These government leaders just don't learn! Why are they setting up the American public for another taxpayer funded bailout of the housing collapse??? The housing market is booming - you say? Well, I say it's a false representation to what's really going on.
Let's recap what Freddie Mac and Fannie Mae do for the country. These pseudo-government agencies go to the banks, like Chase, US Bank, Wells, BofA and they say - "hey, we'll buy your loan as long as it fits within these parameters....guaranteed!"
So Chase goes out and makes loans - pushes people into loans as much as possible, adhering to the guidelines, and sells them to these 2 pseudo-government agencies for full face value - less the fees. Who gets the fees? Well that's what Chase and US Bank and Wells gets for playing the game.
So, Chase gets their money back for the loan (a process called hypothecation and they go off to do another loan. Fannie & Freddie don't really care if Sally or Joe Homeowner default - because they know that the government won't let them fail.
If they get close to failing, the government will step in and bail them out just like they did in 2008 and 2009 with all the government sponsored programs like TARP and all the other nanny-state programs that we have in this country funded by who????? You! and ME! and everyone else that makes a living and who pays taxes. Of course if you're reading this and don't pay taxes, then that doesn't apply to you.
In essence it's state sponsored homeownership. Why do we do this? We're just setting ourselves up for another failure once again! And this is all sponsored by the taxpayer. Why? Why do we have a mandate or an entitlement for owning a house? Other countries don't have that... like Canada for instance. They don't have government sponsored loans.
Are we trying to falsely build up the housing economy in hopes that it pulls the rest of the economy out of the toilet to promote an agenda for the 2016 election? I don't know but its wrong, it won't work, and it's yet again another failure of our government leaders.
We need to elect people to office that have business experience to effectively run this great business called the United States of America. Otherwise the fate of Greece or Detroit will be instilled upon this great democracy. Please consider electing people with experience not the best looking or the best orator. We are in trouble - and we need help.
Thursday, August 8, 2013
Monday, May 13, 2013
Risk vs. Risky
Last week, I had a chance to attend a roundtable conference with local business owners. My intention was to meet at least 3 people who might be able to help move my business forward either through identifying a borrower or finding a really good real estate deal, or possibly talk about investments available within my business at this time - in other words - raise some capital for some deals.
Thankfully, I was able to talk to at least one person about investing some money, and as I described our business model to him, the topic of risk came up. He said to me "isn't that risky?".
Now, personally, I love when this topic comes up because it allows me to put on my educator hat and talk about the difference between Risk and Risky. In fact! My first question to him was if he understood the difference between risk and risky. (btw, thanks to Dan Doran for help with The Law of Objections). Everything has risk, I told him. There is risk in you walking down the street with your net worth in your briefcase. There is risk with just putting under your mattress or in a safety deposit box, so "....in essence, the amount of risk may then lead you to determine if something is risky is that what we've determined?" which is what we both agreed upon..
Then I asked him, "if you knew the downside was covered, how many deals would you get involved with? In other words, if you had a very high comfort level for covering the downside, would that then be determined risky?" I shared with him that Risky is associated with lack of the right financial education and that the banker's mentality is to cover the downside first. We manage risk by studying it and managing it and covering it as much as possible. Of course, it's impossible to eliminate all risks, but if we can manage it to the largest extent as possible, then we can maximize profits by rarely losing.
That's what I call the Banker's Code Investment Strategy.
Thankfully, I was able to talk to at least one person about investing some money, and as I described our business model to him, the topic of risk came up. He said to me "isn't that risky?".
Now, personally, I love when this topic comes up because it allows me to put on my educator hat and talk about the difference between Risk and Risky. In fact! My first question to him was if he understood the difference between risk and risky. (btw, thanks to Dan Doran for help with The Law of Objections). Everything has risk, I told him. There is risk in you walking down the street with your net worth in your briefcase. There is risk with just putting under your mattress or in a safety deposit box, so "....in essence, the amount of risk may then lead you to determine if something is risky is that what we've determined?" which is what we both agreed upon..
Then I asked him, "if you knew the downside was covered, how many deals would you get involved with? In other words, if you had a very high comfort level for covering the downside, would that then be determined risky?" I shared with him that Risky is associated with lack of the right financial education and that the banker's mentality is to cover the downside first. We manage risk by studying it and managing it and covering it as much as possible. Of course, it's impossible to eliminate all risks, but if we can manage it to the largest extent as possible, then we can maximize profits by rarely losing.
That's what I call the Banker's Code Investment Strategy.
Monday, April 8, 2013
Is Socialism Winning?
This is a scary real-life story that happend to me just last week. I'm compelled to share it. I'm not sure if our republic will continue to stand firm.
This sad story is unfortunately true.....
While trying to fill a vacancy this month, I received a call from "Tanisha". Her first question was "do you take Section-8?"
"Of course", I said, since I can't legally base a decision upon that fact alone.
"What are your qualifications for renting then?", she inquired.
"We like to see 3x income, so if the rent is $1000, then I'd like to see $3000 in income. We'll take your section 8 voucher into account, for instance if it's $1000 section 8 voucher, we need to see another $2000 in income," I explained.
"Well, I don't have a job", she admitted.
"Oh?", I questioned.
"...and haven't had one for 7 years", she said.
"Hmmm, interesting. How do you pay your bills?" I asked.
"Well, section 8 pays my rent, and oftentimes there's money left over to pay my utilities. If not, I'll ask that the landlord increase the rent to cover the utilities and then section 8 will pay for the entire rent. In addition, I get food stamps to pay for groceries". she explained.
"Oh, OK. Hmmmm, well, how do you pay for a phone?", I asked, almost wincing at the answer.
"I have an Obama phone and it's paid for", she said.
"OK, how about gas in your car? or anything else outside of groceries that food stamps don't cover?", I inquired.
"Well, I'll sell my food stamps, and raise money that way", she proudly proclaimed
"Really? What do you get for them usually?", I asked.
"Well, for $100 food voucher, I usually get about $50. In addition, some members of my family will claim my kids on their taxes, and get a child tax credit, and pay me for that," she said.
"OK", I said. "Just out of curiosity, do you like the process? Do you like your life? Are things going well for you? Do you feel like you have everything you need, or do you feel like you're barely making it and it's difficult to make ends meet?"
"I like it," she concluded. "My kids and I eat pretty well and have just about everything we need."
We got off the phone and I thought to myself that this woman has no incentive to go get a job, go out and contribute to society. She's certainly not paying taxes because she's not earning anything. All she has become is a drain on society and she likes it. She feels as though "as long as someone else is paying for me to live, why should I do anything differently?"
Is Tanisha in the majority? No? What happens if Tanisha and people that think like her become the majority? Will the United States continue to flourish? Or will it die? I'm very concerned that the 47% grows to over 50%, because at that point our republic will become the People's Republic of Welfare. Is it different in other states? Most of the programs are state run. I'm sending this to the governor.
One Nation Under All.
This sad story is unfortunately true.....
While trying to fill a vacancy this month, I received a call from "Tanisha". Her first question was "do you take Section-8?"
"Of course", I said, since I can't legally base a decision upon that fact alone.
"What are your qualifications for renting then?", she inquired.
"We like to see 3x income, so if the rent is $1000, then I'd like to see $3000 in income. We'll take your section 8 voucher into account, for instance if it's $1000 section 8 voucher, we need to see another $2000 in income," I explained.
"Well, I don't have a job", she admitted.
"Oh?", I questioned.
"...and haven't had one for 7 years", she said.
"Hmmm, interesting. How do you pay your bills?" I asked.
"Well, section 8 pays my rent, and oftentimes there's money left over to pay my utilities. If not, I'll ask that the landlord increase the rent to cover the utilities and then section 8 will pay for the entire rent. In addition, I get food stamps to pay for groceries". she explained.
"Oh, OK. Hmmmm, well, how do you pay for a phone?", I asked, almost wincing at the answer.
"I have an Obama phone and it's paid for", she said.
"OK, how about gas in your car? or anything else outside of groceries that food stamps don't cover?", I inquired.
"Well, I'll sell my food stamps, and raise money that way", she proudly proclaimed
"Really? What do you get for them usually?", I asked.
"Well, for $100 food voucher, I usually get about $50. In addition, some members of my family will claim my kids on their taxes, and get a child tax credit, and pay me for that," she said.
"OK", I said. "Just out of curiosity, do you like the process? Do you like your life? Are things going well for you? Do you feel like you have everything you need, or do you feel like you're barely making it and it's difficult to make ends meet?"
"I like it," she concluded. "My kids and I eat pretty well and have just about everything we need."
We got off the phone and I thought to myself that this woman has no incentive to go get a job, go out and contribute to society. She's certainly not paying taxes because she's not earning anything. All she has become is a drain on society and she likes it. She feels as though "as long as someone else is paying for me to live, why should I do anything differently?"
Is Tanisha in the majority? No? What happens if Tanisha and people that think like her become the majority? Will the United States continue to flourish? Or will it die? I'm very concerned that the 47% grows to over 50%, because at that point our republic will become the People's Republic of Welfare. Is it different in other states? Most of the programs are state run. I'm sending this to the governor.
One Nation Under All.
Wednesday, March 13, 2013
White Smoke Signals Fiscal Cliff!
My investor friends keep asking me.....where are the deals?
They are doing all the same old marketing techniques: probate, bankruptcy divorce, foreclosure, out of area, free & clear, pretty house, ugly house, code violations, juniors, seniors, va's, fha's, hud's, nod's, fsbos, ups, and usp, and FBI.
Nothing seems to be working that well. Why? Why is that? Where are the deals? The market has begun to rebound, but no one is selling. Is it because of the hedge funds buying real estate? Sooooo many investors are afraid of that buzz kill - so let me address it in this month's blog post.
Hedge Funds (HF) have loads of capital; however, they are only interested in deals that can produce a 7-9% CAP rate. Big deal - right? 7-9 % is lame in my book, but the problem or opportunity comes in the way the deal is presented to the hedge fund. Do you think those HF managers know how to structure a deal for double digit returns? Do you think they'll be able to short a 2nd or wipe out a 2nd through a Jr. Lien redemption? Do you think they'll be able to negotiate 0% seller financing to produce the double digit return? How about coupling the deal with a lending model to make close to 35-45% returns? I'm sure those HF managers are not smart enough or nimble enough. They can only look at the plain vanilla deals. Those deals that put us to sleep.
So what? So quit your complaining and get out there and work the models. It's hot market strategies right now. That's right - that means post-it notes in targeted areas. That means better lists and better marketing. Your cost per aqusiion might go up closer to $1650-1800 per deal, but the deals should also be getting a little better. Profits of 50k are becoming the norm (for the 150-200k market), so get out there and get to work. Most of my clients are seeing 20-30k on wholesale flip and that (last time I checked) should only take about 10-15 hours worth of work.
That'll make the Lexus payment this month.
They are doing all the same old marketing techniques: probate, bankruptcy divorce, foreclosure, out of area, free & clear, pretty house, ugly house, code violations, juniors, seniors, va's, fha's, hud's, nod's, fsbos, ups, and usp, and FBI.
Nothing seems to be working that well. Why? Why is that? Where are the deals? The market has begun to rebound, but no one is selling. Is it because of the hedge funds buying real estate? Sooooo many investors are afraid of that buzz kill - so let me address it in this month's blog post.
Hedge Funds (HF) have loads of capital; however, they are only interested in deals that can produce a 7-9% CAP rate. Big deal - right? 7-9 % is lame in my book, but the problem or opportunity comes in the way the deal is presented to the hedge fund. Do you think those HF managers know how to structure a deal for double digit returns? Do you think they'll be able to short a 2nd or wipe out a 2nd through a Jr. Lien redemption? Do you think they'll be able to negotiate 0% seller financing to produce the double digit return? How about coupling the deal with a lending model to make close to 35-45% returns? I'm sure those HF managers are not smart enough or nimble enough. They can only look at the plain vanilla deals. Those deals that put us to sleep.
So what? So quit your complaining and get out there and work the models. It's hot market strategies right now. That's right - that means post-it notes in targeted areas. That means better lists and better marketing. Your cost per aqusiion might go up closer to $1650-1800 per deal, but the deals should also be getting a little better. Profits of 50k are becoming the norm (for the 150-200k market), so get out there and get to work. Most of my clients are seeing 20-30k on wholesale flip and that (last time I checked) should only take about 10-15 hours worth of work.
That'll make the Lexus payment this month.
Wednesday, February 6, 2013
Is the Housing Downturn Over?
Where have I hidden my crystal ball?
The crystal ball that will tell me exactly what the future holds for the economy and the local Twin Cities Real Estate Housing Market. Is the news good or is the news bad?
Let's review.
Between June 2007 and November 2008, Americans lost more than a quarter of their net worth. By early November 2008, a broad U.S. stock index, the S&P 500, was down 45 percent from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30–35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Of course the bottom continued to fall out from under wall street as the Lehman Brothers crisis hit in Sept 2008 and approximately $150 billion was withdrawn from the market in one 2-day session, where as an average was $5 billion. Foreclosures hit an all time high, with over 1 million foreclosures in 2011, several million more in the pipeline, and 872,000 previously foreclosed homes in the hands of banks. The crisis had a significant and long-lasting impact on U.S. employment. During the Great Recession, 8.5 million jobs were lost from the peak employment in early 2008 to February 2010.
Back here in Minnesota, prices dropped 35% from their peak in October 2006 of $231k to $150k in January 2012. There were an estimated 192,000 foreclosures in four years (from 2009-2013) and housing starts came to a stand still.
However, now there seems to be talk of a rebound. Right now we have about 13,000 homes on the market in Minneapolis and St. Paul. What happend to those 192,000 foreclosures? Did those homes show up back on the market again to be gobbled up by bargin hunters and landlords? No. And as a result, we're seeing the evidence of a hot market in the real estate community all over the 7-county metro area.
Since there are only 13,000 homes on the market, that represents just 3.0 months of inventory. When the market hits less than 6 months of inventory, a sellers-market is declared and today's sellers are seeing multiple offers and very low days on market.
However, the question still remains, where are the foreclosures? What happend to all the homes that have been taken back by the likes of Bank of America, Wells Fargo, CitiBank and US Bank, the 4 main banks in town? The answer walks you down a road of speculation and conspiracy theory. It's common thought that as this Shadow Inventory grows, someone is doing something with that inventory. The houses are sitting vacant but don't every make it back to the MLS (Multiple Listing Service). Therefore, what is going on?
There are answers to these questions. Some theorize that large hedge funds are buying up packages of houses. For what purpose? To rent them, commoditize the income, and package and sell that commodity to Wall Street. Does that sound plausible Maybe, but we'll see more failure with that strategy than success. There are a list of pitfalls with that plan - and it will certainly pose problems ahead for the housing market. However, I am looking forward to the real bargins that will come out of that downturn as a result.
The crystal ball that will tell me exactly what the future holds for the economy and the local Twin Cities Real Estate Housing Market. Is the news good or is the news bad?
Let's review.
Between June 2007 and November 2008, Americans lost more than a quarter of their net worth. By early November 2008, a broad U.S. stock index, the S&P 500, was down 45 percent from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30–35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Of course the bottom continued to fall out from under wall street as the Lehman Brothers crisis hit in Sept 2008 and approximately $150 billion was withdrawn from the market in one 2-day session, where as an average was $5 billion. Foreclosures hit an all time high, with over 1 million foreclosures in 2011, several million more in the pipeline, and 872,000 previously foreclosed homes in the hands of banks. The crisis had a significant and long-lasting impact on U.S. employment. During the Great Recession, 8.5 million jobs were lost from the peak employment in early 2008 to February 2010.
Back here in Minnesota, prices dropped 35% from their peak in October 2006 of $231k to $150k in January 2012. There were an estimated 192,000 foreclosures in four years (from 2009-2013) and housing starts came to a stand still.
However, now there seems to be talk of a rebound. Right now we have about 13,000 homes on the market in Minneapolis and St. Paul. What happend to those 192,000 foreclosures? Did those homes show up back on the market again to be gobbled up by bargin hunters and landlords? No. And as a result, we're seeing the evidence of a hot market in the real estate community all over the 7-county metro area.
Since there are only 13,000 homes on the market, that represents just 3.0 months of inventory. When the market hits less than 6 months of inventory, a sellers-market is declared and today's sellers are seeing multiple offers and very low days on market.
However, the question still remains, where are the foreclosures? What happend to all the homes that have been taken back by the likes of Bank of America, Wells Fargo, CitiBank and US Bank, the 4 main banks in town? The answer walks you down a road of speculation and conspiracy theory. It's common thought that as this Shadow Inventory grows, someone is doing something with that inventory. The houses are sitting vacant but don't every make it back to the MLS (Multiple Listing Service). Therefore, what is going on?
There are answers to these questions. Some theorize that large hedge funds are buying up packages of houses. For what purpose? To rent them, commoditize the income, and package and sell that commodity to Wall Street. Does that sound plausible Maybe, but we'll see more failure with that strategy than success. There are a list of pitfalls with that plan - and it will certainly pose problems ahead for the housing market. However, I am looking forward to the real bargins that will come out of that downturn as a result.
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