Did you ever notice how politicians talk different stories, make a little rah, rah but the Economy continues on and on, with little changes. Home prices go up and down, and then up again. Eventually, prices are always higher because of inflation and the needs of a forever increasing general population which, in itself, creates the demand for additional housing. Incidentally home price changes are not included in the Government’s inflation index – ever wonder why?

What’s going on today; basically the same old thing, with a few new wrinkles. The US Government appears to be doing everything possible to drive housing prices higher. They are making it more difficult for investors to buy, with tighter credit standards, increased down payment requirements and tougher limits on how many properties one can own. On the other hand, they are making it even easier for owner-occupants to buy. By that, I mean that if you are going to live in the house, you can buy with very little down, poor credit and a limited income. And, as you know, if you are a first home buyer, you can get an $8,000 credit when you close, in addition to investing practically nothing, to start with. Later this year, this $8,000 credit is likely to be extended and perhaps offered to all owner-occupant buyers.

Isn’t this a different wrinkle on the old Clinton-Bush strategies of getting everyone into their own home, regardless of whether or not they could afford it. The difference is that before, a result of this strategy was increased home prices. Now, the strategy is designed to get rid of existing inventory. But, since home prices have already dropped precipitously, an ancillary benefit from this strategy is that home prices will go back up, again.

Why should this strategy work today, when the old strategy failed miserably? The answer is that home prices are so low in many areas of the US, that it is not likely that they will go lower. When you combine this with low interest rates, the average family can easily afford to keep their home today, rather than have to walk away from it and rent something cheaper. For example, in Florida the average family’s debt to income ratio has dropped to 19%, where it was close to 50% or more, just a year or two ago.

And, make no mistake, these government incentive initiatives are essential. Why, because the only way to protect our banking system is for home values to increase. In this way, bank collateral will not have to be further written down, thereby not endangering our banks and bringing the whole financial system to its knees again. To the contrary, this will enable bank reserves to be reversed, thereby adding substantial additional liquidity to the financial markets.

Along with higher home prices, inflation is one of the likely results. But inflation will only further benefit us property owners. Since most of the money invested in homes is generally borrowed, the lenders will be taking on the inflation risk, and we will profit from it. Don’t worry about it being more difficult for people to pay for their homes because of the coming inflation. Guess what, along with the rise in the price of products and homes, there will also be a corresponding rise in wages. We see evidence of that considering that the minimum Federal hourly wage has been raised to $7.25/hour. Expect more to come.

In essence, we are preparing for a coming wave of home price increases.

If you would like more information and/or if you want to be added to the Fischer Group's "Weekly Newsletter" on what looks to happen next in Housing & our Economy, please visit our free website at www.Fischer-Investment.com.

THE IMPORTANCE OF RISK MANAGEMENT IN REAL ESTATE INVESTING:

Too many people, both investors and “owner occupants”, have acquired property at a discount, only later to find out that the property was worthsubstantially less then what they owed, “never mind what they paid. “ How can these mistakes be avoided? What should the role of Risk Management be in the Investment Decision Making process?

In recent times we have read about how the major financial institutions (banks, insurance companies, mutual funds, hedge funds, major investors etc.) of the world have literally been brought to their knees. The world has faced a liquidity and financial crisis as a result of their poor decisions. One must ask, were all of these people stupid or misinformed? Didn’t they all have Risk Departments? Of course they did!! Unfortunately, their management and operations people greedily focused, obviously, only on anticipated huge profits, without regard for the exposure they were assuming.

In order to successfully invest in real estate or any other investment, for that matter, I believe it is necessary to adhere to three basic precepts which became known as theFISCHER AXIOM:

CONFUSING THE PUBLIC – DOES THE NEW MINIMUM WAGE HIKE MEAN MORE RECESSION OR IS IT INDICATIVE OF THE COMING INFLATION?

Today’s AP article on the coming wage hike, as published on CNBC.com (see the highlighted link below) seems to suggest that this could foster an extension of the recession by forcing small businesses to lay off some workers. http://www.cnbc.com/id/32122154/.

In my opinion, this is a typically short sighted point of view.

To the contrary, this is just another indicator of the coming massive inflation. How is that? Well, by laying off menial labor positions (often part-time or short term positions at best) small businesses will be forced to operate more efficiently and therefore more economically. The laid off workers could then find more useful employment elsewhere. Once operating at peak efficiency, with a smaller minimum wage based staff, some small businesses might nevertheless find it difficult to achieve reasonable profitability.

Under these circumstances, many small businesses might be forced to turn to the only recourse left; that is to increase prices. Price increases are just one more reason for the coming inflation which I have been predicting for some time.

The key issue for us investors is how to take advantage of the substantial inflation which is sure to be just around the corner. We have dealt with this by starting to buy unique housing deals in Southwest Florida (Ft Myers, Cape Coral, etc.). Housing prices have risen in this area by about 20% during the last three month. Sounds strange for these times, doesn’t it.

The reason for this strange result is that the area suffered from a serious price downturn, due to the housing market. However, it has tremendous potential and appears to be benefitting from a V-shaped upturn. We have homes available to you, as an investor, as much as 50% below worst case scenario replacement cost, and 50% below tax assessed value. In addition, for the first time, these homes are available to you leased prior to closing. For the most part, these homes will be lease optioned to your tenant so that you will have a 1.5 year exit strategy with a 200% return on investment, and positive cash flow as long as the property is rented.

NEW HOME PRICES HAVE NOWHERE TO GO, BUT…Up, Up and Away!!

In an article published today on CNBC.com, it’s reported that the US Treasury is preparing to roll out its Public-Private Investment Program (PPIP) plan. This program was originally intended to combine public and private money in a $ One Trillion effort to have investors buy bad loans and toxic assets from banks. The program is now only expected to involve $ 50 Billion.

The Article points out that the PPIP has encountered two problems: “the piles of bad debt sitting on the banks’ books and the dilemma of how to price this debt….Banks are still loathed to let go of assets at fire-sale prices.” The Article further points out… ”as long as these toxic assets stay on the books, they saddle banks with losses and constrict their ability to lend.” Read their entire article at the link listed below.

http://www.cnbc.com/id/31638841

The point is that the Banks are holding a ton of loans on their books which they cannot afford to sell. If they were to do so, at the current market price of these loans, the Banking System as we know it would collapse. So, out of necessity, the Banks continue to hold all but a small portion of their bad loans.

This is why so many property owners have been allowed to stay in their homes for a year or more, without paying the mortgage or having their property foreclosed. The simple reason is that the Banks would prefer to have the property occupied and cared for, then vacant and vandalized. In the meantime, the property stays off the market and does not, therefore, contribute to the supply and further reduce current market prices. With the coming massive inflation, the Banks must expect property values to raise a lot more than their internal carrying cost.

The simple fact is that the only way to get the Banks to start lending again in volume is to have their underlying collateral (that is the value of the homes which secure their loans) increase dramatically in value. This would enable them to reverse their reserves, thereby increasing their capital base, and protect them from the exposure of having to write down more of their loan portfolio. Lending should then free up. Hence, with the coming inflation, look for a rapid increase in housing values, especially in those regions of the US where the economy is basically sound, but housing prices have dropped precipitously. It’s better for the Banks and for investors to hold on and wait. Massive inflation is just around the corner and we should all take advantage of it.

The Fischer Investment Group buys new property on behalf of our investors below market prices and at or below estimated builder replacement cost. We allow each investor to buy direct from the Builder at our negotiated price. In addition, all of our properties are complete and new, with a one year warranty, front to back. The communities are new and well groomed. So, our properties rent faster and at a higher rent factor. Due to the condition of the properties and the neighborhoods, it is not uncommon for many of our tenants to live a number of years in the same property. In essence, our risk is much lower, and our potential gain much higher. Since our properties have a positive cash flow it’s easy for our investors to sit back and wait to take advantage of the coming inflation. For more information, review our website, listed below.