chris guldi

General Growth Properties files for bankruptcy

 

Real Estate News & Commentary by Chris McLaughlin, April 17, 2009
http://www.shortsalesriches.com/welcome.html

——–

No money, no credit – but an honest desire to succeed? 

That’s all it takes to get into the lucrative business of

finding and flipping short sale properties.  We’ve had

people go from zero to six figures in less than six months! 

 

See if there’re any spots left for this webinar this

Saturday:

 

https://www2.gotomeeting.com/register/357681810

———
General Growth Properties files for bankruptcy

 

The U.S. real estate sector witnessed one of its largest failures yesterday when General Properties, the second largest mall owner in the U.S., filed for bankruptcy protection. While the company has been making money at the operating level, it was forced into bankruptcy on account of it not being able to refinance mortgages.  The company blamed it on the collapse of the credit markets.  Mike Prew, an analyst with Nomura securities said, “This underscores that real estate companies are most vulnerable to refinancing risk rather than market risk.”  Indeed, liquidity problems can lead to solvency problems. The competitors of General Growth Properties must be looking for cheap pickings from the real estate portfolio of the company.  How endemic is the problem?  What about the fate of smaller real estate companies?  What is the likely impact of this on banks that have made loans to real estate companies?  Scary and depressing.

 

Joseph Stiglitz lambasts the bank rescue initiatives of Obama administration

 

Nobel Laureate Joseph Stiglitz, who, some weeks ago, described the toxic asset plan of Tim Geithner as “privatizing of gains” and “socializing of losses,” came down heavily on the bank rescue initiatives of the U.S. government in an interview yesterday. According to Stiglitz, the size of the Troubled Asset Relief Program (TARP) is not big enough to adequately capitalize the banking system, and tax payers’ return from TARP is just about 25 cents on a dollar. “The bank restructuring has been an absolute mess,” said Stiglitz. Stiglitz also expressed concern about the links between Wall Street and the President’s advisers. Citing potential conflicts of interest, Stiglitz said those who designed the rescue plans are, “either in the pocket of the banks or they’re incompetent.”

 

Credit-card securities under pressure

 

According JP Morgan’s Bankcard Index, an indicator of credit card market performance, charge-offs (card credit debt gone bad) increased from 8.4 percent in February to 8.82 percent in March. This is in line with the rise in unemployment rate. Despite the increase in charge-offs, JP Morgan expressed optimism in the future performance of the credit card market on account of the positive impact of the Federal Reserve’s Term Asset-Backed Loan Facility, a program aimed at reviving consumer lending. Obama administration officials will meet executives of credit card companies next Thursday to discuss lending practices and rates charged. The government is considering introducing a legislation to curb “deceptive” practices (read, hidden fees and usurious interest rates) of credit card companies.

 

Banking stress test

 

As part of introducing its plan for bringing about financial stability, the Obama administration has been conducting stress tests and what-if analyses to evaluate the impact of the economic environment on the banking system. The government will disclose the assumptions underlying the stress tests on April 24. Between April 24 and May 4, the banks – some 19 of the nation’s largest — that are participating in the stress tests will have an opportunity to comment on the test framework. On May 4, the government will announce the results of the tests and highlight the capital adequacy requirements of the banking system given the different economic scenarios. The test results are likely to provide fodder for both critics and supporters of the government bailout plans.

 

Residential Capital hiring 1000 people

 

Some good news, at last. Residential Capital LLC, the mortgage unit of GMAC, has announced it is hiring 1000 people to meet the requirements of business growth. With over $10 billion in losses over the last couple of years, Residential Capital’s very survival was in question not so long ago. GMAC announced last September that it was planning to fire over 50% of Residential Capital staff and close down all its offices. The firm received $6 billion bailout from the government last December and has benefited from the growth in demand for refinancing on account of drop in mortgage rates.

 

Now on to our real estate investing education section…

 

Time is On Your Side – Short Sale Investors

 

Like the old Rolling Stones song “Time is one my side” short sale investors may also find themselves joined by millions of Americans who have come running back to real estate after taking a temporary respite. Wondering why? It’s simple. Real estate has historically been one of the few roads to real wealth throughout the world. Going back as far as Greece, Rome and other empires, those that owned land and the underlying natural resources were the wealthiest in the land. It’s a simple time tested fact.

 

However, that isn’t the end of the story, Another equally important phenomena is at work. Namely, short term losses are typically less important than long term gains. Over time, the inflationary pressures exerted by a capitalistic based economy result in a rise of all asset groups. Consider these interesting statistics…

 

On any given day, roughly half of all investors will make a profit while the other half of investors will lose money.

 

Over a one month period of time, roughly 55 percent of investors will make a profit while the rest lose money.

 

Over a three month period of time a little over 60 percent will make money while the rest lose.

 

Over a year that may grow to as high as 70 percent and eventually, if you take the time period out long enough, close to 100 percent of people will “make” money.

 

So, how can so many people make money while still losing so much? It’s simple. Most investments are measured in nominal terms prior to taxes, interest, holding fees and other expenses. Next, the time value of money means it is entirely possible to “make money” while watching the true purchasing power of an investment shrink.

 

The same trends hold true for real estate as other investments. While it is entirely possible to lose money now and then, the long term potential is quite positive for turning profits related to buying short sale real estate. History has also shown this to be true; hold long enough and real estate invariable looks like a real steal.  Not convinced? Just take a look from the pages of history itself; each of these were scorned as a bad buy. Today they would be pocket change for large private investors like Trump.

 

The Louisiana Purchase: The United States paid roughly $15 million dollars for what later became Arkansas, Missouri, Iowa, Oklahoma, Kansas, Nebraska, parts of Minnesota, North and South Dakota, Wyoming and Colorado.

 

The Alaska Purchase:  Costing just over $7 million dollars, Alaska was considered little more than a barren wasteland by many.

 

The Florida Purchase: At $5 million dollars, the original purchase price of Florida could barely cover the cost of many personal estates today.

 

See you at the top!

 

 

Chris McLaughlin

http://www.shortsalesriches.com/welcome.html  

 

P.S.

 

Don’t miss our webinar Saturday at 3:30 PM ET, 12:30 PM PST:

 

https://www2.gotomeeting.com/register/357681810

 

P.P.S.:

Check out one of the ShortSalesRiches students holding himself as well as us accountable to whether the system truly works!  Go here now to

watch the videos from John Michailids:

http://www.youtube.com/shortsalesriches

and

http://www.willjohnmakeit.com

 

Copyright Loss Mitigation Institute 2009.
All Rights Reserved.

http://www.shortsalescoach.com
http://www.shortsalesriches.com
http://www.reomillionaireclub.com 
http://www.sixfigurebpo.com *************************************************
Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…
http://www.shortsalesriches.com/blog

*************************************************

About the author:

 

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

 

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month

   * Long-time authority on real estate investing
      and rapid flipping of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties

    * Owner and Supervising Broker of one of Florida’s
     largest Real Estate firms, running 4 different
     offices, supporting nearly 450 agents, uniquely
     positioning him to help thousands of investors
     make money in the biggest market opportunity ever!

     * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building

     * On twitter: http://twitter.com/mclaughlinchris
     * On facebook:

http://www.facebook.com/addfriend.php?id=709199143

—

 

Real Estate News & Commentary by Chris McLaughlin, April 16, 2009
http://www.shortsalesriches.com/welcome.html

——–

No money, no credit – but an honest desire to succeed? 

That’s all it takes to get into the lucrative business of

finding and flipping short sale properties.  We’ve had

people go from zero to six figures in less than six months! 

See if there’re any spots left for this webinar tonight where

we explain it all Thursday @ 8:30 PM ET, 5:30 PM PST:

https://www2.gotomeeting.com/register/344712594

———

Loan modification program starts

The Treasury Department announced that the first six participants to sign up for President Obama’s loan modification program are JPMorgan Chase, which will get up to $3.6 billion in subsidy and incentive payments; Wells Fargo, $2.9 billion; and Citigroup, $2 billion.  The others are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million.  A statement issued by Wells Fargo said, “We view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership.”  Left unsaid is the fact that now the second wave of foreclosures will begin, as banks decide which loans are worth trying to save and which are not.

Details of the loan modification program

Only loans where the cost of the foreclosure would be higher than the cost of modification will qualify.  The modification plan calls for the bank to reduce interest rates so that the monthly obligation is no more than 38% of a borrower’s pre-tax income, and the government would then kick in money to bring payments down to 31% of income.  Mortgage servicers (banks and mortgage companies) can also reduce the loan balance to achieve these affordability levels, and the government will share in the cost of the reduction, up to the amount the servicer would have received if it had reduced the interest rates. 

Treasury will not provide subsidies to reduce rates to levels below 2%.  In addition to subsidizing the interest rates, servicers will use Treasury funding to pay for incentives for themselves, homeowners, and investors.  The program gives servicers $1,000 for each modification and another $1,000 a year for three years if the borrower stays current.  It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.  Homeowners will even get up to $1,000 a year for five years if they keep up with payments.  The funds will be used to reduce their loan principals.  “We’re confident we’ll have enough money,” said Treasury spokesman Andrew Williams.  Of course you will…if you run out, you’ll just print more, right?

Housing starts down

The US Commerce Department said housing starts fell 10.8 percent to a seasonally adjusted annual rate of 510,000 units, the second lowest on records dating back to 1959, from February’s 572,000 units.  Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto, said, “While the situation in housing and in the labor markets is not necessarily deteriorating, it’s clear that there is no real sign of recovery whatsoever…taken together, both releases will put a damp on the nascent optimism we’ve seen in the markets in the past couple of weeks.”  Analysts had expected an annual rate of 540,000 units for March. 

JPMorgan beats expectations

JPMorgan Chase said its net income for the first quarter was $2.1 billion, or 40 cents a share.  This was down 10% from a year ago, but still beat expectations.  According to Thomson Reuters, analysts were only anticipating a profit of $1.38 billion, or 32 cents a share.  The strong investment banking performance was driven by a revenue surge in its fixed income division, but Chase’s credit card division reported a net loss of $547 million, down from a profit of $609 million a year ago.  The bank cited a sizable increase in allowances for loan losses and higher charge-offs, or loans the company doesn’t think are collectable.  CEO Jamie Dimon expressed interest in paying back TARP funds, and unlike Gold Sacs, says Morgan can pay them back without issuing stock.  After what some call Goldman Sac’s accounting sleight of hand, and KBW’s downgrading of Wells Fargo, it will pay to watch the details in this reporting. 

Initial jobless claims slow, but joblessness at a record high

The U.S. Department of Labor says initial jobless claims dropped to 610,000 in the week ended April 11, but a record 6 million-plus continued to file unemployment claims during the week ended April 4, the most recent week for which data are available.  That’s up 172,000 from the prior week’s revised tally of 5.85 million.  John Lonski, chief economist for Moody’s Investors Service, said he puts more of his focus on the continuing claims number:  “That tells you that things are getting worse and we’re going to see another rise in the unemployment rate, and that’s not good news.”  He’s right of course; a sinking ship doesn’t stop sinking just because its rate of descent slows down.  The job market is one of the most important foundations of the economy, and one of the greatest causes for concern.

Now on to our real estate investing education section…

Understanding Volatility Versus Risk in Short Sale Investments

One of the most common mistakes made by novice and veteran short sale investors alike is to confuse volatility versus risk. Unlike the stock and bond market where the principle can go to zero, real estate always retains some type of inherent value. To put it another way, when dealing with stocks and bonds what goes up must come down..and when it does it can drop to zero never to return again. On the other hand, real estate can go down but rarely drops to zero. Companies can and do go out of business. Real estate is still standing. Even if the structure is totally eliminated the value of the raw land beneath remains.

This brings us to an important difference between volatility and risk. Risk involves loss. True loss of the type that wipes away fortunes over night. A company is here today but gone tomorrow…along with it the stocks, bonds and investments that represent a lifetime of work. Volatility is different. Volatility means prices can go up and down then up again. It is a function of time – not absolutes. Wait long enough and the inherent value of the land itself will retain some type of value. It might rise, it might fall. It might rise relative to the work able to be performed on it or it might fall related to the value of the interest rate used to finance it…but in all cases the volatility is relative. The land does not cease to exist.

Today there are two types of investors – those seeking a return of their capital and those still seeking a return on their capital. In large part, the difference has to do with where they have decided to invest their cash. Those that follow a traditional investment strategy (buy and hold stocks, bonds, treasury bills and keep some cash on hand for an emergency) are watching in utter dismay as they watch some of the biggest business concerns in the nation – indeed the world – drop to a fraction of their former value while others may simple cease to exist. The risk is very real and leaves traditional investors few options rather than attempting to park their cash into ‘safe’ federal treasury bills in an attempt to preserve their capital.

On the other hand, short sale investors are still indeed seeking actual returns on their capital – not merely a return of capital. While most are able to turn relatively quick profits, even those that made an early mistake are comforted by the fact that the long term risk is relatively minor…if in fact, even existent. While the price of a home and land may be volatile and subject to increase or decrease over any given period of time…it is equally likely to remain in existence. Unlike financial instruments where absolute loss is a very real concern, hard assets like real estate are primarily a function of time. The inherent value eventually returns.

Consider a worst case scenario for each of the following investments:

Stocks/Bonds: Worst case = cease to exist. Value drops to zero and unable to sell.

Cash: Worst case = cease to exist. Value drops to zero. Unable to spend (ie, confederate dollars).

Real Estate: Worst Case – price drops. Still can rent, sell, owner finance, plant crops or otherwise retain some form of value. Price never drops to zero as land retains an inherent value depending upon use, natural resources and other productivity.

See you at the top!

Chris McLaughlin

http://www.shortsalesriches.com/welcome.html  

P.S.

Don’t miss our webinar Thursday at 8:30 PM EST, 5:30 PM PST:

https://www2.gotomeeting.com/register/344712594

P.P.S.:

Check out one of the ShortSalesRiches students holding himself as well as us accountable to whether the system truly works!  Go here now to

watch the videos from John Michailids:

http://www.youtube.com/shortsalesriches

and

http://www.willjohnmakeit.com

Copyright Loss Mitigation Institute 2009.
All Rights Reserved.

http://www.shortsalescoach.com
http://www.shortsalesriches.com
http://www.reomillionaireclub.com 
http://www.sixfigurebpo.com *************************************************
Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…
http://www.shortsalesriches.com/blog

*************************************************

About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month

   * Long-time authority on real estate investing
      and rapid flipping of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties

    * Owner and Supervising Broker of one of Florida’s
     largest Real Estate firms, running 4 different
     offices, supporting nearly 450 agents, uniquely
     positioning him to help thousands of investors
     make money in the biggest market opportunity ever!

     * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building

     * On twitter: http://twitter.com/mclaughlinchris
     * On facebook:

http://www.facebook.com/addfriend.php?id=709199143

—

The Role of Lady Luck, Real Life Lessons and Learning in Short Sales

Real Estate News & Commentary by Chris McLaughlin, April 14, 2009
http://www.shortsalesriches.com/welcome.html

——–

No money, no credit – but an honest desire to succeed? 

That’s all it takes to get into the lucrative business of

finding and flipping short sale properties.  We’ve had

people go from zero to six figures in less than six months! 

See if there’re any spots left for this webinar tonight where

we explain it all tonight @ 8:30 PM ET, 5:30 PM PST:

https://www2.gotomeeting.com/register/247184123

———

Retail sales fall

The US Commerce Department said total retail sales fell 1.1% last month, even though Economists surveyed by Briefing.com had been expecting an increase of 0.3% in March, compared with February’s revised gain of 0.3%.  Even without auto sales included, sales fell a surprising 0.9% compared to a revised 1% increase in the measure for February.  February ex-auto sales were originally reported to have increased 0.7%.  Scott Hoyt, senior director of consumer economics for Moody’s Economy.com said economists are surprised:  improving sales both in January and February “gave us reason to believe that retail sales were starting to head in a positive direction…we’re not sure yet how much of the [sales] weakness is real and how much is based on the Easter shift.  There are still lots of weights on consumer spending.  The housing market is still weak and we’re losing 600,000 or more jobs every month.”

Deflation?

The Producer Price Index (PPI), which tracks the changes in selling prices for domestic producers, decreased 1.2% last month – more than expected.  A consensus estimate of economists surveyed by Briefing.com had forecast that the index would remain flat on the month.  The main driver pushing down the PPI number was the decrease in food and energy prices.  The index that measures energy prices plunged 5.5% in March, on the heels of a 1.3% increase in energy prices in February and a 3.7% increase in January.  Applying a bit of lipstick to the pig, Anika Khan, economist at Wachovia Economics says, “This report does not put us firmly in the deflation camp.  This was a huge drop, clearly, but one month does not necessarily make a trend.  What it does tell us is that inflation is not a near-term worry.”  That sounds to me a bit like the captain on a sinking ship pointing out that he won’t have to worry about low flying aircraft anymore.

Economy bottoming out this year?

White House adviser Christina Romer said today that the economy will probably bottom out this year, when the stimulus package starts to kick in:  “That stimulus package has just started.  We expect it as we go through to 2009 and 2010 to be a big job creator.”  Asked if she fears a double-dip recession, in which the economy seems to recover after the first dip only to fall again, she said “in terms of the double dip I very much have the sense that policy has been really good in this downturn.”  I have no idea what that means, and I doubt she does either, but it sounds like a slippery way of saying “if it works, give us the credit, but if it doesn’t, it ain’t our fault.”  This stimulus package may be a big job creator and it may not, but I don’t see a lot of value added jobs coming out of it, do you? 

Who is it that leaves sinking ships again?

CEOs are leaping off the ship in record numbers, according to new data from Challenger, Gray & Christmas.  1,484 CEOs headed for the exits in 2008 — which works out to an average of six every business day, the most since Challenger first began the survey in 1999.  “CEOs are under intense pressure,” says John Challenger, CEO of Challenger, Gray, in just a bit of an understatement.  While high profile firings make the news, Challenger’s research shows that resignation was by far the biggest reason for an empty corner office this year, with 623 either retiring or “stepping down.”  CNN speculates that while some of the resignations are probably veiled firings, it also may be that a lot of CEOs just don’t know how to deal with the economic downturn and just want out.  CNN cites a report on the economy from consulting firm BCG, called “Collateral Damage”:

“In a study in early December 2008 of about 60 major companies worldwide – long after the creation of TARP and the clear collapse in consumer confidence, mind you — more than half of the companies had not made any significant changes to their strategic plans.  On average, they were assuming no more than a 5% reduction in volume in a year that was already shaping up to be disastrous.  “What is striking,” the report reads, “is that, outside of the construction and auto industries, many companies are assuming that the crisis will have a very modest impact in 2009.”

Now on to our real estate investing education section…

The Role of Lady Luck, Real Life Lessons and Learning in Short Sales

There are three types of investors in every market segment; those with true knowledge and know-how, those with the wisdom to recognize what they don’t know and make it a priority to learn from others and those that get lucky once in awhile. Learning how to distinguish one from another is the key to true, lasting success.

 Let’s face it, more often than not lady luck is often responsible for the majority of profits – and losses. Research indicates a few interesting trends about human nature; most people tend to attribute positive results to their own keen knowledge and know-how while blaming negative results to “luck”. In fact, both positive and negative outcomes are equally represented by “luck” including some larger than life fortunes. So, how can a new short sale investor determine if their mentor is truly knowledgeable versus just lucky? Start with these simple clues:

Repeat Results. Luck is just another word for probability – in any given scenario some outcomes are more likely than others. Anyone can get lucky once in awhile but that isn’t the same as true knowledge. Think of it like buying a lottery ticket; the probability is x that you will win some type of prize. Sometimes the jackpot is huge and life-changing while other times it is modest. While it might be tempting to think of the jack-pot winner as possessing some type of specialized insight the fact is, they just got lucky. Following the lead of luck rarely yields the same results twice. Savvy short sale investors should search for mentors with a proven – repeated – track record of success.

Investing in Success. True investors rarely shy away from investing in their own success. They clearly understand the risk/reward ratio and constantly use calculations to support their moves and positions in the market. This is not the same as taking unwarranted risk – instead, they have learned to invest in their own success by carefully analyzing each situation and taking proactive steps to maximize outcome and results. The result is a trend toward growth. Look for mentors that are growing their business not downsizing…especially during tough economic times.

They Have a System – Not Secrets. Nearly every successful business prospect of modern history is built on a system – not secrets. That is not to say the system itself doesn’t contain proprietary information but it is not the core of the business strategy. Everything from Henry Ford building a better automobile to Google’s infamous algorithms demonstrates the importance of a system. Even the success of the fast food industry center around consistent results due to the systematic routine of building the same eating experience and locking in the same prices throughout the nation. Systems can be reproduced – secrets lose their value once shared. Search for short sale mentors with a proven system rather than elusive secrets.

See you at the top!

Chris McLaughlin

http://www.shortsalesriches.com/welcome.html  

P.S.

Don’t miss our webinar Tuesday at 8:30 PM EST, 5:30 PM PST:

https://www2.gotomeeting.com/register/247184123

P.P.S.:

Check out one of the ShortSalesRiches students holding himself as well as us accountable to whether the system truly works!  Go here now to

watch the videos from John Michailids:

http://www.youtube.com/shortsalesriches

and

http://www.willjohnmakeit.com

Copyright Loss Mitigation Institute 2009.
All Rights Reserved.

http://www.shortsalescoach.com
http://www.shortsalesriches.com
http://www.reomillionaireclub.com 
http://www.sixfigurebpo.com *************************************************
Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…
http://www.shortsalesriches.com/blog

*************************************************

About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month

   * Long-time authority on real estate investing
      and rapid flipping of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties

    * Owner and Supervising Broker of one of Florida’s
     largest Real Estate firms, running 4 different
     offices, supporting nearly 450 agents, uniquely
     positioning him to help thousands of investors
     make money in the biggest market opportunity ever!

     * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building

     * On twitter: http://twitter.com/mclaughlinchris
     * On facebook:

http://www.facebook.com/addfriend.php?id=709199143

—

 Real Estate News & Commentary by Chris McLaughlin, April 3, 2009
http://www.shortsalesriches.com/welcome.html

——–

“2 Careers That Boom in a Recession!”
I’ll tell you about one of these for fr*ee
in my no-charge, no-cost, no-obligation
webinar right here at on Saturday:

https://www2.gotomeeting.com/register/503751149

Why would I do that for no charge?  Because
I want a chance to tell you about the other
high-income opportunity, too.

And I can’t do it in an email.

But if you’re finally ready to blast out of
this economic mess, then get a move on… I’d
hate for you to miss out, because we always fill
up a day or so early.  See if there’re any spots
left at 3:30 PM ET and 12:30 PM PST Saturday:

https://www2.gotomeeting.com/register/503751149

———

Budget plan for 2010 approved

Barack Obama’s $3.5 trillion budget plan was approved by the U.S. congress but not before the Republicans showered it with criticism.  John Boehner (R – OH), the House Minority Leader, commenting on the “expansionary” budget that aimed at increasing spending, increasing taxes, and leading to increased public debt, called it “a roadmap to disaster.”  Incidentally, the fiscal deficit is expected to touch $1.8 trillion in 2009, for anyone still counting. Steny Hoyer (D – MD), the House Majority Leader, said, “Our budget lays the groundwork for a sustained, shared, and job-creating recovery.”  With all the Republicans voting against the budget, there was no sign of the bipartisanship Obama had hoped for.  Obama was pleased with the outcome, calling it “an important step toward rebuilding our struggling economy.”

Disclosing information on borrowers

The Federal Reserve, as the lender of the last resort, does not disclose the names of its borrowing banks on account of the concern that there could be a run on them. After all, public confidence could take a beating if it became known that a bank had to go to the Fed to tide over a liquidity situation.  If the U.S. Senate has its way though, the Fed will be required to disclose the names of its borrowers in future.  As part of an initiative to enhance the quality of regulation of the financial sector, the Senate introduced a budget amendment on April 3, 2009 requiring the Fed to disclose the names of its borrowers. While the Fed is not required by law to make the disclosure, it may not find it easy to ignore the budget amendment, particularly in the current financial crises.  Can the Senate’s writ be challenged by the Fed, and will the disclosure do more harm than good to the stability of the banking sector?  We’ll know in the days to come.

U.S. unemployment rate expected to hit a 25-year high

According to a Bloomberg News survey, ahead of the March jobs data to be released by the Labor department, the unemployment rate in the U.S. in March is estimated to be 8.5% (a 25-year high).  The total number of job losses since the beginning of 2008 now stands at 5.1 million – 2 million of those in the first 3 months of 2009.  Large companies like IBM have announced job cuts in the thousands and the situation is showing no signs of improvement.  Given the slump in the manufacturing sector and the likelihood of bankruptcy for General Motors, analysts are talking about a significant increase in the unemployment rate.  Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities, estimates that the unemployment rate could reach as high as 11 percent.  Will the $3.5 trillion budget rein in job losses or just cause inflation on top of everything else?

Mortgage rates leading to a rebound in the home-loan market?

Freddie Mac announced that the 30-year mortgage (fixed) rate fell to 4.78% (lowest since 1971) in the last week of March.  Ben Bernanke, Chairman of the Federal Reserve, in his testimony to the U.S. House of Representatives last November said, “It is imperative that all banking organizations and their regulators work together to ensure that the needs of creditworthy borrowers are met.”  The Fed’s announcement in March 09 that it would buy $1.25 trillion in home-loan securities in 2009 is a clear sign of Bernanke walking his talk.  How effective will the Fed’s initiative be?  The initial signs are encouraging, with mortgage applications on the rise.  According to the National Association of Realtors (NAR), the sale of previously owned homes rose by 5.2% in March over the previous month, and the rise in “affordability index” (released by the NAR) in January indicates that the lower home values and mortgage rates are having an impact on the home market.

CEO Pay Falls

According to an analysis prepared by Hay Group for the Wall Street Journal, median cash salaries and bonuses for chief executives of 200 big U.S. companies fell 8.5 percent in 2008 to $2.24 million.  CEO compensation decreased more sharply at banks and brokerages, and median annual cash compensation for CEOs in the financial industry fell 43 percent, to $976,000, while total direct compensation fell 14.2 percent, to a median $7.6 million.  The decline was the first in seven years.

Now on to our real estate investing education section…

Perceptual Contrast & Other Short Sales Strategies

Executing effective short sales isn’t always about financial calculations or even locating the perfect property – more often than not it boils down to good old fashioned psychology or what many would coin “people skills”.

While people skills sounds relatively low-tech, there are a few ways to spice it up to sound much more sexy. For example, using “perceptual contrast” techniques certainly adds a bit of flair and sophistication to something that is both effective and quite easy. Try it on these common problems:

Denial & Indecision

The next time you are working with a client, lender or other real estate contact that is sitting on the fence try this technique; explain the most expensive outcome or worst case scenario first. That “primes the pump” so to speak by providing a foundation or baseline measure from which to compare. Once that concept is firmly planted in their mind, the remaining options appear much more feasible or even desirable as compared to the first scenario. There isn’t any need to use “fear tactics”…typically the cold hard reality is more than ample motivation especially given the current economic uncertainty gripping the nation. Stick to the facts and demonstrate how you are able to provide a viable alternative or solution to their problem then allow them to weigh all options and make a decision. In most cases, once people truly face the depth of the problem and possible outcomes, it is actually quite easy to step in and provide a solution.

Overwhelmed, Fearful and Uncooperative

Another frequently encountered psychological problem encountered by short sale investors is the feeling of fear or simply being overwhelmed to the point of taking no action. It’s simply astounding how many people do not take even the most rudimentary steps to help themselves – but the fact remains, many people respond to stress by shutting down. At times, it can become so complete they even fail to cooperate with those best suited to help them. An effective strategy for this situation is to break down each task into itsy-bitsy tiny steps and do most of the work for them. Don’t bog them down with granular details – just provide the basic information they need to know then make the rest easy to comply with.

A Few Pointers

Finally, there are a few pointers to keep in mind when dealing with short sales or any other emotionally charged real estate investment.

Crunch the numbers first. Break the numbers down into user-friendly amounts that relate to the client. Target each to be specific and meaningful.

Stay positive. Put on a smile and air of confidence – it’s contagious! People enjoy doing business with people they like and trust.

Use comparisons wisely. Perception matters so use it properly.

Numbers to Know – Short Sale Quick Ratio or Acid Test

While many short sale investors and real estate pro’s use the current ratio on a regular basis, few take advantage of the relative benefits to be derived from making the quick ratio (aka Acid Test) readily available for review. Fortunately, the quick ratio really is quick…so take a few minutes to learn how to calculate this handy helper.

How to Calculate

The quick ratio or acid test basically equals cash plus short-term investments plus net receivables divided by current liabilities. For example, let’s assume you have $20,000 cash in the bank, another $30,000 in savings bonds gramma gave you, $35,000 in stocks or bonds that you can cash out and $15,000 in rent payments due with total current liabilities of $90,000. The numbers would look like this…

Cash and cash equivalents + Net Receivables = $100,000/ Current liabilities $90,000 = 1.11

How to Use

The quick ratio or acid test is increasingly used by lenders and others instead of the current ratio – because the quick ratio is even more “severe” or stringent, it is a quick and dirty method to measure the short-term debt paying power of an applicant. Essentially it is another liquidity measure albeit on steroids.

The standard is 1:1 ratio…the higher above 1 the better. For those of you able to demonstrate a 1+ ratio then toot your own horn! Make a point of showing this to prospective lenders to let them know you are good bet with something to offer.

For those at or near 1:1 the quick ratio is still a strong indicator as well as goal to consider. If you are able to trim just a little to better your current liquidity standing it might make the difference between mediocre versus the VIP treatment.

Eyes Wide Open

Finally, for those well below the 1:1 ratio consider going back to the current ratio or re-examining your assumptions. Review your cash equivalents to be sure you have the staying power in the event of an emergency or unexpected delay in funding or cash flow.

One of the few areas likely to cause a savvy short sale investor to falter is not the lack of profit but rather lack of readily available cash on hand or liquidity. In fact, this is a common problem that plagues investors and business owners at all levels; unfortunately, the average short sale investor does not have the benefit of a wide open federal window ready and waiting to hand over temporary loans to keep you in operation. The acid test provides a firm footing to keep you in the black and away from the risk associated with a liquidity crunch.

See you at the top!

Chris McLaughlin

http://www.shortsalesriches.com/welcome.html  

P.S.

Don’t miss out webinar Saturday at 3:30 PM ET, 12:30 PM PST:

https://www2.gotomeeting.com/register/503751149

Copyright Loss Mitigation Institute 2009.
All Rights Reserved.

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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month

   * Long-time authority on real estate investing
      and rapid flipping of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties

    * Owner and Supervising Broker of one of Florida’s
     largest Real Estate firms, running 4 different
     offices, supporting nearly 450 agents, uniquely
     positioning him to help thousands of investors
     make money in the biggest market opportunity ever!

     * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building

     * On twitter: http://twitter.com/mclaughlinchris
     * On facebook: http://www.facebook.com/addfriend.php?id=709199143

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