The Fed released an additional TRILLION dollars in paper. Our dollar is losing value fast.

The Fed released an additional TRILLION dollars in paper. Our dollar is losing value fast.

 

A cautious sign from a few decades of poor spending habits.

 

Republicans, Democrats, and AMERICANS are responsible. The system is not responsible. It is a system; only as good and as effective as its society, standards, and government.

 

Capitalism isn’t a way of life; it too is a system, a way of governing business, structures, and markets. Capitalism cannot work in itself without participation, oversight and accountability. We have become a lazy people.

 

The simple fortune of your birth in America deserves nothing more than opportunity. Quit attaching ego, pride, and expectation to the word ’American’. It is just a word when action, sacrifice and responsibility are ignored.

 

Decades of frivolous materialism and poor choices in value, both personal and financial, have created this mess.

 

Stop spending your weeks engrossed in your sports fanaticism, reality television updates, and the weekly drama of choice in the news. Enjoy life, but take it more seriously.

 

Expect more from your children; quit coddling them. Life is difficult, prepare them, don’t protect them from life itself. Adapt, overcome, learn and grow, don’t hide and ignore the difficult decisions in life.

 

Expect more from yourself; never be complacent. There is always some way you can improve, always something you should strive to accomplish.

 

Make a difference. Participate, vote, and change. Be a part of the solution not the bickering.

 

Debate and argue; it isn’t rude, it’s necessary. Opinions are only as valuable as the research and calculation invested in them. You are not responsible for the insecurities of others. We do not live life to comfort the people who avoid discussion or fear intellectual analysis in the important matters of our society. The brain is a muscle; it should be stimulated and exercised like the body. Mental Aerobics.

 

We are not here to fulfill all of our desires and simply enjoy life. We have responsibilities as a species.  

 

Life answers are simple. We make them complicated.

 

I hope everyone learns to enjoy the fruit of knowledge, become intrigued in the art of debate, grow interested in the common principles we all share, exuberant in our quest to make a difference, and work together.

 

Be positive, be good, be meaningful, and be true. We have amazing potential.

In the words of Bert Oliva: Make it Happen!

 

By Marc “Tesla” Kelly

 

 

Tax Time- Write offs for Landlords

Well, Tax time came and investors were scrambling to make sure their Accountants were “investor friendly” and understood the strategy involved in their investments.

 

Make note, Repairs get deducted, Improvements are depreciated.

 

An example would be repairing some lose flooring, leaking faucets, etc. Obviously you improve your home by replacing items that are already functional. To safeguard yourself, try spreading your repairs over time, so they are not all lumped together. A good Property Management company can help a great deal, as a Management company deals in repairs for the purpose of renting a property.

 

 

Marc Tesla

House and Senate reach agreement on Housing Bill

NEWS FLASH
 
House and Senate reach agreement on Housing Bill
 
Tonight the House and Senate reached agreement on a massive housing bill that affects FHA, Fannie and Freddie, tax policy and many changes involving the housing market. The housing and mortgage crisis has caused Congress to combine these provisions into a bill exceeding 400 pages. The House will vote on the measure tomorrow, with the Senate to follow by next week. The White House has supported much of the measure but has criticized some components. Despite a prior veto threat, we expect the President will sign this bill, with final action before the August congressional recess. 
 
Here are the major components: 
 
1. FHA Changes 
Mortgage limits for high cost areas will be increased to $625,000 on a permanent basis (115% of the current conforming limit). 
 
 The FHA floor will go from 48% to 65% of the current conforming limit. This will put the new permanent floor at $271,000. 
 
Cash downpayment is set at 3.5%. 
 
The seller funded downpayment assistance program (DPA) will be terminated on September 30. 
 
The risk based premium established by HUD last week will be suspended on September 30. The ceiling on upfront premiums will go to 3%. 
 
2. Fannie and Freddie 
The conforming loan limit will be increased to 115% of area median up to $625,000.
 
The bill provides for a federal “backstop” for Fannie and Freddie which allows the Treasury to capitalize the companies by taking an equity stake. 
 
A new regulator with enhanced powers is created. 
 
The bill creates an affordable housing trust fund paid for by assessments on Fannie and Freddie to help prevent foreclosures and facilitate affordable housing 
 
3. FHA Rescue Fund
The bill creates a special FHA refinance program designed to allow the refinance into fixed rate FHA products of up to $300 billion in distressed mortgages. 
  
4. Licensing
Encourages a nation wide licensing and registry system for loan originators by setting minimum qualifications and assigning responsibility to HUD for establishing new rules for those states that do not enact licensing laws. 
 
5. Redevelopment of Foreclosed Properties 
Provides $4 billion in funds for local governments to purchase and redevelop foreclosed properties. 
  
6. Tax Incentives 
Establishes a range of housing incentives, including a first time homebuyer tax credit and expands the Low Income Housing Tax Credit.
 
There is a great deal of detail in this complex bill and we will update you as more information is available.

New Appraisal Guidelines Could Harm Industry

Freddie Mac has instituted new guidelines in the appraisal order process, to be put into effect in September 2008.   These new guidelines will prevent Mortgage Companies from ordering their own appraisals. The excessive manipulation of appraisal valuations from Loan Officers have created a distrust in the industry. Appraisers are pulled in every direction from a Loan Officers and Lenders, many times coercing the appraiser to “meet value” or make alterations sometimes not even in the appraisers field of expertise. Although there is great value in insuring an unbiased opinion in evaluations, I am concerned about the selection process by third parties.

AMCs or Appraisal Management Companies contract appraisers to complete their opinions of value at a sometimes much lower rate than they would normally see if dealing directly with the lender.  This “middle man” scenario will almost certainly cause appraisers to have to do more work for less money. As you can expect, many experienced, honest,  and qualified appraisers who charge a premium for their services will find that they can no longer compete financially with the newly licensed, inexperienced appraisers who are used to performing appraisals for lower rates.  The most frightening consequence of these new guidelines may be that the appraisal industry itself will suffer a “dumbing down” at precisely the time when it needs it’s most talented representatives.

Marc Tesla

Interviewing Your Real Estate Professional?

When we started our investment consulting, our forum of “Back to the Basics” involved the definition of a “Good Investment” and how the last decade scarred this business. For too long, people have diverted from in-depth planning in Real Estate. The last decade afforded too many novices the ability to get rich overnight, without any true competent knowledge or skill. Why does this matter? Because people watched this, talked about it, felt it and they knew they were “missing out”. They had to get on this train before it was too late.

There was only one strategy, one part of the plan after investing $500 in a book set from a real estate “guru”…..to buy real estate. Everyone sold a niche, a training regimen, a new way to operate. Nobody sold a true business plan. Let’s face it; this is a business and your real estate portfolio will only be as successful as you make it.

People go to college for years just to learn and graduate in a trade that often times won’t even become their career. So why do people invest in Real Estate and think it will be Easy? It isn’t easy, but it is simple. Simple, because by building a team of “true” professionals to advise you, you can avoid costly mistakes so prevalent in our market today. A team of professionals can cover every base you need. The real investment is in those relationships, how well you established them and why you chose them. If you chose them because they were a friend, a friend of a friend or someone sent some nice shiny postcard in the mail, you picked up the phone to call them and expected that would suffice; then you obviously didn’t really have a plan.

Would you hire an employee without truly finding out if they were the best person for the job or at least the most suitable for your cost? Would you go to your neighbor for medical advice, who decided to become a doctor overnight with wonderful intentions, a bright smile and no degree?

I don’t think that Length of Time in the business carries as much weight as is placed by people. Length of time can certainly be a great factor, but if these so called “experts” have been giving the wrong advice for years or have been doing the wrong thing, then their efforts most likely caused harm and misguidance to those seeking the fundamentals in real estate investing. I don’t think you can judge their nice credentials on the bottom of their business card or how friendly they greet you or how nice their website is. Credentials can show you they have invested their time to advance and have gained wisdom in business, which is important, but not paramount. A friendly person that has won you over isn’t the deciding factor, but certainly should be weighed as that same personality may make relationships that will benefit you, as a customer. Their fantastic website may bring them a tremendous amount of leads, including possibly you and that is commendable, but will it help you make the right investment?

In Real Estate as in any other field, some people just “get it” and some people don’t. Knowledge is very important and action is the difference. People need to understand the fundamentals of investment. The why, what, where and when? These days investing requires ten times the amount of credulity and calculation. So who is doing that for you? Who do you have that understands Real Estate Investing? Who is going to make sure you make the right investment?

In your investment relationships there has always been one person who stands out. One person who orchestrates all of the team and makes sure the message is in sync, one person who understands all aspects of investing and each profession that is part of the team. If this isn’t you, than whom do you have?

Right now, investment strategists, consultants and agents should be dissecting each investment and evaluating a financial plan based on your specific income, tax position, liquidity, risk tolerance and retirement. Each property should be required to meet our 15 Point In-Depth Investment Analysis. If your representation isn’t examining your future in every detail and calculation, then you need to consider a change.

By: Marc Tesla

 

  

 

 

 

Commercial Property Investment in ‘08

After record levels of growth, commercial real estate is facing a more challenging economic and investment environment than it has for several years. Despite the threat of recession, the U.S. economy can be resilient. Demographics are strong with solid population growth, and overall U.S. households are the wealthiest they have been in the country’s history, but job growth is a concern. The problems are America’s habit to “overspend”. Capital and financial markets are volatile, lower interest rates favors commercial investing.  

The lending crisis will gradually affect debt capital, which will force stricter lending guidelines which can effect resales. The second-tier properties may see larger cap rates as tenants re-evaluate their operating costs. The rental growth rate should be expected to decelerate and flatten out in some areas. Investors should take caution in highly leveraged purchases. Retail vacancy is up, with slower employment growth, rents should decrease in many areas.

Apartment complexes may see drastic changes as distressed condominiums compete for tenants. National Apartment markets were strong during 2007 as homebuyers faced lending challenges. Supply may begin to outpace demand as unsold homes and condominiums enter the market seeking income to offset unsold inventory. Demand should stay fairly steady throughout the year, but growth will likely slow as supply and demand reach equilibrium.

Commercial real estate has seen nothing but upside volatility for the past four years, and although it now is facing challenges, this asset class should hold its own as a solid investment. Make sure you are in the correct liquid position when purchasing, prepare yourself for monthly challenges.

Marc Tesla

The Truth about Simultaneous Closings “Double Closings”

This question has come from several investors lately, all confused about the many definitions and opinions of how to perform a Simultaneous Closing. I have seen the term used recently by note buyers explaining the use in the sale of a note during a double closing. The term has been used for about two decades defining the process of consecutive closings in the purchase and resale of a property. Normally, the process has been used to buy and sell a property without having the necessary cash for an actual purchase. Example: John has contractual control of a property by means of option or purchase agreement for a particular price. John does not have the funds to purchase himself or simply would prefer not to use his money, but has a buyer who does, giving John the option to control the transaction and profit without ever outlaying any funds. 

Why would you want a simultaneous closing? The main purpose is control. Many times, new investors will try an “assignment of contract” as the method to profit from a home they would like to “flip” or wholesale. The problem with an assignment is that everyone, the original seller, the new buyer and anyone else involved is familiar with all profit, details and parties to the transaction prior to close. Some Hard Money Lenders will also set limits on your profits when revealed through assignments. You can try to keep as much as possible away from each party, but at some point either before closing or at the closing table, the parties will know how much you have profited. Should this matter? You would think not, but people are susceptible to emotion. I have witnessed avid investors and many homeowners, no matter how happy they were at the inception of the “original” agreement in terms and price, once finding out that you are profiting off the transaction, are now considering how much they are “losing”. You know you have value, you know they were fine with the original agreement, you know without your experience, work and network; they would have never spoken or come to an agreement in the first place.

Common sense doesn’t always apply. The buyer will many times look at their property being worth “more” than what they sold it to you for, thereby feeling “ripped off” by your smooth sales pitch, even when they couldn’t sell it on their own for the same price. The new buyer, many times will see your profit and believe they could have purchased the property at a better bargain and now challenge their worth and their profit in relation to yours. They may calculate how much you made for what they consider “no real work” and that their portion is now unfair.

I have seen opinions in forums, yet none address the legal aspects. They write about some state laws or uncooperative title or attorney firms, but there are federal laws as well. The main issue is whether the simultaneous closing is disclosed to the lender. This is why so many wholesalers require cash or Hard Money Loans. Very few conventional lenders will allow you to use the funds from their mortgage in the resale for your purchase transaction. If this is not revealed to the lender, it may be considered fraudulent. The transactions are closed in reverse. When the transaction is recorded at the courthouse, there will be no indication of which closing happened first as the closings are not “time stamped”.

For more information on this topic, email marc@direct2invest.com.

By: Marc Tesla

 *any statements are opinions and we recommend you verify with professionally licensed individuals if you have any questions. 

“Is Green Here to Stay?”

It seems to be the popular trend these days. Everything and everyone is going green. It’s moving so fast that organizations and bureaucracies can’t keep up. In Real Estate, we should embrace anything we can do to better our environment. Besides, we are desperate for some “good press”.

It’s unfortunate that it takes surging utility prices to spark interest in conservation. It takes rising gas prices to realize that we must become self-sufficient. If Brazil could convert to “bio-fuel” through sugar cane “ethanol” within 3 years, then we certainly should be able to convert by 2028. There was a subtle move to force the “electric car” out of service. Will we finally learn?

I have always believed that the next stage of evolution should be “evolution of thought”. Our minds must expand beyond our technology. We don’t educate our children in the simplest abilities to promote evolved mind, body and spirit. We are in control and we have the responsibility to insure the future of our planet, for generations to come.

If a trend can be meaningful, put into practice, cooperate economically, and gain political support, then it’s possible. The true test is whether we allow it to thrive economically. We have a great start in tax incentives and government assistance, but we can’t just pay people to “go green”. We must create the foundation for this to be economically feasible and even profitable.

We have to increase demand in certain markets in order for product prices to decrease. We have to educate consumers on the savings in energy prices. We must adjust our appraisal and lending standards to valuate green advancements. We have to create a way to entice and reimburse proper recycling of all material that can be effectively reprocessed.

First, we must make the separation, transportation and recycling of building material profitable. We have to take the first proactive step in defining our principles. I remember in my youth, when I rode my bike around to all the neighbors’ houses collecting bottles and cans just so I could return them to the grocery store for a cash refund, financing my candy supply. In Oregon, there was a fee that was paid upon purchase of bottles and cans. You didn’t exactly pay to go green, but you were certainly fiscally motivated. You already paid for the material; you might as well get your investment back. I’m not saying that’s the simple solution with building material, but it certainly was a catalyst in responsible conservation. I find myself much less motivated as a consumer these days in states where the deposit/refund isn’t followed. Simple solutions can make a difference.

Hopefully America has learned from their aggressive spending habits of the last decade. When the economy is robust, driving forward in record paces, it’s easy to ignore savings and reasonable judgment in your spending habits. People weren’t saving as much, watching their monthly expenses, planning for the future. People will start to pay a great deal more attention to their futures. People will start to consider paying another $10,000 for a home if it saves them $200 each month in utilities. People will care when they can cut their expenses while promoting a positive change.

If we are to truly impact the market, we must have clarification and cooperation from the banking industry and the appraisal industry. If we do not have acceptable valuation methods for green advancements, then our developers will be forced to abandon the experiment. Banks and appraisers need to involve themselves in determining an appropriate way to adjust their vocabulary to meet the needs of the changing industry.

Unfortunately our society usually requires extreme conditions to promote a shift in reality. Maybe people will realize they can do more even if they don’t receive compensation. Maybe we’ll recognize we can live healthier, breath healthier, have less chemical substances in the air, live on less processed food and drive reasonable vehicles. Maybe we will become less materialistic and more humanistic. Maybe we’ll become better people, live better lives and do more for our society. Become active, more than just placing a catchy phrase on a bumper sticker. Maybe we can evolve.

  

Sincerely,

Marc Tesla