Note: This blog was created by my business partner Jeremy Burgess and is reposted here with his knowledge and consent.
Do the news and the media have you pulling cash out of your bank account and stuffing it in your mattress? Do you see the world ending and life as you know it coming to a stop? Are you staying awake at night worry and feeling uncertain about you and your family's future? Now is the time for a frank discussion about why current events HAVE to happen, HOW it is going to happen, and what the future REALLY looks like.
The boom was generated primarily by three events: 1. Ready availability of cash for banks to lend 2. Low cost for consumers to borrow that money 3. Lower taxes.
All of the three had the effect of consumers spending more money. This was sponsored by the government to keep the economy growing because that is what voters want. This increase in consumer spending was the only thing keeping the economy growing because in reality it should have been declining.
Manufacturing and productivity in America has decreased dramatically over the last 12 years. Combined with a Trillion dollar trade deficit, it is incredibly difficult for an economy to grow. The result should have been a declining economy and would have been without government interference. In lay man's terms: if you don't spend your money in this country and you spend it in other countries (oil and trade deficit with China), other countries will grow and you won't. This is not a political statement to buy American, I'm just stating a fact. America hasn't done enough to replace the "lost" money so our economy should shrink and continue to shrink slowly over time as the money continues to be "lost".
House values increased dramatically primarily for two reasons: 1. Lower interest rates 2. Speculation (herd mentality).
Most consumers are buying a payment when they are making a major purchase like a house. So the cost of the house isn't as important as the payment on the house. Here is an example: Joe and Jane want to buy a house and they can afford $1200 a month for a mortgage payment. For most of America's history, interest rates were in the 8%-10% range. At 8.5%, they can afford a $156,000 mortgage. At the artificially low interest rate of 5% Joe and Jane can afford a $223,000 mortgage! That is a full $67,000 more than at 8.5%! Lower interest rates encouraged consumers to pay more and buy more house than they could normally afford. This started the house value increase. After a few years of appreciation, speculators came out of the wood work and started bidding up the sales price of houses, sometimes even above the list price, with the hope that prices would continue to increase. These speculators would sell in 3-6 months after the house had appreciated enough to generate a profit. Soon the "average Joe" felt like they were being left out and if they didn't buy now, they would never be able afford a house. In many cities, houses were selling hours after it was listed for thousands of dollars more than list price. During this period some houses were doubling in value in as little as 2 years! With banks eager to lend money at low rates, the vast majority of Americans refinanced their homes to access their "equity" which was spent or invested, allowing the economy to grow. People "got drunk" on the easy money and spent up a storm unlike any other time in our history. As a nation we went crazy, leveraging ourselves with cheap debt, spending it all and for the first time ever, we spent more than we earned.
Our economic growth should have been flat or slightly negative based on our trade deficits, declining manufacturing, and declining productivity. In addition with our budget deficits, government overspending, and the continual devaluation of the dollar, interests' rate should be closer to 8%-9% to protect against inflation.
With our current credit crunch and with most of our large banks deleveraging themselves, borrowed cash is going to be very scarce for a few years. This should send us into a recession until real estate and the economy come more in line with the average Joe's income and affordability.
Where is this level at? Since most of the rise was artificial, most cities and states will fall back to or near pre-bubble prices and affordability. My prediction is at least to year 1998 and maybe even as far for some cities as 1991 real estate and affordability prices. Bottom line is we still have a long way to fall in most parts of America.
It is safe to say that we will never see that kind of crazy bubble and consumer spending again. A good friend and client of mine, David Butler of Hot Spur Investment Group (www.hotspurinvestmentgroup.com ) has a great analogy for this. If you go out and get crazy drunk, party, and paint the town red, odds are when you wake up it's with a terrible hang over. When you recover and your head ache is gone, do you expect to be drunk again? Of course not! So we are recovering right now but don't expect when the headache goes away to be drunk again.
You can't predict the bottom of the market or when the economy will recover. However, you can establish the bottom by basing your real estate investment on affordability. Affordability is time tested and conservative approach to real estate pricing and values. While much of the due diligence can be somewhat challenging and complex, your main variable is the income of the average "Joe" and what he can afford. This brings us full circle and explains how you can create certainty, plan for the future, and profit by seeing things how they really are.
Wages are stagnant in most cities and states and interests rates will likely go up to 9% to curb inflation. Before you invest in any city in America you need to find out the average income of the people living there. Multiply their annual income by 28% to conservatively determine the annual mortgage payments they can afford. Divide the annual mortgage payments they can afford by 12 to determine the monthly mortgage payment. Now using our conservative interest rate of 9% (where it will likely be in 2-3 years) you have just established the bottom of the market based on affordability.
Below is an example based on Detroit Average annual income: $39,000 Multiply by 28% for annual payments they can afford and divide by 12 for monthly payment = $910 Likely Interest Rate: 9% House Value based on interest of 9% = $112,000
Based on affordability the average Joe can afford a house worth $112,000 with interest rates at 9%. As real estate investors we need to buy and fix up a house for 60% of the properties values to guarantee that we will make money. 60% of $112,000 is $67,200. It is not difficult to purchase a house in Detroit and fix it up for much less than $60,000.
I want you to apply the same conservative approach to real estate that I do. It is time for you to put the cities you are investing in under the microscope. I'm betting that many of you are buying at too high of a price and probably need to establish the bottom of your market the correct way. If that is not currently possible where you invest, I encourage you to take a good hard look at investing in the city of Detroit where the bottom is already set.
Make your life uncomfortable,
Jeremy Burgess
Visit me on the best Real Estate Networking Site and sign-up at Active Rain - Detroit Real Estate
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8 Secrets to Hard Money Lending in Detroit
I read an interview with Warren Buffett the other day and it helped reconfirm the optimistic feelings that I've had. I know it's a challenging financial market out there and everyone wants to spell doom and gloom but this is one of the best times to take a step back, evaluate the situation, avoid the hype, and see what the experts are doing. One of my favorite quotes from Warren Buffett is:
"Be Fearful when others are Greedy and be Greedy when others are Fearful" ~Warren Buffett |
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Tell me that isn't relevant in this market and very relateable to the real estate market. Guess what Warren Buffett is doing? Following his own advice by investing $5 billion in Goldman Sachs on September 23 and $3 billion into GE on October 1st. Does that sound like someone that's scared about where the market is going or someone that is confident about where the market will go and excited about the sale on investments?
What does Warren Buffett say about the bailout plan, besides it being an unfortunate name, is that while not perfect, it's going to do what it was set out to do. He also said that he believes in it so much that given the opportunity to invest 1% into the deal, he would invest the $70 Million dollars as a sound investment because he feels like it is the type of deal he likes to invest in and will make a great return. Merrill Lynch just sold mortgage-related assets at 22 cents on the dollar and this is the same type of products that the government is buying. It's a great power play buying discounts at already discounted prices on these assets and he states that these are the same type of assets that hedge funds are buying for 15%-20% returns on their investment. The biggest advantage that the Federal Government has is their low cost of borrowing. They can borrow money cheaper than anyone else and hold on to the assets longer than anyone else to sell them at a higher price.
Where does this leave you as a Detroit real estate investor? Well, with the frenzy that has been created lately, the drop in the stock market, and uncertainty by the herd, it's a great time to follow the master and start investing. Action has been taken to stabilize and start to grow the economy and it sounds like the right steps have been taken. The time to act is now to take advantage of low prices before everyone else starts to see it when the economy stabilizes. Unless you're a stock market guru to make big power plays on assets that you know are undervalued, it's time to look at assets that are much easier to value. Hard asset in real estate that cash flow numbers are easy to calculate.
Detroit Investment Properties continue to be an excellent investment for cash flow and long term upside potential. If you're on the fence, you need to talk to the experts that are investing day in and day out in the area. We are available to answer any questions, provide recommendations for excellent contractors and property managers, and show you the best areas to invest in. Read our Detroit Real Estate FAQ to review information on Detroit wholesale properties.
Successfully Yours,
Jared Pomranky
Detroit Market Expert
Visit me on the best Real Estate Networking Site and sign-up at Active Rain - Detroit Real Estate
Detroit Investment Properties - Our website for wholesale deals and information
Detroit Real Estate - Our Blog on Detroit Real Estate
Cash Flow and Property Analysis Spreadsheet
8 Secrets to Hard Money Lending in Detroit
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What are your investment goals? A simple question but very important for what you do to accomplish your goals. While I believe that you should be working on long-term cash flow and holdings as well as short term cash, there are many people that only need one or the other. Investing in Detroit real estate gives you the opportunity to create excellent long-term wealth, cash flow, and tax benefits. The Detroit Investment Properties can, however, also be a great place to make short term chunks of cash. |
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Flipping houses or turning them over quickly for resale is a challenging market to be in so we recommend another method. Providing hard money on Detroit Cash Flow Properties that you would like to own anyway is a great way to make a quick high return on your investment. What I don't want you to do is go out and start lending money on properties like previous hard money lenders in Detroit have done. That's why there are only a few left. The correct way to make hard money profit in Detroit Real Estate is to lend it conservatively at a very low Loan to Value (LTV), only in the best areas, and only on the best houses.
We have compiled the 8 Secrets to Hard Money Profit in Detroit for Investors and Lenders to educate themselves on the correct way to make hard money profit conservatively in Detroit. Having borrowed hundreds of thousands of dollars in hard and private money, lent money for properties, helped lenders liquidate houses that they lent too much money on, helped investors exit hard money loans, and our vast experience in Detroit Investment Properties, we have a better insight into what makes a successful loan than anyone in Detroit. Following the 8 Steps to Hard Money Profit in Detroit will give you the knowledge to start making an excellent ROI on your money SAFELY!
If you haven't already, check out Hard Money Lending in Detroit.
Successfully Yours,
Jared Pomranky
Detroit Market Expert
Visit me on the best Real Estate Networking Site and sign-up at Active Rain - Detroit Real Estate
Detroit Investment Properties - Our website for wholesale deals and information
Detroit Real Estate - Our Blog on Detroit Real Estate
Cash Flow and Property Analysis Spreadsheet
8 Secrets to Hard Money Lending in Detroit
This blog was created for people outside of ActiveRain and for my outside blog but I'm sure I'll get a lot of good comments and tips from people within ActiveRain. Let me know what you think or what your tips are. I'll post some more tips on what I do as I receive more tips and comments. I know there are people with a lot of knowledge on how to maximize ActiveRain here!
What is your presence on the Internet? Do you know that the majority of users looking for any service or product start with a search on the Internet? Out of those users most of them use Google and the rest are mostly compiled of searches on Yahoo and MSN Live. In fact, statistics for May 2008 show that Google had 68% of U.S. searches. Definitely something you want to look at! Now the question is, if someone is searching for you, are they finding you? What do you do? What's your business? Are you finding buyers for Detroit Real Estate or are you just a Detroit Cash Flow investor that wants to make more contacts? Well, I'm here to tell you how you can do both. Social networking is nothing new to college students and younger people but it is fairly new (within the last couple of years) for business people and real estate investors. Not only does it provide a great place to meet other people and network but it also provides a great place to build your presence on the Internet. By utilizing social network sites you can post information on your website, your business, and blog with great content to get people to find you on search engines like Google. Does it work? Well, how did you find us?
There are many places for social networking like MySpace, FaceBook, LinkedIn, ActiveRain, and many others. I'm not here to tell you to sign-up for everything, I'm here to tell you where to concentrate your efforts for the maximum return on your time invested. I'm sure you can tell which ones I recommend. Out of every social networking site I have seen, the best ones are ActiveRain and LinkedIn for relevance to business. LinkedIn is specifically business focused and ActiveRain is real estate specific, which is even better! Start out by signing up for ActiveRain - Detroit Real Estate and work on getting your profile setup. Select a picture, write a description of your business and what you're trying to accomplish, and follow the online guide to complete your profile. As you see, when you complete parts of your profile, you get more points. You also get points for commenting on blogs and blogging yourself. As you get more points, your ranking rises within your community.
Why do this? First off you will network with great people and get great information on real estate. Second, and maybe most important, is that Google loves ActiveRain. As you blog about content, put your profile out with links to your website, and comment on other people's blogs, Google will index that information and increase the rank of your site whether that's your profile on ActiveRain or another outside website. Now, if you're still waiting, go to ActiveRain - Detroit Real Estate and sign-up for an account to get started. Once you sign-up, send me a message on ActiveRain or reply to this e-mail and I will send you great tips for increasing your Search Engine Optimization via ActiveRain and how to get the most points out of your time on ActiveRain. It will supercharge your business and your real estate investing! Also, make sure you check out LinkedIn for a different take on social networking but I would definitely suggest ActiveRain first.
Get excited to build your web presence and make great connnections on ActiveRain!
Successfully Yours,
Jared Pomranky
Detroit Market Expert
Visit me on the best Real Estate Networking Site and sign-up at Active Rain - Detroit Real Estate
Detroit Investment Properties - Our website for wholesale deals and information
Detroit Real Estate - Our Blog on Detroit Real Estate
Cash Flow and Property Analysis Spreadsheet
8 Secrets to Hard Money Lending in Detroit
*** Read me first ***
Alright, so you might think from reading below that the Olympics were still going and Phelps had not quite won his historic 8 gold medals. Well, that's because I actually wrote this after he had only won 3 or 4 medals and was going to post it on my blog until my computer crashed!!! I thought the blog had been lost and I was so upset that I blogged on something else. Just recently I came across a temporary file that had this saved blog... Who knew? I was going to change it to make it sound like I had written it today but I think it's much better when you read it and think from that point and time. Positive thinking. He had only won 3 or 4 gold medals at that time and he was not letting anyone tell him he couldn't win 8!
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Has anyone been watching the Olympics or is it just me? I have to tell you I'm not the one to watch a lot of T.V. and talk about it with everyone but the Olympics have me captivated! It could easily just be the triathlete in me that loves to see
Michael Phelps destroy his competition and World Records but it's much more than that. It's also the entrepreneur in me that just can't help but see how much a positive outlook coupled with hard work and dedication pays off. Michael Phelps has known that he was going to break world records and get eight gold medals long before anyone else. He is so confident in his abilities and has such a positive outlook on everything that the naysayers don't get any room in his thinking. Do you think that Phelps listened to Ian Thorpe, the former Olympics phenom that beat Phelps last year and held many world records, when he said that there was no way that Phelps could beat Mark Spitz' record of 7 gold medals or when the French 4X100 team said that they were going to "smash the Americans"?
I think not! |
| The anchor of the 4X100 team that pulled off an Olympic miracle to win over the French was quoted as saying "I've been on the last two relays where we come up short," Lezak said. "To be honest with you I got really tired of losing." Did you read that correctly? He just decided that he wasn't going to win. How many of you have this type of positive outlook in the things that you do? |
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That's right, I'm not here to just recap the Olympics for you as I'm sure there are much better places to find that information. I couldn't help but think while watching all of this how much it relates to our business and especially investing in Detroit. There are always going to be the naysayers in business and especially in real estate investing. There will be plenty of people that will tell you it can't be done, the market is bad or you should just invest in the stock market. Tell them you're investing in Detroit and just wait for the barrage of doom and gloom that they have gleamed off of the newspapers and nightly news reports. Believe me, I've heard it all but you would be surprised how little of it I receive now. I've let people know that they won't be speaking negatively around me or talking trash about real estate investing in Detroit or we won't be spending time together anymore. It's as simple as that. I know that Michael Phelps doesn't surround himself with people that tell him he can't break world records and receive eight gold medals in an Olympics. Then why, should we? You have a choice to surround yourself with positive people and to focus on the positive aspects of investing and an area. Does Detroit and it's real estate have challenges? Absolutely! That's why there's so much opportunity. You can focus on the blighted houses and down economy or you can focus on the positives like the immense amount of investment in new construction, rehabilitation, and businesses moving to Detroit. You can focus on all of the out of state investment that is coming in from people that see the opportunity here. You can focus on the largest trade corridor with a foreign country, which is right here in Detroit with Windsor. You can focus on the opportunity or you can focus on the challenges and call them problems. One way will make you successful and the other one will make you a news junkie.
If you haven't heard of ActiveRain yet, make sure you visit my page and sign-up! It's a great place to network with other like-minded real estate individuals.
Successfully Yours,
Jared Pomranky
Detroit Market Expert
Visit me on the best Real Estate Networking Site and sign-up at Active Rain - Detroit Real Estate
Detroit Investment Properties - Our website for wholesale deals and information
Detroit Real Estate - Our Blog on Detroit Real Estate
Cash Flow and Property Analysis Spreadsheet
8 Secrets to Hard Money Lending in Detroit
I am a Detroit Real Estate Investor focused on Detroit Investment Properties, wholesales, foreclosures, cash flow, and making others successful. Visit us for great deals at www.WholesaleMi.com.
Urban Detroit Wholesalers, LLC is the premier Detroit Foreclosure Investment Property experts. We provide end to end solutions for rehabbing and renting for high cash flow and a hands off approach through property management. We know you're busy so you leverage the contacts that we have made over the past 5 years to be successful. Check out our main website at Detroit Investment Properties and our blog at Detroit real estate market Blog. If you're interested in Detroit Real Estate investing, make sure you visit Detroit Real Estate Secrets to get some great tips!
Check out this video on our company and Detroit: Urban Detroit iMercial
I also run a real estate and entrepreneur group that meets the first Tuesday of each month. Go to www.RenegadeDetroit.com to get more information. It's a great place to network!
Our area of expertise is in Detroit Wholesales, Detroit foreclosures, investment properties, and the Detroit real estate market in general. We create great deals for out of state and in state investors to purchase and rehab rental properties for extraordinary profit. Many of our investors find they can buy a Detroit property in a great area and rehab it for a total of around $38,000. These are the same houses that are renting for between $850 and $950. Even better, we have the team and expert in place that you can leverage to be successful.
Listen to what Fred B. has to say about us: Detroit Real Estate Testimonial #1
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