[Anonymous]

Anonymous

before I get to this week?s Fear Buster, I want to share this Brain Twister:

A builder has approached me about some financing. The property is 7 acres on Highway frontage next to new Shell Station He’s been paying $ 1,200 mo. / 8% 15 Yr owner finance note. Property will probable appraise at 240-300K. Owner is in poor health and wants the builder to cash him out. Builder ows 103K on note owner will settle for 88K, however the builder would like to pull some equity out for an office building.

I’m not interested in tying up my cash Is there a way to make this a win/win deal.

Post your creative ideas for solving this situation at CashFlowDepot or send an email to
[email protected]

CashFlowDepot Fear Buster #2 ? UNPREDICTABLE UPS AND DOWNS IN THE ECONOMY

You sure can?t control the changes in the economy. They will happen regardless of what you do, or what you don?t do.

So the best thing you can do is stay informed of changes which could affect what you want to do in your real estate business, than make adjustments accordingly.

For example, many people stopped doing rehabs because of the 90 day seasoning rule. Starting February 1st there will be no seasoning so it opens up new opportunities. We discussed this in more detail on the conference call on January 26.
CashFlowDepot Members may listen to the replay in THE DEPOT.

There will be ups and there will be downs in any real estate market ? know that going in to the game. Too many investors were caught off guard over the last few years thinking that their market would always go up. That?s totally unrealistic, Jack Miller explained why:
There?s an old saying about the stock market that ?a rising tide raises all boats?. What isn?t said is that an ebbing tide also lowers all boats. It?s easy for people in real estate to be swayed in their decision making by news in the media about the real estate boom, or bust. What?s more disturbing is that there are often conflicting stories in the same paper on the same day concerning the future of real estate; particularly housing. This leads to apprehension and fear; and emotional reaction to things we don?t really understand.

A more productive response would be caution, a rational approach to a range of possibilities.

Even though the economy may seem to be erratic, there?s a causal relationship between events and their results, especially when it comes to the economy. To a certain extent, absent of political maneuvering and major unpredictable incidents caused by abnormal weather or war, the economy will follow a cyclical pattern.

For almost 100 years, the American economy used to be driven by the automotive industry. When American car makers ignored the gasoline shortages of the 1970s, more economical foreign cars began to take away market share at the same time as the combination of EPA restrictions and disruptions in the energy markets took away much of American oil exploration and production.

At about this time, the high tech industries began to emerge in a big way. Personal computers priced so consumers could buy them, and the software required to operate them, sprang up everywhere along with computer games. Computer programmers who could program for video games commanded salaries that ran into the hundreds of thousands of dollars. Suddenly, people way over in India saw it was to their advantage to learn programming, and now they are taking this industry away from America in giant gulps.

When consumers are charged more than a product is worth to them, they either look around for substitutes or for cheaper sources. That?s what happened to the software industry, and is in the process of happening to the energy industry and medical industry. Alternative fuels and cars that run on them are beginning to enter the market. More and more future doctors are attending medical schools in foreign countries. And more and more consumers are buying pharmaceuticals in Canada or Mexico, and having surgical procedures performed overseas. This is going to change the landscape in those industries to some extent.

The cost of single family housing in America is passing the point at which a young couple can afford to buy their first home. In response, a wide variety of financing and payment schemes are being floated by the mortgage industry. In addition, more and more Americans are moving into smaller houses on smaller lots, Condominiums, Town Houses, and Manufactured Housing.

What house buyers cannot do is buy houses manufactured abroad or stop buying their homes. This is because comparable apartment rents are often more expensive than house payments. Thus, rising demand for housing is going to intensify in areas where population and incomes are increasing, and in areas where the population is shrinking along with incomes, housing prices are going to recede.

What affects entrepreneurs and businesses alike is the business cycle. The business cycle underlies all economic fluctuations, and as such, is a fairly accurate predictor of future near term events. There?s nothing magical about the business cycle, it repeats and repeats and to a certain extent can be timed. Let?s look at the cycle:

We?re just coming off an economic upswing. People earned more and bought more, often with borrowed money. Much of this was foreign made merchandise paid for with dollars. These dollars were loaned back to the U.S. Government by foreign governments. The loans were used to support budget deficits. America didn?t sell near as much as it bought, so a balance of trade deficit built up as we continued to support our economy and less efficient industries by borrowing more and more to buy more and more from foreign sources.

This had the effect of reducing demand for domestic goods; which in turn, caused set backs and layoffs in many of our industries. An example is the automotive industry that has been closing plants and laying off workers by the thousands in recent years. Those who were laid off and/or who accepted lower paying jobs supported their lifestyles by borrowing on credit cards and home equity loans..

This led to a situation in which the U.S. Government and U.S. consumers were borrowing at record rates. Interest rates started to rise along with exploding debt. This caused record credit card and mortgage defaults; and bankruptcies.

The U.S. Treasury doesn?t have to worry about defaulting on its loans, it simply refinances it by selling more Treasury Bonds to keep things running smoothly. As the national debt and balance of payments increases, these are very inflationary, so investors switch to inflation resistant investments, such as gold and real estate. These have seen record levels of price increases.

Inflation masks the true costs of borrowing in the economy. At one time, inflation was a deep dark secret, but now Americans are living in an international financial fish bowl. As we try to inflate ourselves out of debt, the value of the dollar sinks against all other currencies. As a result, we have to pay more dollars for those foreign consumer goods; which now include automobiles, electronic gadgets, clothing, and especially energy. This makes American products paid for with devalued dollars seem competitively priced; so we begin buying more of these. The cruise industry is exploding because it has become so much cheaper to pay dollars for a cruise ticket, and ride the boats to visit foreign countries than it is to fly there and pay for hotels and meals in expensive foreign currencies.

As industries shake off the doldrums and start re-hiring workers, incomes start to rise and debt loads are reduced. With less demand for money, interest rates begin to go down once more and the cycle repeats.

That?s the big picture, but it doesn?t help much when it comes to your local economy. Here, the predictors are the employment figures, average incomes, credit card default and bankruptcy rates, and population growth or shrinkage. Some areas publish magazines that carry a lot of this information. In Florida, we have Florida Trend magazine. Other areas have newspapers that specialize on local business activity, and newspaper sections devoted to the same subject.

Next week – Fear Buster #3 — MARKET UNPREDICTABILITY AS TO WHETHER TO BUY, SELL OR HOLD

To Your Extreme Success,

Jackie Lange

P.S. Let?s discuss this Fear Buster in the FORUM at http://www.CashFlowDepot.com

~O