The Biggest Scam Ever Could Be Your Biggest Opportunity!

No, we aren’t advocating becoming the next Bernie Madoff.  We just read Robert Kiyosaki’s article on Yahoo Finance called The Biggest Scam Ever.   It’s about 401k plans and he’s commenting on the cover story Time Magazine recently published on the subject.

Time says their sources estimate that 44 percent of Americans (a chunk of which are baby boomers) are in danger of going broke in their retirement years.  That’s bad news.  But it’s great for real estate entrepreneurs!

Once again, as we watch the horizon, we see waves of opportunity forming.  Do YOU see them?

Think about it.  Tens of millions of people in danger of going broke in their retirement years.  These will be seniors with social security checks.  It isn’t much income, but it’s consistent.  At least that’s the promise from Uncle Sam.

So their lifestyle will be taking a substantial dip.  Some are sitting in homes that are paid for.  Some are sitting on big fat mortgages.  Some are renting in nice areas.  All will need to do something to decrease expenses and increase their income.

Can you help them?

A few weeks back we did a radio show on reverse mortgages.  This is one of the few remaining tools available to reposition idle equity and put it to work.   The cash flow arbitrage is easy because there’s no payment required.  Better yet, there’s no danger of foreclosure.  Seniors with equity could make great investment partners to acquire cash flow real estate, which, conveniently, is readily available into today’s low price, low interest rate market – an attractive, but historically rare combination!

(By the way, we’re writing a free report on reverse mortgages, so if you haven’t already requested it, just go the feedback page and send us your request.)

We also recently blogged about the notion of buying homes via short sale from homeowners who are facing foreclosure because they can’t afford to make the high payments.  If you missed it, look it up.  Couldn’t similar strategies be employed with seniors?  We think so.  When you can help someone stay in their home for a lower payment, that’s a good thing!

Now hold on because our brains are flying around at light speed.  And rather than write a manual on how to do all this, we’ll just ask some questions to guide your thought processes.

If you think that several million seniors will be looking to cash out of their homes and rent, what areas and neighborhoods would they be interested in?   Think about weather, taxes, and proximity to medical care and airports (so they can easily go back home to visit friends and family).  What major population centers will they be moving from?  What are their options for more affordable areas nearby?

What about property types?  Think about floor plans.  Do they need lots of bedrooms or just a couple?  Do they need storage for all the stuff they’ve collected over their lifetimes?  What about stairs?

Here’s our recurring theme: Problems are opportunities when you look at them in light of available resources.   Most people get brain lock when facing problems, even though there are all kinds of resources available to turn problems into profits.  Don’t let this happen to you!   You won’t want to look back on this time in history and say, “I missed it.  If I only knew then what I know now!”   Trust us, you don’t want to “shoulda” all over yourself!  It stinks.

Lastly, we don’t understand why so many people cap on Kiyosaki when he posts his articles.  We’re betting these people have never spent any time with the guy.  Or they work for the people he rips.  In any case, if you haven’t figured it out already, we think he’s brilliant more often than not.  We look for every opportunity to spend time with him and the people he surrounds himself with.  You don’t have to agree with everything, but it will sure stimulate your thinking!  Which is the same reason we do our radio shows and post these blogs.

The key to turning this economy around is for people to be informed, think, make good decisions and take bold action.  The people who do it first will win the biggest. Why not you?

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Don’t Be So Negative! Just Change Your Perspective

If you’re left brained (logical), we probably already lost you at the headline.  But this isn’t a blog on positive thinking (not that we have anything against that).  We’re talking about negative equity and how it gets measured.  More importantly, where are the opportunities?

Just before Thanksgiving, the Wall Street Journal ran a headline that “One in Four Homeowners are Underwater.”  This isn’t because California slid into the ocean, but is one of the lingering effects of the mortgage meltdown that began over three years ago.

The article says that 10.7 million households had negative equity (about 23% of all households) according to research firm First American Core Logic.  Nearly half of those, or 5.3 million households, owe at least 20% more than the current value.  And nearly 10% of those (520,000) had already received Notices of Default.  An even more telling statistic came up later in the article, when the Mortgage Bankers Association was cited as stating that 7.5 million households are 30 days or more late on their mortgage payments.

What we think is interesting is that 24 million households, which would be about 50% of all households, have NO mortgage.  Therefore, they have equity!  But just because they aren’t in imminent danger of losing their property doesn’t mean they didn’t suffer loss.  If your property went from a fair market value of $500,000 down to $250,000, then you lost $250,000 of net worth.   Last time we looked, that’s bad.  Especially if you were counting on using that equity, through a reverse mortgage or moving to a less expensive area, to help fund a chunk of your retirement.

Of greater interest is one line buried in the middle of the article which said that First American Core Logic had changed its methodology for calculating these numbers and “using the old methodology, the portion of underwater borrowers would have increased to 33.8%”.  Wow!  That’s 1 in 3.   Think about that.  Go outside and look up and down your street and count every third house.  Underwater!

Of course, it doesn’t really work that way.  There are certain areas that are more underwater than others.  We’ve been talking a lot about Dallas lately.  This is a market that didn’t lose value anywhere near as much as say, Phoenix or Las Vegas.  In fact, according to the Wall Street Journal, citing First American, homeowners in Nevada, Arizona, Florida and California are more likely to be underwater.  Funny, but weren’t those once the hottest appreciating markets?

So what does all this mean?

Well, our headline had double meaning.  Obviously, changing the methodology for generating the statistics resulted in a report of 23% of households underwater, instead of the nearly 34% under the old methodology.  If you’re watching trends, this might mislead you.   Lesson: Always be sure to dig a little deeper when relying upon statistics.

The bigger lesson is that one person’s problem is another person’s opportunity – and not necessarily in an opportunistic way.   In other words, someone doesn’t have to lose (worse than they would anyway) for you to win.

If you’re a regular listener of the show, maybe you’re already picking up on where this is going.  Obviously, we see a lot of opportunity in a landscape covered with problems.  Problems are every entrepreneurs dream!

With 7.5 million people behind on their mortgages and millions of those with negative equity, they can’t refinance or execute a traditional sale to get relief.   Millions have negative equity of over 20%, so they don’t qualify for the government sponsored loan modifications.  And according to this same Wall Street Journal article we’ve been discussing, Sanjiv Das, head of TARP recipient Citigroup’s mortgage unit, mortgage companies are reluctant to reduce mortgage principal over worries about “moral contagion, with people not paying their mortgage or re-defaulting because they believe the bank would reduce their principal.”

So banks won’t modify.   Homeowners can’t refinance or sell for enough to pay off the loan.  Problem, problem, problem!

But what would it look like if an astute investor were able to buy the home on a short sale, taking advantage of today’s fabulously low interest rates, and then rented the house to the former homeowner for a payment that the now tenant could afford?

You could even go one step further and provide a lease option to the former homeowner, with a price point designed to make you (the investor) a nice profit, even through the re-purchase price would look like a bargain to the former homeowner.  It’s still less than their original mortgage (which was paid short when you bought the property).  Do you think the former homeowner turned tenant would be willing to pay a little bit more than market rent to stay in their home knowing they have an option to get it back?  Do you think they would take better care of the property than the average tenant?  Do you think they are more likely to stay long term, thus reducing your exposure to vacancy and turnover expense?

Put yourself in the position of every party in such a transaction.  Are there positives for everyone?  Eveyone’s situation is improved.  Win-win-win.  We  like it!

This blog is already too long, so we’ll leave you a homework assignment.  Especially, it you’re sitting there thinking to yourself, “Great, but I can’t afford to do anything.”  Go listen to our show on reverse mortgages.  Then look for the stats in this blog.  Then go outside and count the houses.  Do the math.

We get giddy when we think of all the opportunity in today’s market.  But of course, it’s all a matter of perspective.

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11/22/09: Where to Invest – Market Analysis in the New Economy

It’s almost unfair to call this a “new” economy, since the rules to real estate investing abruptly changed over 3 years ago.  But since the mortgage meltdown in the United States trickled down and around (making a large, sticky mess), its ramifications are still manifesting.  Just like when a football team gets a new coach (analogy for Russ) or a band gets a new guitarist (analogy for Robert), it takes some time to “gel”. If you’re not “gellin'” with the new rules of real estate, then this show is for you!

Robert arrived in the studio for today’s broadcast after 3 weeks, 30 flights and over 30,000 miles of flight time!  From his international travels, he brought back a few souvenirs, lots of pictures and several valuable perspectives on market analysis in the new economy.

In the cockpit for today’s show:

  • Your Pilot, Robert Helms
  • Co-Pilot and Financial Strategist Russell Gray
  • Navigator and Godfather of Real Estate, Bob Helms

We kicked off the show discussing the importance of market selection in the wake of the mortgage meltdown.  With so many areas having suffered steep declines in values, its tempting to go in an scoop up “deals”.  But if all the the gas isn’t out of that particular market yet, as good as the deal might look, you just might be catching a falling knife!  Robert shared the 5 Key Indicators he looks at when evaluating the potential of a market.

While the 5 Key Indicators aren’t necessarily something new, the ability of the average investor to leverage technology to access information certainly is.  Robert shared specific instances from his recent travels where he watched investors do in mere minutes what once took many days to accomplish.  And even though there are lots of deals out there because the economy is soft, the best deals will always go to the investor who is able to act quickly.

Another interesting discussion topic revolved around the idea of allowing the loan tail to wag the deal dog.  In the days of easy money, it wasn’t like this.  In today’s more conservative lending environment, especially in anything besides residential 1-4 units in the US, understanding how financing affects both your entrance and exit is crucial.

Of course, with Bob along for the ride, the young bucks were reminded that this “new” economy, while certainly with some 21st century twists, is still something for which the lessons learned over six decades of investing still apply.  One thing that never changes is the importance of actually visiting the markets you hope to invest in.

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Home Construction Slows – Good or Bad?

The AP headline this morning says “Stock Market Slumps as Home Construction Slows”.  Oh no!  We can hear the pitter patter of mutual fund investors’ feet running to their computers to check the damage to their 401k.

Funny, but when we look at our computer, we see interest rates on 30 year fixed mortgages back under 5%.  Even jumbos are under 6%!  Meanwhile, gold, oil, car prices and CPI (Consumer Price Index) are all up.  (Hint: those are signs of inflation).

When you put all that in the blender, what do you get?  Well, it depends on what color glasses you’re wearing. (Too many metaphors? Sorry.)

Here’s the deal plain and simple: In the US, home and apartment construction is not growing as fast as the population.  Rents are not falling as fast as prices.  Interest rates are ridiculously low.  Toss in gobs of people unemployed, which means they’re missing payments and wrecking their credit.  They won’t be able to buy a home for awhile, so if they can’t keep the one they have, they will be renting.

So what do we have?

• A growing population and influx of people going from homeowner to renter means more demand for residential rentals.

• Less new apartments and homes coming on line mean less supply.

• More competition for fewer rental units means upward pressure on rents, in spite of a weak job market.  Why?  Because people need a place to live.  Next to food, it’s pretty high on most people’s priority list.

• Low interest rates means if you or your investment partners are credit worthy, you can get great (i.e., low) long term interest rates on loans just before what many believe will be an inflationary cycle.  Inflation means anyone in debt will win as the value of the dollar falls.  This is why China is a little miffed at Uncle Sam.   China holds a lot (if you think a trillion is a lot) of US debt and are concerned about a falling dollar.

• Low interest rates also mean lower payments.  Lower payments make it easier to get a property to cash flow without 80% down.  To quote from that fabulous book Equity Happens, “Cash flow controls mortgages. Mortgages control properties. Properties will make you wealthy over time.”  This is true with or without inflation (i.e., appreciation), because you are using the tenant’s money to pay off the loan.   No other investment lets you do that.

Additional opportunities exist for the extra ambitious.  We call it finding and forcing equity.  How?  With less new units coming on line and many banks and overextended owners letting their properties fall into disrepair, there are opportunities to buy someone else’s problem cheap.   Then, fix it up, rent it out and wait.  If things go your way, you may be able to refinance to get your original investment out – and now you’re in for free.  Kiyosaki calls this “infinite return”.  We like it.

Of course, it’s not all rosy.  Unemployment is still a concern.   And financing (especially refinancing) is harder to qualify for.  But, if it were easy, then everyone would do it and there wouldn’t be opportunity.  Hey, wait a minute.  It’s easy to buy mutual funds, isn’t it?  And everyone does it, don’t they?  Hmmmmm…..

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11/15/09: Is Gold All that Glitters? Exploring the Relationship Between Debt, Dollars, Gold and Real Estate with Special Guest Mike Maloney

It’s hard not to be impressed with the growth of gold over the last several years.  But did you know that there’s a relationship between gold and real estate prices?   On this broadcast, The Real Estate Guys explore the relationship between debt, dollars, gold and real estate!

Sitting behind the golden microphones for this episode:

  • Host, Robert Helms
  • Co-Host and Financial Strategist, Russell Gray
  • The Goldfather of Real Estate, Mr. Bob Helms
  • Rich Dad’s Gold Advisor, Mike Maloney

In the wake of a weakening dollar, gold has been breaking records.  But what does that really mean for your real estate, mortgages and cash reserves?  We start the show with a discussion of inflation and what causes it.  Readers of Equity Happens know that when the money supply increases faster than the supply of goods and services, price inflation occurs.  Mike Maloney gives us a very interesting historical perspective while clarifying the important differences between money and currency.

Like Russ, Mike Maloney is a guy that likes charts and graphs.  He is also a student of history.  He tells us what “fiat” currency is and what it’s track record is.  You do not want to miss this!

Mike also explains the relationship between gold and real estate prices.  He says historical patterns exist and they can provide valuable insight into the future.  If you want to make profits, you need to figure out where and which way the money is flowing.  If you’re on the wrong end of the move, you lose.  Get it right and you win big.  But what happens if you decide not to play?  Is your money really safe in the bank?

Another fascinating discussion revolves around the “base” money supply and why real estate prices have fallen even though the money supply has grown.  Does this mean real estate is “over” or is this a lull before a new wave of appreciation?  Mike tells us what he thinks and why.

As we’ve said for quite some time now, the rules of the game have changed.  But a bend in the road is not the end of the road unless you fail to make the turn.  Tune in to this golden opportunity to pick up some nuggets of wisdom from Rich Dad Gold Advisor Mike Maloney.

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Part 2: Report from the National Association of Realtors Conference

Russ again.  Robert’s still in Belize.  I’m not jealous.  I like wearing sweaters and breathing artificially heated air.  And who doesn’t enjoy sitting in traffic?  White sand beaches, tropical drinks, warm sunny weather are all overrated.

But I’m here to talk about NAR and my three days in San Diego (which was also quite beautiful by the way).

First, the conference was huge. Lots of people, exhibitors, speakers, classes and networking.  The internet will never replace the value of meeting people face to face – or the quality of learning that occurs when you’re in a session without any other distractions.  I had a great time!

The mood was generally upbeat. The real estate industry is still tough, but Realtors exemplify the best of the spirit of American entrepreneurship.  The ship took a turn and most of the weaker players fell off the boat.  Those who remain are developing solutions and charging off into the marketplace to sell them.  This is very good for economic recovery.

Many exhibitors had offerings which focus on short sales and REO opportunities – an obviously large and growing segment of the industry.  Training, products and services to support Realtors who work or want to work with distressed owners, be they individuals or banks, will surely help the market work through this downturn and a return to normalcy.  I also think that the infrastructure to process the next wave (yes, there is another wave coming) of defaulting loans will help lessen the pain.  In other words, the real estate community is now better equipped to react to the problems caused when properties fall into foreclosure.

Another big focus at this year’s conference was on opportunities in international real estate.   In a presentation I attended, Economist Paul Brewbacker of TZ Economics told Realtors to “expect more cross border transactions in the future.”

NAR also had a dedicated International and Resort Home Pavilion on the tradeshow floor.  I attended several networking sessions where agents from all over the world met their counterparts from Asian, Europe, Latin America, the Caribbean and elsewhere.  I was excited to meet the President Elect of the Belize Realtor Association.

I also attended a very informative (I took many pages of copious notes) session on how Realtors can effectively market properties globally.  This includes selling US properties to foreign buyers and vice versa.  Technology plays a big role. It was enlightening to see the creative ways Realtors are marrying high tech with high touch to help buyers and sellers work effectively across borders.

I was also very impressed with how much support NAR provides its members in terms of educational resources and statistical data. They are really working hard to develop an understanding of what it is their customers are looking for in a very different economy.

I learned about some of the new professional designations NAR has developed to better service specific niche markets such a eco-conscience buyers, seniors, and buyer of international and resort properties.  Look for The Real Estate Guys to interview some NAR officials on these topics in the not too distant future.

As a keen observer of the real estate industry, I came away from the conference feeling optimistic about the future.  Not because of hype.  I didn’t actually hear too much of that.  But because I saw an industry that has adapted and is no longer reacting to the market and economy, but in a position to lead.  This is very good because the first thing necessary in a turn around, whether its sports team, a company or an industry is practical leadership with real solutions that work at the street level.

For the economy to thrive, each individual needs to thrive.  Flowery speeches, conceptual solutions and lofty promises are fine for politics.  But all the work is in the trenches.  When I talked to the people in the trenches, I got the feeling they aren’t afraid anymore.  They know there’s still a lot of work to do, but they’re ready to go.  I think this is good for the economy and for real estate.

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Part 1: Report from the National Association of Realtors Conference

This is Russ. I just got back from 3 days in beautiful San Diego where I attended the NAR Annual Conference.  Robert drew the short stick and had to go to Belize to handle some business. Poor guy.

In case you don’t know, the National Association of Realtors is the world’s largest trade association, boasting well over a million members. Pretty good for an industry that’s been at the epicenter of the “world financial crisis”.

I noticed the AP reported on FHA Commissioner David Stevens’ speech at NAR.  They said that Stevens told the Realtors “that concerns the agency is headed for the same financial trouble that snared Fannie Mae, Freddie Mac and the subprime sector are unwarranted.”

Really?

I didn’t hear the speech because I was more interested in what people on the front lines were thinking and feeling about the market.  Besides, we’d already commented on our observations about FHA in two previous blog posts: Are We Going to Lose our Fannie? and Hey FHA! Your Fannie is Showing. You can find those in the Clues in the News category.

Why should you care about FHA? As quoted in the AP article, Stevens said it best, “Without FHA there would be no (housing) market, and this economy’s recovery would be significantly slower.”

The surest sign there’s trouble is when a bureaucrat comes out and tells your there isn’t  (“Pay no attention to that man behind the curtain!” ).  Especially when all evidence says there is.  It’s even worse, when the “no problem” evidence provided is (again, from the AP article), “the agency has $31 billion in capital – $3.5 billion more than it had a year ago.”  But (and it’s a big one), how does that compare to the number of loans insured?  The AP article says that FHA has insured nearly a quarter of ALL new home loans made this year.

Consider these recent FHA related reports:

11/10/09 MiamiHerald.com – “FHA moves to boost condo market – The FHA recently announced more lenient, albeit temporary, underwriting guidelines for condo projects”

11/12/09 DSNews.com (reports to the mortgage default servicing industry) – “The FHA told Congress and reporters Thursday that its cash reserve fund had deteriorated to $3.6 billion – the lowest it’s been in the agency’s 75 year history.”

11/13/09 Wall Street Journal – “The FHA’s Bailout Warning – Whoops, there it is. – Critics of Fannie Mae & Freddie Mac were waved off as cranks and assured that the companies would not need a taxpayer bailout right up until the moment that they did.”

11/14/09 AP – “FHA Boss: FHA is not the new subprime” (this is the article written at the NAR conference that I opened up talking about). Hmmmm……I’m having déjà vue all over again…again.

Not to be redundant (okay, maybe a little redundant), but Supply and Demand only work when there is capacity to pay.  If 100 people are starving and there’s only 1 Big Mac for sale, one would think that the price would get bid up, right?  But that assumes (dangerous word) that those people have the capacity to pay. If they don’t, the price won’t rise.

The lesson?  Stevens is right (for now) that FHA money is a BIG part of housing.  If it goes away or is tightened, then there will likely be a dip in prices as less people can compete for available properties.  Does that mean stay away?  Not necessarily.

Eventually, private money (and there’s lots of it!) will make its way back into mortgages. Why? Because it’s profitable and real estate is real and the demand for it is forever. But until the sands stop shifting, private money will stay away. It’s no fun to play a game when the rules keep changing. As long as private lenders think they will have to compete against government (taxpayer) subsidized non-profit lenders, and/or that legislators will impede or negate their rights to recourse under the contract (i.e., stop a foreclosure or force a modification), then private money is going to stay away.

And who can blame them? But, (oops, my opinion is showing), even though all this government tinkering is designed to lessen the pain (ironically caused by government tinkering), it will also prolong it.  But I guess private money is coming to the rescue one way or the other, since taxes take private money and funnel it into housing through the government via bailouts.  Not my first choice, but that’s the way its working right now.

For joe schmo investors like us, bread and butter properties in highly populated markets with good transportation, education and economic infrastructure still make sense – as long as they cash flow and you’ve got reserves to allow you to own for 10-20 years.  Because when private money does come back and is added to all the new money we’ve added through stimulus, it’s very conceivable that prices will go up.  But if you have positive cash flow, amortization (pay down of today’s cheap loans over time), and tax breaks, you will still look good in 20 years.  And who doesn’t want to look good in 20 years?

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Is Gold All that Glitters?

The AP reports that gold hit an all time high of $1,118 per ounce today. Do you understand why?  Do you REALLY understand?  And what does gold have to do with real estate (besides that you dig gold out of the ground)?

Great questions!

Gold’s rise is a prime refection of a falling dollar.  Why?  Because when the dollar “falls”, it takes more dollars to buy anything that’s real.  It’s called inflation.  Supply and demand play a factor, so just because the dollar falls, doesn’t mean that gold is going to respond immediately and proportionately.  But in general terms, a falling dollar means inflation of things that are real.  Things like gold, oil and real estate.  Typically, gold really takes off when people are nervous about the dollar.  So take that for what it’s worth.

The Real Estate Guys don’t claim to be experts at gold, but it’s something we’re very interested in.  We watch the demand for gold, oil and treasuries because they give us insight into where cash is moving.  When cash moves into real estate or mortgages, then it helps push real estate values up and equity happens.  Do you see the connection?

Russ just got back from the Rich Dad Art of a Deal conference with Robert Kiyosaki. Rich Dad Gold Advisor Mike Maloney was there and we invited him to be on The Real Estate Guys show.  We figure it he’s smart enough for Mr. Kiyosaki, we’re interested in talking to him.  We want to pick his brains on your behalf and find out what he thinks about the movement of cash and its effect on real estate.  Sound interesting?  Then stay tuned to The Real Estate Guys!  To make sure you don’t miss an episode, subscribe to our free podcast.  And while you’re at it, sign up for the newsletter – and tell a friend.  When you help us grow the audience, we are able to continue to bring you quality guests and programming.  Thanks!

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11/8/09: What the HECM? The Realities and Risks of Reverse Mortgages

No, that’s not a typo.  HECM stands for Home Equity Conversion Mortgage, the FHA brand of reverse mortgages.

“What the HECM is a reverse mortgage and what the HECM does a real estate investor care about them?” you may ask.  Well, that’s what today’s show is all about!

Sitting backwards in their chairs for today’s episode:

  • Host, Robert Helms
  • Co-Host and Financial Strategist, Russell Gray
  • The Godfather of Real Estate, Bob Helms
  • Certified Mortgage Planner and Reverse Mortgage Expert, Mark Soto

Consistent with The Real Estate Guys’ policy of “No Listener Left Behind”, we open the show explaining the basics of what a reverse mortgage actually is and how it works.  They sound simple, but when you have bankers, lawyers and politicians involved, simple goes out the window!  Plus, today’s products aren’t your parents’ reverse mortgages – well, actually they may be (depending on how old your parents are), but the point is that the product has changed a lot since it was first introduced.  Mark Soto brings us up to speed on the state of the art.

Mark explains who qualifies and the various options for getting cash, cash flow or credit. One very important discussion topic is the role of FHA insurance. We also take the time to deal with several of the many misconceptions about reverse mortgages and how this product fits into our “new” economic landscape.

The Real Estate Guys really enjoyed the real life stories Mark shares about how his clients have used reverse mortgages creatively.  As real estate investors, we’re most interested in how to use any tool in our toolbox to make a profit, improve cash flow, avoid taxes and protect assets. We wrap the show up by delving into these hot topics.

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Are We Going to Lose our Fannie?

Sorry.  Can’t help all the Fannie puns.  They’re just too good not to use.

Today the Associated Press published a report “Fannie Mae seeks $15 Billion in US Aid after 3Q Loss”.   In case you’re keeping score, Fannie and her brother Freddie Mac have gobbled up about $111,000,000,000 ( we showed you all the zeroes for dramatic effect) in the last 14 months since regulators seized them.

“So what?” you may ask.  “I’m just a small time investor trying to find a property that will cash flow.”  Great!  You’re in luck because there’s lots of those out there right now.  That’s one of the big benefits of this recession.  Great properties are on sale.

But when you read the AP article, you’ll see they quoted “Fannie Mae” herself as saying, “There is significant uncertainty regarding the future of our business, including whether we will continue to exist, and we expect this uncertainty to continue.”

Wow! Where did THAT come from?  We went digging and found it actually came from page 20 of the 10-Q (you’re welcome…sorry, another stupid pun) Fannie filed with the SEC.  You can find it on Fannie’s web site.  It’s 241 pages.  In case you don’t know, companies issue press releases and say how wonderful everything is, then they file the 10-Q with the SEC in which they need to be much more straight forward.

You may recall it wasn’t too long ago that the now-former Fannie Mae executive team was telling us, “Liquidity problem? What liquidity problem?”  Obviously, Fannie Mae is in trouble today.

Again, so what?

Remember, appreciation is a product of supply, demand and capacity to pay.  In terms of housing in the US, we have builders slowing way down while our population continues to grow.  Last time we looked, people like to sleep under a roof, so we’re guessing that demand is persistent and growing.  The big monkey wrench is capacity to pay.  People without jobs don’t have much capacity to pay.  People whose credit was ruined while they were out of work or who decided to sacrifice their credit to get out of a bad loan can’t really borrow right now.  For the remainder of buyers, Congress is extending a first time home buyer’s tax credit.  Somewhat helpful, but not the big horse that’s been pulling the cart down the road.

As we’ve been commenting on for some time, most of the lending going on is through Fannie, Freddie and FHA.  To the extent that there is capacity to pay in the market right now, it is largely propped up by these three.  If they go away, then what?

In the short term, prices would likely drop. Why?  Less loans mean less buyers.  Duh. In the long term, new players would step in to fill the void.  How do we know?  In a capitalistic society, no problem lingers in the market place for too long before some “greedy” entrepreneur figures out how to solve it for a fee.  Ironically, the thing that keeps many of these “saviors” on the sidelines is they don’t want to compete with the government, who seems to take pride in driving the profit out of everything to “help” people, right up until the private sector collapses.

Oops. Our opinion is showing.

You don’t have to agree.  This isn’t even a matter of how it should be.  It’s simply a matter of how it is and what are you going to do about it.

For now, prices are good relative to cash flows.  Loans are cheap and readily available if you (or your investment partners) have good credit and documentable income.   We think the argument could be made it would be a good time to buy, but plan to hold for 10 years or more .  Remember, the key to control is cash flow.

If Fannie  goes away, we’ll wish we got those good loans when they were here.  An investor can never get enough cheap money.

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