Whether you turn on the news or open the newspaper, it's clear there is an ever growing deterioration in the mortgage industry. Fannie Mae and Freddie Mac have been taken over and bailed out by our government. On Friday, WAMU or Washington Mutual became the largest thrift bank to fail in United States history. Remember, IndyMac Bancorp was recently seized by the FDIC and OTS a few months ago, and it was considered one of the biggest bank failures in U.S. history. WAMU, like IndyMac, did not have a problem with being well capitalized but rather they suffered a blow to liquidity after depositors withdrew BILLIONS in deposits in fear the banks would not be able to weather the financial storm.
I've talked about Fear and the damage it causes at length in my blogs, and it's clear it has reared it's ugly head again. A run on the bank, as seen with WAMU, is only considered prudent if you have amounts in excess of $100,000 that would not be covered by FDIC insurance. Depositors with $100,000 or less are fully insured by the FDIC and are not at all at risk of losing a dime. This ignorance of the deposit protection offered by the FDIC has again led to liquidity squeezes that no bank, regardless of size, can bear. Even Investment Banks like Bear Sterns and Lehman Brothers have collapsed as a result of panic withdrawal of funds.
Real Estate Investors Beware. The rules are changing as you read this sentence. If you intend to take advantage of short sales and foreclosures, know that the government is passing a $700 billion bailout for the banks to supposedly unfreeze the credit markets. You and I, the tax payers, have just been hit in the gut again by what is turning out to be a very socialist style of governing. The free market place which allows you and I to invest at prices the market will bear is about to be replaced with pricing the government feels is "fair". This basically means our government is going to buy up all of the wholesale properties from the bank's books with absolutely no other competition, at tax payers' expense. You, the real estate investor, will now have to buy at much higher prices because our government is now the "middle man" with plans to get its cut off the top. I really question the government's interference with free market capitalism.
Suggestion... buy now if you're able. I really think the profit in buying low and selling high is going to be a one man show( our government ) in the near term. The novice real estate investor is going to face a more difficult investing climate with profit deterioration on the front end of the purchase of government owned properties. Deals are available NOW...go get them before our government does.
Sunday, September 28, 2008
Saturday, September 6, 2008
Keeping Up With The Jones' Can Have You Living In The Dog House
Investors, as well as homeowners and renters, should live beneath their means to truly enjoy financial freedom. The problem is, many individuals and families do not, and they eventually find themselves in severe debt.
Have you ever heard of the saying "Keeping up with Jones' " ? It simply means that someone is constantly purchasing material things of equal or greater value than their neighbors, friends, or family. For example, if the neighbor across the street adds a 20 foot deck to their backyard, the individual trying to keep pace with his neighbor will add a 30 foot deck to his backyard. They are more concerned with how others perceive them financially than how financially able they are to purchase such expenditures. This kind of behavior in individuals can have catastrophic results to their bank account.
Unfortunately, I know too many people who are trying to keep up with the "Jones' " with dire consequences. These are good people with lovely families and good intentions but unfortunately "debt" could care less how nice they are. Some are losing their homes, while others are being forced to liquidate many of the adult toys they've accumulated like motorcycles, Quads, boats, trailers, etc... Many have credit cards that are maxed out and very little savings to live on. You see, "keeping up with the Jones'" is a very short lived lifestyle offering only temporary feelings of grandeur.
To avoid the pitfalls of living above your means, here are several rules you should follow:
1) You should have no less than 6 months of cash reserves (living expenses) in the bank for emergency situations like an illness or loss of employment.
2) 1/4 of your income should be used to build the fore mentioned cash reserve.
3) If you have a monthly mortgage payment, it should not be more than 1/3 of your monthly household income including any impounds attached to the mortgage.
4) With the exception of a home, you should use cash for purchases or if you use a credit card, you should pay it off in full each month. If you can't pay for things you want in full, then be patient and wait until you've saved enough cash to make the purchase.
5) Create a monthly expenditure spreadsheet. When you see what you're spending each month, you'll become more sensitive to your spending habits.
6) Invest in assets not liabilities. Assets will make you money while liabilities will cost you money.
Have you ever heard of the saying "Keeping up with Jones' " ? It simply means that someone is constantly purchasing material things of equal or greater value than their neighbors, friends, or family. For example, if the neighbor across the street adds a 20 foot deck to their backyard, the individual trying to keep pace with his neighbor will add a 30 foot deck to his backyard. They are more concerned with how others perceive them financially than how financially able they are to purchase such expenditures. This kind of behavior in individuals can have catastrophic results to their bank account.
Unfortunately, I know too many people who are trying to keep up with the "Jones' " with dire consequences. These are good people with lovely families and good intentions but unfortunately "debt" could care less how nice they are. Some are losing their homes, while others are being forced to liquidate many of the adult toys they've accumulated like motorcycles, Quads, boats, trailers, etc... Many have credit cards that are maxed out and very little savings to live on. You see, "keeping up with the Jones'" is a very short lived lifestyle offering only temporary feelings of grandeur.
To avoid the pitfalls of living above your means, here are several rules you should follow:
1) You should have no less than 6 months of cash reserves (living expenses) in the bank for emergency situations like an illness or loss of employment.
2) 1/4 of your income should be used to build the fore mentioned cash reserve.
3) If you have a monthly mortgage payment, it should not be more than 1/3 of your monthly household income including any impounds attached to the mortgage.
4) With the exception of a home, you should use cash for purchases or if you use a credit card, you should pay it off in full each month. If you can't pay for things you want in full, then be patient and wait until you've saved enough cash to make the purchase.
5) Create a monthly expenditure spreadsheet. When you see what you're spending each month, you'll become more sensitive to your spending habits.
6) Invest in assets not liabilities. Assets will make you money while liabilities will cost you money.
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