of www.shortsalesriches.com/blog.
I'm Loving This Market, More and More Each Day!!!
Well you don't have to worry about AIG bringing down the Dow Jones Industrial Average anymore...the Ritz cracker just ate AIG. Yep, Kraft Foods will replace AIG in the Dow Jones next week. We've gone from insurance to mac and cheese. At least my 3 kids, all under the age of 4, will be happy.
And President Bush attempted to calm markets as well and indicated that the government bailouts of Fannie Mae, Freddie Mac, and AIG were essential to keep the economy sound. "These actions are necessary and important, and the markets are adjusting to them," the President noted.
Adjusting? Panicking seems more like it, huh?
Washington Mutual continued to find itself a suitor today, but The Wall Street Journal reported that Citigroup didn't want to get engaged just yet. Morgan Stanley is rumored to have been thinking about dating and possibly proposing to Wachovia Bank, but a few Asian banks--and perhaps that Chinese government itself, might come to the rescue of the firm.
Politics took center stage today as well. Republican Presidential candidate John McCain, seeking to put some distance between himself and President Bush, said he would fire Securities and Exchange Commissioner Christopher Cox. The chairman of the SEC serves at the appointment of the president and in my view has betrayed the public's trust," McCain stated. "If I were President today, I would fire him."
How does this affect Main Street? Well money markets are getting a little jittery these days. These funds invest in short-term corporate and government bonds, but they have taken a hit as of late due to significant redemptions. The Primary Fund RFIXX went below a benchmark of $1, which meant that if someone held money in these funds they would actually lost money, not make money. The Primary Fund had around $40 billion in withdrawals since last Friday. And Putnam Investments said it was now closing its $15 billion Prime
What good news was out there? In a move reminiscent of the Resolution Trust Corporation (remember the good ole' days of the S&L Crisis), US Treasury Secretary Henry Paulson is developing up a plan to take the bad debts from banks and investment houses and package them up for an orderly sale. That sent stocks higher today, with the Dow Jones finishing the day up over 400 points.
So let's get this straight. Mom and Pop don't have much money anymore, but what little money they do have is now losing money in what some folks thought was risk free, a money market fund, for the first time ever. Major financial institutions like Morgan Stanley and AIG are teetering. Credit has tightened beyond all recognition and the thought of getting a loan that isn't government backed is laughable.
But I still hear from some Realtors that foreclosures are just gonna be here for just 1 more year. Well, if you think they aren't here for the next 3 years, in this economy with this type of financial turmoil, you might as well grab some of those Ritz crackers and have a pity party now, because it isn't going to happen.
But it is the single biggest gift many of us will ever be given in our lifetime. Wherever the public runs one way, I say run the other.
So remember ... in this market, you can now buy low, and not sell high, but sell fast. And that means less risk, less holding costs, and money in the bank. But you have to do more than read this and agree ... you need to take action, too.
And as the headline says, I'm loving this market more and more each day. The real estate market, that is.
And President Bush attempted to calm markets as well and indicated that the government bailouts of Fannie Mae, Freddie Mac, and AIG were essential to keep the economy sound. "These actions are necessary and important, and the markets are adjusting to them," the President noted.
Adjusting? Panicking seems more like it, huh?
Washington Mutual continued to find itself a suitor today, but The Wall Street Journal reported that Citigroup didn't want to get engaged just yet. Morgan Stanley is rumored to have been thinking about dating and possibly proposing to Wachovia Bank, but a few Asian banks--and perhaps that Chinese government itself, might come to the rescue of the firm.
Politics took center stage today as well. Republican Presidential candidate John McCain, seeking to put some distance between himself and President Bush, said he would fire Securities and Exchange Commissioner Christopher Cox. The chairman of the SEC serves at the appointment of the president and in my view has betrayed the public's trust," McCain stated. "If I were President today, I would fire him."
How does this affect Main Street? Well money markets are getting a little jittery these days. These funds invest in short-term corporate and government bonds, but they have taken a hit as of late due to significant redemptions. The Primary Fund RFIXX went below a benchmark of $1, which meant that if someone held money in these funds they would actually lost money, not make money. The Primary Fund had around $40 billion in withdrawals since last Friday. And Putnam Investments said it was now closing its $15 billion Prime
What good news was out there? In a move reminiscent of the Resolution Trust Corporation (remember the good ole' days of the S&L Crisis), US Treasury Secretary Henry Paulson is developing up a plan to take the bad debts from banks and investment houses and package them up for an orderly sale. That sent stocks higher today, with the Dow Jones finishing the day up over 400 points.
So let's get this straight. Mom and Pop don't have much money anymore, but what little money they do have is now losing money in what some folks thought was risk free, a money market fund, for the first time ever. Major financial institutions like Morgan Stanley and AIG are teetering. Credit has tightened beyond all recognition and the thought of getting a loan that isn't government backed is laughable.
But I still hear from some Realtors that foreclosures are just gonna be here for just 1 more year. Well, if you think they aren't here for the next 3 years, in this economy with this type of financial turmoil, you might as well grab some of those Ritz crackers and have a pity party now, because it isn't going to happen.
But it is the single biggest gift many of us will ever be given in our lifetime. Wherever the public runs one way, I say run the other.
So remember ... in this market, you can now buy low, and not sell high, but sell fast. And that means less risk, less holding costs, and money in the bank. But you have to do more than read this and agree ... you need to take action, too.
And as the headline says, I'm loving this market more and more each day. The real estate market, that is.
Some Important Words for These Troubling Few Days
Alan Greenspan says that this is a once in a lifetime financial crisis. Then why is someone I know making more money in this crisis than ever before? Well, read on ...
And I know what you're thinking. "What's it going take to fix this mess?"
I have the answer ... and if you're reading this, you are probably part of the solution. Read on ...because the answer might surprise you!
But first, let's recap. The Dow Jones Industrial Average tanked again today. It wasn't pretty. It lost 449 points, or 4.09% of its value. And Uncle Sam came to the rescue again.
This time, however, it is serious. Helping Bear Stearns out was one thing. Giving investor confidence to Fannie and Freddie was another. But all of a sudden, the perfect storm developed and Merrill Lynch and Lehman Brothers were is trouble. The bull lost its horns and is now a cow, out to greener pasture somewhere...with plenty of foreclosures around the farm to boot.
Merrill was saved by Bank of America, but Lehman is done and sold some assets to Barclays today. Now the bloody streets get even worse...Morgan Stanley tanked 25% today. Goldman Sachs plunged 17% today. All my buddies from Georgetown are freaking out today.
Why? Well, the AIG mess is quite a mess. We're talking over $1 trillion in assets that almost went on the auction block for pennies on the dollar. That would spell financial ruin the likes we haven't seen in a century. It would make AIG's 74 million clients a little panicky, too, don't you think?
AIG still will be selling its assets, but in this case they'll be doing so to pay Uncle Sam back, rather that giving folks a free to all in a liquidation. So thanks, USA, for backing AIG with $85 billion.
What happened in real estate today (of course everything that's happening is related to real estate). Housing starts for August dropped to 17 ½ year low the U.S. Commerce Department reported today. The seasonally adjusted annual rate was 895,000, which is off from the estimated 950,000 and represents a 6.2% drop.
But, as long as you are not a homebuilder, we in the real estate world know that this is actually a good sign... meaning that in order to recover, this is the medicine we need. We need less new home inventory so that we can move more of the existing inventory we have, and to create an equilibrium of supply and demand. A new house just isn't going to compete against a bank-owned 2007 or 2006 house that is 30% less than the cost of construction. Starts on single family homes were 33% below August 2007 levels at 630,000.
Ok, but Robert ... you're the guy that's screaming that this is the biggest opportunity ever. So where's the silver lining you ask?
The Mortgage Banker's Association reported that loan applications jumped 33.4% to 661.7 just last week, its highest level since May 9, 2008. This shouldn't be too much of a surprise because the government bailout of Fannie and Freddie gave more confidence to the market for mortgage backed securities. So rates dropped. This is good news for Realtors, good news for lenders...and perhaps good news for new home builders going forward.
And guess what? When equity markets are awful, and investors are looking for hard assets, where do you think they are going? Well, precious metals that's for sure (gold had its best day ever today, up 11% to $80/ounce). But don't forget about bricks and mortar. Some investor pulls out $500,000, does a self-directed IRA into real estate, and gets a 8% to 10% return on the cash just based on rent alone. Then they get the upside appreciation, too.
I'm telling you. Read me loud and clear: when financial markets plunge, the real estate market will be the beneficiary. Just watch. Only so much money can go to gold. Or better yet, start taking action!
So who gets us out of this mess? You do. If you're reading this, you're probably a real estate agent or investor. Once you get going, and do your thing, and start telling people that the real estate market is A LOT more stable than the stock market, you'll begin to make sense.
And guess what else? Banks are tanking. They have to unload nonperforming assets. So short sales will become easier. REO's will become plentiful. And realtor bank accounts will start filling up, not depleting.
So hang in there. Sure it is painful for your 401(k), but you better be able to make it back in spades with the opportunity you've got in front of you.
Go for it!
And I know what you're thinking. "What's it going take to fix this mess?"
I have the answer ... and if you're reading this, you are probably part of the solution. Read on ...because the answer might surprise you!
But first, let's recap. The Dow Jones Industrial Average tanked again today. It wasn't pretty. It lost 449 points, or 4.09% of its value. And Uncle Sam came to the rescue again.
This time, however, it is serious. Helping Bear Stearns out was one thing. Giving investor confidence to Fannie and Freddie was another. But all of a sudden, the perfect storm developed and Merrill Lynch and Lehman Brothers were is trouble. The bull lost its horns and is now a cow, out to greener pasture somewhere...with plenty of foreclosures around the farm to boot.
Merrill was saved by Bank of America, but Lehman is done and sold some assets to Barclays today. Now the bloody streets get even worse...Morgan Stanley tanked 25% today. Goldman Sachs plunged 17% today. All my buddies from Georgetown are freaking out today.
Why? Well, the AIG mess is quite a mess. We're talking over $1 trillion in assets that almost went on the auction block for pennies on the dollar. That would spell financial ruin the likes we haven't seen in a century. It would make AIG's 74 million clients a little panicky, too, don't you think?
AIG still will be selling its assets, but in this case they'll be doing so to pay Uncle Sam back, rather that giving folks a free to all in a liquidation. So thanks, USA, for backing AIG with $85 billion.
What happened in real estate today (of course everything that's happening is related to real estate). Housing starts for August dropped to 17 ½ year low the U.S. Commerce Department reported today. The seasonally adjusted annual rate was 895,000, which is off from the estimated 950,000 and represents a 6.2% drop.
But, as long as you are not a homebuilder, we in the real estate world know that this is actually a good sign... meaning that in order to recover, this is the medicine we need. We need less new home inventory so that we can move more of the existing inventory we have, and to create an equilibrium of supply and demand. A new house just isn't going to compete against a bank-owned 2007 or 2006 house that is 30% less than the cost of construction. Starts on single family homes were 33% below August 2007 levels at 630,000.
Ok, but Robert ... you're the guy that's screaming that this is the biggest opportunity ever. So where's the silver lining you ask?
The Mortgage Banker's Association reported that loan applications jumped 33.4% to 661.7 just last week, its highest level since May 9, 2008. This shouldn't be too much of a surprise because the government bailout of Fannie and Freddie gave more confidence to the market for mortgage backed securities. So rates dropped. This is good news for Realtors, good news for lenders...and perhaps good news for new home builders going forward.
And guess what? When equity markets are awful, and investors are looking for hard assets, where do you think they are going? Well, precious metals that's for sure (gold had its best day ever today, up 11% to $80/ounce). But don't forget about bricks and mortar. Some investor pulls out $500,000, does a self-directed IRA into real estate, and gets a 8% to 10% return on the cash just based on rent alone. Then they get the upside appreciation, too.
I'm telling you. Read me loud and clear: when financial markets plunge, the real estate market will be the beneficiary. Just watch. Only so much money can go to gold. Or better yet, start taking action!
So who gets us out of this mess? You do. If you're reading this, you're probably a real estate agent or investor. Once you get going, and do your thing, and start telling people that the real estate market is A LOT more stable than the stock market, you'll begin to make sense.
And guess what else? Banks are tanking. They have to unload nonperforming assets. So short sales will become easier. REO's will become plentiful. And realtor bank accounts will start filling up, not depleting.
So hang in there. Sure it is painful for your 401(k), but you better be able to make it back in spades with the opportunity you've got in front of you.
Go for it!
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