Flip Flop with no Collateral

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Well the real estate schemes continue, even in this depressed real estate atmosphere.  Different individuals who call themselves investors are actually charlatans.  The latest foreclosure scheme is a type of mortgage fraud.

The real estate pump and dump is similar to what is perpetuated in the stock market.

Buy a property at a foreclosure auction for a very low price then mortgage the property for the median value, but making the claim to do much needed renovations to the property.  Then reselling the property for market or higher than market value.  When all along the purchaser and buyer are the same entities or persons.  In the end, walking away from the over inflated mortgage, never paying one red cent, causing the property to go into foreclosure.

Not only is this tactic mortgage fraud, schemes like these are also making our national recovery and banking reform lag.  These schemes hurt neighborhoods by causing an abnormal amount of foreclosures in an area, making their home values drop.  This type of mortgage fraud can also make lenders scrutinize all mortgage applications with even more stringent rules, fearing backlash from rampant foreclosures or the FDIC.

From an investors point of view, you should care because this type of activity can cause one to think an area is improving or going through regentification when in actuality it is not.  This is another reason for doing due diligence when considering an investment.

This reinvented scam along with the defrauding of consumers dealing with foreclosure is only going to make the national recovery take longer.

Don’t get me wrong, there are many real estate investors and limited liability companies who are out to help improve the current real estate conditions.

These are the companies that do not give guarantees of stopping a foreclosure nor do they charge fees to help those in foreclosure.  They are the companies that will tell a home owner facing foreclosure their options to stop or avoid their foreclosure.  Some times those options are not what the home owner would like to hear, but it’s better than a foreclosure.

As far as mortgage fraud goes one would think the banks would be able to run a demographic profile to find out the median income in an area, and if the median income can support the house payment then the deal presented has a better chance of not being a scam.  I would think the banks would also look at the comparable homes within the same neighborhood before allowing a disproportionate loan on a specific property.

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.

What IS the Value of Money?: Sunday Morning Thoughts 15 August 2010

What is the value of money these days?  According to the latest currency market close, the euro has been pushed down to its lowest in three weeks, to the equivalent of $1.27 in US dollars.  The yen is also down against the dollar.

The dollar on the other hand is up higher than it has been in the last two years.  But that may change in the coming weeks.

When looking at the dollar compared to the Yuan, one Yuan is the equivalent to 14cents US, so it would take 7.15yuan to equal $1.  One Yen equals 0.0116 dollars.  This is good for an exporting country. It would be cheaper for importers to buy goods than to make the same comparable goods in their homeland.

In the world of exporting keeping your currency down will aid in domination of a particular good/item.  As of Friday August 13, 2010 the Bank of Japan is reevaluating the yen to weaken its value against the dollar.

August 6, 2010 President Obama pushed for “made in America”, another way to help strengthen the dollar by backing with what the Federal Reserve Note was intended to be backed with, the hard work of the American people.

But this may not actually work with the weakening of the yuan and the yen.

The euro on the other hand is also a note much like the US dollar.  Issued by the European Central Bank, and is representative of the collective work, such as good produced, consumed, and exported, along with the addition of the government spending of the countries in the European Union.

So the original question, what is the value of money?  Zero, until you spend it which in effect gives it its value.  For tourist in a foreign country the exchange rate at the time they spend the money is the value.

In watching the stock market one can see the value of currency fluctuates.  In our current Global economy, the heads of the dominating G20 governments are watching and calculating how to best end the recession, or at least bring economic stability to their own countries.

With paper currency having an unstable future, many investors are moving toward tangible assets, gold, silver, and oil have been consistently up or only experienced slight downs, unlike many stocks which have seen skyrocketing and plummeting days.

In the background of all the issues with the DOWJIA, NASDAQ, and the S&P, real estate is slowly rebounding, with appreciation to follow.

Our Topsy Turvy Economy

With the stepping down of Obama’s lead financial advisor Christina Romer one would begin to wonder who will take her place.   According to Reuters there are three candidates Austan Goolsbee, Jared Berstein, and Laura Tyson.

This news of a prominent member of Obama’s financial advisory will possibly impact the stock markets, causing foreign investors to be more apprehensive of America’s economic recovery.

This new change in the presidential financial advisory, mixed with higher unemployment and stagnant growth in many sectors, the stock market for Friday will likely end down.

But the cycle for this month of August is a negative ending of the DOW.  This prediction is based on previous cycles.  When looking at the previous cycles of the month of August plus lagging unemployment, sluggish consumerism, and the dollar losing more value it is not hard to predict that the month of August for the DOW will be a non gaining month.

Conversely, tangible assets are going up at a steady pace.  Gold and silver are gaining more on a daily basis.

Real estate is not too far behind with some markets seeing some slight increase in price.  Although another wave of foreclosures in residential and commercial will soon be coming.

Warren Buffett defined the difference between investing and speculation in this famous passage from his book, The Intelligent Investor:

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels, at which he would be wise to buy, and high price levels, at which he certainly should refrain from buying and probably would be wise to sell.

Now is the time to invest in real estate.  Take advantage of the market being low and having an abundance of real estate that is due to appreciate.  For more information on how to take advantage of our current real estate market http://www.BackedByRealEstate.com

Realistic Investing vs Speculative: Sunday Morning Thoughts 01 August 2010

Warren Buffett defined the difference between investing and speculation in this famous passage from his book, The Intelligent Investor:

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels, at which he would be wise to buy, and high price levels, at which he certainly should refrain from buying and probably would be wise to sell.

This statement can apply to the new wave in investing, binary options.  This is a loose example of how binary options work; the premises is to state whether or not a stock or commodity will go up or down in the next ten minutes.  Although this is a rather pedestrian look at the inner workings of binary options, this is basically the way you play the hand.

If you picked up on the poker, or card game reference, this is what binary options sum up to be, yet another casino game.

Currently on the trading floor a lot of speculation has been transpiring.  Many investor newsletters are giving their predictions for stocks, commodities, etc. to have in their portfolios.

When choosing to invest you will have to have a proven earning strategy to see a return on investment.   Not matter how you look at investing you will always be speculating or projecting on a number of factors.

Studying the cycles is also a proven strategy to help increase a return on investment.

Everything in nature has a cycle.  To better understand the cycle of things is to watch and make note of changes.

The changes could be obvious or very subtle.  Noting the changes in the cycle we can then project what will likely happen next.

The housing and commercial housing market also have a cycle, when the prices go up drastically in any given area that same area have a hard bottom.  Examples would be Stockton, CA and the Inland Empire.

The house prices in those areas where going up up up almost everyday by leaps and bounds.  Then suddenly the market in those same areas fell down just as hard.

The Inland Empire was a growth area in the late eighties then became a declining area a short time later.  Fast forward to the late nineties, the same area was growing past its highest peak.  Then with all things fell as sharply as it went up.

If you were to invest now in the Inland Empire the starting strategy would be to hold the property knowing it will appreciate as in times before, and then sell the property right at the peak or slightly before the peak.

The stock market also has a pattern because all things in nature follow a cycle.  This is one of those rare times when all really does exist.  But also note within a cycle are also more cycles contributing to the larger cycle.

In real estate the job market fell in the early nineties with companies cutting back to purchase stocks back from their investors.  For our current housing market the down turn initiated from the sub prime lending and over extension of credit; similar to the late eighties early nineties.

So with all cycles now is the low time in the market, the time to buy and hold.  Appreciation is waiting.

A Closer Look at Using a Self Directed IRA to invest in Real Estate

For many investors using a self directed IRA to invest in real estate seems a little scary.  People may think to themselves what about my retirement?  What if the deal goes south?  If the deal goes south how can I get my money back?

Those questions are perfectly normal to ask, especially since the stock market beat up many IRAs, 401ks, annuities, and other investments.  In addition to the stock market taking a negative toll on investments in general, people wonder if real estate is a viable option for their nest egg; since many once thriving markets and sub markets are presently plagued with upside down mortgages, causing negative equity, and resales selling for a considerable amount less than the once high asking price.

One thing most new investors learn quickly is buy low sell high.  Or maybe if you buy high you can short the stock.  Well the same type of thought can be applied to real estate.

When the market was high many free and clear owners sold their properties for the highest possible price.  Just when they thought the price had gone much higher than they expected, the purchase price went a little higher.  Sub prime lending was also a factor, people were able to buy more house than they could afford in the future reset to principal and interest payments.

The then buyers and lenders did not think the bubble would rupture, but it did.

Now with a housing glut in many prime areas, plus commercial real estate to soon take a tumble due to stricter lending practices, this would be the time to implement the strategy of buying low and hold for appreciation.

Shorting is an option as well in real estate; this practice is known as a short sale.  Although you did not purchase the property when it was a high price or market peak, some one else did.

In a short sale the lender would accept less than owed provided the property is sold to an uninvolved third party.

Meaning the seller may not keep the property nor have a relative or friend purchase the property for them.  The original purchaser must server all ties to the property.  Many lenders are now coming to the negotiation table of short sale a little easier now this could be due to being overwhelmed with foreclosures and more foreclosures on the horizon.

In a real estate buyers market the strategy of holding for appreciation is a very good option.  So if you lend on a current income producing property now then in 3-5years the property would be worth more than now, provided the area is a stable, or stable and emerging area.  A property is considered income producing if after all debt service and maintenance is subtract from the gross income does the property have a brisk cash flow.

So if the deal goes south the property is your collateral.  You have the option to sell the note, sell the property or hold the investment.  Remember you need to receive detailed information on any venture if you decide to invest.

Please subscribe so you many receive the eBook about cycles (it’s only 6pages but is packed with a lot of information) it may help you in your understanding of events to come.

The Consumers and Investors are Not at the Gates:Sunday Morning Thoughts 18 July 2010

The DOW, NASDAQ, and the S & P all ended the week in the red.  Friday’s down turn of the stock market hinged on a few factors, one being the banks such as Bank of America, Wells Fargo, JP Morgan Chase all reported less than anticipated second quarter revenues.  This falling short of expectations for the banks coupled with sub par consumerism mixed with the New Reform bill to soon take place has made many investors nervous.

The new rumor, we may slip back into another recession, but at this point even with the skepticism we are poised to maintain a slow and steady recovery.  The strides we are making now are small little hops, which when we look back a year from now, when all totaled will equal a big leap.

For some investors, government securities have become the new safe haven, but with so much interest in the government bonds the prices rose as the yield went down, paying more to earn less is not a great strategy.

America is not the only country at this point feeling the struggle of growth out of a bad economy.  United Kingdom announced it is the equivalent to 5 billion dollars in debt.  The Nikkei this Friday was much like the DOWJIA closing down by over two hundred and fifty points.

When we look at all the factors for our recovery, the stalling is mostly due to the reaction banks had to the outcome of the sub prime lending.  They tightened the reigns of credit with only a 30 day notice of severely increasing consumer’s interest rates.  Some consumers became bad credit risks due to the banks drastically cutting their credit limit to just above the amount owed.

Basically, if a person had a credit card for $12,000 and owed $3,000 towards the balance, this would only be 25% usage of the credit.  In our current economic times, the banks have been cutting those higher limits down to just above what is owed.  So what was once a $12,000 credit limit with $3,000 owing, it becomes $4,000 credit limit still with $3,000 owing.  This radical decrease causes the credit usage to shoot up overnight to 75%, this would make the person appear as though they were irresponsible with credit.

There should not be a wondering why consumers have fallen off of purchasing.  With credit dwindling and interest rates sky rocketing, buying anything above the necessities would be a frivolity.  Many consumers have moved towards making purchases with cash or debt cards instead of with credit cards.  People feel more in control with keeping themselves and their transactions liquid.  All things tangible are driving the stock market while all things cash will help keep consumers from sinking into deeper debt.