"A market is the combined behavior of thousands of people responding to information, misinformation and whim." -Kenneth Chang
I think this particular quote fits very well with the current real estate investment climate. The U.S. housing market and mortgage industry are currently undergoing tremendous changes, and these changes are the result of millions (instead of thousands) of people and businesses trying to react to information, misinformation, and whims. Understanding any market, the U.S. real estate market in particular, is not an exact science. It is impossible to make exact predictions. Despite what all of the “experts” want you to believe, no one has all of the answers.
As dedicated real estate investors, we need to do our best to decipher between the true information and the misinformation pouring out of media sources. It is our challenge to gather accurate information and discover the trends that the multitude of change is creating. In order to be successful investors during a time of such great change, we need to cultivate accurate information, avoid misinformation, and do our best to be knowledgeable and well-prepared so we can avoid acting on a whim. The changes in the real estate industry are creating trends, and the successful investors will realize these trends and capitalize while the timing is right. As the mortgage industry continues its tumultuous behavior, secondary markets are evolving. Here is one to keep an eye on.
History/Overview
REO’s
Real estate owned or REO is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank (negative equity): the minimum bid in most foreclosure auctions equals the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale.
After an unsuccessful auction, the bank will go through the process of trying to sell the property on its own. It will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a realtor. REO properties may be poor shape in terms of repairs and maintenance; however, real estate investors will often go after these properties as banks are not in the business of owning homes and so, in some cases, the low price can more than compensate for the condition of the property. REO’s can be found at local auctions, through realtors, and often banks will group a number of homes together, locally or nationally, and sell an “REO pool” to high net worth investors or groups of investors. Buying in bulk can often create even deeper discounts.
Mortgage Notes
A note is a legal document that obligates a borrower to repay a loan at a specified interest rate during a specified period of time or on demand; sometimes also referred to as promissory notes or mortgages. Notes can be associated with just about anything that can be bought and sold – houses, mobile homes, land, cars, boats, condos, consumer electronics, rare books, coins, stamps, antiques, home improvements…the list is almost endless. For our purposes, we will focus on notes attached to real estate, generally referred to as mortgage notes.
A mortgage note is the promissory note associated with a mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate. While the mortgage itself pledges the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and makes the borrower who signs the note personally responsible for repayment.
Selling notes is a regular market activity that is not new today but that has increased in this market. Securitization, or selling notes, happens for several reasons, including:
· To raise cash.
· For servicing – some individuals/companies create notes, but do not have servicing capabilities.
· Specialized servicing – some individuals/companies are only set up to service performing notes; when a note is non-performing, the note is sold to mitigate risk; there are specific companies specialized in servicing the non-performing notes, with the specific goal in curing them back to performing.
· To mitigate risk – individual/companies are comfortable with certain mix of loans on their books. When this mix is not representative in the loan portfolio, segments of the portfolio are sold to get the total back within bounds.
Notes have a FACE VALUE (the unpaid principal), an INTEREST RATE at which the note is being paid and a TERM (the amount of time left before it is paid off). Buying, selling and trading notes have become big business, and many investors are creating great wealth with this strategy. Due to the "time value" of money which assumes a dollar today is worth more than a dollar at some future time, notes are sold at discounted rates- usually at 60-75 cents on the dollar. In today’s tumultuous market, though, these discounts are even deeper! Like bonds, mortgage notes offer investors a stream of payments over a period of time. When notes are purchased at a discounted rate due to the time value of money, there is built in equity created immediately, and to improve upon this position even further, every month payments will be made to the owner of that note…creating a monthly cashflow, with no hands-on effort!
REO’s and Mortgage Notes Today
The trauma of foreclosure or impending foreclosure has hit home for nearly 1.4 million homeowners so far this year, maintaining the nearly 91% year to date increase versus the last year. That is according to the latest numbers from California-based Foreclosures.com.
Let me share some more statistics….
For the month of October, nationwide 54,418 REO filings were reported to Foreclosures.com - up nearly 24% over the 43,941 September filings. A total of 128,019 pre-foreclosure filings were reported for October - up nearly 31% over 97,984 September’s filings.
In September both nationwide REO filings (43,941 versus 55,952) and pre-foreclosures filings (97,984 versus 117,694) were down over August (16.75% and 21.47% respectively).
When you average September and October filings, you find that pre-foreclosure filings have actually leveled off (down 4%) since August (113,001 current versus 117,694 August) and REO’s have actually dropped significantly (down 12%) from the high August filings (49,179 current versus 55,952 August).
These types of statistics are the basis of the information and misinformation that we weed through each day. We also hear about fault and blame, CEOs stepping down and companies folding. Bottom line is…these are grim numbers for the hundreds of thousands of homeowners trapped by rising mortgage payments, stagnant home prices, and tightened credit markets. And it is expected to get worse before it gets better.
With that said, the impact of the sub-prime mortgage industry is unclear, and the secondary discounted notes and REO market is evolving. Typical buyers are not buying as they have in the past. The large number of foreclosure filings (i.e. REO’s) taken in conjunction with the instability in the mortgage industry leads to a situation where banks/lenders are overwhelmed with the amount of REO’s and non-performing mortgage notes (i.e. mortgages headed to foreclosure) that they must deal with. When a market goes through such sudden and drastic changes, there are always deals to be found for savvy investors. REO’s and non-performing notes are where many investors are finding great opportunities. Homes and mortgages are being sold for pennies on the dollar. Some are being sold for as low as 30 cents on the dollar, but the average for wholesalers is somewhere between 40 and 65 cents on the dollar. This means that if a home or mortgage is worth $100,000, lenders are selling them for around $50,000…clearly a good deal, even if the market has declined a bit.
Who invests in REO’s and mortgage notes and how do they do it?
REO and Mortgage Note buyers are companies or investors with the experience and capital to purchase product and manage or dispose of that product through established systems and channels. If someone is holding a private mortgage, these investors will give cash and take over receiving the monthly payments that were being paid to the previous owner. A Mortgage Note for these investors are home loans or mortgages that are secured by real estate. Mortgage notes could be anything from $10,000 to millions of dollars. Investors in REO’s purchase foreclosed homes from the bank for 40-65 cents on the dollar, and they can then rehabilate the property and sell it at market value or dispose of the property quicker by passing on savings to a local investor to rehabilitate and sell at market value. Anyone can be a mortgage note or REO buyer, but there are hurdles to overcome.
Barriers to Entry
Notes are not cheap. They cost thousands, often tens of thousands, or even millions of dollars. Most note and REO brokers, companies who sell notes and REO’s, will only offer their product in “bundles”; meaning that in order to have access to the discounts, you must purchase a large group of notes and/or REO’s. Clearly this takes a great deal of capital. Mistakes can be very costly. The problems for a newcomer are obvious. Unless you have piles of cash, how do you start? How do you become experienced without making a mistake that could cost you dearly?
PropertyVestors Approach
Finding discounted notes and REO’s can be quite labor intensive. In many cases, it may be wise to be a part of a group that purchases these products. You then have access to the knowledge of the group, you can get larger discounts because the group can buy in bulk (buying power), your investment is spread across multiple notes or REO’s (diversification), and you will have the assistance of the group to service the notes and sell the REO’s.
PropertyVestors is an international real estate investment group that offers a discounted Notes/REO Program. After researching the various ways to approach note and REO buying PropertyVestors established a partnership with a top performing purchaser and servicing arm in order to minimize risk and maximize returns for our purchasers. We investigated only companies that had been purchasing these bulk orders for over 20 years with a strong track record. Special to our relationship is the focus on curing notes; we want to be part of the sub-prime mortgage solution, and do not sell to those interested in foreclosing as a process. In addition, curing and refinancing is the way to maximize returns. So, it is a win-win proposition. Our depth of buyers and competence in this industry has given our buyers a tremendous opportunity to take advantage of today’s real estate market.
Process
1. Visit http://www.propertvestors.com/ to research our investment group further, get access to our free report “Capitalizing on Real Estate in Today’s Economy”, and join as a Member to get access to profitable opportunities.
2. Investor completes a non-disclosure, non-compete document to gain access to the details of the bulk pool.
3. Once the pool has been reviewed and approved, proof of funds and a letter of intent is signed by the investor.
4. Investor is notified of the next pool in their price range.
5. Investor opens escrow account. (No money is taken from escrow until settlement. If settlement does not occur, escrow is returned)
6. Investor receives pool information (mortgage notes, deeds, etc.) and conducts their own due diligence.
7. Contracts executed, settlement completed and funding occurs.
Build a Discounted Note and REO Fortune with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal regions and waterfront properties.
With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors’ real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About The Author
Sarah Barry is the founder of PropertyVestors (http://www.propertyvestors.com/). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
Friday, December 7, 2007
Thursday, November 8, 2007
Take Advantage of the Housing & Credit Woes
Real estate investing is a dynamic practice. Change is inevitable. In the October issue of InvestingSherpa we discussed the myriad of changes that are taking place in the U.S. housing market and mortgage industry right now. It is the challenge of every investor to understand these changes, and adjust their investment strategy to work within the new framework that is being created. We need to recognize trends as they form, and determine how we can leverage these trends to improve our investing strategies.
Be a Part of the Know! – Private Lending
As the U.S. housing market continues to decline, and as credit becomes increasingly difficult to attain, new investment trends are developing. One of the largest and most profitable trends developing today is the concept of Private Lending. This is not a brand new trend, but the participation in Private Lending opportunities is increasing tremendously. Private Lending opportunities are direct loan investments to established, active, hands-on real estate individuals and companies; these opportunities are not offered to the general public. In other words, you need to “be in the know” to have access to these investment opportunities. In the real estate arena, Private Lending is used for just about any type of project - private funds could be raised to conduct activities ranging from land developments, foreclosure purchases, rehabs, rental or retail home construction, discounted notes, to any other type of real estate activity. Private Lending can also be utilized for just about any size project – from a single family rehab and flip to multi-million dollar deals. With this type of investment, you are lending funds to the individual or company that is controlling the project and not investing in the real estate itself. This is a passive approach to real estate investing that can prove to be very lucrative for the investors and the project manager.
One of the first steps with real estate investing is to determine if you desire to be an active participant in your investments, or if you want to take on more of a passive role. Do you want to own the real property, organize repairs and maintenance, deal with tenants, etc., or do you want to help fund projects that others are doing? Both strategies have their pros and cons, and PropertyVestors offers opportunities for both types of investors.
Today’s market is creating good opportunities for active investors using strategies such as:
1. Buying unique, one-of-a-kind properties that makes sense in any market;
2. Picking up properties at very low prices in absolute great markets that are sure to return;
3. Participating with builders in creating model homes or unique rentals in a great area.
However, a growing number of investors are trying to ride out the present real estate decline with their current holdings and are only interested in investing funds in other projects rather than taking on more real property as assets. And, a lot of active investment opportunities fall outside of the capabilities of individual investors. This is an ideal opportunity to become a passive investor and take advantage of the growing number of available Private Lending opportunities. Private Lending is a great way to pool resources with other investors to take advantage of opportunities that may be out of your investment scope. It can be as simple as forming an LLC with other investors and investing in a project as one entity. When the right project becomes available, PropertyVestors can help you organize this process.
Why are Profitable Private Lending Opportunities Available?
Very simple….. Builders, land developers, rehab specialists, foreclosure specialists, etc, all have access to more deals than their capital or credit can handle. In today’s market, there are some very good deals out there for those with capital, credit, and time. One of the major difficulties for those “in the know” is that even though they may be very solid financially, they do not have enough capital to finance every good project they come across, nor will lenders let them do more than a couple projects at a time; especially now that lending qualifications are tightening up. Private Lending allows active investors to find funding for their projects from passive investors, and in most cases interest rates are higher then you can find elsewhere and the investment is secured by the real estate.
For example, PropertyVestors recently funded a development in West Virginia with $2.4 million from a small group of investors. This investment is returning 20% annually over two years and is secured by the land itself and a government bond. The developer did not want to find the funding through traditional lending, and this approach allowed them to avoid all of the bureaucracy and red-tape of the traditional lenders. The developer is paying a slightly higher interest rate, but the ease and flexibility of the transaction more then makes up for that higher rate. For many Private Lending opportunities, investors can even consider using IRA funds for the investment and get tax deferred returns. The difficult part is that you need to have access to these opportunities, and in many of cases, you must qualify to be a part of the investment.
Fundamentals of Private Lending
In most real estate investments, you are purchasing a piece of real estate and will end up holding title to that real property. In the case of a Private Lending, you are providing capital to companies that own the real property. You are providing the capital to purchase and/or make improvements to the real property, but you do not have ownership in the property. Most of the time, the security in these investments is still the real property, but you do not have any ownership rights. The security could also be other assets, monetary vehicle (such as government bonds), or personal guarantees.
Because of this difference, the laws governing the investment are different. In more traditional real estate purchases, you are governed by real estate laws, and for Private Lending, you are governed by securities laws that are under the jurisdiction of the SEC. Because of this difference, the way such investments are marketed is also different. For a traditional real estate investment like a condo on the beach, you might see billboards, glossy flyers, and every broker in town promoting. In the case of Private Lending, you will not see it marketed publicly. Private Lending opportunities are handled privately among individuals having pre-existing relationships (a closed network). Without going into extensive detail about the SEC and their requirements, one of the most stringent requirements to qualify for many Private Lending opportunities is not only to have access to the projects through a closed network of investors, but also have significant investment capital and/or experience. Although not in all cases, many Private Lending opportunities will require you to be an accredited investor.
What is it?: Accredited investor is a term defined by various securities laws that delineates investors permitted to invest in certain types of higher risk investments (including real estate), limited partnerships, hedge funds and angel investor networks. The term generally includes wealthy individuals and organizations such as a corporation, endowment or retirement plans. For our purposes, we will focus on individuals rather then organizations.
In the United States, for an individual to be considered an accredited investor, he must have a net worth of at least one million US dollars or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year. This rule came into effect in 1933 by way of the Securities Act of 1933.
The exact definition comes from the federal securities laws, Rule 501 of Regulation D , and is as follows:
1. A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
2. A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
Why?: The SEC has established criteria for preventing people who perhaps need more investing experience from investing in unregistered securities and/or real estate opportunities that are less well known than stocks and bonds. The idea is that the SEC is trying to protect investors that lack the needed investing experience and/or disposable capital to get involved in higher risk investments. There are some assumptions that go along with being an accredited investor. An investor who meets the foregoing standards is considered an accredited investor, and should also meet at least one of the following criteria:
A) The accredited investor or his professional advisor can be reasonably assumed to have the capacity to protect his own interests in connection with the transaction by reason of his business experience or the business or financial experience of his advisor.
B) The accredited investor can reasonably be assumed to be capable of bearing the economic risk and can reasonably be assumed to not require immediate liquidity pursuant to his investment in the project.
C) The accredited investor can reasonably be assumed to have net worth adequate so as investment in the project does not exceed ten percent of the investor's net worth.
Be a Part of the Know! – Private Lending
As the U.S. housing market continues to decline, and as credit becomes increasingly difficult to attain, new investment trends are developing. One of the largest and most profitable trends developing today is the concept of Private Lending. This is not a brand new trend, but the participation in Private Lending opportunities is increasing tremendously. Private Lending opportunities are direct loan investments to established, active, hands-on real estate individuals and companies; these opportunities are not offered to the general public. In other words, you need to “be in the know” to have access to these investment opportunities. In the real estate arena, Private Lending is used for just about any type of project - private funds could be raised to conduct activities ranging from land developments, foreclosure purchases, rehabs, rental or retail home construction, discounted notes, to any other type of real estate activity. Private Lending can also be utilized for just about any size project – from a single family rehab and flip to multi-million dollar deals. With this type of investment, you are lending funds to the individual or company that is controlling the project and not investing in the real estate itself. This is a passive approach to real estate investing that can prove to be very lucrative for the investors and the project manager.
One of the first steps with real estate investing is to determine if you desire to be an active participant in your investments, or if you want to take on more of a passive role. Do you want to own the real property, organize repairs and maintenance, deal with tenants, etc., or do you want to help fund projects that others are doing? Both strategies have their pros and cons, and PropertyVestors offers opportunities for both types of investors.
Today’s market is creating good opportunities for active investors using strategies such as:
1. Buying unique, one-of-a-kind properties that makes sense in any market;
2. Picking up properties at very low prices in absolute great markets that are sure to return;
3. Participating with builders in creating model homes or unique rentals in a great area.
However, a growing number of investors are trying to ride out the present real estate decline with their current holdings and are only interested in investing funds in other projects rather than taking on more real property as assets. And, a lot of active investment opportunities fall outside of the capabilities of individual investors. This is an ideal opportunity to become a passive investor and take advantage of the growing number of available Private Lending opportunities. Private Lending is a great way to pool resources with other investors to take advantage of opportunities that may be out of your investment scope. It can be as simple as forming an LLC with other investors and investing in a project as one entity. When the right project becomes available, PropertyVestors can help you organize this process.
Why are Profitable Private Lending Opportunities Available?
Very simple….. Builders, land developers, rehab specialists, foreclosure specialists, etc, all have access to more deals than their capital or credit can handle. In today’s market, there are some very good deals out there for those with capital, credit, and time. One of the major difficulties for those “in the know” is that even though they may be very solid financially, they do not have enough capital to finance every good project they come across, nor will lenders let them do more than a couple projects at a time; especially now that lending qualifications are tightening up. Private Lending allows active investors to find funding for their projects from passive investors, and in most cases interest rates are higher then you can find elsewhere and the investment is secured by the real estate.
For example, PropertyVestors recently funded a development in West Virginia with $2.4 million from a small group of investors. This investment is returning 20% annually over two years and is secured by the land itself and a government bond. The developer did not want to find the funding through traditional lending, and this approach allowed them to avoid all of the bureaucracy and red-tape of the traditional lenders. The developer is paying a slightly higher interest rate, but the ease and flexibility of the transaction more then makes up for that higher rate. For many Private Lending opportunities, investors can even consider using IRA funds for the investment and get tax deferred returns. The difficult part is that you need to have access to these opportunities, and in many of cases, you must qualify to be a part of the investment.
Fundamentals of Private Lending
In most real estate investments, you are purchasing a piece of real estate and will end up holding title to that real property. In the case of a Private Lending, you are providing capital to companies that own the real property. You are providing the capital to purchase and/or make improvements to the real property, but you do not have ownership in the property. Most of the time, the security in these investments is still the real property, but you do not have any ownership rights. The security could also be other assets, monetary vehicle (such as government bonds), or personal guarantees.
Because of this difference, the laws governing the investment are different. In more traditional real estate purchases, you are governed by real estate laws, and for Private Lending, you are governed by securities laws that are under the jurisdiction of the SEC. Because of this difference, the way such investments are marketed is also different. For a traditional real estate investment like a condo on the beach, you might see billboards, glossy flyers, and every broker in town promoting. In the case of Private Lending, you will not see it marketed publicly. Private Lending opportunities are handled privately among individuals having pre-existing relationships (a closed network). Without going into extensive detail about the SEC and their requirements, one of the most stringent requirements to qualify for many Private Lending opportunities is not only to have access to the projects through a closed network of investors, but also have significant investment capital and/or experience. Although not in all cases, many Private Lending opportunities will require you to be an accredited investor.
What is it?: Accredited investor is a term defined by various securities laws that delineates investors permitted to invest in certain types of higher risk investments (including real estate), limited partnerships, hedge funds and angel investor networks. The term generally includes wealthy individuals and organizations such as a corporation, endowment or retirement plans. For our purposes, we will focus on individuals rather then organizations.
In the United States, for an individual to be considered an accredited investor, he must have a net worth of at least one million US dollars or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year. This rule came into effect in 1933 by way of the Securities Act of 1933.
The exact definition comes from the federal securities laws, Rule 501 of Regulation D , and is as follows:
1. A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
2. A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
Why?: The SEC has established criteria for preventing people who perhaps need more investing experience from investing in unregistered securities and/or real estate opportunities that are less well known than stocks and bonds. The idea is that the SEC is trying to protect investors that lack the needed investing experience and/or disposable capital to get involved in higher risk investments. There are some assumptions that go along with being an accredited investor. An investor who meets the foregoing standards is considered an accredited investor, and should also meet at least one of the following criteria:
A) The accredited investor or his professional advisor can be reasonably assumed to have the capacity to protect his own interests in connection with the transaction by reason of his business experience or the business or financial experience of his advisor.
B) The accredited investor can reasonably be assumed to be capable of bearing the economic risk and can reasonably be assumed to not require immediate liquidity pursuant to his investment in the project.
C) The accredited investor can reasonably be assumed to have net worth adequate so as investment in the project does not exceed ten percent of the investor's net worth.
Benefits of meeting these standards:
- If you fit into this category you may be eligible for many investment opportunities that other investors are not allowed to participate in.
- The key is that many higher risk, and thus higher reward, investments are only available to qualified “accredited investors.”
- The main benefit to qualifying is that you gain access to investments, and greater returns, that “average” investors can not access.
- Quite simply, it comes down to convenience and privacy for the investment managers. By marketing investments only to accredited investors, a fund or company can avoid many of the filing requirements to which most public companies are subjected.
Utilize Self-Directed IRA’s to Increase Profits with Private Lending
In the September issue of InvestingSherpa, we introduced Self-Directed IRA’s as one of the most powerful and under-utilized investment tools available today. Self-Directed IRA’s are gaining notoriety, and more and more people are using their IRA funds to invest in partnerships, franchises, mortgages and real estate. At the same time, the investment tool is not widely known or used; only 4% of all IRA’s are categorized as Self-Directed. A tremendous amount of wealth is held in retirement accounts, yet only 4% of these accounts allow the investor to direct the investments! The tools are available that allow you to take control of your investments and your savings for retirement. Diversification is key with any investment strategy, and this diversification does not mean just diversified stocks, but also diversified with real estate. It is time to take control of your investment strategies and your retirement. A Self-Directed retirement account will give you more control and more options with your money.
Federal Reserve Chairman Ben Bernanke attributes much of today’s housing slump to the recent rise in mortgage rates. Rising numbers of mortgage defaults and mounting foreclosures are key factors that have forced many lenders to increase their rates, cancel promised loans, and even go out of business. Many would-be home buyers have discovered that credit is increasingly hard to come by.
The housing slump is not bad news for all, however. A growing number of investors are taking advantage of the ailing lending market to expand their own investment portfolio through Private Lending. By providing cash leverage at better credit rates or through less-stringent loan qualification requirements, private individuals are filling the gap created by skittish mortgage companies.
Once the domain of the wealthy elite, Private Lending has been discovered by those with a moderate amount of funds in their IRAs and 401(k)s. Thanks to the Employee Retirement Income Security Act of 1974 (ERISA), retirement account holders can “self-direct” their funds into a wide variety of investments, including Private Lending. These self-directed accounts enable investors to diversify their portfolio into potentially more secure and lucrative areas outside the volatile stock market.
At PropertyVestors we have been seeing a tremendous increase in Private Lending. Our investors are finding self-directed retirement accounts a lucrative way to invest in safe opportunities while still obtaining double digit returns. With the flexibility self-directed retirement accounts provide, investors can take immediate advantage of market trends, such as the one we are currently experiencing.
Some private lenders work directly with borrowers, while others work through mortgage brokers or real estate companies eager to move properties. Many private lenders looking for investment opportunities check out websites like Prosper.com, an online community of lenders and borrowers that works similarly to eBay. Although Prosper is still in its infancy stage, PropertyVestors does have a group created to take advantage of this growing trend. Most of our Private Lending at this point is done through traditional promissory notes. In addition to funding a development in West Virginia, we are actively funding projects in Charlotte, NC and Richmond, VA with organizations that have a successful business model in place.
Despite current economic ills, Private Lending offers the promise of excellent investment returns today and the potential for even more profitable opportunities in the future.
Use Private Lending to Grow Your Net Wealth with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, Private Lending options; moderate with preconstruction syndication; and aggressive with developer deals in emerging markets, coastal regions and waterfront properties.
With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. Education is also provided on how to take advantage of 1031 exchanges. PropertyVestors’ real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
To learn more about these topics, visit www.propertyvestors.com, sign up with the investment group by becoming a FREE Basic Member and receive our eBook: “Capitalizing on Real Estate in Today’s Economy” and the monthly newsletter “InvestingSherpa.” For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About The Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
Thursday, October 18, 2007
Housing Industry & Mortgage Woes - How Woeful?
Housing Slump, Credit Crunch, Subprime Mess, Record Foreclosures, Housing Bust, Credit Crisis, Mortgage Bust. These are just a few of the headlines and references I have heard over the past month or two referring to the current events taking place in the housing and mortgage industries. A quick search on Google or YouTube turns up mass quantities of information from “experts” making predictions and claiming they have been right all along. Is all of the negative press true? How do we know who to listen to and what experts are correct? I would like to offer some perspective on what is taking place in the U.S. housing market and mortgage industry.
First, please keep in mind, drama sells. In the age of 24-hour news networks with hours of airtime to fill, and the internet that is designed to give everyone a voice, even if that voice is unfettered and unedited, reality can be skewed in favor of the most dramatic scenarios. This is not to downplay the current events, but in today’s news environment, we need to make sure we gain a full perspective before making judgments, and reserve some skepticism for what may be passed off as absolute truths.
The current events are big, but more importantly, they are extremely complicated. The changes taking place in the U.S. housing markets and mortgage industry have effects being felt throughout the entire U.S. economy and to some extent globally. Making absolute predictions is impossible. Factors change daily, if not hourly, and some effects are too indirect to fully understand immediately.
As investors, we need to get educated about the current events, figure out how they are going to impact investment environments, and find the investment niches that make the most sense. Changes in investment environments do not mean the end of investment opportunities; in fact, changes often mean the availability of even more lucrative opportunities.
How Did We Get Here?
This is a very complex subject, and it is difficult, if not impossible, to gain a full understanding from a brief article. The hope here is to get an overview of what is taking place, and gain as much perspective as possible so we can all continue to make educated investment decisions.
Real estate is a consumer product, and as a consumer product it is subject to the well known economic theory of supply and demand. As demand goes up, supply goes down and becomes more costly, and visa versa. For the past 5-10 years (or whatever mark you want to put on our most recent housing boom), the demand for real estate was very high, which drove prices, and as a result profits, very high as well. The high demand, and high potential for profits, drove large quantities of people into the real estate investing arena.
Home sales and rising prices have been at record highs. Some people gained wealth from primary residences or second homes (end users), and many people decided to try their luck as real estate investors. However, not all of these end users and/or investors were well qualified through experience, credit, or income to own the real estate they were purchasing.
This raises the obvious question, why would banks lend to less then qualified buyers? There is no clear and simple answer to this question, but in an attempt to simplify, markets and trends are difficult to predict, and lending institutions, like individual investors, want to gain as much as possible from lucrative trends. The rise in housing was a trend that was lucrative for a lot of people, but in the end, as markets adjust (as they always do), many investors also stand to lose, and lending institutions are no different.
Banks and lenders loosened their qualifications to allow for more subprime loans in an effort to make the most of the rise in housing prices, and to satisfy the demand from institutional investors (hedge funds, mortgage backed securities, bonds, etc. – i.e. Wall Street) that wanted to buy the mortgages that the lenders were writing. The last few years of the housing boom were spurred in large part by these subprime loans. (Subprime refers to mortgages granted to borrowers whose credit history is not sufficient to get a conventional loan at prime rates. Often these borrowers have impaired or even no credit history.) When qualifications were loosened, more home buyers were available to the market, which allowed for prices to continue to increase…i.e. more demand sends prices higher. The issue is that the U.S. economy is now feeling the effects of these less then qualified buyers.
Many factors play a role in the timing and methods in which markets, such as the U.S. housing market, adjust and change over time. One major factor to consider is the high price point of housing compared to the average income of buyers. As housing prices continued to rise year after year, a large gap began to form between the average income of U.S. citizens and the average price of housing. While prices increased and credit was easily accessible, end users and investors were not very concerned about this growing gap because funds, in the form of home loans, equity lines, or lines of credit, were easy to come by; not to mention the ease in which real estate could be bought and sold to create profits. However, as demand began to slow, and in turn rises in price began to slow, this gap became more evident and more of a concern.
As if creating a recipe for poor housing conditions, sprinkle in a few other factors, and a vicious circle is easily created. Housing prices rise and people show little concern about the fact that they may be spread a bit to thin from a financial perspective. Credit is easily accessible, so equity from these rising prices is readily available. As housing prices level off, and in some places decline, it becomes clear that the easily accessible profits from appreciation are also ending. Lending institutions become aware that housing is slowing and they too begin to adjust their practices to the changes in the market. The lenders adjust by tightening their qualifications to qualify for the lending they are offering, which in turn means less people can qualify for loans, i.e. less buyers on the market. Now we have a situation where demand is lowering and supply is rising, and the net effect is a leveling off, if not lowering, of pricing for the available supply of housing.
In addition to these changes to the housing market, another major ingredient needs to be added – Adjustable Rate Mortgages (ARM’s). ARM’s are mortgages that start with a low, “teaser,” interest rate, and adjust to a higher interest rate after a period of time, usually 3-5 years. Towards the end of the housing boom, when lenders were loosening their qualifications to bring more buyers to the market, ARM’s became a regularly used tool by lenders, especially to the subprime market. In retrospect this seems like a risky practice. Give individuals with less then stellar financial pasts loans that are complex, and appear financially manageable at first glance, but will adjust in the near future to much higher payments. During the boom many people tried to point these risks out, but money often speaks louder then words. The risks were considered and lenders chose to continue the practice; mainly because the demand for these types of loans was high from both buyers and Wall Street.
ARM’s that were created towards the end of the boom are now beginning to adjust from their “teaser” interest rates to much higher rates, in turn creating payments that owners can not, or are not willing, to pay. This in turn adds an increase in foreclosures to our poor housing recipe. As markets slow, demand lessens, prices flatten or decline so equity and appreciation are lost, available credit tightens, and then rates adjust up; some owners find themselves in very tight financial positions, and even upside-down on their real estate assets.
Recall the two types of buyers mentioned above, end users and investors. End users are more inclined to fight through difficult financial times with their homes because this is where they lay their head each night. However, many end users, despite their desire to fight, can not make ends meet; especially as rates and their monthly payments drastically increase. Investors on the other hand, are the first ones to turn away from their investments when times are tough. When the housing boom was at its height, real estate investing seemed easy, almost free money, and as a result the number of investors increased dramatically. When times became tight many of these investors lost their desire to work through the difficult times. As a result of end users being incapable of affording higher monthly payments and large numbers of investors losing their will to work through difficult times, foreclosures have increased at record amounts.
The vicious circle now grows as foreclosures are added to the recipe. Markets that are already experiencing slow sales, declining prices, lower demand from buyers, are now faced with even more inventory from foreclosures. Supply increases and demand decreases. In addition, lenders, and ultimately Wall Street, who buys mortgage backed securities, are now seeing large numbers of defaults on their mortgages, which immediately affect their bottom lines – their profits. A short time ago, they could not write enough loans, and their profits were growing at a record pace; now the number of loans they are writing is drying up and the mortgages they were depending on for profits are defaulting.
As Wall Street sees these changes, they too begin to adjust to the market conditions. Funding for subprime loans dries up almost entirely. The force that was helping to spur the boom is now slowed to a halt. Lenders begin to go out of business, and as the lending and investment landscape adjusts, the effects ripple through the U.S. economy and globally. Housing slows, appreciation and equity level off, if not decline, available credit tightens, foreclosures increase, lenders and Wall Street feel the effects, the subprime industry slows incredibly, demand slows and supply increases, corporate and institutional profits are impeded, people have less cash at their disposal and credit is more difficult and more expensive, so people spend less, global investors begin to look elsewhere to invest because the U.S. economy is not growing the way it has for the past few years. This is a very simplified explanation of an amazingly complicated and inter-related process, but the idea is clear – Every aspect of the U.S. economy, and ultimately the world economy, is connected in some way, and as a major economic force such as the housing industry undergoes changes, the effects will ripple through the economy.
The complexity makes economics a very difficult science/art to fully understand, and even more difficult to accurately predict or pin point. The positive aspect of the complexity is that nothing is as clear cut as it may seem from a simplified explanation. Conditions may have seemed ideal during the housing boom – the economy was doing well, and people were creating a lot of wealth through real estate; the reality is that it could not have been ideal because we are now dealing with the backlash of that boom. In the same way, the current housing/mortgage crunch may seem serious, and many would have you believe dire, but conditions are still working themselves out, and positive aspects can and will be found.
What is Really Going On?
Armed with a general understanding of the forces that are coming together to create the current events, let’s focus on some more specifics about these forces. Moody’s Economy.com (a leading independent provider of economic, financial, country, and industry research designed to meet the diverse planning and information needs of businesses, governments, and professional investors worldwide) predicts that 2.5 million first mortgages will default this year, and they expect the delinquencies to peak in the summer of 2008. This is a tremendous amount of defaults, and the peak is still months away. Does this merely reinforce all of the bad news? Not necessarily.
These statistics need to be broken down a bit further. First, the worst-hit loan category will be subprime adjustable-rate mortgages (ARM’s). Nationally, the core of the problem is subprime ARM’s that were originated in 2005 and 2006, when lending standards became very loose. This is clearly a problem, but the problem is contained; it is not throughout the entire mortgage industry.
In fact, the prime fixed-rate mortgage market has seen almost no detioration from defaults. In addition, while the origination of ARM’s has plummeted by almost 50% in the third-quarter of 2007 when compared to 2006, applications for fixed-rate loans have risen by 30% during the same period. The industry is in the process of self-regulating. These trends demonstrate that there is still ample confidence backing the lending industry, but this confidence is only available to support well-qualified loans. There is still plenty of investment capital in the industry, but this capital is being reserved for less risky investments…i.e. well-qualified applicants and fixed-rate loans. This stricter analysis of loans is reducing the availability for home purchases, refinances, and equity access, but this reduction in availability is focused mainly on the outer margins of creditworthiness, where lending has grown extensively the past few years.
In addition to the core of the problem being focused on subprime ARM’s, a large concentration of defaults is focused on a small amount of states. In early September, the Mortgage Bankers Association released its second-quarter report for the three months that ended June 30 and found that most of the loan delinquencies and foreclosures were happening in seven states: Michigan, Ohio, Indiana, California, Florida, Nevada, and Arizona.
The last four states (California, Florida, Nevada, and Arizona) have high rates of ARM’s. These four states are also seeing declining house prices which makes refinancing these ARM’s difficult. In addition, these four states have a disproportinately high share of investor loans, which are more likely to default if the investors see the value of their investments falling because of dropping home prices.
In the first three states (Michigan, Ohio, and Indiana), the high level of deliquency and foreclosure has to do with the underlying economy. For example, Michigan lost nearly 300,000 jobs between 2001 and April 2007. To add another ingredient to the vicious cycle of our housing conditions, local economies have a tremendous effect on the value of housing in that area. In a study done by the FDIC (An independent government agency created by Congress in 1933 to maintain stability and public confidence in the nation's banking system.) looking at housing booms and busts in U.S. cities, it can be shown that the main regional instances of U.S. home price busts since 1978 are connected to fairly acute, localized economic shocks that tend to affect major employers. As a result of this localized economic shock, the most detrimental factor in the bust cities is population outflow. Jobs are lost and people leave the area. Population outflows are extremely damaging to housing markets. The demand for homes is lowered and the number of houses on the market rises – demand down and supply up. The problems of these upper Midwest industrial states clearly follow this trend.
When statistics are further analyzed, it becomes evident that it may not be time for widespread panic. We need focused efforts in the areas where the problems are concentrated.
What Can Be Done to Remedy the Situation?
There are a number of solutions that can be implemented to help the immediate problems and to prevent this type of event from occurring in the future. First, the government recognizes the issues and is taking steps to remedy the problems, while at the same time trying not to over-step their bounds. Since these issues are still so new to the economy, the remedies are still in the process of being created and implemented.
One potential remedy is to allow bankruptcy courts to modify the terms of a homeowner’s mortgage loan. This is not a far stretch from current powers of the courts, which already have the power to modify payments on other secured debts, including mortgages on other properties. Responsible lenders who made loans on reasonable terms would not be effected, but predatory lenders would end up with loans they should have made in the first place.
A second governmental approach is to utilize the FHA (Fair Housing Administration) to help borrowers refinance and avoid foreclosure. The Bush administration is looking to the FHA to offer refinancing options to homeowners, including those who are not yet in default or foreclosure, but who are at risk of falling behind in their payments on mortgages that were structured to offer payments that were very low at first but then escalated. This gives the government the ability to assit those people caught in the subprime mess without advocating a financial bailout.
As recent as October 10th, the Bush administration put forth a new initiative they are billing the Hope Now partnership. The initiative is designed to coordinate the efforts of mortgage counselors, servicers, lenders, investors, and state and local government to reach out to as many homeowners as possible to prevent foreclosures. As of October 10th, eleven loan servicers that handle 60% of U.S. mortgages have agreed to participate in the initiative. It is expected that others will join, and have good reason to join, because minimizing foreclosures benefits lenders and investors as well as homeowners. Hope Now will conduct a national direct-mail compaign to reach at-risk borrowers, encouraging them to either call their lenders or a credit counselor to explore options to refinance or modify their existing loans.
In addition to immediate remedies, actions must be taken to prevent similar scenarios in the future. First, it must be reemphasized that not every borrower was deceived into accepting a hazardous or unsuitable loan. Many investors walked into these loans with full knowledge but chose to dismiss the risks. However, the main group that is being negatively affected by this backlash are the homeowners who chose to accept subprime ARM’s, and this group should be protected from these problems in the future. Mortgages are incredibly complex transactions and borrowers typically want a helping hand to guide them. This helping hand ususally comes from the mortgage lenders that are selling them the product. Furthermore, people who turn to the subprime market for money tend to be the least sophisticated consumers, and the most easily misled.
Here are four suggestions to assist this group:
1. No more “teaser” rates: Loans should not be made unless the lender has taken reasonable steps to ensure the borrower can repay based on the real rate. Lenders should also be required to factor in homeowners insurance premiums, property taxes, and any other debts the borrower may have.
2. Limit Stated Income Loans: These loans were originally designed for self-employed individuals, but mortgage brokers began to abuse them to help people into loans that could not be afforded in the long run. Without proof of self-employment, these loans should not be used.
3. End prepayment penalties for subprime loans: For people with bad credit, prepayment penalties are often used to lock them into a loan with poor rates and terms. Prepayment penalties should not be allowed under a certain credit score. If a borrower is above that credit line, it can be assumed that the borrower understands and can guage the risks of the loan.
4. Mandatory housing counseling for subprime borrowers: Purchasing a home is one of the largest investments anyone can make. It should not be taken lightly. It should be mandatory that vulnerable buyers must be educated about the mortgage process before making such large decisions.
Current Investing Climate
The majority of the U.S. housing markets are doing okay, if not well. The mortgage industry is not in complete disarray. Real estate investments are not dead in the water. With a full perspective of what is taking place, it can be seen that caution is needed, but full stagnation is not required. There are plenty of good investments to be made. The investment climate has changed. Investors can no longer go out and buy any house expecting giant profits, but this change is a good thing. Investors and investments are now becoming more realistic, and the competition for great investments is thinning out as uneducated investors leave the real estate arena all together. Niches need to be found, but the proper investments are out there.
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About The Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
First, please keep in mind, drama sells. In the age of 24-hour news networks with hours of airtime to fill, and the internet that is designed to give everyone a voice, even if that voice is unfettered and unedited, reality can be skewed in favor of the most dramatic scenarios. This is not to downplay the current events, but in today’s news environment, we need to make sure we gain a full perspective before making judgments, and reserve some skepticism for what may be passed off as absolute truths.
The current events are big, but more importantly, they are extremely complicated. The changes taking place in the U.S. housing markets and mortgage industry have effects being felt throughout the entire U.S. economy and to some extent globally. Making absolute predictions is impossible. Factors change daily, if not hourly, and some effects are too indirect to fully understand immediately.
As investors, we need to get educated about the current events, figure out how they are going to impact investment environments, and find the investment niches that make the most sense. Changes in investment environments do not mean the end of investment opportunities; in fact, changes often mean the availability of even more lucrative opportunities.
How Did We Get Here?
This is a very complex subject, and it is difficult, if not impossible, to gain a full understanding from a brief article. The hope here is to get an overview of what is taking place, and gain as much perspective as possible so we can all continue to make educated investment decisions.
Real estate is a consumer product, and as a consumer product it is subject to the well known economic theory of supply and demand. As demand goes up, supply goes down and becomes more costly, and visa versa. For the past 5-10 years (or whatever mark you want to put on our most recent housing boom), the demand for real estate was very high, which drove prices, and as a result profits, very high as well. The high demand, and high potential for profits, drove large quantities of people into the real estate investing arena.
Home sales and rising prices have been at record highs. Some people gained wealth from primary residences or second homes (end users), and many people decided to try their luck as real estate investors. However, not all of these end users and/or investors were well qualified through experience, credit, or income to own the real estate they were purchasing.
This raises the obvious question, why would banks lend to less then qualified buyers? There is no clear and simple answer to this question, but in an attempt to simplify, markets and trends are difficult to predict, and lending institutions, like individual investors, want to gain as much as possible from lucrative trends. The rise in housing was a trend that was lucrative for a lot of people, but in the end, as markets adjust (as they always do), many investors also stand to lose, and lending institutions are no different.
Banks and lenders loosened their qualifications to allow for more subprime loans in an effort to make the most of the rise in housing prices, and to satisfy the demand from institutional investors (hedge funds, mortgage backed securities, bonds, etc. – i.e. Wall Street) that wanted to buy the mortgages that the lenders were writing. The last few years of the housing boom were spurred in large part by these subprime loans. (Subprime refers to mortgages granted to borrowers whose credit history is not sufficient to get a conventional loan at prime rates. Often these borrowers have impaired or even no credit history.) When qualifications were loosened, more home buyers were available to the market, which allowed for prices to continue to increase…i.e. more demand sends prices higher. The issue is that the U.S. economy is now feeling the effects of these less then qualified buyers.
Many factors play a role in the timing and methods in which markets, such as the U.S. housing market, adjust and change over time. One major factor to consider is the high price point of housing compared to the average income of buyers. As housing prices continued to rise year after year, a large gap began to form between the average income of U.S. citizens and the average price of housing. While prices increased and credit was easily accessible, end users and investors were not very concerned about this growing gap because funds, in the form of home loans, equity lines, or lines of credit, were easy to come by; not to mention the ease in which real estate could be bought and sold to create profits. However, as demand began to slow, and in turn rises in price began to slow, this gap became more evident and more of a concern.
As if creating a recipe for poor housing conditions, sprinkle in a few other factors, and a vicious circle is easily created. Housing prices rise and people show little concern about the fact that they may be spread a bit to thin from a financial perspective. Credit is easily accessible, so equity from these rising prices is readily available. As housing prices level off, and in some places decline, it becomes clear that the easily accessible profits from appreciation are also ending. Lending institutions become aware that housing is slowing and they too begin to adjust their practices to the changes in the market. The lenders adjust by tightening their qualifications to qualify for the lending they are offering, which in turn means less people can qualify for loans, i.e. less buyers on the market. Now we have a situation where demand is lowering and supply is rising, and the net effect is a leveling off, if not lowering, of pricing for the available supply of housing.
In addition to these changes to the housing market, another major ingredient needs to be added – Adjustable Rate Mortgages (ARM’s). ARM’s are mortgages that start with a low, “teaser,” interest rate, and adjust to a higher interest rate after a period of time, usually 3-5 years. Towards the end of the housing boom, when lenders were loosening their qualifications to bring more buyers to the market, ARM’s became a regularly used tool by lenders, especially to the subprime market. In retrospect this seems like a risky practice. Give individuals with less then stellar financial pasts loans that are complex, and appear financially manageable at first glance, but will adjust in the near future to much higher payments. During the boom many people tried to point these risks out, but money often speaks louder then words. The risks were considered and lenders chose to continue the practice; mainly because the demand for these types of loans was high from both buyers and Wall Street.
ARM’s that were created towards the end of the boom are now beginning to adjust from their “teaser” interest rates to much higher rates, in turn creating payments that owners can not, or are not willing, to pay. This in turn adds an increase in foreclosures to our poor housing recipe. As markets slow, demand lessens, prices flatten or decline so equity and appreciation are lost, available credit tightens, and then rates adjust up; some owners find themselves in very tight financial positions, and even upside-down on their real estate assets.
Recall the two types of buyers mentioned above, end users and investors. End users are more inclined to fight through difficult financial times with their homes because this is where they lay their head each night. However, many end users, despite their desire to fight, can not make ends meet; especially as rates and their monthly payments drastically increase. Investors on the other hand, are the first ones to turn away from their investments when times are tough. When the housing boom was at its height, real estate investing seemed easy, almost free money, and as a result the number of investors increased dramatically. When times became tight many of these investors lost their desire to work through the difficult times. As a result of end users being incapable of affording higher monthly payments and large numbers of investors losing their will to work through difficult times, foreclosures have increased at record amounts.
The vicious circle now grows as foreclosures are added to the recipe. Markets that are already experiencing slow sales, declining prices, lower demand from buyers, are now faced with even more inventory from foreclosures. Supply increases and demand decreases. In addition, lenders, and ultimately Wall Street, who buys mortgage backed securities, are now seeing large numbers of defaults on their mortgages, which immediately affect their bottom lines – their profits. A short time ago, they could not write enough loans, and their profits were growing at a record pace; now the number of loans they are writing is drying up and the mortgages they were depending on for profits are defaulting.
As Wall Street sees these changes, they too begin to adjust to the market conditions. Funding for subprime loans dries up almost entirely. The force that was helping to spur the boom is now slowed to a halt. Lenders begin to go out of business, and as the lending and investment landscape adjusts, the effects ripple through the U.S. economy and globally. Housing slows, appreciation and equity level off, if not decline, available credit tightens, foreclosures increase, lenders and Wall Street feel the effects, the subprime industry slows incredibly, demand slows and supply increases, corporate and institutional profits are impeded, people have less cash at their disposal and credit is more difficult and more expensive, so people spend less, global investors begin to look elsewhere to invest because the U.S. economy is not growing the way it has for the past few years. This is a very simplified explanation of an amazingly complicated and inter-related process, but the idea is clear – Every aspect of the U.S. economy, and ultimately the world economy, is connected in some way, and as a major economic force such as the housing industry undergoes changes, the effects will ripple through the economy.
The complexity makes economics a very difficult science/art to fully understand, and even more difficult to accurately predict or pin point. The positive aspect of the complexity is that nothing is as clear cut as it may seem from a simplified explanation. Conditions may have seemed ideal during the housing boom – the economy was doing well, and people were creating a lot of wealth through real estate; the reality is that it could not have been ideal because we are now dealing with the backlash of that boom. In the same way, the current housing/mortgage crunch may seem serious, and many would have you believe dire, but conditions are still working themselves out, and positive aspects can and will be found.
What is Really Going On?
Armed with a general understanding of the forces that are coming together to create the current events, let’s focus on some more specifics about these forces. Moody’s Economy.com (a leading independent provider of economic, financial, country, and industry research designed to meet the diverse planning and information needs of businesses, governments, and professional investors worldwide) predicts that 2.5 million first mortgages will default this year, and they expect the delinquencies to peak in the summer of 2008. This is a tremendous amount of defaults, and the peak is still months away. Does this merely reinforce all of the bad news? Not necessarily.
These statistics need to be broken down a bit further. First, the worst-hit loan category will be subprime adjustable-rate mortgages (ARM’s). Nationally, the core of the problem is subprime ARM’s that were originated in 2005 and 2006, when lending standards became very loose. This is clearly a problem, but the problem is contained; it is not throughout the entire mortgage industry.
In fact, the prime fixed-rate mortgage market has seen almost no detioration from defaults. In addition, while the origination of ARM’s has plummeted by almost 50% in the third-quarter of 2007 when compared to 2006, applications for fixed-rate loans have risen by 30% during the same period. The industry is in the process of self-regulating. These trends demonstrate that there is still ample confidence backing the lending industry, but this confidence is only available to support well-qualified loans. There is still plenty of investment capital in the industry, but this capital is being reserved for less risky investments…i.e. well-qualified applicants and fixed-rate loans. This stricter analysis of loans is reducing the availability for home purchases, refinances, and equity access, but this reduction in availability is focused mainly on the outer margins of creditworthiness, where lending has grown extensively the past few years.
In addition to the core of the problem being focused on subprime ARM’s, a large concentration of defaults is focused on a small amount of states. In early September, the Mortgage Bankers Association released its second-quarter report for the three months that ended June 30 and found that most of the loan delinquencies and foreclosures were happening in seven states: Michigan, Ohio, Indiana, California, Florida, Nevada, and Arizona.
The last four states (California, Florida, Nevada, and Arizona) have high rates of ARM’s. These four states are also seeing declining house prices which makes refinancing these ARM’s difficult. In addition, these four states have a disproportinately high share of investor loans, which are more likely to default if the investors see the value of their investments falling because of dropping home prices.
In the first three states (Michigan, Ohio, and Indiana), the high level of deliquency and foreclosure has to do with the underlying economy. For example, Michigan lost nearly 300,000 jobs between 2001 and April 2007. To add another ingredient to the vicious cycle of our housing conditions, local economies have a tremendous effect on the value of housing in that area. In a study done by the FDIC (An independent government agency created by Congress in 1933 to maintain stability and public confidence in the nation's banking system.) looking at housing booms and busts in U.S. cities, it can be shown that the main regional instances of U.S. home price busts since 1978 are connected to fairly acute, localized economic shocks that tend to affect major employers. As a result of this localized economic shock, the most detrimental factor in the bust cities is population outflow. Jobs are lost and people leave the area. Population outflows are extremely damaging to housing markets. The demand for homes is lowered and the number of houses on the market rises – demand down and supply up. The problems of these upper Midwest industrial states clearly follow this trend.
When statistics are further analyzed, it becomes evident that it may not be time for widespread panic. We need focused efforts in the areas where the problems are concentrated.
What Can Be Done to Remedy the Situation?
There are a number of solutions that can be implemented to help the immediate problems and to prevent this type of event from occurring in the future. First, the government recognizes the issues and is taking steps to remedy the problems, while at the same time trying not to over-step their bounds. Since these issues are still so new to the economy, the remedies are still in the process of being created and implemented.
One potential remedy is to allow bankruptcy courts to modify the terms of a homeowner’s mortgage loan. This is not a far stretch from current powers of the courts, which already have the power to modify payments on other secured debts, including mortgages on other properties. Responsible lenders who made loans on reasonable terms would not be effected, but predatory lenders would end up with loans they should have made in the first place.
A second governmental approach is to utilize the FHA (Fair Housing Administration) to help borrowers refinance and avoid foreclosure. The Bush administration is looking to the FHA to offer refinancing options to homeowners, including those who are not yet in default or foreclosure, but who are at risk of falling behind in their payments on mortgages that were structured to offer payments that were very low at first but then escalated. This gives the government the ability to assit those people caught in the subprime mess without advocating a financial bailout.
As recent as October 10th, the Bush administration put forth a new initiative they are billing the Hope Now partnership. The initiative is designed to coordinate the efforts of mortgage counselors, servicers, lenders, investors, and state and local government to reach out to as many homeowners as possible to prevent foreclosures. As of October 10th, eleven loan servicers that handle 60% of U.S. mortgages have agreed to participate in the initiative. It is expected that others will join, and have good reason to join, because minimizing foreclosures benefits lenders and investors as well as homeowners. Hope Now will conduct a national direct-mail compaign to reach at-risk borrowers, encouraging them to either call their lenders or a credit counselor to explore options to refinance or modify their existing loans.
In addition to immediate remedies, actions must be taken to prevent similar scenarios in the future. First, it must be reemphasized that not every borrower was deceived into accepting a hazardous or unsuitable loan. Many investors walked into these loans with full knowledge but chose to dismiss the risks. However, the main group that is being negatively affected by this backlash are the homeowners who chose to accept subprime ARM’s, and this group should be protected from these problems in the future. Mortgages are incredibly complex transactions and borrowers typically want a helping hand to guide them. This helping hand ususally comes from the mortgage lenders that are selling them the product. Furthermore, people who turn to the subprime market for money tend to be the least sophisticated consumers, and the most easily misled.
Here are four suggestions to assist this group:
1. No more “teaser” rates: Loans should not be made unless the lender has taken reasonable steps to ensure the borrower can repay based on the real rate. Lenders should also be required to factor in homeowners insurance premiums, property taxes, and any other debts the borrower may have.
2. Limit Stated Income Loans: These loans were originally designed for self-employed individuals, but mortgage brokers began to abuse them to help people into loans that could not be afforded in the long run. Without proof of self-employment, these loans should not be used.
3. End prepayment penalties for subprime loans: For people with bad credit, prepayment penalties are often used to lock them into a loan with poor rates and terms. Prepayment penalties should not be allowed under a certain credit score. If a borrower is above that credit line, it can be assumed that the borrower understands and can guage the risks of the loan.
4. Mandatory housing counseling for subprime borrowers: Purchasing a home is one of the largest investments anyone can make. It should not be taken lightly. It should be mandatory that vulnerable buyers must be educated about the mortgage process before making such large decisions.
Current Investing Climate
The majority of the U.S. housing markets are doing okay, if not well. The mortgage industry is not in complete disarray. Real estate investments are not dead in the water. With a full perspective of what is taking place, it can be seen that caution is needed, but full stagnation is not required. There are plenty of good investments to be made. The investment climate has changed. Investors can no longer go out and buy any house expecting giant profits, but this change is a good thing. Investors and investments are now becoming more realistic, and the competition for great investments is thinning out as uneducated investors leave the real estate arena all together. Niches need to be found, but the proper investments are out there.
Build an investment fortune with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with developer deals in emerging markets, coastal regions and waterfront properties.
With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. Education is also provided on how to take advantage of 1031 exchanges. PropertyVestors’ real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
To learn more about these topics, visit www.propertyvestors.com, sign up with the investment group by becoming a Premier Member for $245.25 annually and receive our eBook: “Capitalizing on Real Estate in Today’s Economy.” For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About The Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
Wednesday, September 12, 2007
Take Charge of Your Retirement Funds
More and more people are using their IRA funds to invest in partnerships, franchises, mortgages and even real estate. You can do this by using what is called a Self-Directed IRA. Only 5% of all IRA are categorized as Self-Directed. What exactly does this mean? A Self-Directed IRA means that you have more control and more options with your money.
Welcome to the world of Self-Directed IRA's.
A Self-Directed IRA will Build Your Net Wealth:
If you have not heard the news already, get ready for some great advice about using your IRA money to make a fortune. This past month one of our Premier Members and entrepreneur, Stacy Miller, 47 of Charlottesville, VA decided to try something new to improve the returns of her retirement account. Rather than putting her IRA money into the latest hot stock or mutual fund that gave her single digit returns, Miller decided to set up a Self-Directed Traditional IRA that allowed her to utilize $100,000 to purchase a luxury high rise condo in a new real estate strategy called a, "Preconstruction Syndicate". After her own research, Miller used PropertyVestors.com to educate herself further on this unique strategy that helps build her net wealth and is projected to return a minimum return on investment of 40% within a two year timeframe.
Ordinarily a positive return on investment would result in a capital gains tax at the time earned. But because Stacy's property was held by her Self-Directed Traditional IRA, her tax will be deferred until she begins taking out distributions years from now. Now can you imagine owing no tax at all? It can happen when you utilize a Self-Directed Roth IRA. That is powerful investing!
Miller is a perfect example of an educated investor that is not only using savvy investing strategies", but is doing so by leveraging her Self-Directed Traditional IRA account. PropertyVestors assisted Miller in this transaction, and is seeing an influx of baby boomers taking advantage of their IRA money to building net wealth. "It is great to see an "Ah ha" moment when someone first learn that she can actually take control over her IRA and can use real estate to diversify investments and grow net wealth. It helps her to obtain financial goals faster than ever thought," say's Shawn Barry with PropertyVestors.
Surprised that the IRS allows this type of transaction? You are not alone. You probably already know that you can buy stock through an IRA at a brokerage firm. But many don't realize that it's perfectly within IRS rules - and actually has been since the code for IRAs was first written in 1974 - to buy real estate and private equities with Self-Directed IRA money. In fact, as long as you watch out for what the IRS calls "prohibited transactions," almost any type of investment is permitted, from a condo to a new business venture - with the exception of collectibles (such as artwork and jewelry), life insurance, and the stock of S-corporations.
So how many people are doing this? Growth in the self-directed IRA business is staggering, with a 30% growth rate last year alone. Why so popular? Investors want true diversification in their retirement account portfolio. "When you don't have confidence in the stock market, it is only natural to turn to real estate as a consistent option for growing net wealth; just keep up with the trends, invest in emerging markets and educate yourself on smart real estate strategies." Barry adds (see article: Is a Major Stock Market Correction Looming?).
After Miller's initial success, she has options to become even more ambitious with her Self Directed IRA by purchasing her first international investment in Tuscany, Italy which PropertyVestors plans to have available by next year. In the meantime, Miller can use her remaining account with PropertyVestors private lending strategy to invest in real estate projects such as foreclosures, rehabs and flip opportunities managed by real estate professionals within the PropertyVestors network. Miller enjoys being a passive real estate investor while earning double-digit returns with each real estate strategy available to her.
What advice do you have for those that want to move forward with a self-directed IRA? "Begin by educating yourself on established companies that will hold your Self-Directed IRA account and will offer the services that you need. I suggest researching Pensco Trust and Guidant Financial. Next create your "team." You need to have at least a tax professional and someone to help you find the investments you are looking to diversify in. PropertyVestors is helping more and more people everyday find the right real estate investment. Finally create a diversified real estate portfolio with strategies that protect you in any market condition" Barry suggests. "You'll be amazed at the real estate options that are available to maximize returns and minimize risk in today's economy. Miller is a great example of one of our members open to new strategies and powerful tools, and will profit greatly".
Build an IRA fortune with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEO's, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies that its real estate portfolio specialists discuss are conservative, private lending options; moderate with preconstruction syndication; and aggressive with direct preconstruction purchases in emerging markets, coastal regions and waterfront properties.
With PropertyVestors, you can take advantage of a new model and innovative residential real estate strategies. PropertyVestors’ real estate strategies can position you to take advantage of current market conditions. In addition, it can help you maximize your profits while minimizing your risks.
To learn more about these topics, visit www.propertyvestors.com, sign up with the investment group by becoming a Premier Member for $245.25 annually and receive our eBook: “Capitalizing on Real Estate in Today’s Economy.” For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Sarah Barry is the founder of PropertyVestors (http://www.propertyvestors.com/). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
Welcome to the world of Self-Directed IRA's.
A Self-Directed IRA will Build Your Net Wealth:
If you have not heard the news already, get ready for some great advice about using your IRA money to make a fortune. This past month one of our Premier Members and entrepreneur, Stacy Miller, 47 of Charlottesville, VA decided to try something new to improve the returns of her retirement account. Rather than putting her IRA money into the latest hot stock or mutual fund that gave her single digit returns, Miller decided to set up a Self-Directed Traditional IRA that allowed her to utilize $100,000 to purchase a luxury high rise condo in a new real estate strategy called a, "Preconstruction Syndicate". After her own research, Miller used PropertyVestors.com to educate herself further on this unique strategy that helps build her net wealth and is projected to return a minimum return on investment of 40% within a two year timeframe.
Ordinarily a positive return on investment would result in a capital gains tax at the time earned. But because Stacy's property was held by her Self-Directed Traditional IRA, her tax will be deferred until she begins taking out distributions years from now. Now can you imagine owing no tax at all? It can happen when you utilize a Self-Directed Roth IRA. That is powerful investing!
Miller is a perfect example of an educated investor that is not only using savvy investing strategies", but is doing so by leveraging her Self-Directed Traditional IRA account. PropertyVestors assisted Miller in this transaction, and is seeing an influx of baby boomers taking advantage of their IRA money to building net wealth. "It is great to see an "Ah ha" moment when someone first learn that she can actually take control over her IRA and can use real estate to diversify investments and grow net wealth. It helps her to obtain financial goals faster than ever thought," say's Shawn Barry with PropertyVestors.
Surprised that the IRS allows this type of transaction? You are not alone. You probably already know that you can buy stock through an IRA at a brokerage firm. But many don't realize that it's perfectly within IRS rules - and actually has been since the code for IRAs was first written in 1974 - to buy real estate and private equities with Self-Directed IRA money. In fact, as long as you watch out for what the IRS calls "prohibited transactions," almost any type of investment is permitted, from a condo to a new business venture - with the exception of collectibles (such as artwork and jewelry), life insurance, and the stock of S-corporations.
So how many people are doing this? Growth in the self-directed IRA business is staggering, with a 30% growth rate last year alone. Why so popular? Investors want true diversification in their retirement account portfolio. "When you don't have confidence in the stock market, it is only natural to turn to real estate as a consistent option for growing net wealth; just keep up with the trends, invest in emerging markets and educate yourself on smart real estate strategies." Barry adds (see article: Is a Major Stock Market Correction Looming?).
After Miller's initial success, she has options to become even more ambitious with her Self Directed IRA by purchasing her first international investment in Tuscany, Italy which PropertyVestors plans to have available by next year. In the meantime, Miller can use her remaining account with PropertyVestors private lending strategy to invest in real estate projects such as foreclosures, rehabs and flip opportunities managed by real estate professionals within the PropertyVestors network. Miller enjoys being a passive real estate investor while earning double-digit returns with each real estate strategy available to her.
What advice do you have for those that want to move forward with a self-directed IRA? "Begin by educating yourself on established companies that will hold your Self-Directed IRA account and will offer the services that you need. I suggest researching Pensco Trust and Guidant Financial. Next create your "team." You need to have at least a tax professional and someone to help you find the investments you are looking to diversify in. PropertyVestors is helping more and more people everyday find the right real estate investment. Finally create a diversified real estate portfolio with strategies that protect you in any market condition" Barry suggests. "You'll be amazed at the real estate options that are available to maximize returns and minimize risk in today's economy. Miller is a great example of one of our members open to new strategies and powerful tools, and will profit greatly".
Build an IRA fortune with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEO's, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies that its real estate portfolio specialists discuss are conservative, private lending options; moderate with preconstruction syndication; and aggressive with direct preconstruction purchases in emerging markets, coastal regions and waterfront properties.
With PropertyVestors, you can take advantage of a new model and innovative residential real estate strategies. PropertyVestors’ real estate strategies can position you to take advantage of current market conditions. In addition, it can help you maximize your profits while minimizing your risks.
To learn more about these topics, visit www.propertyvestors.com, sign up with the investment group by becoming a Premier Member for $245.25 annually and receive our eBook: “Capitalizing on Real Estate in Today’s Economy.” For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Sarah Barry is the founder of PropertyVestors (http://www.propertyvestors.com/). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
Thursday, August 30, 2007
Opportunities for Accredited Investors
“Accredited Investor” or “Qualified Investor” is a term that is sometimes thrown around pretty loosely in investment circles. What exactly does it mean, and what are the benefits of qualifying as an accredited investor? I have been asked these questions on a number of occasions; so I feel this topic warrants a bit more explanation. Every investor can benefit from a better understanding of key investment terms, and some of you may even qualify as accredited investors and not be aware of it.
What is it?: Accredited investor is a term defined by various securities laws that delineates investors permitted to invest in certain types of higher risk investments (including real estate), limited partnerships, hedge funds and angel investor networks. The term generally includes wealthy individuals and organizations such as a corporation, endowment or retirement plans.
For our purposes, we will focus on individuals rather then organizations.In the United States, for an individual to be considered an accredited investor, he must have a net worth of at least one million US dollars or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year. This rule came into effect in 1933 by way of the Securities Act of 1933.
The exact definition comes from the federal securities laws, Rule 501 of Regulation D , and is as follows:
A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
Why?: The SEC has established criteria for preventing people who perhaps need more investing experience from investing in unregistered securities and/or real estate opportunities that are less well known than stocks and bonds. The idea is that the SEC is trying to protect investors that lack the needed investing experience and/or disposable capital to get involved in higher risk investments. There are some assumptions that go along with being an accredited investor. An investor who meets the foregoing standards is considered an accredited investor, and should also meet at least one of the following criteria:
A) The accredited investor or his professional advisor can be reasonably assumed to have the capacity to protect his own interests in connection with the transaction by reason of his business experience or the business or financial experience of his advisor.
B) The accredited investor can reasonably be assumed to be capable of bearing the economic risk and can reasonably be assumed to not require immediate liquidity pursuant to his investment in the securities.
C) The accredited investor can reasonably be assumed to have net worth adequate so as investment in the securities does not exceed ten percent of the investor's net worth.
Benefits of meeting these standards?:
Opportunities: Do you qualify as an accredited investor? Do you know someone that qualifies as an accredited investor? PropertyVestors, an investment group of CEOs, entrepreneurs and savvy real estate investors, currently has real estate investment opportunities open to accredited investors. If you or someone you know has interest in these great opportunities, please contact us as soon as possible. These types of opportunities do not last long! You can find us as http://www.propertyvestors.com/, or you can contact us directly at invest@propertyvestors.com or call 1-877-90-BUYER.About
The Author
Sarah Barry is the founder of PropertyVestors (http://www.propertyvestors.com/). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
What is it?: Accredited investor is a term defined by various securities laws that delineates investors permitted to invest in certain types of higher risk investments (including real estate), limited partnerships, hedge funds and angel investor networks. The term generally includes wealthy individuals and organizations such as a corporation, endowment or retirement plans.
For our purposes, we will focus on individuals rather then organizations.In the United States, for an individual to be considered an accredited investor, he must have a net worth of at least one million US dollars or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year. This rule came into effect in 1933 by way of the Securities Act of 1933.
The exact definition comes from the federal securities laws, Rule 501 of Regulation D , and is as follows:
A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
Why?: The SEC has established criteria for preventing people who perhaps need more investing experience from investing in unregistered securities and/or real estate opportunities that are less well known than stocks and bonds. The idea is that the SEC is trying to protect investors that lack the needed investing experience and/or disposable capital to get involved in higher risk investments. There are some assumptions that go along with being an accredited investor. An investor who meets the foregoing standards is considered an accredited investor, and should also meet at least one of the following criteria:
A) The accredited investor or his professional advisor can be reasonably assumed to have the capacity to protect his own interests in connection with the transaction by reason of his business experience or the business or financial experience of his advisor.
B) The accredited investor can reasonably be assumed to be capable of bearing the economic risk and can reasonably be assumed to not require immediate liquidity pursuant to his investment in the securities.
C) The accredited investor can reasonably be assumed to have net worth adequate so as investment in the securities does not exceed ten percent of the investor's net worth.
Benefits of meeting these standards?:
- If you fit into this category you may be eligible for many investment opportunities such as hedge funds, commodity funds and special public funds that other investors are not allowed to participate in.
- The key is that many higher risk, and thus higher reward, investments are only available to qualified “accredited investors.”
- The main benefit to qualifying is that you gain access to investments, and greater returns, that “average” investors can not access.
- Quite simply, it comes down to convenience and privacy for the investment managers. By marketing securities only to accredited investors, a fund or company can avoid many of the filing requirements to which most public companies are subjected.
Opportunities: Do you qualify as an accredited investor? Do you know someone that qualifies as an accredited investor? PropertyVestors, an investment group of CEOs, entrepreneurs and savvy real estate investors, currently has real estate investment opportunities open to accredited investors. If you or someone you know has interest in these great opportunities, please contact us as soon as possible. These types of opportunities do not last long! You can find us as http://www.propertyvestors.com/, or you can contact us directly at invest@propertyvestors.com or call 1-877-90-BUYER.About
The Author
Sarah Barry is the founder of PropertyVestors (http://www.propertyvestors.com/). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
Monday, August 27, 2007
Real Estate Investing is Like Riding a Bike...
What do walking, riding a bike, and investing in real estate have in common? All of them follow the general rule that doing something new for the first time can be quite challenging. Once you overcome those first time challenges with walking and riding a bike, your muscle memory takes over and you will not forget how to use your new skills. Unfortunately, the challenges with real estate can not be so easily memorized. Economics, market cycles, trends, just to name a few factors, all change on a continuous basis. This means that first time investors as well as seasoned investors have challenges that they must face. The good news is that challenges can be overcome, and once the challenges are managed, there is great reward for your efforts.
One of the first challenges that both new and experienced investors need to address is whether now is the right time to invest in real estate. The quick answer to this question is that it is always the right time to invest in real estate; it is just a matter of finding the right investment. However, this answer is a bit simplistic and in what the media hypes as a "softening" real estate market, some concrete information can go a long way to instilling confidence in your investment decisions. There are a lot of factors that go into making the decision to invest, but at the heart of any investment, there is a common goal…making a profit! If we all have a common goal of making a profit, or turning our money into larger sums of money, who's advice or trends should we take notice of? I suggest we take notice of the people that are making it happen, the wealthy.
A recent survey by Citi Smith Barney says that over half of millionaires and 40 percent of affluent investors, or approximately 25 percent of the U.S. population, believe that real estate is a good investment. And these people practice what they preach. Among the wealthy, nine out of ten own some sort of real estate investment accounting for one-third of their portfolio, and most (52 percent) report that despite a softening housing market, their real estate investments have increased over the last year.
Ownership of second homes is particularly common among millionaires (50 percent) compared with 20 percent among those in lower income brackets. Two-thirds of those who own a second home or vacation home report that the value of this investment has increased over the past year.
Although investors widely believe the housing market is an important part of the overall economy (41 percent very important, 54 percent somewhat important), and most made money from their real estate investments, eight out of ten feel the housing sector is weaker today than it was a year ago. Moreover, many expect the housing market to remain weak (28 percent) or become even weaker over the next 12 months (46 percent).
What does all of this mean? To me this information says that while the national real estate market as a whole can be characterized as "softening," according to wealthy investors there are still great investments out there to be found. The key of course is finding those investments, and having enough influence to negotiate terms that take advantage of the current real estate investment climate and trends.
Here are some suggestions that every investor should consider when diving into a real estate investment:
Resources. Profitable investments require capital to earn a respectable return. This may seem obvious, every investor needs to start with an honest assessment of how much money and time they are willing to commit to achieve their financial goals. Successful investors set aside specific sums, line-up financing in advance and plan to commit time as well as money to their investments. One of the first questions you should ask is how much money can I comfortably commit to an investment. The next consideration is what type of time and activity commitment to I want to make. There are varying levels of activity when it comes to investing. Do you want to be an active or a passive investor…do you want to actively "flip" a house and do all the work yourself, or do you want to passively work with a group that can take the burden of the hands-on work off your plate?
Research. Profitable investments do not happen by accident; rather, they result from careful research that compares, contrasts and considers various opportunities. In the context of real estate, research means investigating real estate markets and properties: Are prices rising or falling? Is the inventory of for-sale properties growing or shrinking? Are rents strengthening or weakening? Is the population getting larger or smaller? Is the job market healthy or ailing? What is the overall economic outlook for the area? Are you prepared to make all of these decsions on your own, or would it be wise to enlist some outside assistance?
Calculate. Instinct and intuition can be important aspects of investment decisions. But successful investors act purposefully on the basis of hard facts as well as experience, knowledge and soft feelings. Smart investors do not risk money on impulse; they pause to make projections, run the numbers and weigh the risks and rewards before they invest. Be prepared to crunch numbers and make a realistic analysis of every investment.
Rely. Trusted advisors also are crucial to profitable investments. Beginners, in particular, need to find and consult experts who can help them learn more about the benefits, opportunities and risks of real estate investments. A knowledgeable real estate advisor is invaluable to help you reach your investment goals, research markets, locate suitable properties, structure and management investments, and even build wealth over the long term.
Risk. Real estate investors need to accept that investment always entails risk to earn an attractive return and that property values do fluctuate over short and long cycles. One way to reduce risk is to invest with one or more partners, though risk-sharing among multiple people has its own risks of complications and strife. Either way, experienced investors know they need to take calculated chances. They do not sit on the sidelines, unless they have good rational reasons to stay put and be patient.
Results. Savvy investors make decisions to accomplish specific investment goals. While some properties might offer the potential of both income and capital appreciation, others make tradeoffs between those two objectives to maximize one or the other. And while some properties might be ideal for short-term fix-up and resale, others might be better suited for long-term hold in an investment portfolio. Novices need to know their own goals and tolerance for risk to make investments accordingly and with confidence.
Prosper with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory. Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate risk with preconstruction syndication; and aggressive with direct preconstruction purchases in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. You can be protected from a downturn market, whether it is a substantial correction or any other trouble that may be brewing on the economic horizon.
The fact of the matter is: The "general" U.S. real estate market is in the doldrums and you really need to do your homework to understand what strategies will protect your assets. PropertyVestors' real estate strategies can position you to take advantage of these and other market conditions. Not only that, it can help you maximize your profits while minimizing your risks.To learn more about these topics, visit www.PropertyVestors.com, sign up with the investment group by becoming a Premier Member for $245.25 annually and receive our eBook: "Capitalizing on Real Estate in Today's Economy." For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About The Author
Sarah Barry is the founder of PropertyVestors (http://www.propertyvestors.com/). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
Labels: Baby Boomer, Investing, Investment, Money, Real Estate, Retirement, Strategy, Trends, Wealth
One of the first challenges that both new and experienced investors need to address is whether now is the right time to invest in real estate. The quick answer to this question is that it is always the right time to invest in real estate; it is just a matter of finding the right investment. However, this answer is a bit simplistic and in what the media hypes as a "softening" real estate market, some concrete information can go a long way to instilling confidence in your investment decisions. There are a lot of factors that go into making the decision to invest, but at the heart of any investment, there is a common goal…making a profit! If we all have a common goal of making a profit, or turning our money into larger sums of money, who's advice or trends should we take notice of? I suggest we take notice of the people that are making it happen, the wealthy.
A recent survey by Citi Smith Barney says that over half of millionaires and 40 percent of affluent investors, or approximately 25 percent of the U.S. population, believe that real estate is a good investment. And these people practice what they preach. Among the wealthy, nine out of ten own some sort of real estate investment accounting for one-third of their portfolio, and most (52 percent) report that despite a softening housing market, their real estate investments have increased over the last year.
Ownership of second homes is particularly common among millionaires (50 percent) compared with 20 percent among those in lower income brackets. Two-thirds of those who own a second home or vacation home report that the value of this investment has increased over the past year.
Although investors widely believe the housing market is an important part of the overall economy (41 percent very important, 54 percent somewhat important), and most made money from their real estate investments, eight out of ten feel the housing sector is weaker today than it was a year ago. Moreover, many expect the housing market to remain weak (28 percent) or become even weaker over the next 12 months (46 percent).
What does all of this mean? To me this information says that while the national real estate market as a whole can be characterized as "softening," according to wealthy investors there are still great investments out there to be found. The key of course is finding those investments, and having enough influence to negotiate terms that take advantage of the current real estate investment climate and trends.
Here are some suggestions that every investor should consider when diving into a real estate investment:
Resources. Profitable investments require capital to earn a respectable return. This may seem obvious, every investor needs to start with an honest assessment of how much money and time they are willing to commit to achieve their financial goals. Successful investors set aside specific sums, line-up financing in advance and plan to commit time as well as money to their investments. One of the first questions you should ask is how much money can I comfortably commit to an investment. The next consideration is what type of time and activity commitment to I want to make. There are varying levels of activity when it comes to investing. Do you want to be an active or a passive investor…do you want to actively "flip" a house and do all the work yourself, or do you want to passively work with a group that can take the burden of the hands-on work off your plate?
Research. Profitable investments do not happen by accident; rather, they result from careful research that compares, contrasts and considers various opportunities. In the context of real estate, research means investigating real estate markets and properties: Are prices rising or falling? Is the inventory of for-sale properties growing or shrinking? Are rents strengthening or weakening? Is the population getting larger or smaller? Is the job market healthy or ailing? What is the overall economic outlook for the area? Are you prepared to make all of these decsions on your own, or would it be wise to enlist some outside assistance?
Calculate. Instinct and intuition can be important aspects of investment decisions. But successful investors act purposefully on the basis of hard facts as well as experience, knowledge and soft feelings. Smart investors do not risk money on impulse; they pause to make projections, run the numbers and weigh the risks and rewards before they invest. Be prepared to crunch numbers and make a realistic analysis of every investment.
Rely. Trusted advisors also are crucial to profitable investments. Beginners, in particular, need to find and consult experts who can help them learn more about the benefits, opportunities and risks of real estate investments. A knowledgeable real estate advisor is invaluable to help you reach your investment goals, research markets, locate suitable properties, structure and management investments, and even build wealth over the long term.
Risk. Real estate investors need to accept that investment always entails risk to earn an attractive return and that property values do fluctuate over short and long cycles. One way to reduce risk is to invest with one or more partners, though risk-sharing among multiple people has its own risks of complications and strife. Either way, experienced investors know they need to take calculated chances. They do not sit on the sidelines, unless they have good rational reasons to stay put and be patient.
Results. Savvy investors make decisions to accomplish specific investment goals. While some properties might offer the potential of both income and capital appreciation, others make tradeoffs between those two objectives to maximize one or the other. And while some properties might be ideal for short-term fix-up and resale, others might be better suited for long-term hold in an investment portfolio. Novices need to know their own goals and tolerance for risk to make investments accordingly and with confidence.
Prosper with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory. Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate risk with preconstruction syndication; and aggressive with direct preconstruction purchases in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. You can be protected from a downturn market, whether it is a substantial correction or any other trouble that may be brewing on the economic horizon.
The fact of the matter is: The "general" U.S. real estate market is in the doldrums and you really need to do your homework to understand what strategies will protect your assets. PropertyVestors' real estate strategies can position you to take advantage of these and other market conditions. Not only that, it can help you maximize your profits while minimizing your risks.To learn more about these topics, visit www.PropertyVestors.com, sign up with the investment group by becoming a Premier Member for $245.25 annually and receive our eBook: "Capitalizing on Real Estate in Today's Economy." For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About The Author
Sarah Barry is the founder of PropertyVestors (http://www.propertyvestors.com/). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
Labels: Baby Boomer, Investing, Investment, Money, Real Estate, Retirement, Strategy, Trends, Wealth
Thursday, July 12, 2007
Profiting from Discounted Notes
Profiting from Discounted Notes: Confidential Note buying Investment Opportunity
History/Overview
A note is a legal document that obligates a borrower to repay a loan at a specified interest rate during a specified period of time or on demand; sometimes also referred to as promissory notes or mortgages. Notes can be associated with just about anything that can be bought and sold – houses, mobile homes, land, cars, boats, condos, consumer electronics, rare books, coins, stamps, antiques, home improvements…the list is almost endless. For our purposes, we will focus on notes attached to real estate, generally referred to as mortgage notes.
A mortgage note is the promissory note associated with a mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate. While the mortgage itself pledges the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and makes the borrower who signs the note personally responsible for repayment.For the most part, it is the mortgage note which determines the "type" of mortgage, and the varying types have an affect on the amount repaid and the timeline of the repayment.
Types of mortgages:
History/Overview
A note is a legal document that obligates a borrower to repay a loan at a specified interest rate during a specified period of time or on demand; sometimes also referred to as promissory notes or mortgages. Notes can be associated with just about anything that can be bought and sold – houses, mobile homes, land, cars, boats, condos, consumer electronics, rare books, coins, stamps, antiques, home improvements…the list is almost endless. For our purposes, we will focus on notes attached to real estate, generally referred to as mortgage notes.
A mortgage note is the promissory note associated with a mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate. While the mortgage itself pledges the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and makes the borrower who signs the note personally responsible for repayment.For the most part, it is the mortgage note which determines the "type" of mortgage, and the varying types have an affect on the amount repaid and the timeline of the repayment.
Types of mortgages:
If the note has a fixed interest rate and payments, then the loan is a Fixed Rate Mortgage (FRM) loan- A fixed interest rate with adjusting payments is a Graduated Payment Mortgage (GPM)
- A floating interest rate and payment amount indicates an Adjustable Rate Mortgage (ARM)
- An amortization schedule longer than the maturity date indicates a balloon payment mortgage
- When the payment schedule calls only for interest and no principal, thus leaving behind the full principal due at maturity, the loan is an interest only loan
- A payment adjustment frequency less than the interest rate adjustment frequency implies a mortgage which allows for negative amortization
Notes are created by banks, and by individuals. Banks hold first and second mortgages (notes.) Over the last 30 years many sellers and businesses have taken back first and second mortgages on property they have sold.
Notes are sold for several reasons, including:
- To raise cash -
- For servicing – some individuals/companies create notes, but do not have servicing capabilities
- To mitigate risk – some individuals/companies are only set up to service performing notes; when a note is non-performing, the note is sold to mitigate risk; there are specific companies specialized in servicing the non-performing notes, with the specific goal in curing them back to performing.
Such notes have a FACE VALUE (the unpaid principal), an INTEREST RATE at which the note is being paid and a TERM (the amount of time left before it is paid off). Buying, selling and trading notes has become big business, and many investors are creating great wealth with this strategy. Due to the "time value" of money which assumes a dollar today is worth more than a dollar at some future time, notes are sold at discounted rates- usually at 60-75 cents on the dollar! Like bonds, mortgage notes offer investors a stream of payments over a period of time. When notes are purchased at a discounted rate due to the time value of money, there is built in equity created immediately, and to improve upon this position even further, every month payments will be made to the owner of that note…creating a monthly cashflow, with no hands-on effort!
Investors – who invests in mortgage notes and how do they do it? Mortgage Note buyers are companies or investors with the capital to purchase a mortgage note. If someone is holding a private mortgage, these investors will give cash and take over receiving the monthly payments that were being paid to the previous owner. A Mortgage Note for these investors are home loans or mortgages that are secured by real estate. Mortgage notes could be anything from $10,000 to $1 million or even tens of millions of dollars. Anyone can be a mortgage note buyer, but there some hurdles to overcome.
Barriers to Entry
Notes are not cheap. They cost thousands, often tens of thousands, or even millions of dollars. Most note brokers, companies who sell notes, will only offer their notes in "bundles;" meaning that in order to have access to the discounts, you must purchase a large group of notes. Clearly this takes a great deal of capital. Mistakes can be very costly. The problems for a newcomer are obvious. Unless you have piles of cash, how do you start? How do you become experienced without making a mistake that could cost you dearly?
Two Pitfalls
There are two pitfalls waiting for the unwary. Some people rush out and buy paper without knowing what they are doing. They have just read a book, attended a seminar or heard a taped course, they get all excited and buy the first note they see. These people quickly get into trouble.
The other pitfall is the "paralysis of analysis." Some people read all the books, take all the seminars, study all the tape courses, but never buy any notes. All they are doing is spending money on an intellectual exercise. They are afraid to take any action.
Finding Notes
The first challenge you will face is how to find notes. Broadly speaking, there are two approaches to finding notes. One is to look for individual note holders. A second is to market your business.
Advertising
The first approach, locating individual note holders, is centered around advertising. Note buyers (I'll be using that as a generic term for both note investors and note brokers) use every kind of advertising method available to them, although every note buyer does not use every method, of course. Examples of advertising methods are: direct mail (including courthouse research), newspaper display and, more commonly, classifieds, Yellow Pages, flyers, brochures, "specialty" advertising (that's the term for things like t-shirts, pens, hats, paperweights, etc., etc. imprinted with your message), even billboards, radio and TV. No doubt you have seen the TV ad campaigns run by some of the large institutional investors aimed at people who own structured settlements, lottery winnings and mortgages. Judge Wapner was even a spokesman for one of them.
I am not a fan of advertising for note sellers, for the simple reason that it brings pitifully few responses and costs a lot of money. You are better off spending that time and money networking and creating your own notes.
Direct Mail
What about Direct Mail? I was told by someone who sells mailing lists of noteholders that note brokers often ask him if they can rent 100 or 500 names. That is a total waste of money. Even the very best direct mail campaigns to a list of this type rarely if ever receive more than a 5% return. And that's when the pros design the package. When it's designed by someone who doesn't know the arcane secrets of successful direct mail marketing -- and there are many -- the
return will fall to 2%, 1% or even less. Do the math: if you only end up buying 1 out of 20 notes you see (and that's a good average for a new note buyer), and you send 500 letters, and you hit pay-dirt and get a 2% response, how many notes will you buy?
Networking
Targeting individual note holders can work if you have the money and knowledge of advertising (or can afford to hire a pro) to pull it off. Most people don't come into the business with both of those assets, particularly the latter.
The second approach is to market your business, a.k.a. "networking." Instead of establishing a goal to target individuals who might be holding notes, the goal of networking is to target certain people whose clients and contacts are people who hold notes. In the words of Hank Harenberg, the hands-down expert in this technique as applied to the note business,
"The theory behind it (networking) is simple and powerful. We contact the businesses that have the clients that we want and convince them to help us contact those clients. Suppose you are a business with a thousand customers. If I make presentations to ten businesses like you, I've touched 10,000 people by calling on ten people."
Networking does not depend upon advertising. It involves a lot of personal contact: one-on-one meetings with people, making presentations to groups both small and large, writing articles for trade publications, attending and even speaking to trade conventions, etc.
Who are the types of people you should target in your networking? Well, who are the people who might know noteholders? When you think about it that way, the answers start flowing: Real estate agents. People in title companies. Lawyers (think real estate settlements, divorces, estates and tax planning). Accountants. Bank trust officers. Who else can you think of?
The principal advantages to networking are that it produces long-term results and it is far less costly than advertising. The major drawback is that it takes a long time to establish the relationships that keep the notes coming in.
PropertyVestors Approach
As you can see, finding discounted notes can be quite labor intensive. In many cases, it may be wise to be a part of a group that purchases these notes together. You then have access to the knowledge of the group, you can get larger discounts because the group can buy in bulk (buying power), your investment is spread across multiple notes (diversification), and you will have the assistance of the group to maintain and service the notes.
PropertyVestors is an international real estate investment group that offers a discounted notes program to it's Premier Members. After researching the various ways to approach note buying in order to address the needs of our Premier Members, PropertyVestors has established a partnership with a top performing note purchaser in order to minimize risk and maximize returns. We investigated only companies that had been purchasing notes for over 20 years had a servicing arm that has a strong track record.
Please keep in mind that the approach outlined below is for our Premier Members that are "accredited investors" only. Our current opportunity is outlined below.
1 – Non-performing mortgage notes are purchased in bulk by a banking "insider"
- 1st Position mortgage
- 80% of home value at time of purchase (the home may have appreciated substantially, depending on the age of the loan)
- Purchased at a discount
- The loans are "scrubbed" and check for legitimacy.
2 – A package or "pool" or notes is sold to private investors
- Pools are sold to private investors at between 50 & 60 cents on the dollar
- Prices run between $5 million and $1 billion or more in sales price
- The investment is secured by real estate valued at approximately 44% Loan to Value (80% 1st mortgage @ 55 cents on the dollar = 44%)
- The servicing company services the loan using non-adversarial tactics to get the occupant paying again.
3 - The loan is modified to make it easier for the occupant to resume payment
- The interest rate may be lowered
- Late fees or other charges may be forgiven
- ARM's can be changed to fixed rate, interest-only loans
- The occupant is taken through credit repair so they can refinance in 1-2 years
4 – The investor receives cashflow until the loan is refinanced.
- Cashflow from modified mortgage payments is remitted to investor through the servicing bank.
- Cashflow equals interest on FULL LOAN AMOUNT
- Once the borrower's credit is repaired, the loan is refinanced and the investor receives the entire loan balance
- In the case of individual loans that cannot be repaid, they are re-sold at a profit.
- The investor has the ability to request the following exits on any of their loans that don't perform:
o Deed in lieu of foreclosure
o Deed in lieu of foreclosure plus cash to get the occupant relocated
o Sell the note back into the market
- The investor will be able to log into a secure website and check their loan portfolio and check their loan portfolio to see which loans have been paid off
Process –
- Visit http://www.propertvestors.com/ to research further on our investment group, get access to our free report "Capitalizing on Real Estate in Today's Economy", and join as a Premier Member to get access to profitable opportunities. The annual cost for membership is $245.25 annually.
- Investor completes Proof of Funds document and has their funds verified by an independent bank.
- The investment bank finds and "scrubs" an appropriate pool of notes.
- Investor is notified of the next pool in their price range.
- Investor opens escrow account. (No money is taken from escrow until settlement. If settlement does not occur, escrow is returned)
- Investors receive pool information (mortgage notes, deeds, etc.) and conducts their own due diligence.
- Contracts executed, settlement completed and funding occurs.
- The servicing company services notes and sends checks to Investor.
- Investor uses secure website to track status of notes.
Build a Discounted Note Fortune with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with developer deals in emerging markets, coastal regions and waterfront properties.
With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. Education is also provided on how to take advantage of 1031 exchanges. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
To learn more about these topics, visit www.PropertyVestors.com, sign up with the investment group by becoming a Premier Member for $245.25 annually and receive our eBook: "Capitalizing on Real Estate in Today's Economy." For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About The Author
Sarah Barry is the founder of PropertyVestors (http://www.propertyvestors.com/). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
Tuesday, June 19, 2007
Two Mega Trends to be Aware of: And How you Can Profit from Them!
I hate it when my dire forecasts come true. But my job is to call it like it is, and help you make sound investment decisions. So I keep my emotions out of the process, and focus on reality.
And when I look around me and see what's going on in the markets right now, I see two nasty scenarios coming to pass.
Today, I want to tell you why the worst is not yet over in housing, and why the dollar will continue to get crushed …
Mega-Trend #1: Housing's Elusive "Bottom" Keeps Getting Pushed Farther Out
Hardly a day goes by without some pundit somewhere calling a "bottom" in housing. Two-bit real estate agents … ivory-tower economists … starry-eyed portfolio managers … they can't seem to help themselves!
But as we have been saying throughout the year, our research tells me the worst is not behind us. Sales remain weak and inventories are extremely high. Prices simply have to fall further to right the ship. Nothing I've seen has changed my mind. If anything, things are getting worse, especially for the public home builders. Get a load of the latest news out of these guys …
March 27: Lennar, the largest homebuilder by sales, reported a stunning 73% plunge in quarterly profits. CEO Stuart Miller, who only a couple months earlier prompted a big rally in building stocks by releasing an optimistic earnings target, did a dramatic about-face. Not only did he say the company wouldn't meet his earlier forecast, he also said things were so poor and the outlook so cloudy that he couldn't even set a new goal!
April 4: Ryland Group said first-quarter sales dropped a sharp 26%. Meanwhile, the company announced a hefty $65 million charge because of slumping land and property values from one end of the country to the other.
April 10: D.R. Horton, the second-largest homebuilder, dropped a bomb of its own. The company said second-quarter orders plunged 37% … average prices dropped almost 6% … and that "the spring selling season has not gotten off to its usual strong start."
Result: These stocks continue to trade like death warmed over. And if the key spring season finishes as poorly as it began, these companies are in for even more pain.
Meanwhile, the mortgage problems that were supposedly "contained" are seeping into other areas. For example, I'm seeing major problems with companies that lend to the so-called Alt-A borrowers, people who fall between the subprime and prime categories:
Shares of a big Alt-A player, M&T Bank, just plunged the most since 1998. Reason: Bond investors soured on Alt-A loans, which drove down the value of the mortgages on M&T's books. Another company, American Home Mortgage Investment, saw its stock lose 15% in one day. It said demand for higher-risk mortgages had dried up, and that it would have to boost reserves to account for borrower defaults. And FirstAmerican LoanPerformance, a research firm, said the 60-day late payment rate on Alt-A mortgages has more than doubled to 2.6% in the last year. Thirty-day delinquency rates are even higher — around 5%.
As a result, lenders are cutting back on their riskier loan programs. That, in turn, is going to knock marginal home buyers out of the market and exacerbate the housing downturn.
And that's not the only trend I see right now …
Mega-Trend #2: Higher Foreign Interest Rates Are Driving Down the Dollar
Clearly, the U.S. housing outlook stinks. That's forcing the Federal Reserve Board to keep interest rates stable, despite clear and present inflation dangers.
Meanwhile, the economic outlook overseas is great. Countries like China, India, Japan, Brazil, Australia, and Canada are all outperforming the U.S. by virtually every measure. Because of that strong growth, foreign central bankers around the world are steadily hiking interest rates …
And when I look around me and see what's going on in the markets right now, I see two nasty scenarios coming to pass.
Today, I want to tell you why the worst is not yet over in housing, and why the dollar will continue to get crushed …
Mega-Trend #1: Housing's Elusive "Bottom" Keeps Getting Pushed Farther Out
Hardly a day goes by without some pundit somewhere calling a "bottom" in housing. Two-bit real estate agents … ivory-tower economists … starry-eyed portfolio managers … they can't seem to help themselves!
But as we have been saying throughout the year, our research tells me the worst is not behind us. Sales remain weak and inventories are extremely high. Prices simply have to fall further to right the ship. Nothing I've seen has changed my mind. If anything, things are getting worse, especially for the public home builders. Get a load of the latest news out of these guys …
March 27: Lennar, the largest homebuilder by sales, reported a stunning 73% plunge in quarterly profits. CEO Stuart Miller, who only a couple months earlier prompted a big rally in building stocks by releasing an optimistic earnings target, did a dramatic about-face. Not only did he say the company wouldn't meet his earlier forecast, he also said things were so poor and the outlook so cloudy that he couldn't even set a new goal!
April 4: Ryland Group said first-quarter sales dropped a sharp 26%. Meanwhile, the company announced a hefty $65 million charge because of slumping land and property values from one end of the country to the other.
April 10: D.R. Horton, the second-largest homebuilder, dropped a bomb of its own. The company said second-quarter orders plunged 37% … average prices dropped almost 6% … and that "the spring selling season has not gotten off to its usual strong start."
Result: These stocks continue to trade like death warmed over. And if the key spring season finishes as poorly as it began, these companies are in for even more pain.
Meanwhile, the mortgage problems that were supposedly "contained" are seeping into other areas. For example, I'm seeing major problems with companies that lend to the so-called Alt-A borrowers, people who fall between the subprime and prime categories:
Shares of a big Alt-A player, M&T Bank, just plunged the most since 1998. Reason: Bond investors soured on Alt-A loans, which drove down the value of the mortgages on M&T's books. Another company, American Home Mortgage Investment, saw its stock lose 15% in one day. It said demand for higher-risk mortgages had dried up, and that it would have to boost reserves to account for borrower defaults. And FirstAmerican LoanPerformance, a research firm, said the 60-day late payment rate on Alt-A mortgages has more than doubled to 2.6% in the last year. Thirty-day delinquency rates are even higher — around 5%.
As a result, lenders are cutting back on their riskier loan programs. That, in turn, is going to knock marginal home buyers out of the market and exacerbate the housing downturn.
And that's not the only trend I see right now …
Mega-Trend #2: Higher Foreign Interest Rates Are Driving Down the Dollar
Clearly, the U.S. housing outlook stinks. That's forcing the Federal Reserve Board to keep interest rates stable, despite clear and present inflation dangers.
Meanwhile, the economic outlook overseas is great. Countries like China, India, Japan, Brazil, Australia, and Canada are all outperforming the U.S. by virtually every measure. Because of that strong growth, foreign central bankers around the world are steadily hiking interest rates …
The Reserve Bank of Australia raised rates three times in 2006, with another hike in the weeks ahead.- The European Central Bank has increased rates to 3.75% over the past several months, and based on their comments this week, we are expecting another hike in June.
- The Reserve Bank of India raised its key rate twice this year.
- The People's Bank of China is boosting its benchmark interest rate.
Heck, everyone from Taiwan to Norway to Latvia is boosting rates.
What happens when foreign central banks get serious about fighting inflation while our Federal Reserve stalls? The dollar gets sent to the woodshed! The broad U.S. Dollar index is already down almost 4% from its January high. It's trading at its worst level against the euro since January 2005. It's getting trounced by the British pound, closing in on the two dollars-for-every-one-pound level for the first time since 1992. And it has plunged to a 17-year low against the Australian dollar!
None of This Makes Me Happy, But It Can Make You Money
The good news: You can still make lots of money in real estate if you are smart with your approach. If you are one of our international Premier Members at PropertyVestors, exchange rates for the real estate opportunities we provide you are looking better every day. If you are a Premier Member here in the U.S., the strategies we provide help minimize your risk in today's market while maximizing your return. And as dismal as the news may be, our Premier Members are still receiving double- to triple-digit returns.
Hopefully, you've been following our advice on how to make the most of these trends. For instance, I've devoted previous PropertyVestors columns to telling you how to diversify your IRA mutual funds into safer real estate investments.
How have those strategies worked out for you and your family?
Prosper with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate risk with preconstruction syndication; and aggressive with direct preconstruction purchases in emerging markets, coastal regions and waterfront properties.
With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. You can be protected from a downturn market, whether it is a substantial correction or any other trouble that may be brewing on the economic horizon. The fact of the matter is: The "general" U.S. real estate market is in the doldrums and you really need to do your homework to understand what strategies will protect your assets. PropertyVestors' real estate strategies can position you to take advantage of these and other market conditions. Not only that, it can help you maximize your profits while minimizing your risks.
To learn more about these topics, visit www.propertyvestors.com, sign up with the investment group by becoming a Premier Member for $245.25 annually and receive our eBook: "Capitalizing on Real Estate in Today's Economy." For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About The Author
Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
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