Real Estate News & Commentary by Chris McLaughlin, February 10, 2009
http://www.shortsalesriches.com/welcome.html
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“How to Exploit a Little Known Flaw in the Bailout
Package for a Six-Figure Payday!” (But it’s only
good for the next 14 months…)
I don’t know why people haven’t caught on to this yet.
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But there IS a catch – we fill up early, and there’s no
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Go and grab one of these last openings NOW, or miss out.
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The Wall Street Journal reported today that banks will receive what doctors commonly refer to as a “stress test” before receiving additional money. The short of it: if you aren’t healthy enough to lend, you might not receive any more government aid. We’re not going to do surgery on a patient that won’t wake up. Treasury Secretary Timothy Geithner said: “We want their balance sheets cleaner, and stronger. And we are going to help this process by providing a new program of capital support for those institutions that need it.” But banks need to start lending, else they won’t be getting additional help, since “every dollar of assistance preserves or generates lending capital above the level that would have been possible in the absence of government support,” noted Geithner.
At least the new Treasury Secretary is more sensitive to public perception than his predecessor. The “Troubled Asset Relief Program” will now get a nice fluffy new name: the “Financial Stability Plan.” Ahh, I feel better already, don’t you??
Well, until I just continued reading the WSJ article, where it noted that RBC Capital Markets research shows that over 1,000 banks could go under in the next few years, which is triple its prior estimate. But guess what? Many of them should absolutely fail. That’s how capitalism works, folks. If a bank took unnecessary risk, and leveraged itself with bad assets, at some point the markets have to correct themselves and those that were in trouble need to be punished for being dumb, and those that made the right moves should be rewarded with increased market share in loans and deposits. If not, then you simply create a moral hazard again where companies take unnecessary risk because they know Uncle Sam will come and bail them out again.
Meanwhile, last night there was a press conference that sobered up anyone sitting around drinking a few beers. They got a douse of frank talk from President Barack Obama. In a televised address, the new President did little to calm fears; rather he talked of the “profound economic emergency” our country faces. The President that normally talks of hope was clearly tightening his message to the critics of his economic stimulus plan: “The plan is not perfect. No plan is. I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans,” he said.
Actually, Mr. President, many in the real estate trenches that have been living this recession and feeling the pain think that the House Democratic plan does little to stimulate housing demand and is full of so much pork that it could feed every human being on Earth with bacon from now until the end of time. But the Senate plan, which at least includes at $15,000 tax credit for home buyers, will make some headway even if we want to waste billions on silly projects like putting new grass on the National Mall. So what I can say with complete confidence is that if you don’t fix housing, you’re blowing billions of dollars trying to keep people employed who will just be out of work once the pork runs out. Fix Housing First! ‘Nuf said.
Now, on to our real estate investing section…
What’s Better – Short Sales or Gold?
Historically gold has served as a store of value throughout most of history so it should come as no surprise it is a favorite among contrarian investors and those seeking a safety “hedge” against both inflation and deflationary pressures…but does gold really measure up to its reputation? Before putting their hard earned money into the hands of an ETF or placing big orders for bullion, short sale investors and others seeking real returns on their money would do well to evaluate the actual numbers – not just the hype. Let’s begin by examining a few facts:
During the last bout of major inflation, the average price of gold went from $41 per ounce in 1971 to over $610 in 1980 before reaching a high of $875 per ounce. Today, gold is selling for approximately $900 per ounce…a mere 50 percent increase in 29 years. Adjusted for inflation gold would need to be selling for $2,000 to $2,500 per ounce in order to reach its former high’s…clearly, not a solid investment for those seeking “safe” returns. On the other hand, in 1971 the average home sold for roughly $28,000. By 1980 the average selling price increased to roughly $75,000 and by 2006 the average American home was selling for over $240,000. Despite the recent downturn in the real estate market, homes are still selling (on average) for over $180,000.
To provide some perspective, in 1980 it required approximately 85 to 122 ounces of gold to purchase the average home in the United States whereas today you would need 200+ ounces of gold to purchase the average discounted home. Additionally, gold provides zero tax advantages when holding and depending upon the form, may be lost, stolen or require additional storage fees. On the other hand, real estate provides favorable tax advantages and may generate additional cash flow through rentals, leasing or sales of raw materials and assets included in the purchase price of the property.
Further complicating the issue is the advent of ETF’s (Exchange Traded Funds) or other paper-backed gold proxies. Unlike taking physical possessions of gold, the use of ETF’s, gold stock and other substitutes may allow investors to take advantage of leveraging to increase profits while eliminating much of the storage issues surrounding gold however, the resulting “I.O.U.” negates much of the “safety” surrounding gold as an investment hedge. Real estate provides investors and opportunity to use leverage while taking physical possession of an actual tangible assets – not merely some type of I.O.U.. Even experts agree the amount of physical gold is nowhere near the sums required to fulfill even a fraction of the obligations currently outstanding; hence, the disparate trading between physical sales of gold versus paper gold sales in the recent months.
In summation, investors searching for tangible assets with real rates of return would do well to turn to short sales above gold especially during uncertain economic times.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com/welcome.html
P.S.
This week’s webinar replay is right here…for the next 8 hours:
http://www.webinarwizards.com/custom/index.cfm?id=170879
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
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