Note as Collateral: Sunday Morning Thoughts 10 February 2013

It’s no surprise that a note is collateral for its face value.  When considering becoming a private lender one would wonder do they have to wait for the maturity date of the loan agreement to receive a return on investment?  The short answer, no.

For arguments sake, let’s say you are a private lender who has a note with a face value of $100,000.  Granted you cannot use the note as if it was an ATM, but you can put it to more use than just sitting and waiting for the maturity date of the loan agreement to realize a return on investment.  A note can be used as collateral to purchase something else or you can sell the loan at face value or at a discount, or even option a portion of the note to someone else.

If you think that you do not have the right to sell the note, take a look at lending papers from large institutions, in the fine print, they have a clause with the equivalent of ‘and or assigns’, which gives them the right to resell your contract to another entity.

With the $100,000 note in hand you can borrow against the note to lend again, for a lessor amount but the note is an instrument of collateral.  Collateral is defined as:

a : of, relating to, or being collateral used as security (as for payment of a debt or performance of a contract)

b : secured by collateral.

Many private lenders resell their notes at a discount once the loan has matured.  A note is considered matured when it is at least 3 to 6 months old.  Often times, the investor, the lender has created a note for, will refinance the project with conventional lending after the maturity of the loan to pay off the private lender.

But what if the investor defaults on the loan payment?  Then the private lender can sell the note as a non-performing asset or do a foreclosure, whichever suits the lenders preference for a return on investment.

A private lender may also hold a first and a second on a property, but may only wish to sell either the first or second position.  The choice is that of the lender.  Many banking institutions can lose money in the second position, mainly due to not monitoring the payments of the borrower.  A borrower, when financial trouble hits will almost always default on the second mortgage payments long before they allow the first mortgage to default.

The second position is not necessarily a losing position.  If a borrower were to default on the second loan, the second can start a foreclosure and once the foreclosure is complete begin making payments to the first.

This is only an overview of what a private lender can do with a note, other than waiting for the maturity date to realize a return on investment.  Thinking outside of a conventional box may prove to be more profitable.  Conventional thought is to wait for maturity, the unconventional is to sell part or all interest in the note, use the note as collateral, or option the note.  Just remember consult with an attorney for the legal uses of a note before making a final decision.

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Investing Strategies for a Struggling Real Estate Market: Sunday Morning Thoughts 09 December 2012

What subprime crisis? Affordable houses are everywhere. (Photo credit: woodleywonderworks)

It should not matter if the glass is half empty or half full, it has something in it.

So in a flat real estate market, how can you make money?

Having control over a property and not owning the property can prove to be a fast way to improving your bottom line, but what about another option?

Becoming the bank, becoming a private lender; some of the benefits:

• You don’t own the property

• You don’t have to pay the property tax

•  You don’t do maintenance and repairs

•  No dealing with tenants

Private lending is a way to be involved with the real estate recovery, but without the risk that a property owner would have.

As a private lender you can invest a sum of money for a specified period of time, at a nice rate of interest.  You do not spend time mowing the lawn, or fixing the minor or major problems, you lend money secured by real estate and collect either a monthly payment or a lump sum after a specified holding period.

Being a private lender is a viable option in a buyer or seller’s market.  A private lender can lend money to buyers and refinance sellers, so it would not matter the type of market, your investment could appreciate.

In our current financial economy, the buyers are looking for money sources since many lending institutions are having trouble with lending.  Sellers are looking for private lending sources to refinance or sell their property.

No matter what type of real estate market, your investment can still earn.

For more thoughts on lending read our other articles.

Private Lending Retirement Investing Part I

Private Lending Retirement Investing Part II

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The Rising DOW and Falling House Values

Image via Wikipedia

It seems as though with the raising of the DOW property values are on the decline.  The DOW, even in its unsteadiness, has made more gains over the past few months than real estate.  As long as the DOW maintains its cycle it will end the year with a positive gain.

 But, what about property values?

With the onslaught of more foreclosures and less and less successful loan modifications, property values will continue to decline.  This means you will be finding more and more deals, especially since credit lending is becoming tighter.  Loose lending practices which landed home owners in the current foreclosure mess are now a thing of the past, or are they just taking a break for now.  Our past banking system has taken a bad toll on our economy. 

The economy will not improve until people begin to feel more secure, and lending institutions become more accountable with the extending of credit.  More individuals are continually moving towards using cash only at the registers, and at home are using scissors on the once preferred method of spending.  

Will being a liquid society help the economy to stabilize and have growth? 

Becoming liquid will cause a slow down in the growth of our economy.  How many people are able to buy a car, house, or any other big-ticket items with cash only?  It takes time to earn, and save. 

Does this sound like bad news?  Yes in a way it is.  But if you are able you can take the bad news and turn it to the benefit of yourself and others.  How can the average person extend a helping hand to a snowballing problem?  By understanding the principles of arbitrage whether it be negative, neutral, or positive.  Money invested wisely can make money no matter which arbitrage is present. 

So which is better the DOW or real estate?  Learning to capitalize on situations with diversification is best.

Thanksgiving Tidings

The holidays are now in full swing while we are in a recession. But a recession should not stop people from gathering with friends and family. Thanksgiving originally started when our first American settlers were ill-prepared for the harsh New England winter.

If you are an American or someone who likes to study American history, then you already know the story about the Native Americans and the Pilgrims. Quick recap, the Native Americans stored food after the harvest knowing that the late fall would be a time of less food and resources. This meant you would have to kill animals and harvest crops before the harsh weather began. Killing animals for the meat and pelts, and harvesting and storing for a time when the crops would not produce.

The Pilgrims, not knowing the weather would be as harsh as it was found themselves on the verge of a catastrophe, no food or pelts. The Native Americans were very benevolent and shared with the Pilgrims. Fast forward to today we celebrate this same sharing spirit. But we need to remember in a time of recession there are others less fortunate. Others having issues with employment, finances, and many other things we take for granted such as food and shelter.

So remember the things that you are thankful for, such family and friends and help others that are struggling to get by.

Happy Thanksgiving.

For a story of Thanksgiving http://www.msnbc.msn.com/id/32545640

Visit msnbc.com for breaking news, world news, and news about the economy

Print Your Own Money Invest in Real Estate: Sunday Morning Thoughts 7 November 2010

Investing in real estate can be like having your very own printing press.  First you load the press with the type of money you would like to reproduce, small investment to get your feet wet, or something larger which will make a greater profit.  There are multiple upon multiple ways to purchase, maintain, and have passive income in real estate.  Which ever proven strategy you use, investing in real estate can be very profitable.

Becoming a private lender is a good way to earn passive income without taking a great risk.  The property you are agreeing to finance should already be generating an income to sustain the payment, maintenance, and incidentals.  And the loan to value should not be any greater than 70%.

Real estate investing can be a safe alternative to the volatility of the stock market.  Real estate values do fluctuate but not as much as in the stock market on any given trading day.

Being a private lender you have the security of having your investment being backed by profitable real estate and secured by legal documents.  Documents such as being named as lender on insurances, title, home, hazard policies.  So if the investment should burn down to the ground your money is not lost. 

There are many types of situations and properties a person or persons can lend on.  It could be a Single Family Residence (SFR), multi-unit such as duplex or apartments; an office building, medical or retail, or even a triple net lease.  A triple net lease is for larger companies to occupy a property, such as a Starbucks, or Costco, Jack-in-the-box, CVS pharmacy, business of these types do not always own the building they are occupying.  It’s better for their bottom line and yours for them to lease the property they are doing business from. 

No matter which one or ones you invest in, you would be generating passive income.  What does this really mean; your money is working for you not you working for your money.  The money comes in the form of equity in a property because the loan amount is no greater than 70% of the value of the property. 

The lump sum, quarterly or monthly payment, however you chose, will be a passive income since you do not have to punch in on a time clock to earn it.  And it does not matter if you do or do not show up, what matters, is that you do invest. 

Depending on how you invest, you may receive tax breaks.

So if you do nothing then you will continue to have what you currently have.  If you chose to invest in real estate then you could have a better return than the current money market account, or CD.  Ask yourself, would you prefer to keep your investment money safer in a bank account or CD and earn a possible 1.5% or would you like to invest in the stability of real estate and earn up to 8%.

Each one has a risk which risk are you willing to take.

The DOW 12,000 Get Ready

 

Image by dalechumbley via Flickr

 

The DOW is poised and ready to hit 12,000 before the end of the year.  There are many things, including the current cycle, which factor into the greening of the stock market.  Don’t let today fool you.

The weaker dollar (read “What IS the Value of Money” blog post) the fed’s lowering interest rates to historic lows-cheap money if you can get it-, unemployment not changing too much, and the halting of more than one million foreclosures.  All this is more attractive to domestic and foreign investors.

How will this impact America, an improving recovery.  The recovery will still stay slow but the pace will pick up a little bit more.

The real estate market will also benefit with the halting of many foreclosures.  This will be a false positive improvement for the real estate market.

The foreclosures are only halting to perform a final check of documents before going to the judge for court approval.  So the process of foreclosure will continue but will stop to ensure there are not any mistakes or oversights.

It only makes sense for lenders to do this; it is already costing the lender legal fees to start the process of foreclosure.  To go to court only to have the foreclosure rejected and then have to check paper work for inaccuracies and then return to court to take another stab at it, is only costing money and time, neither of which is currently in great abundance.

Investors can leverage all this new information to increase their portfolio’s value.  Remember there is still an avalanche of foreclosures on the horizon and money is cheap but hard to get.  So, investing in real estate will prove to be the best investment in the long run.

Stocks, and Bonds, and Mortgages Oh My: Sunday Morning Thoughts 10 October2010

This week has proven to be a time of many revelations.  The stock market has seen the dollar gain strength to only start falling short of expectations.  The Fed’s are possibly going to lower interest rates to help the slow moving economy to pick up speed.

And now President Obama has had to veto a bill that would make it harder on already suffering home owners when it comes to foreclosures.  The Senate obviously did not read the bill before voting.  As for mortgages-whether defaulting or originating -things are about to get even trickier and stricter than before.

What comes to mind, how all this will effect my investments, and is the New Reform Bill currently working?

The bill is slowly being implemented.  Keep you eyes and ears open for more updates.

The Bond market is rumored to be on the verge of a bubble about to burst.  But as you watch the video, predicting a bubble that will bust, is not as easy as you think.

Is A Bond Bubble Forming? Economist Burton Malkiel talks to Steve Forbes about the trouble with bubbles.

A final note on mortgages, as we have all heard Bank of America, JPMorgan Chase, and Ally Financial are placing some of their foreclosures on hold.  No doubt to check the paperwork.  Although halting the paperwork, will not halt the foreclosure process.  So once the paperwork is in order then the foreclosure will happen.

Many courts have been throwing the request for foreclosures out, due to multiple errors in the paperwork.  A temporary pause could cause pressure later.  Like when water is held by a dam then the dam is removed, the rage of the water causes more damage than if it were allowed to flow freely in the first place.

A false lift to home prices could happen in some areas if almost all of the foreclosures are halted for an area with a lot of impending foreclosures. If only a few are halted then the impact would be slight to minimal at best.

By no means will the temporary halting of foreclosures turn this better than buyers market into a strong seller’s market.  Instead of buyers stopping a new purchase of a home, one may want to take advantage of this new Bad News and invest through a short sale.

The lenders may be more apt to work towards getting a short sale approved instead of losing money on a halted foreclosure.

Stock Market 11,000

Image via Wikipedia

We are well on the way to a Dow Jones Industrial Average 11,000.  Although this past week it has not been looking very good for the stock market, the DOW’s dip thongs have proven to be a roller coaster ride of holding ones breath before a sudden drop then the exhilaration of a pull up hill to yield better returns.

 

But will it stick?

 

Once before we experienced the DOW above 11,000, the market had rallied so well.  The bull market had kept the bear away and everyone reaped the benefit of an over valued stock market.

 

Well, today we flirted with the DOW 11,000 but by the end of the day will we be saying it was an anomaly, or a foreshadowing of the weeks to come?

The History Lesson of the Stock Market Crash

Prior to the crash people were receiving higher incomes. With more income average people invested in the stock market driving prices up.  With an unbelievable amount of prosperity there looming in the background, was the thought of a stock market crash.

Then it happened.

Economist had warned of a crash, a bubble bursting, but it fell on deaf ears.  So then the tragedy began, the bottom fell out and everyone scrambled to keep from losing everything.

The world was succumbing to a global economical crash and a wide spread fear of a faulty recovery.

The banks began failing one by one, occasionally four or more at a time.

And don’t get me started on the whole immigration thing.

When reading this article please keep in mind the title, the history lesson of the stock market crash.

If history has taught us nothing but one thing, in time everything repeats its cycle.

The previous stated lesson is from the crash of the 1920’s the last quarter of 1929, October 24^th to be exact.

Back then a group of bankers pooled their money to buy stocks to convince others to stop selling their stocks, while in this century we experienced the Goldman- Sachs scandal, a legal pump and dump.

An Unethical confidence game.

Although there were rumors the bankers were secretly selling their stocks after the pooling and buying.  This would still be a legal pump and dump.

Unethical.

In the stock market crash of 1929 the bottom was not finally felt until July 8, 1932, an approximate time period of two years, nine months, and two weeks and two days.

Even today economist are looking at the stock market crash of 1929, comparing it with our current economy.  The global economy at that time was bleak, but not too long after, the healing did begin.

We started a new cycle of growth.

Our new cycle of growth is going to be small hops (as stated in a previous post) which will total one big leap when we look back a year from now.

A recovery is not an overnight fix.

At this time we should take advantage of the downturn before the upswing and invest in the one tangible asset that will appreciate in the very near future.

Commercial real estate is seeing more foreclosures and is due for even more, making the prices unbelievably low.  This low will not last more than two to two and half years.

The residential housing industry is also going to experience another down turn before its appreciation upswing.

As far as the stock market, well picking stocks like Warren Buffett is better than Jack Rabbit investing any day.  The Jack Rabbits seem to go broke while Warren is still making gains.

So think about where you would like to be in five years.

Would you like to be thinking about how you shoulda, woulda, coulda (sown) invested to (reap) profit, or will you be thinking about all that you are reaping because you realized it was time to invest.

Jack Rabbit Investing: Sunday Morning Thoughts 29 August2010

The current stock market reaction is looking less like investing and more like “Jack Rabbiting”.   Investors’ are quickly pulling money from one place to another, and then moving their money to some other investment. 

Please do not confuse the term Jack Rabbit investing with moving investments strategically for a better return on investment.  The latter is a calculated move based on data about a potential investment. 

Jack Rabbit investing occurs when you have a stock market like the one we have now, a very bear market with even the best of companies lacking good profits. 

Risk is greater with our new down economy many people are looking to jump into an investment to make a quick buck, but this is not the type of market to do that easily. 

We now have a stock market with undervalued stocks set at much lower prices.  Buying the stocks now will enable a savvy investor to buy more of the undervalued stock and wait for appreciation.  One of Warren Buffett’s strategies is to buy stock in a company which meets his checks and balances.  He then holds the stock for at least five years. 

This same principle can be applied to buying real estate.  Instead of doing Jack Rabbit investing such as quick flips, buy an undervalued piece of real estate and hold for appreciation.  

It’s as simple as that, buy low, hold, and possibly sell high in the future.  

There are many quotes throughout the years about how real estate is dead.  Bu it never fails, real estate roars to the foreground and becomes the corner-stone of an economy. 

This is one of those times we are in now, real estate is undervalued in many appreciating areas and in areas down now but will appreciate again. 

You can either wait on the sidelines for the real estate market to rocket back, or you can capitalize on a market that will soon appreciate once again. 

 The Option is Yours.