Posts Tagged ‘Real Estate Investing’

No Easy Way Out

September 19, 2009

I love Doctor Housing bubble! The data he compiles is great!

-$1 Trillion in CA mortgages are underwater & swimming in the Pacific Ocean.

-42% have Negative Equity.

-$3Trillion total in US

-$1Trillion in Alt-A (Interest Only etc.)

-$182Billion in Option Arms

*50%+ are in Cali

*$20Billion~ BOA (CW)

*$42Billion~ Wells (World)

*$40Billion~ Chase (WAMU)

Short Sale a home you can’t afford and buy one for a deal that you can afford

Even though there were mortgage brokers that sold the option arm correctly by providing the proper education and disclosures most borrowers abused the product and did not save or invest the difference. If you haven’t been doing this start doing it NOW so you are prepared for your recast and if you can’t, get ahead of the game and do a short sale now.

While 88% have not yet recasted most borrowers are enjoying a 1% payment and a current interest rate of around 4%~ most commonly (MTA+Margin) or (LIBOR+Margin) Margin is fixed and usually ranges between 2-4%. (Review your loan docs or mortgage statement to obtain this information)

The problem lies when the option arm recasts and homeowners no longer have the OPTION of the minimum payment.

Well, I guess that wont be that big of a deal if the payment quadruples to 4%, right? 4% is a pretty low interest rate!

Oh, but wait! What about China? One would have to believe they want to start getting paid back their money by 2012, 2013 and that the LIBOR followed by the MTA will hit at least 4%.

Meaning (4%MTA+3%Margin) =7% septuple – octuple the payment!

Here is the ALT-A recasting schedule:

2009-2010 $6 Billion~/mo

2010-2011 $8 Billion~/mo

2011 $33 Billion~ /mo

“There’s No Easy Way Out There’s No Short Cut Home…”

…only a short sale

or will Lex Luthor – The Great Evil Mastermind of our time, be right?

Will someone nuke the San Andreas fault or will we have a big earthquake making California fall into the sea suddenly creating valuable beach-front property of the once barren desert? [shouting] “Miss Teschmaacher”

I don’t know which chart below is more scary…either way we are going to need superman

mortgage rate resets waves

Why should you purchase real estate investment property? -Especially now.

September 26, 2007

If you were to investment $50,000 in the stock market today and somehow, someway you were to make a 10% return per year, every year, for 7 years you would end up with $97,435.

You would pretty much double your investment!

However if you were to invest $50,000 in a $200,000 single family residence (SFR) investment property you could create some Velocity.

Last thing I want to do here is another plan A or plan B example or worse… “Brother A invested in the stock market while broker B invested in real estate”

-20% down ($40,000) + $10,000 for closing costs and reserves. (It’s always good to have 3-6 months in reserves set aside in a “wealth coordination account”)

-$160,000 loan amount @ 5.5% fixed for 5years interest only (i/o) = $733/mo i/o


T -Taxes
I -Insurance (plus HOA if applicable)
M -Management (Get a good property manager, last thing you want to do is have a new part time job! It usually runs about 8% of the gross rental income)
M -Maintenance
U -Utilities (I would recommend the tenant pay)
R -Repairs (A great trick I learned long ago is make the tenant pay the first $100 of any repair. That way they take care of the property and you are not dealing with the bs)

*Make sure the monthly rent at least covers the monthly payment. We are looking for break-even or positive Cashflow. Remember all we need is “OPM” (other peoples money) paying for our appreciating assets.

*Make sure you find a motivated seller that will give you the ideal deal.

Inside our primary residence one could argue that our dollar does only one job (benefit) and that is Mortgage Interest Deduction.

One could also argue that the equity is not safe in the home…and that it needs to be separated into a safe, secure, liquid environment that can do more jobs.

What if a Hurricane Katrina happens in your area?

Earthquake, Flood, Tsunami, Terrorist attack, or you are unable to make your payments or restructure your debt?

(Remember the banks love to lend you money when you don’t need it and hate to when you do)

Your insurance doesn’t pay? You seek refuge in Houston and your equity line checkbook is frozen?

You and your neighbor both go into foreclosure…you have little equity (but a tons of cash in a credit-proof environment) and your neighbor has his home almost paid off…who is the lender going to more willing to work with?

By the way…you don’t ever want to cash-out your house on a payment you can’t afford or up to high. It is always good to leave some wiggle room in case you need to sell.

The best place online to run your value is Zillow (was inaccurate but getting much better).

Outside your home your dollar can do many different jobs all at once. Called “The multiplier effect”

The idea here is to identify under performing or under utilized assets and get them into production. Called “The Velocity Of Money”

You must get your individual MACRO economy moving!

The first benefit or job we can get out of our dollar by investing in real estate is APPRECIATION.

I have included a few historical graphs for your viewing pleasure…

Second benefit or job is DEPRECIATION which could be the most powerful tax advantage of all.

Third benefit or job is the additional tax advantages or expenses you can WRITE OFF.

(I am certainly NOT nor claim to be a tax professional so please consult your own.)

Then what if you were to turbo charge your dollar and borrow back out your initial down payment or investment and buy another property?

Maybe it takes 2yrs, maybe it takes 4?

Is it possible to build a real estate portfolio of $4MM+ within 7-10yrs with a one time investment of $50,000?

Is it possible to create equity of $500,000+ within 7-10yrs with a once time investment of $50,000?

Is the end game a 1031 exchange into a triple NET or something much greater?

Create a technology become Bill Gates, create a real estate portfolio become Donald Trump, create a life insurance portfolio become Warren Buffett, do 2 of the 3 have virtually limitless leverage and abundance!

Disclaimer: Real Estate is an investment and can go up or down. These illustrations are for example purposes only and are not forward looking statements


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