Mid-Day Market News & Commentary by Chris McLaughlin, December 22, 2008
http://www.shortsalesriches.com/welcome.html
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Yes, Virginia … there is a Santa Claus! And he loves to represent buyers in foreclosure and make a ton of money. So check out this amazing youtube video…Santa definitely showed up in Tennessee this year, early! You have to see this!!
http://www.youtube.com/watch?v=XTvvi311YDg
and then make sure you register for our upcoming Recession Proof Investing webinar! There are 17 slots available, first come first serve:
https://www2.gotomeeting.com/register/732240980
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Mortgage applications continue to be on the rise given the low interest rate environment, and one prominent CEO signaled a turning point, according to the Wall Street Journal. Bank of America CEO Kenneth Lewis said that mid-2009 would be the stabilizing point for house prices, and the bank recently reassigned over 300 loan processors from the home equity division to the mortgage division. The good joy was also at several other lending institutions. Loan applications were up 300% at Regions Bank, and applications at U.S. Bancorp surged from 11,000 to 30,000 in comparable period in December. Why all the excitement? Rates on a 30 year fixed mortgage now hover around 5%, representing the lowest level since reporting began in 1971.
Meanwhile, mortgage modifications continue to fail. In the latest report by the Office of the Comptroller of the Currency, 37% of mortgages that were modified in the first quarter of 2008 were more than 60 days delinquent. And for those modified in just 3 months another 19% were also 60 days behind. John Dugan, who oversaw the preparation of the report, said: “One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months.”
The implosion in modifications means two things: there will be a ton of short sales and REOs in 2009. Are you ready for them? Go here to make sure you’re ready:
https://www2.gotomeeting.com/register/732240980
And the outrage over fat cat executives continues. The Associated Press analyzed several of the bonus and pay structures from Wall Street execs who took bailout money. Who was the most outrageous?
Well, there’s Merrill Lynch CEO John Thain, which took a nice $10 billion of taxpayer money. Thain got earnings of $83 million last year, with a $15 million signing bonus when he came on last year. And let’s not forget JP Morgan Chase’s CEO Jamie Dimon, whose bank took a cool $25 billion from Uncle Sam. He managed to spend over $200,000 on private air travel commuting from Chicago to New York. And then there’s Robery Kelly, the CEO of Bank of New York Mellon Corp, who spent over $178,000 on his personal car and driver. And the madness continues …
Now, on to our real estate investor education section…
Dollar Cost Averaging and Short Sale Investing
Stock market investors are accustomed to using dollar cost averaging but the concept is relatively new to real estate and short sale investing. In part, this is due to the typical rise of real estate over time. Unlike stocks or bonds that tend to be highly volatile, real estate is usually quite steady and predictable over long periods of time. However, during periods of fluctuations and volatility, dollar cost averaging works exceedingly well for short sale investing.
In a Nutshell…Dollar cost averaging is an investment method where a constant amount is set aside to purchase whatever amount is available at that sum. So for example, when purchasing stocks an investor might decide to invest $5,000 per month rather than deciding to buy 100 shares per month. By emphasizing the dollar amount rather than number of shares, the investor will tend to purchase some shares at higher prices and some shares at lower prices with the eventual result of an “average” price per share taking place over time.
Likewise, real estate investors can do the same. Rather than worry whether or not you are purchasing at the bottom of the market, simply set aside a dollar amount which suites your budget to cover down payment, closing costs etc… then spend that amount of money rather than focusing only on the number of homes or properties purchased. What you will notice is that over time, the average price per property tends to drop creating a solid rate of return on your overall investment portfolio.
How to Use…
This modified dollar cost averaging method is a great way to demonstrate a total rate of return on your entire short sale investment portfolio when dealing with banks, lenders or loan officers…especially if you are marginal on a specific property. It also assists in highlighting underperforming properties which can be quickly eliminated to increase the total performance of the portfolio as a whole. Simply eliminate the least profitable property and then re-evaluate your portfolio performance…you will often be surprised at how much impact one property can make on the entire performance.
How to Calculate…
Calculating dollar cost averaging for short sale investments is similar to that of stocks or bonds. Simply make a list of all real estate purchases and the total priced paid then divide by the total number of investments to obtain an average purchase price. Do the same for the selling price.
Alternatives….
Other alternatives include performing the same calculations including the selling price, average transactional costs associated with each property and even holding fees. Better yet, learn how to set-up a series of spreadsheets to automatically generate this information on each property throughout every stage. It is the perfect way to spot areas in need of improvement or where work (and profits) get bogged down. If you notice a troublesome area, consider hiring an expert or teaming up with someone. It’s a fast, simple and effective manner to showcase your real estate portfolio and demonstrate a positive track record when working with lenders or others.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com/blog
P.S.: Don’t miss our webinar tomorrow, Tuesday, at 9 PM EST! We’re holding this Recession Proof Real Estate Investing webinar once again on a weekend to accommodate all those who are unable to join us at night! Click here, there are only 17 spots available:
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