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Dr. Kalinda Rose Stevenson
If You Are Thinking About Buying Foreclosures, Ask Yourself This Question
Welcome back!
Are you thinking about buying foreclosed properties? If you are thinking about this, know that you are not alone. Anyone who has even the slightest interest in real estate investing is probably thinking the same thoughts.
All across the United States, and in other places around the world, property owners are losing their properties to foreclosure. Blame it on corrupt mortgage brokers, greedy bankers, and unqualified, irresponsible buyers, if you want. Whatever happened to cause foreclosure for any particular property owner, the harsh reality is that one person’s loss can be another person’s gain.
As foreclosed properties lie empty across the land, thousands of people see the potential for wealth in buying foreclosed properties.
And so, you are right to recognize that this is a time of tremendous opportunity to lay the foundation for wealth creation by buying foreclosures.
If you get out your calculator, you can get excited about the possibilities as you crunch your numbers. If you can buy some of these foreclosed properties at a fraction of their market value only a year or two ago, just think of how much money you will make when the market rebounds and prices go up—as they surely will, sooner or later.
While so many other potential buyers are too afraid or too broke to buy, or they can’t get credit to buy, you can scoop up prime properties at bargain basement prices.
How do you do this? If you have the cash, or if you have excellent credit , and if you can get a mortgage, or if you can get private funding, this is the ultimate buyer’s market. If you can hold the properties, while so many other owners are losing their properties to foreclosure, and if you can rent them to responsible tenants who pay the rent on time, you can use the rents to pay off your mortgages in a record time. By the time the markets rebound, and the market value of your properties climbs up again, in the next real estate boom, you can be the landlord of an empire of real estate holdings.
This vision is certainly possible, and will very probably turn into reality for at least some of the real estate investors who see the potential of thousands upon thousands of foreclosed properties.
But….before you begin to calculate your future profits, there is more to consider. Before you seriously consider buying any foreclosed property, ask yourself this question:
What are you going to do with any property after you buy it?
Expressed another way, the question is: What is your strategy for foreclosure properties?
A strategy is a plan to accomplish a particular result. Strategy always looks at the intended outcome.
Especially now, when there are so many foreclosed properties available in the marketplace, it is especially critical to understand clearly that a decision to buy property is never a complete plan. It is a tactic, rather than a strategy.
Consider the difference between a tactic and a strategy.
Tactics are about what to do, and how to do it. Strategy begins with the question: Why? Why are you going to do something?
When it comes to real estate investing, buying property is a tactic. It is never a complete strategy, because you have not clearly defined “why” you are buying the property. Buying real estate becomes more than a tactic and becomes part of a strategic plan when you know “why” you are buying the property, and what you intend to do with the property after you buy it.
In the boom years of real estate investing, much emphasis was placed on buying property. In my chapter on “No Money Limits Selling,” in my book, No Money Limits For Real Estate Investors, I made this observation.
One of the greatest deficiencies of real estate training targeted toward beginners is the emphasis on buying without equal attention to selling. I have heard too many gurus exhorting their students to go out and make a deal. And so people rush out, determined to make a deal—any deal—and end up making bad deals. No Money Limits for Real Estate Investors, page 74.
The common wisdom of the real estate boom era was: “You make your money when you buy.” Because market values were climbing so fast, and credit was so easy to get, investors often made a lot of money by buying property without having a clear plan of what they were going to do with the property after they bought it. In those heady days, investors could buy property and then decide if they wanted to use tactics such as “flipping,” “rehabbing,” and “lease options.” Even without clear strategies when they bought, many investors did very well.
These are different times. You can buy property well below prior market value, but that doesn’t mean you can easily turn around and make a profit using the same tactics that worked so well during the boom times.
The reason lies in one simple word, “if.” Did you notice all the “ifs” in this paragraph?
If you have the cash, or if you have excellent credit, and if you can get a mortgage, or if you can get private funding, this is the ultimate buyer’s market. If you can hold the properties, while so many other owners are losing their properties to foreclosure, and if you can rent them to responsible tenants who pay the rent on time, you can use the rents to pay off your mortgages in a record time. By the time the markets rebound, and the market value of your properties climbs up again, in the next real estate boom, you can be the landlord of an empire of real estate holdings.
But the list of “ifs”—and this isn’t even a complete list of “ifs”—is formidable at a time when mortgage lenders are doling out mortgages only to borrowers with excellent credit and substantial down payments. This is also a time when people who might buy or rent from you are not only losing their homes, they are also losing their jobs.
Even if you have the cash, credit, or financial partners to buy the property, this doesn’t mean that potential buyers or renters will be able to buy or rent your property. In addition, you will need to hold the property long enough for the market to turn around, which can be months or years. You will also need to be able to pay taxes, insurance, and maintenance. If you can’t do all of these things, you could very quickly find yourself in a position where you are facing foreclosure of your investment properties.
In all of this, I don’t mean to throw cold water on anyone’s plan to seize the wealth creation opportunity created by the foreclosure epidemic. My goal is to encourage you to start at a different place than the idea of buying foreclosures at bargain prices. Make sure that you have a strategic plan that includes both how you will buy the properties and what you intend to do with them after you buy them.
Dr. Kalinda Rose Stevenson
Discover the secret of making money in No Money Limits For Real Estate Investors, 2007 Best Books Award Winner in Business: Real Estate Category
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Why Real Estate Investing In Raw Land Is A Safe Strategy During The Recession
Real estate investing, for some people, has gone from a fast way to create wealth to a faster way to lose money. Do you wonder if there are any safe real estate investing options during the Great Recession?
A friend attended one of the best-known real estate investing seminars. She did what she was taught to do, and bought investment property. Her plan was to rent the properties, make profits, and generate wealth. This wealth-producing strategy has worked in good economic times and bad economic times. It worked especially well during the years when real estate values seemed to be on a never-ending climb to unprecedented heights.
Unfortunately, real estate prices can also go down. My friend bought rental properties when market values were at their peak, just as the “real estate bubble” was about to burst. The last time I talked with her, she told me that she had seven mortgages on rental properties and no tenants. She was broke. She was being sued by a contractor who worked on one of her investment properties. And her real estate agent turned out to be a crook. Her wealth-building dreams collapsed as her real estate investments turned into a nightmare.
Who knows how many times this story is being repeated right now? How many foreclosures, how many bankruptcies, how many broken dreams are the result of real estate strategies that worked so well during boom times, but left hopeful investors stuck with bad investments when property values started to drop?
So, do you give up entirely on real estate investing during this time of economic crisis? It’s a fact that great fortunes often start in the worse economic situations. Even now, when the news media tell us on a daily basis that these are the worst economic times since the Great Depression, it is important to remember that real estate investing still works, and still creates wealth. The important point is to know what you are doing, and to adjust for current conditions.
This leads to the question: What kind of real estate investing protects your nest egg and increases your wealth during the down cycles of real estate markets?
One of the safest real estate investments is raw land that is pre-development land. Even if prices are stagnant now, pre-development land will increase in value during the next real estate boom. How do you know that that there will be a next real estate boom? It is the nature of real estate to undergo up-and-down cycles. In addition, the population is increasing dramatically, and real estate development will continue to sprawl farther out from developed areas. This means that pre-developed land will be developed, sooner or later.
What are the advantages of buying raw land rather than developed properties, such as houses or apartments? One of the biggest advantages is that you are not going to rent out pre-development land to tenants. This means that you are not depending on income from rents. You don’t have to worry about evicting tenants who lost their jobs and stopped paying the rent.
If you have investment money you want to put to work, such as money in an IRA, but you don’t want the headaches and heartaches of dealing with rental properties, one of the best options right now is to put your money into well-chosen pre-development land.
Kalinda Rose Stevenson, Ph.D. invites you to attend a FREE webinar about investing in raw land, “How Strategic LandBanking Lets YOU Be Part Of The Great American Land Grab Right Now.” She is the author of No Money Limits For Real Estate Investors: Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance, National Best Books 2007 Awards Winner in Business: Real Estate Category and Finalist in Business: Personal Finance Category.
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The Freedom Equation
A Proven Process For True Success
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Does A $700 Billion Bailout For Banks Prevent Foreclosures For Homeowners?
The top item in the news in the last week has been the financial crisis facing the banks. Yesterday, Washington Mutual was seized by the FDIC. This is the largest bank failure in United States history. WaMu was then sold to JP Morgan Chase, to further consolidate the banking industry into a handful of giant banks.
“As the debate over a $700 billion bank bailout rages on in Washington, one of the nation’s largest banks – Washington Mutual Inc. – has collapsed under the weight of its enormous bad bets on the mortgage market.”
“The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift’s banking assets to JPMorgan Chase & Co. for $1.9 billion.”
“Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country’s history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.” Government seizes WaMu
Meanwhile, the debate continues in Washington about a $700 billion bailout for the banking industry to buy up bad mortgages. One of the issues at debate is whether homeowners who are facing foreclosure because of bad mortgages will receive any part of the $700 billion.
In an outstanding article, “It’s The Empty Houses, Stupid,” Bob Sullivan asks the question why the government bailout is focusing on the banks that hold the bad mortgages and not the homeowners who cannot pay the bad mortgages.
“In case anyone has forgotten the core of the current economic crisis, here’s a reminder: empty homes, both present and future. Empty homes are behind all the supposedly worthless mortgage-backed securities that no one wants to buy on Wall Street. Fear of the coming avalanche of empty homes — what the Center for Responsible Lending calls the “tsunami of foreclosures” — has made Wall Street’s mortgage-related paper nearly worthless.”
“It seems that filling those empty homes by dealing with foreclosures and stoking demand to buy homes should be the first order of business. So why — as we discuss the most dramatic government intervention in nearly a century — is there only passing mention of all these vacancies?” It’s the empty houses, stupid
Sullivan makes the point that there are two interlinked crises. The liquidity crisis affecting the banks and the housing crisis affecting homeowners. At this point, it seems as if the bailout will benefit the banks, but homeowners are on their own. He cites bankruptcy experts and consumer advocates who make the case that the simplest and fairest solution would be to amend bankruptcy law, to allow bankruptcy judges authority to modify mortgages, as they can modify payments for other types of loans.
“‘This was kind of a game of chicken and I’m afraid it looks like the consumer advocates in Congress are the ones who blinked,’ said Adam J. Levitin, a bankruptcy expert at the Georgetown University Law Center.”
“Details of the not-quite-completed-bailout-plan are still emerging, but by all accounts it will not include the most obvious and direct tool to stem the empty house problem: adjustments to bankruptcy law that would allow judges to modify the mortgages of at-risk homeowners.” It’s the empty houses, stupid
But as the current negotiations stand, there is no provision for homeowners facing foreclosure to receive any direct help from the massive government bailout for the big banks.
The simplest way to prevent the coming avalanche of additional empty homes — and thereby make those asset-backed-securities have some real value — is to prevent people from getting kicked out. It’s stunning that $700 billion is about to change hands with no direct plan for keeping them in their homes. It’s the empty houses, stupid
Dr. Kalinda Rose Stevenson
Find out how the current mortgage crisis is a direct result of a banking system that allows banks to make money out of thin air in No Money Limits For Real Estate Investors at www.NoMoneyLimits.com.
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Using Leverage To Create Weapons Of Financial Mass Destruction
Leverage creates wealth. This has been the promise behind the real estate boom. Now that the boom has gone bust, what is the role of leverage in the current financial crisis?
Greed is blamed for much of the economic crisis currently facing us. But blaming greed misses the real point. Greed needs a mechanism—a tool—to put greed to work. This tool has been touted as the magic money-making tool. What is the tool? It is leverage.
Underneath all of the complicated terms, such as “derivatives,” “leveraged buyouts,” “financial instruments,” the fundamental tool that has led us to this point of crisis is misused leverage.
What is leverage anyway? Leverage is the result of the action of a lever. When properly positioned, a lever allows you to move something you could not move with your own strength.
“A simple machine consisting of a rigid bar pivoted on a fixed point and used to transmit force, as in raising or moving a weight at one end by pushing down on the other.” “Lever” http://www.answers.com/topic/lever
In finance, leverage is primarily the use of borrowed money to buy what you could not afford to buy with your own money.
The real estate boom has been fueled by leverage. This has been the great selling point for real estate investing. You can use leverage to buy real estate with little or none of your own money. In other words, you finance your real estate purchases with debt.
Leverage is the tool that rewards greed. With leverage—whatever form that leverage takes—you can buy more than you would be able to buy using your own money.
Leverage is a tool that can and does create profit. The real estate boom is a testimony to the effectiveness of leverage as a wealth creating tool.
“People used to build wealth through building equity in their homes. Today, people prefer to speculate on the price of their house by using historically high levels of leverage.” Richard Bernstein
So why are we in the current financial crisis? Underneath the crisis is a shared belief that values will keep going up. Robert Schiller makes this point in his book, Subprime Solution.
“In Shiller’s view, the biggest dangers in financial markets come from unanimity. In Subprime Solution, he argues that what united the missteps by the Federal Reserve, mortgage brokers, Wall Street bankers and home buyers that together brought on the current financial mess was a shared belief that house prices never go down.” “Crash Master” http://www.time.com/time/magazine/article/0,9171,1838756,00.html
This is the true irrational belief behind the financial mess. In reality, real estate prices are subject to cycles, and ups-and-downs. The old adage states: What goes up must come down. Nothing continues on a continual upward path indefinitely.
Yet, from the greatest investment banks on Wall Street, to novice real estate investors, many of us operated with the belief that real estate values would continue to go up, and that leveraging borrowed money was the smart way to make money fast.
As a result of this shared belief, many real estate investors and the bankers who financed their transactions, never saw the downside of using leverage as a tool to create wealth.
Think again of using a lever to move something. Leverage is inherently risky. Think of changing your tire. As long as your car is resting on four tires, it is stable. As soon as you lift up your car with a jack, you have created a potential danger. A car on a tire jack is no longer stable. The car can slip off the jack, and you can get hurt.
This is the downside of leverage. When you use leverage, you create a potentially dangerous object that can slip off the bar. Leverage lets you go higher than you could on your own, but it also means that you can come crashing down faster and lower than you would without the lever.
“In finance, leverage (or gearing) is using given resources in such a way that the potential positive or negative outcome is magnified and/or enhanced. It generally refers to using borrowed funds, or debt, so as to attempt to increase the returns to equity.” “Leverage” http://en.wikipedia.org/wiki/Leverage_(finance)
The fundamental reason that the big investment banks have failed is because they threw caution out of the window and relied on ever-increasing amounts of risky leverage. in simple terms, they used large amounts of borrowed money.
“Lehman’s fall shows the downside of using borrowed money. Even though Lehman has a 158-year-old name, it’s actually a 14-year-old company that was spun off by American Express in 1994. AmEx had gobbled it up 10 years earlier, and it wasn’t in prime shape when AmEx spat it out. To compensate for its relatively small size and skinny capital base, Lehman took risks that proved too large. To keep profits growing, Lehman borrowed huge sums relative to its size. Its debts were about 35 times its capital, far higher than its peer group’s ratio. And it plunged heavily into real estate ventures that cratered.”
“Here’s how leverage works in reverse. When things go well, as they did until last year, Lehman is immensely profitable. If you borrow 35 times your capital and those investments rise only 1%, you’ve made 35% on your money. If, however, things move against you – as they did with Lehman – a 1% or 2% drop in the value of your assets puts your future in doubt” in “How Financial Madness Overtook Wall Street” http://www.time.com/time/business/article/0,8599,1842123,00.html
The current economic mess is tremendously complicated, but the basic mechanism behind the crisis is leverage created by arcane financial instruments that few of us have any hope of understanding. The particular form of the leverage ranges from subprime mortgages, to derivatives with fancy names, such as “collateralized debt obligations” (CDOs) or “credit-default swaps” (CDSs)
In 2003, Warren Buffet called these derivatives “weapons of financial mass destruction.”
The reason that all of these leveraging tools worked so well for so long was because property values were going up. But when property values started to go down, these leveraging tools turned into the weapons of financial mass destruction that Buffet foresaw.
Dr. Kalinda Rose Stevenson
Do you know how banks make money out of thin air? Find out in No Money Limits For Real Estate Investors. And be sure to sign up for your Free “52 Heart Of Money Insights” at NoMoneyLimits.com.
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What’s Wrong With This Picture?
Turn on the news, and all you see is disaster. Floods, earthquakes, tornados, typhoons.
Meanwhile, prices at the supermarket are going through the roof.
And gas prices go up, up, up while the equity in your house goes down, down, down.
That assumes you still have a house after the bottom fell out of the real estate market from the subprime mortgage debacle and millions of homeowners have already lost their homes to foreclosure.
All of this is happening while politicians argue over who has the best strategy to restore hope and confidence to a population that is in a bad mood.
The Associated Press published an article today that claims:
“The can-do, bootstrap approach embedded in the American psyche is under assault. Eroding it is a dour powerlessness that is chipping away at the country’s sturdy conviction that destiny can be commanded with sheer courage and perseverance.” (Read the whole article at http://www.msnbc.msn.com/id/25311529/
So what do you do when times are tough and almost everyone you meet is in a bad mood?
Do you wait for the other shoe to drop? Are you really powerless to take control of your own freedom?
The solution is the same one that successful entrepreneurs have followed in good times and bad.
You follow the formula called “The Freedom Equation.”
This is a simple three-step formula that saved a real estate investor from financial ruin and made him a multimillionaire.
The formula is laid out in The Freedom Equation: A Proven Process For True Success.
The 3-Day Bonus Sale
Since “The Freedom Equation” is a three-step formula, I am offering the “3-Day Bonus Sale.”
In case you are thinking that you would love to invest, but you don’t have the money to do it, the solution is simple. Find a like-minded partner, and share your resources of time, money, energy, and talents.
How do you do that? The answer is laid out in Partner For Profits: Discover Why Partnerships with Like-Minded Real Estate Investors Can Give You More Deals, More Wealth, and More Fun Than Doing It Alone.
As a special bonus for taking quick action despite the gloom and doom, I am offering the 3-Day Bonus Sale which includes both The Freedom Equation and Partner For Profits.
Partner For Profits sells for $27. It’s FREE for the next three days when you buy The Freedom Equation at the regular price of $37.
The “3-Day Bonus Sale” ends at 8:00 P.M. (PDT) on Wednesday June 25, 2008.
Act now. Don’t believe that you are powerless to take charge of your own financial freedom.
Buy “The Freedom Equation” with FREE “Partner For Profits” Now
Go to The 3-Day Bonus Sale
Kalinda Rose Stevenson, PhD.
And don’t forget to sign up for your FREE “52 Heart Of Money Insights” at http://www.NoMoneyLimits.com
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The Real Deal on Real Estate Notes: There’s Money in Debt!
By Maria Fee
I spent a lot of time and money self educating to understand real estate. I wanted to understand how to better control my investments instead of handing over my hard-earned savings to financial advisors who are still working to make a living. I believe in diversification like so many advisors chant.
A few years ago I was just about to buy an 80-unit apartment complex. I ran my numbers, calculated my anticipated expenses and profits, made plans and knew what yield I should make from my 80-unit nest egg. What I did not plan for was a shooting that occurred on the property two weeks before I was scheduled to close on the property. That same night, 34 families moved out. Had I owned the property, I would have lost a lot of my anticipated yield for many, many months to come.
Regardless of my power planning, I would have little control of my financial returns in the first two years of my investment. I was back to feeling I had little or no control over my investments: I wanted safety, low risk, control, and known returns on my money. I kept studying, asking questions, seeking mentors, and finally found a well hidden area of real estate – the notes business! … More
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Commercial Banker Discusses Typical Loan Scenarios for Private Money Deals
Commercial real estate, private money loans also known as hard money and or bridge loans are becoming more prevalent as borrowers enjoy less red tape, quicker closings and more “common sense” underwriting than conventional financing provides. Typically though, borrowers still relay on this type of financing as an option when conventional sources are not available.
The increased speed and flexible underwriting comes at a steep price with interest only rates often in the teens, 3- 6 points being the norm and loan terms being relatively short at 12 – 36 months.
Why would owners pay such high fees/rates? In short, because it makes sense for them based on their current situation. Below are examples of transactions where it made sense for our borrowers or go the hard money route.
Read more of the article by Jeff Rauth at
http://nomoneylimits.com/articles/privatemoney003.htm
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Why Are Hard Money Lenders Angels?
With the recent upsurge in residential foreclosures nationally, homeowners are finding themselves in a very unusual predicament. Over the last 7, borrowers with less than perfect credit fell into a category called :sub prime borrowers”. This class of borrower was able to obtain a mortgage with little or no documentation.
The lenders were all too anxious to lend money to this class of borrower. Consequently, many borrowers took advantage of possibly a once in a life time opportunity to own a piece of the American dream.
Then reality set in. Many borrowers purchased a mortgage with a negative amortization option along with interest only options. Rather than pay the fully amortized 30 year rate, they only paid the interest and in many cases paid the negative amortization rate.
Read more of the article by Leonard Rosen at
http://nomoneylimits.com/articles/hardmoney003.htm
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10 Ways To Buy A Home With Little Or No Money Down
There are many ways to buy a home, even if you have little or no money to put down. Here are a few of the basics:
1. Sweat Equity
Sweat Equity is a way to get a home by trading work for equity in the house. This could be used for a down payment or for purchase later. This is a great technique if you are handy with tools, yard-work, and paint.
Look for fixer-uppers in neighborhoods you are interested in. Many times these homes will have a hard time selling and the owner is ready for just about any offer. You will find these houses ranging from just needing a little “cosmetic” work like landscaping or painting, to totally trashed out houses in need of some serious renovation. If you are into repairs, this is a great way to get a home for a good deal.
If you are not skilled at repairs and renovation, be careful about fixer-upper homes. They could end up costing you quite a large amount of money to pay others to fix.
I also recommend getting a home inspection so that you know what exactly you are in for before you begin.
By Alexis Dey
For 9 more ways to buy a home with little or no money down, read more at
http://nomoneylimits.com/articles/nomoney004.htm
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