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Fortunes, Freedom and Fear – The Time are a Changing

Chris McLaughlin — Tue, 21 Apr 2009 15:10:51 +0000

Real Estate News & Commentary by Chris McLaughlin, April 21, 2009
http://www.shortsalesriches.com/welcome.html

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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!

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PPIP comes under fire

Inspector General Neil Barofsky, a fierce skeptic of the bailout schemes, has come out with an official report expressing concern over Tim Geithner’s Public-Private Investment Partnership (PPIP). In a report issued today, the report said “The sheer size of the program ($2 Trillion) … is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives.” Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky said would dilute the incentive for private fund managers to exercise due diligence. Barofsky recommended that Treasury not allow the use of Fed loans “unless significant mitigating measures are included to address these dangers.”

Credit Card rules are a changin’

President Obama will meet on Thursday with administration officials and credit card company executives to press CEOs to adopt practices designed to protect consumers. In the meantime, existing legislation, designed to ban card companies from abruptly jacking up interest rates and fees and prevent young adults from getting credit cards, will be going ahead in Congress. But even if Congress doesn’t pass the legislation, Federal Reserve rule changes set to kick in next year would stop higher interest rates from being imposed when consumers are late paying unrelated bills. The changes also stop companies from averaging finance charges from two previous cycles, a practice that dings consumers who carry a balance and pay it off. This year, credit card legislation made it out of a Senate committee, but just barely, by 12-11. The Senate bill is even tougher than the House bill, preventing credit card issuers from raising interest rates and fees even if the consumer’s general credit risk goes up. A top industry advocate, Scott Talbott of the Financial Services Roundtable, said that if credit card companies can’t charge fees and interest based on general risk, all card holders will have to pay more because customers with good credit scores will have to subsidize those with weaker credit scores. “It’s going to reduce credit and make it more expensive for everyone,” he said. “That’s not what we need for the financial markets.”

Leading economic index down .3%

The Conference Board’s Leading Economic Index declined 0.3% last month, showing the recession may persist through the summer. The drop was steeper than the 0.2% analysts polled by Reuters were expecting. It also fell 0.2% in February, which was originally reported as a 0.4% drop. Over the last six months, the index has fallen 2.5%, compared to the smaller 1.4% drop for the previous six months. The Coincident Index, a measure of current conditions, fell for the third month in a row, by 0.4%, primarily due to declines in employment and industrial production. The Lagging Index, which provides a glimpse backward, has been on a downward trend since July 2007, the Conference Board said. Its 0.4% decline in March was caused by weakness across all of its components, which include duration of unemployment, inventory levels, and outstanding loans. “The recession may continue through the summer, but the intensity will ease,” said Ken Goldstein, an economist at the Conference Board. Hey, where have we heard that before?

More cash for car companies

An independent oversight report on the Treasury Department’s corporate rescue fund said the Obama administration will extend $500 million to Chrysler through the end of April as it tries to reach an alliance with Fiat, and up to $5 billion through May to help General Motors restructure outside of bankruptcy. The UAW, which represents about 26,000 workers at Chrysler and 62,000 at GM, and is under pressure along with bondholders and banks to help Chrysler and GM slash debt so they can restructure. The central issue for the UAW and the car companies is reaching an accord on restructuring the finances of a multi-billion-dollar retiree health care trust. GM said on Monday it would cut another 1,600 salaried jobs by May 1, as part of a plan to slash its global salaried work force this year by about 10,000, or 14 percent. GM also aims to cut 37,000 hourly jobs worldwide by the end of the year.

Bailout fund running low?

Only $109.6 billion in resources remain in the government’s $700 billion financial rescue fund, but Treasury Department officials said they expect the fund will be boosted over the next year by about $25 billion as some institutions pay back money they have received. Geithner said the Bush administration had committed $355.4 billion in resources before it left office, and the Obama administration has since committed an additional $30 billion to AIG and $5 billion to auto suppliers, bringing the total for what the administration termed “exceptional assistance” to $152.4 billion. Another $218 billion has been committed to banks to bolster their capital reserves. So far, that program has disbursed nearly $200 billion to more than 500 banks nationwide with more applications pending. Former Treasury Secretary Henry Paulson had once set a goal of having $250 billion disbursed to banks. Oh well, if we run out of money we can always just print more, right? It’s all the rage.

Now on to our real estate investing education section…

Fortunes, Freedom and Fear – The Time are a Changing

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin.
And the first one now
Will later be last
For the times they are a-changin.

Bob Dylan

While the media continues to report the decline of real estate, the rising vacancy rates among commercial holdings and the trend toward lower returns on rentals or other investments, short sale investors are still managing to bring in big bucks. Given the ultra-low returns on dollars, stocks, bonds and other traditional investments one would wonder why the American public hasn’t taken a second look at historically low interest rates and realized a correction will take place sooner or later.

Amazingly, it’s simply because they don’t truly believe in change. Most American’s today believe the buy and hold strategy of faithfully putting away a few dollars for a rainy day will fund a decent lifestyle. Work at a job and start a 401-k to assure an easy and comfortable retirement. Let stock brokers and fund managers handle your hard earned money for you…like Madoff and others who “know best” what how to best put your money to work.

Rather than profit from the time-tested value of land and real estate, they would rather take a chance on “buy and hold” stocks and bonds. Indeed, rather than think for themselves or open their eyes to the massive challenges facing the nation as a whole, they would rather leave their future retirement and the lives of their children to the provision of Uncle Sam. Unfortunately, history tells us this is not the road to wealth – few governments in the world have ever provided more than a subsistence existence to the population and all Ponzi schemes eventually fade away.

No dear reader, the current financial order may not survive…and neither may millions of more retirement accounts or pension funds. Consider the roaring 20’s…it was a time of unprecedented economic prosperity, massive gains in real estate, easy credit, luxury and growth. The nation was intoxicated by parties, the industrial improvements of the day and most of all…the expansion of riches due to financial instruments like stocks and bonds. Then, like now, it went south. Newspapers and media reports indicate some opted for suicide, others lived a life of poverty never to recovery while a few – very few indeed – went on to make family fortunes that survived until the present day.

Who were those that thrived while others were lining up outside of soup kitchens? Those that bought land and other hard assets for pennies on the dollar. The examples don’t end there; remember the scene in “Gone with the Wind” where the father tells a stubborn daughter the only thing worth fighting for is the land. It’s more than a quaint idea…it’s the stuff fortunes and freedom are made from. Britain was built on the acquisition of land. The Greek and Roman empires only recognized the rights of their “free” citizens…all of which were landowners. In fact, going back for thousands of years the single item of value which differentiated the wealthy and free citizens from the rest is land…or in today’s vernacular – real estate.

Like the old Bob Dylan tune, the order is rapidly fading and those that are first are likely to come up last as financial guru’s give way to the time tested road to riches gleaned from real estate. Real estate might be slow right now but it will later be fast. The nation elected a new President on the podium of change. The financial figures have fallen one by one and indeed, the line is drawn. Learn how to profit from the change rather than rely on past promises by learning how to control your own financial future with short sale investments.

See you at the top!

Chris McLaughlin

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

P.S.

Don’t miss our webinar tonight at 8:30 PM ET, 5:30 PM PST:

https://www2.gotomeeting.com/register/530620442

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:

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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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Housing Prices Fall (again) As Bargains Hit the Market

Chris McLaughlin — Tue, 31 Mar 2009 15:30:10 +0000

Real Estate News & Commentary by Chris McLaughlin, March 30, 2009
http://www.shortsalesriches.com/welcome.html

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It happens tonight! The amazing Recession Proof Real Estate Investing webinar will be held live … at 8:30 PM ET, 5:30 PM PST. Grab a spot for yourself before they all disappear in our no-cost, no-obligation webinar right here tonight (Tuesday):

https://www2.gotomeeting.com/register/745206430

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Housing prices fall

The S&P Case-Shiller Home Price Index, measuring housing prices in 20 representative cities across America, fell for the 30^th straight month in January, bringing house prices down to 2003 levels. And this time it actually set a record, falling 19% from January 2008. “There are very few bright spots that one can see in the data,” said David Blitzer, chairman of the index committee at Standard and Poor’s. “Most of the nation appears to remain on a downward path, with…nine of the MSAs (metropolitan statistical areas) falling more than 20% in the last year.” According to Mike Larson, a real estate analyst with Weiss Research, home prices won’t start advancing until the overall economy picks up.

Home bargains galore

In total, prices have plunged 29.1% nationally since they peaked during the second quarter of 2006, but that of course doesn’t figure in individual cities, where prices are more varied. Dallas is the least affected at 4.9%, and Phoenix lost the most, at 48.5% from its peak. All 20 index cities were in negative territory, but the biggest losers are Las Vegas, Miami, Phoenix, San Francisco, and San Diego — each losing more than 40%. The bad, and good, news is that the rate of decline has picked up recently. As Mike Larson, a real estate analyst with Weiss Research says, “”Arguably, that’s just what we need to drive up sales activity and reduce inventory.”

Big boys ready to pounce

Morgan Stanley is one of several early bird institutional investors getting ready to snap up real estate bargains — it’s close to raising $6 billion for a new global property fund: the Morgan Stanley Real Estate Fund VII Global. “I think these new real estate funds will look for distressed opportunities and they think they can bargain with developers who mismanage the balance sheets or have liquidity issues,” said Laure Wang, managing director of Asia Alternatives, a private equity fund of funds. According to Paul Vosper, chief operating officer for real estate at Morgan Stanley’s Alternative Investment Partners unit, the downturn in global property markets will create a period of strong returns.

Consumer confidence down

The Conference Board, a New York-based business research group, said its Consumer Confidence Index rose to 26 in March from a revised reading of 25.3 in February, but is still hovering around all time lows. Lynn Franco, director of the Conference Board’s consumer research center, said apprehension about the outlook for the economy, the labor market, and earnings is largely responsible for low consumer confidence. The percentage of people who said they were going to buy a home over the next six months fell to 2.0 percent from 2.3 percent, and the auto industry doesn’t have anything to celebrate either – the percentage of people who plan to buy a new car fell to 3.9 percent from 4.7 percent.

The next wave…banks walk away?

All over the US, banks are quietly declining to take possession of properties at the end of the foreclosure process, usually because the cost — from legal fees to maintenance — exceeds the diminishing value of the real estate. “It is what some of us think is the next wave of the crisis,” said Kermit Lind, an expert on foreclosure law at the Cleveland-Marshall College of Law. In Buffalo, where officials said the problem had reached “epidemic” proportions in recent months, the city sued 37 banks last year for the deterioration of at least 57 abandoned homes, even though the banks had walked away from many more foreclosures. So far, five banks have settled. The problem is most acute at the bottom of the market — houses that were inexpensive to begin with — and with investment properties, where investors and banks want speedy closure by writing off bad loans as losses. And we thought it couldn’t get worse…

Now on to our real estate investing education section…

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.