Charles Gardner-Real Estate Consultant

Do you think it's time for the real estate investor to help?? Have you read "How to Overcome the Top 5 Traps in Short Sales"?

Ouch! The Government Accountability Office, along with the Congressional Oversight Panel for Economic Stabilization, blasted the Treasury Department's management of the $700 billion TARP program. The 38 page document noted that "Treasury cannot simply trust that the financial institutions will act in the desired ways; it must verify." The report further commented that the Treasury had "administrated the TARP without seeking to monitor the use of funds provided to specific financial institutions."

And other eyes were on Capitol Hill today as the Big 3 Automakers got a lot closer to sealing a $15 billion bailout package. The package will lead to the creation of a "Car Czar" to oversee the loan grant, in order to avoid the "take the money and hoard it" approach that many banks have taken after receiving their bailout.

But several Senate Republicans were outraged, with Sen. David Vittner of Louisiana called the approach "ass backwards" and promising to filibuster it.

More money is headed out the window to the morons at AIG, the folks who 'partied' it up at the St. Regis and seem to have no ability to control their spending. The Wall Street Journal reported that the insurance conglomerate owes other Wall Street firms about $10 billion for because of speculative investments that didn't pan out.

Gross Income Multiplier

Short sale investors are a different set; they take action when others are too cowardly to act. They remain informed while others rely upon others for information and perhaps most telling of all...they crunch numbers. Last week we examined how to calculate the Cap rate of a property in order to determine the price of an income producing property. Although the Cap rate is a favorite among many bankers and brokers alike, another widely used formula is the Gross Income Multiplier.

To calculate the Gross Income Multiplier you will need to divide the asking price or market value of the property by the current gross rental income (or potential rental). For example, let's assume a home is listed for $150,000 with an annual rental income of $10,000. The Gross Income Multiplier would = 15. The higher the better. To provide some perspective, it may be useful to draw examples from other industries and areas. For example, if you were purchasing a publishing concern then you (and the banker) would expect to see earnings worth

5 to 10 time the pre-tax earnings on an annualized basis whereas insurance agencies sell for 150 percent of annual commissions.

Using the GIM provides an excellent method to compare the asking price with industry norms or as a potential negotiation tool when making an offer for a short sale property. It is a good idea to use conservative numbers when calculating the GIM since it does not take extraneous expenses or future tax and insurance rate hikes into account. Repairs, utilities and other considerations may wreck havoc on even the most robust calculations so it isn't a good idea to use the GIM when dealing with older properties or those in need of extensive renovations and/or repairs.

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Recession Proof Your Income with Short Sales

It's official. The country is in a major recession. "If the idea of rising prices coupled with a falling dollar, economic uncertainty and a pink slip coming soon to cities near you doesn't sound attractive then chances are you have already started your search for safety. Unlike millions of other Americans frantically looking for returns in all the wrong places, some savvy investors are learning how to use short sales to recession proof their income.

Short Sales provide an alternative source of income. Although unemployment rates are rising, to quote a common cliché' "You ain't seen nothing yet". The big bail-out and dramatically reduced lending standards between banks and major corporations has not trickled down to Main Street - yet. Even companies with healthy balance sheets are likely o be negatively impacted by their trading partners or suppliers with less than stellar credit lines or other interruptions. Reduced demand and slumping sales are creating additional pressure likely to result in further cut-backs in coming months. The resulting picture is clear - pink slips, pay-cuts and frozen wages are expected while inflation continues to take a toll on individual budgets. Supplement your income and investments with short sales.

Individual Diversification: Short sales have the unique ability to act somewhat like a hybrid investment/business model. The use of leverage to build impressive equity positions coupled with great tax advantages mimics many of the advantages experienced by small business owners sans the need for inventory, labor and long term commitment to workers compensation etc... while the instant equity, appreciation and ability to maximize returns mimics the best of the investment world. Additional advantages inherent in the holding of tangible assets further increase the individual level of diversification in a paper denominated world.

Flexibility: Perhaps the largest single benefit to be derived from short sales is the flexibility afforded through the purchase of various types of properties. Although most short sales center on single family residential properties, it is possible to purchase a wide variety of commercial, agricultural, retail, commercial or other types of land in addition to deriving benefit via a wide range of other activities including:

• Factoring
• Owner Financed Sales - all or partial.
• Rentals or Leasing - short or long term including vacation, land lease, traditional rentals, Farming, Agricultural, Timber, Mineral, Water or Other natural resources.
• Business use or improvement then sale of business including property or just business while leasing back land/housing.

If you are not into short sales, the time in NOW!! Are you going Broke in Real Estate? Is Your Outdated Marketing Costing You More Money than You Make in Profit? If I could show you a Simple Recession Proof Way to Have 10-20 Highly Targeted Real Estate Prospects Calling You Daily... would YOU be interested? If you could get the System FREE would you be interested??

Listen up folks. You need to start calling your investors ...calling those fence sitters that have been sitting too long. I'm sure you have heard this. The Federal Reserve just said they are going to start buying Treasury notes and bonds. Let's review some of what Fed Chairman Ben Bernanke said recently in Austin, Texas:

"The second arrow in the Federal Reserve's quiver - the provision of liquidity - remains effective," he said. "The Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities. This approach might influence the yields on these securities, thus helping to spur aggregate demand."

Did you catch that? Folks mortgage rates are going EVEN LOWER. Why? Mortgage rate are directly tied to the 10 year treasury. As the Fed comes in and buys them up, that will send the yield on the treasury even lower, therefore reducing the overall rate on the 30 year mortgage.

And there's more good news. Just last week the Fed announced that it would be buying $100 billion in debt from Fannie and Freddie, and around $500 billion in mortgage backed securities. Now what do markets do? They anticipate action and price it into the equation ... so if you're a Realtor, a loan officer, or a real estate investor, this is our version of a Bailout. Look for the 30 year fixed to stay well below 6%!

Are you ready for this new statistic, reported by the Wall Street Journal? TransUnion LLC, the Chicago-based credit bureau, predicts that 7.17% of consumers will be at least 60 days past due on their mortgages by the fourth quarter of 2009. That's nearly double where it is today.

There are a lot more loans that will be resetting throughout 2009 through 2011. If you think that REOs and short sales are slowing you need to get your head on straight! They will EXPLODE in 2009. Loan modifications can only have so much impact...

Bank of America announced that it would be eliminating at least 10,000 investment banking jobs as it soaks up Merrill Lynch. The combined companies will have about 260,000 employees, with 50,000 representing the investment banking division.

And finally ... someone got a brain in the public relations department at the Big 3 Automakers. General Motors announced today that its CEO, Rick Wagoner, would drive to Washington instead of flying. The CEO who flew by private jet in for his last appearance will drive a Chevy Malibu hybrid from Detroit to DC. Ford's CEO, Alan Mullaly will also be driving from Detroit.

Check this out!! All Pain and No Gain?

While the most recent data released by the Federal Housing Finance Agency (FHFA) may initially seem to indicate "all pain and no gain" taking time to delve a little deeper into the numbers shows a few clear-cut nuggets in an otherwise pan of silt.

The pain..U.S. home prices fell 1.8 percent in Q3 as compared to the previousquarter...the largest in the purchase only index 17 year history.

Four states continue to see double-digit declines including Nevada (-20.9%), California (-20.8%), Florida (-16%) and Arizona (-13.5%).

Some gains...Some states actually managed to exhibit price increases even while most of the nation continued to show declining sales figures; North Dakota (4.0%), South Dakota (3.9%), Texas(3.2%), Alabama (2.8%), and Oklahoma (2.8%). Some cities also showed price appreciation including Austin-Round Rock, TX (5.6%), Augusta-Richmond County, GA-SC (5.5%) and Rapid City, SD (5.4%).

So what does this mean to us...Tell Your investor friends and neighbors NOW is the time to get into Real Estate. Use Voice Broadcasting to spread the word. Word of mouth is good also. Texas is alive and ready. So are other states. Get out and find those properties and locate those end buyers. Do those short sales and get those REO's. Have we got a deal for them. May this be a great way to end the old year and begin a New Year.

Who said doing a blog is easy or that real estate is easy?

Maybe it was Donald Trump who noted on Larry King's CNN, there's never been a better time to buy a house...so I expect more and more investors will be pulling money out of the stock market and buying secure assets like homes that they can rent.

What About those New FDIC Limits? Wolves in Waiting

One of the most common reasons to begin buying real estate via short sales or REO's is a lack of viable alternatives...what else are you going to do with your money?

Stocks? Bonds? Savings Accounts? Not only are each of these options subject to major downturns but they are becoming increasingly risky due to a loss of purchasing power due to rising inflation as well as the potential for collapse.

The bailout isn't working, yet and your financial survival may depend upon owning hard assets. So, what about liquidity and cash savings? Consider your options carefully...

The increased FDIC insurance limits are set to expire at the end of 2009. What will you do with your money then? No, you won't be putting them into savings bonds

Savings Bonds have been severely limited. In a nearly unprecedented move earlier in the year, the United States Treasury set major restrictions on the purchase of Treasury Bonds allowing only $5,000 of any one type during the year and making paper bonds more difficult to purchase than ever before.

Remember, real estate has real or intrinsic value. It provides shelter, safety and satisfaction during times of financial and economic uncertainty. It can be traded, sold, swapped, lived in, farmed, mined or worked in during any type of situation. Paper based stocks and bonds can - and have - lost all their value practically overnight. Bank accounts can become worthless and even governments can rise or fall. Hard assets like real estate or commodities perform the best during times of economic difficulty but few people have the ability to store up vats of grain or barrels of oil in the back yard.

Frightened by future economic prospects? Think twice about building a big savings account and put it into something tangible like short sales or REO's instead!