st. regis

Mid-Day Market News & Commentary by Chris McLaughlin, December 10, 2008
http://www.shortsalesriches.com/welcome.html

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Investors who truly leverage the power of Internet and “Web 2.O” strategies BEFORE everyone else jumps on the bandwagon will have an opportunity to set themselves up for a lifetime.  I’m not talking about you being able to do a few more deals this year… I’m talking about a complete lifestyle change.  We promise to blow your mind!  Tonight at 9 PM!  Implement “Web 2.0″ strategies in a way that will have a profound impact on your business.  Just register here today:

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Ouch!   The Government Accountability Office, along with the Congressional Oversight Panel for Economic Stabilization, blasted the Treasury Department’s management of the $700 billion TARP program.  The 38 page document noted that “Treasury cannot simply trust that the financial institutions will act in the desired ways; it must verify.” The report further commented that the Treasury had “administrated the TARP without seeking to monitor the use of funds provided to specific financial institutions.”

And other eyes were on Capitol Hill today as the Big 3 Automakers got a lot closer to sealing a $15 billion bailout package.  The package will lead to the creation of a “Car Czar” to oversee the loan grant, in order to avoid the “take the money and hoard it” approach that many banks have taken after receiving their bailout.  But several Senate Republicans were outraged, with Sen. David Vittner of Louisiana called the approach “ass backwards” and promising to filibuster it.

More money is headed out the window to the morons at AIG, the folks who partied it up at the St. Regis and seem to have no ability to control their spending.  The Wall Street Journal reported that the insurance conglomerate owes other Wall Street firms about $10 billion for because of speculative investments that didn’t pan out.

Now on to real estate investing information …

Gross Income Multiplier

Short sale investors are a different set; they take action when others are too cowardly to act. They remain informed while others rely upon others for information and perhaps most telling of all…they crunch numbers. Last week we examined how to calculate the Cap rate of a property in order to determine the price of an income producing property. Although the Cap rate is a favorite among many bankers and brokers alike, another widely used formula is the Gross Income Multiplier.

How to Calculate

To calculate the Gross Income Multiplier you will need to divide the asking price or market value of the property by the current gross rental income (or potential rental). For example, let’s assume a home is listed for $150,000 with an annual rental income of $10,000. The Gross Income Multiplier would = 15. The higher the better. To provide some perspective, it may be useful to draw examples from other industries and areas. For example, if you were purchasing a publishing concern then you (and the banker) would expect to see earnings worth 5 to 10 times the pre-tax earnings on an annualized basis whereas insurance agencies sell for 150 percent of annual commissions.

When to Use

Using the GIM provides an excellent method to compare the asking price with industry norms or as a potential negotiation tool when making an offer for a short sale property.  It is a good idea to use conservative numbers when calculating the GIM since it does not take extraneous expenses or future tax and insurance rate hikes into account. Repairs, utilities and other considerations may wreck havoc on even the most robust calculations so it isn’t a good idea to use the GIM when dealing with older properties or those in need of extensive renovations and/or repairs.

A Quick Word about Hedonic Pricing Models

No discussion of GIM would be complete without a quick word about hedonic pricing models. Like the government itself, builders and brokers alike will often try to maximize value by including the full “value” of hedonic measures. While that is a valid method during robust economic times, during downturns in the economy those same granite countertops, luxury pools and other customized features tend to lose value – or worse – may actually be considered a liability by some buyers.  Short sale buyers would do well to base GIM calculations on conservative building alternatives or sharply discount hedonic estimates especially during tough economic times.

Caution is Advised

There is a reason the GIM is favored by corporate raiders and strategists; as a general “rule of thumb” price estimate it often results in an aggressive method for determining valuations especially when dealing with more “favorable” properties that require minimal maintenance, upkeep or repairs. Short sale investors may find this a more desirable alternative than the Cap rate formula for some properties; just keep the limitations and risks in mind or you may find yourself on the losing end of a tough negotiation strategy.

More on Thursday!

 

See you at the top!

 

Chris McLaughlin
http://www.shortsalesriches.com/blog

P.S.:   Investors who truly leverage the power of Internet and “Web 2.O” strategies BEFORE everyone else jumps on the bandwagon will have an opportunity to set themselves up for a lifetime.  I’m not talking about you being able to do a few more deals this year… I’m talking about a complete lifestyle change.  We promise to blow your mind!  This Wednesday at 9 PM!  Implement “Web 2.0″ strategies in a way that will have a profound impact on your business.  Just register here today:

https://www1.gotomeeting.com/register/264492432

P.P.S.: Interested in making a bundle of cash without having to do any of the work?  If you can click the SEND button on your computer and introduce others to Short Sales Riches, you can earn thousands of dollars in one month!   One affiliate was paid over $12,000 last month alone!   All the information to sign up as an affiliate is right here:

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Mid-Day Market News & Commentary by Chris McLaughlin, November 11, 2008
http://www.shortsalesriches.com/welcome.html

Don’t miss this webinar!  We’re holding another webinar on The Top 12 Strategies for Short Sales Riches TONIGHT at 9 PM EST, 6 PM PST.  This is something you just don’t want to miss!  Register today:
https://www2.gotomeeting.com/register/324799291

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Now for the latest outrage of the week…

Executives from American International Group (AIG), the insurance conglomerate that was recently bailed out by taxpayers to the tune of $150 billion, held a party back in October that I blogged about.  It cost over $440,000 and was held at the 5-start St. Regis Resort.  They spent over $139,000 on rooms, over $147,000 on banquets, and $3,000 for in room dining.  And because these executives have had a rough few weeks, they spent over $23,000 at the spa.  Yeah, our taxpayer money was going to help support these junkets.

 

Now, our friends at AIG decided the get frugal.  According to Brian Ross of ABC News, instead of wasting $440,000, they decided to meet in secret at the luxurious Pointe Hilton Squaw Peak Resort and waste just $343,000.  But they saved on signage at least: they told the hotel to take all references of AIG down, including all logos and signs, and they instructed staff never to use the word AIG.  Apparently some AIG executives are getting harassed by taxpayers … go figure.

 

Don’t you think some hotel staff member, worried about his or her job in this economy, is going to pick up the phone and rat them out?  Well, that’s exactly what happened.   Who’s the moron that thought they could keep this a secret?  That guy needs to be fired along with the rest of these clowns.

 

I know, I know you say…Chris, you’re always telling us to think positive, live a life of abundance and not of scarcity, and think BIG.  Well these folks certainly thought big alright.  But as I said before, when the village calls and asks where its idiot went, let them know he was at the Squaw Peak Resort working with AIG. 

Ok, now back to the real world most of us live in…

The financial markets were under pressure today after disappointing results reminded investors that consumer confidence is weak.

It was no surprise to those in the housing industry that another homebuilder announced some disappointing news.  Homebuilder Toll Brothers Inc. said that revenue plunged 41% to $691 million, with net signed contracts dropping 27% last year.  Robert I. Toll, Chairman and CEO, said: “Unfortunately, the preliminary signs of stability we had discussed in early September, during our 2008 third quarter earnings call, were upended by the past month’s financial crisis. Results of this crisis — accelerating fears of job losses, a large decline in consumer spending, a significant capital crunch, increased credit market disruption, and plummeting stock market values — all contributed to drive our cancellations up to 233 units.”

There are fewer folks sipping $5 coffee these days.  Starbucks reminded everyone that when a recession hits, folks are just fine with the fat guy from Dunkin Doughnuts making the doughnuts.  Starbucks Corp. announced that there were no bucks coming in over the quarter.  It earned $5.4 million versus the year ago period’s $158.5 million.  .

Now on to our real estate investing education section…

Savvy Short Sale Tips: KISS

Like the old adage KISS – Keep it Simple Stupid – sometimes the best advice is really the easiest to implement especially when it comes to successful short sale strategies. Here is a quick rundown of KISS tips short sale investors would do well to keep in mind…

1.     Enjoy the process. Short sale investing is fun when you allow it to be; get a plan of action together then implement it consistently. A plan and process takes the stress out of the equation while the profits and rewards keep it fun and enjoyable.

2.     Act rather than react. Those in control suffer less stress. Stay in control and work your plan rather than letting it work you.

3.     Put the X-factor back to work. Everyone is fascinated by the extraordinary but few people break away from the day-to-day doldrums long enough to stray far from their safety zone. If you are not continually growing and pushing the limits in your life then it’s time to reassess your strategy; make it a priority to try something a little new or daring every few months. You might be surprised at the results!

4.     Learn from others. Sounds simple enough but pride, fear and a host of other hang-ups keep most people from asking questions. Rather than concentrating on your own specific limitations, make it a priority to find out how short sale investors made their fortunes. Get the nitty-gritty details about what worked – and what didn’t work – then implement it in your own life.

5.     Stay motivated. It’s important to read, learn, share stories and remain inspired. Let’s face it; most people in the world will want to rain on your parade by telling you why it can’t be done. Don’t allow the noise in your life to interfere with success; make a point of surrounding yourself with stories of success instead.

6.     Eliminate negatives. Interviews, applications and other preliminary information is not there to help people make a positive choice – or say “yes” but rather to provide reasons to say “no”. Think like the bank, broker or seller then put together a package that eliminates all negatives. Later you will have the opportunity to present the positives. Successful short sale investors know how to eliminate negatives and other common objections early in the game.

7.     Know your market. Location, location, location. It’s simple advice that holds true for any real estate related transaction.

8.     Use the right tools. Every profession has a set of tools required to get the job done right; know the tools of your trade and then invest in only the best.

9.     Keep a portfolio. Track your own success and failures; what went right? What went wrong? Where did you just get lucky? Make sure the portfolio demonstrates your financial position, growth, trends and other pertinent information.

10.                                                                                                                                                                                                                               Share success. Once you begin to experience your own short sale success make time to share your knowledge and insight with others. Not only does it return the favor but teaching someone refines your own skills and knowledge.

 

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

Phone: (800) 452-7627

 

P.S.: You are going to be on our Webinar tonight aren’t you?  As Jim Rohn said: “If someone is going down the wrong road, he doesn’t need motivation to speed him up.  He needs education to turn him around.”  Get that education now:

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RSVP early as spaces are limited and it fills up FAST!

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Before we even talk about news today, let me share with you the latest outrage of the moment. 

 

The latest sign of outright stupidity, executives from American International Group (AIG), the insurance conglomerate that was recently bailed out by taxpayers to the tune of $85 billion, held a party.  But it wasn’t just any old party, according to the Washington Post.  Folks this one cost over $440,000 and was held at the 5-start St. Regis Resort.  They spent over $139,000 on rooms, over $147,000 on banquets, and $3,000 for in room dining.  And because these executives have had a rough few weeks, they spent over $23,000 at the spa.

 

I know, I know you say…Chris, you’re always telling us to think positive, live a life of abundance and not of scarcity, and think BIG.  Well these folks certainly thought big alright.  But when the village calls and asks where its idiot went, let them know he was at the St. Regis working with AIG. 

 

Now…moving on.  The stock market struggled again today, dropping below 9,000 as investor panic continues, sending the market to its lowest intraday level since July 1, 2003.  What weighed on the Dow?  General Motors hit a 58 year low today…so if you had bought $1 in General Motors stock in 1950 it would be worth $1 today (not including dividends, of course). 

 

In a sign of global financial crisis, Iceland suspended all stock trading today and took over the country’s third largest bank.  The nation’s government also setup a new bank that will take over the operations of the other failed banks. 

 

Now, on to our real estate investor education section …

 

Money Matters in Tough Economic Times – Should You Reduce Your Debt Load or Increase It?

With the recent demise of the investment banking model, tightening lending standards, rising unemployment, failing car sales and nervous credit card companies the issue of debt load is quickly becoming a topic of concern and controversy. Should you reduce your debt load or increase it? There are pros and cons to each decision every short sale investor should be aware of in order to make an informed decision about their personal situation.

Scenario #1: Reduce your own debt load. Common wisdom holds that paying down debt is a good thing since it protects you from unexpected events like job loss due to down-sizing or other financial turmoil. The ability to pay cash saves money typically allocated to interest payments.  Additionally, having a low debt to income ratio makes you appear more financially stable.

Considerations: While owing little to no debt is indeed one method to avoid interest payments it must be tempered with rising rates of inflation and the actual cost of borrowing. Today’s interest rates are still at historic lows especially when measured against inflation.  As for the low debt to income ratio – it also makes you a great target for potential lawsuits in addition to allowing your money to sit on the sidelines instead of work for you.

Scenario #2: The bank reduces your credit limit. HELOC’s, LOC’s and even credit cards may soon feel the impact of tighter lending standards resulting in decreased lines of credit and increased debt to income ratios which could curb your ability to obtain new financing or – worst case scenario – put you over the credit limit and result in additional fines and higher interest rates.

Considerations: Banks are cutting back on credit and expected to continue to do so in the immediate future. Keep an eye on your debt to income ratio by maintaining a healthy reserve and “buffer” when buying short sale properties. Liquidity is critical as is the ability to demonstrate a track record of success.

Scenario #3: Increase debt load.  As credit becomes more difficult to obtain – it also becomes more valuable. Rather than decreasing credit lines, now may be the time to increase your credit to preserve your buying power and liquidity during tough times.

Consideration: Despite all the discussion of “moral hazard” and other philosophical debates, take time to consider which person the bank is more likely to work with should things go wrong…

Individual A: Mr. A has diligently paid down his debt and has 50 percent equity in his home. Unfortunately, inflation and lack of return on recent investments has left him barely able to keep pace with inflation on his salary. When his job is downsized, unemployment runs out and he is unable to increase his credit line or make minimum payments. Mr. A is facing foreclosure and a loss of all his equity.

Individual B: Mr. B makes prudent use of credit cards, a line of credit and has several million dollars of debt spread across several real estate investments. He also was downsized but has significant monthly cash flow resulting from his real estate investments. Although Mr. B is also facing financial hardship, his real estate is highly leveraged and not attractive to the bank.

Now…ask yourself one simple question…if you were the banker would you be more likely to work with Mr. A or Mr. B to help with short term financing or a bridge loan?

See you at the top!

 

 

Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
e-mail: info@shortsalesriches.com

Phone: (800) 452-7627

P.S.: 

How about instead of wasting taxpayer dollars getting a free ride and having a great party, you actually make money in this market on your own?  Join us for our fr’ee Webinar tonight that will reveal the Top 12 Strategies on Getting Rich with Short Sales (if AGI will waste $400k, imagine what a dumb bank might take on your next proposal):

https://www2.gotomeeting.com/register/163012169

 

P.P.S.: If you really want to get started building your wealth, now that recognize that your 401(k) isn’t going to do it, what are you waiting for?  Take action today! A journey of a thousand miles begins with a single step. Take that step right now by clicking here:

 

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