Are You A Real Estate Investor Or A Speculator?

Are you a Real Estate Investor or a Speculator?
If you follow these items you too can make moves with the best of them! (to view a Real Estate Investment analysis click copy-of-fmrrworksheet)

• Determine Level of Liquidity - liquidity is the ability to quickly convert an investment into cash, without losing any of the principal that you’ve invested.

• Determine Level of Marketability - marketability is the ability to convert an investment into cash quickly, at any price.

• Determine the Impact of Leverage - leverage is the use of borrowed funds to finance a portion of the purchase price of an investment. The ratio of borrowed funds to the total purchase price is known as the loan-to-value (or LTV) ratio. A high LTV would result in high leverage, while a low LTV would result in low leverage.

• Evaluate the Investment Management Issues:
  1. Asset Management - this is where you monitor the financial performance of the investment and make changes as needed.
  2. Property Management - involves the overall day-to-day operation of the property and the physical maintenance of the building or buildings.

• Consider the Tax Impact of Your Investment Decisions: This includes such issues as:
  1. Classifications of passive
  2. Active and portfolio income and losses Capital gains taxes Income taxes
  3. Tax Credits, Tax deductions, Tax Deferments

• Evaluate and Reduce Investment Risk - risk is the possibility of losing either the principal invested and/or the potential income from the investment. We help you reduce investment risk in several ways
• Risk Analysis - This is the process of evaluating alternative investments based on their level of risk
• Shifting risk - structure your leases and rent agreements to shift the exposure of increasing costs to the tenants. This can include shifting the risk of rising interest rates, operating expenses or tax increases.

• (The Biggie) Due diligence prior to purchasing an investment property - Due diligence is the process of examining a property and related documents such as appraisals, inspections, environ mental surveys and title work in order to reduce risk.

Make sure to Review the (copy-of-fmrrworksheet) Investment analysis. If you would like to receive a analysis specifci to your property, feel free to contact me.. Your Mortgage Planner, William Doom, CMPS. 1.888.271.3437 x7

FOMC Cuts Rates To Target Zero

The Fed has taken Historic Action and has established a Target Range vs. a Flat Rate.
Target range for the federal funds rate of 0 to 1/4 percent.

(This should be interesting for Prime? Credit and Money is NOW Cheep. Didn’t we do this in 2001-2003?)

Given the overall decline in the U.S. Economy, the FED announced that it is determined to use every tool possible to pull the economy out of the current recession. The FED is sticking to its guns and will continue to purchase Government debt and MBS as one of the Monetary Policy Tools.

“over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.”

Interest rates change constantly, but it is important to know that rates are cyclical. If rates are currently at historical lows then we know there is a strong probability rates will go up again, and vice versa. Certain economic indicators such as unemployment data, consumer price index, retail sales data, and consumer confidence all have an effect on mortgage interest rates. But the key factor to watch is the relationship between stocks and bonds.

As always if you are thinking of Refinancing or Purchasing feel free to contact me for your No Obligation Mortgage Plan William Doom, CMPS Your Mortgage Planner. (1.888.271.3437 x7)



Image Parsing the Fed Statement
The Wall Street Journal Online
December 16, 2008
http://online.wsj.com/internal/mdc/info-fedparse0812.htm

What Can You Do?

As 2008 comes to a close, it’s difficult to find encouraging economic news. In a Harvard Business Review article about 12 years ago, the featured case study in which a methodology for making accurate market conditions was showcased. An oversimplification of the methodology is that the more people that are in agreement, the stronger the likelihood of accuracy.

I have developed the stomach to read through 18+ newspapers and business news sites every morning. There is a consistent prediction that there will be a honeymoon period after Obama takes office that will dissipate towards late summer when the aggregate loss of jobs, credit and wealth will cause an economic crisis that makes our current situation look pretty mild.

The United States is likely to undergo a financial collapse much like the Great Depression. Massive unemployment didn’t reach double digits when the market collapsed in 1929. Unemployment took until 1932, three years, to go from 3.2% to 25%. As the year progresses, there will likely be decreased access to goods, services and food. Some of this will be due to stores going out of business making purchasing more inconvenient. Some will be due to suppliers and transporters going under.

Most Americans will see radical cut backs in local services and social safety nets. Unemployment and food stamp programs will be overwhelmed. On November 27, 2008 headlines included the fact that the number of Americans on food stamps is poised to exceed 30 million for the first time this month, surpassing the historic high set in 2005 after Hurricane Katrina. Reduced tax revenues will eliminate funding for many state and local programs. The federal government will have to withdraw some of its commitments simply to keep people from starving in the streets.

In addition, climate change is accelerating. Ice caps are smaller than they have been in thousands of years. Methane being released by permafrost areas thawing are exacerbating the problem. Recent devastating floods in Brazil are being attributed to climate change. Significant increases in jelly fish populations and swarming world wide are attributed to climate change. In addition to occasional human deaths, increased jellyfish populations and swarming damages fish populations, fisheries, fish farms, marine mines, desalinization plants, ships, nuclear power plants, and business at beach tourist destinations. Climate change will mean severe unpredictable changes weather systems. We can expect to see increasing heat waves, record high temperatures, and heavy precipitation (floods and hurricanes).

As much as some might wish they could, mentally “refusing to participate in the recession” is tantamount to sticking your head in the sand. Running around like Chicken Little is no better. When you are panicked, you will not see opportunities and can not coherently plan and contingency plan.

When there is disruption there are always opportunities. Many in the real estate industry professionals have moved to mortgage mediation. At some point, that will dry up too. The number of people who are stopping making their mortgage payments so they can negotiate lower payments and lower principal is rising rapidly. Because many lenders are even now only issuing forebearances, homeowners end up in default again, typically less than a year. Lenders will be under exponentially more pressure as mortgage mediation gets more sophisticated and reductions in principal trigger more investor lawsuits. At some point the sheer number of foreclosures dragging down enough banks will hit a tipping point where people find it feasible to simply stop making mortgage payment knowing it may be years before they are evicted from their property.

One of the big differences between the Great Depression and our current systemic financial system failure is that the middle class is extremely well educated and resourceful. The massive layoffs will spur many to start their own businesses. Small businesses weather economic storms better because they can be more flexible in responding to changes in the market, thus having a better chance of remaining viable.

Those countries, including the United States, Great Britain, China, and India, that allowed themselves to be infected with economically deadly Affluenza are about to be cured in a most unpleasant way. One of the benefits of the implosion of our morally ill consumerism economy will be the resurgence of community. Humans are designed to need each other. Consumerism isolated us and gave us the illusion that anyone can make it on their own.

To quote Sharon Astyk “We will endure, sometimes even find ways of loving our new lives. There will be acts of remarkable courage and heroism, and acts of the most profound evil and selfishness. There will be enormous losses - but we will also discover that most of us are more than we think we are - can tolerate more and have more courage and compassion than we believe of ourselves”.

Jim O'Neill Is Insane

In a November 27 London Financial Times article, Jim O'Neill, Chief Economist at Goldman Sachs said that "At its 2007 peak, US domestic consumption reached as much as 72 per cent of the country’s overall gross domestic product, which is more than 20 per cent of global GDP". He estimates that US domestic consumption is on its way down, forecasting 65% or less of GDP in a few years.

Jim O'Neill went on to recommend that "To avoid global [financial] pneumonia, what we need is shopping in Berlin, Frankfurt, Beijing, Shanghai, Delhi and Mumbai". Jim O'Neill's suggests that if China's policies continue to stimulate increased consumption and develop a formal social security system to "reduce China's huge savings rate", that if Indian policymakers boost infrastructure spending to escalating urbanization and unleash massive consumption, and that Germany celebrate the 20th anniversary of the fall of the Berlin wall by giving its people a surge in consumer spending it will help make up for the contraction in US consumption, stabilizing the world economy.

How can anyone active at ground zero of the biggest rip-off of the American people in history and an engineer in a global financial deleveraging disaster precipitated by reckless lending, careless borrowing and overconsumption tell other world governments to implement policies to keep money cheap and people borrowing so they too can financially implode be considered to be of sound mind? The man is irrational and arguably insane.

When Alan Greenspan suggested that Americans use exotic loan products to tap the equity in their homes in February 2003, the voice of America said "Whoo Hoo! Honey, our home equity is now an ATM. We can buy what ever we want and not have to save for it! It's like we're RICH!" It was addictive. It was competitive. The more you had, the more you wanted, and you could finance it all.

Consumption funding sources became so strained the American government issued the absurd 2008 income tax rebate in an effort to stimulate even more spending. Unfortunately the piper eventually gets paid. The rude awakening began on September 7 2008 when Fannie Mae and Freddie Mac went into receivership. The rude awakening turned into the nightmare of the onset of a systemic financial system failure, one that will take years to complete, on September 17, 2008 with the first requests for industry bailouts. And Americans have just barely begun to pay.

Excessive consumption has resulted in ecological devastation. The 2008 World Wildlife Fund Living Planet Report states that the world is heading for an ecological crisis far worse than the financial crisis due to excessive consumption. Humans are using an estimated 30% more resources than the world can replenish each year. The report predicts that by 2030, if nothing changes, mankind would need two planets to sustain its lifestyle. Since we don't have two planets, we have a problem.

Instead of listening to irrational and arguably insane people like Jim O'Neill, the world needs to closely examine the values and belief systems underpinning the American economic model that has failed so miserably. Excessive consumption is a moral illness. It is called affluenza; affluenza, n. a painful, contagious, socially transmitted condition of overload, debt, anxiety and waste resulting from the dogged pursuit of more.

Social pressures, advertising, culture, and government economic policies all work together to perpetuate excessive consumption. Calculated manipulative advertising and marketing campaigns, reinforced in all forms of media, are designed encourage wants and give the illusion that through consumption people can satisfy non-material wants, such as belonging and being valued. The result is a population with subjective feelings of happiness and satisfaction can be maintained only by continually ratcheting up the pleasures to be had by consuming.

This architected consumer society leads to the decline of the community as well as the isolation of the individual. The need for conspicuous consumption to demonstrate wealth, power and superiority becomes an emotional trap. Possessions and demonstrations of wealth becomes a mask to hide an inner vacuum of misery. Excessive consumption leads to people have a lower satisfaction with their lives, a greater tendency to compulsive spending, higher incidences of depression, higher incidences of self-medicating with mood-altering drugs and excessive alcohol consumption, higher incidences of overeating and obesity, and a prevalence of lower ethical standards.

Reducing excessive consumption does not necessarily mean a reduction in the standard of living. A home with sanitary running water, heating, and air conditioning is still a luxury for the majority of the world population. Having one with 7,500 square feet with packed walk-in closets, the latest in electronics, a wine cabinet, a boat/ATV/RV, a riding mower, and weekly maid service for an "upper middle class" family of 4 is absurd. How much do you need, really? And how up to your eyeballs in debt are you, really? At what point do you have enough so you aren't consumed with scratching and clawing for more?

Instead of irrational and arguably insane Jim O'Neill's recommendation spread affluenza to emerging economies, the developed economies need to lead the world in lowering consumption expectations. Yes, it will be a bitter pill to those who find their identity in materialism and those obsessed with greed. However, it's a price that must be paid, and it will be paid either now or later. Paying it now it is a small price to pay for providing a future to our children. Paying it later means we did not change our path and consequently destroyed the economy world-wide, consumed all natural resources, and destroyed the environment to where there is nothing left for our children.

Lowering consumption expectations will reduce the pressures of competing in the economy, ward off materialism and greed, facilitate a return to community, and help re-establish a healthy moral identity. Lowering consumption expectations will help shift cultural values to emphasizing who you are rather than what you own. Lowering consumption expectations to take back our communities is not just imperative culturally, is imperative to the future of our species, to the future of our world.

TALF – Term Asset Back Loan Facility

Image via WikipediaHenry “Hank” Paulson announced today they are using Tarp money to target consumer loans (credit cards, car loans, Home Loans) immediately.

The Name of the entity “TALF” – Term Asset Back Loan Facility. Six Hundred Billion will be allocated to Fannie Mae, Freddie Mac, and Ginnie Mae. The auto, student, and small business loan markets will receive $200 Billion to help thaw the markets. This announcement and injection gave the FNMA 30-YR 6% a HUGE boost this morning pushing it up over 115pb.

Mortgage Securities appreciated the injection and in return we saw rates drop across the board. This could be the first leg in the credit thaw. The TALF announcement overshadowed the negative GDP decline of -.5%, which is result of constriction in consumer spending (the largest in 28 years). The drop in rates is a positive, this should be first step in credit availability and hopefully will eventually lead to easing guidelines which will make it easier for homeowners to purchase and refinance. The credit may be in the market, guidelines are still tight.

Phoenix Real Estate Foreclosure Stats

Current Real Estate Stats for Phoenix Metro Area.

Great REO Foreclosure Site
www.REOPHXBlog.com

Information Provided by
Your Mortgage Planner

Loan Limits Jumbo vs. Conforming

For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.
A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

1-unit properties : $417,000
2-unit properties : $533,850
3-unit properties : $645,300
4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called “jumbo”, or “super jumbo” home loans, depending on their size.

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans are.

There are loan limit exceptions, however.

Left over from the Economic Stimulus Act of 2008, specific, “high-cost” areas around the country have their own conforming loan limits, not to exceed $625,500. There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on “typical” housing costs around the country. Since 1980, as home prices have increased, so have conforming loan limits. As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.

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