FED lowers fed funds rate again– what about the ECB and the BOE?

Do a search on the Wall Street Journal website, www.wsj.com for ‘fed funds rate’ and you’ll get articles about the hoped for effect of lowering the short term cost of borrowing by US banks, AND you’ll get articles about what is happening in Europe and the response of the European Cental Bank equivalent of the FED. My reading of the daily business news has been that the ECB claims to be more concerned about inflation than recession and so claims that it will be holding the overnight interest rate for European Banks at a high level in order to combat inflation, but inevitably 30-60 days later an article comes out suggesting that the European economy is influenced by the US economy and so as the FED has been lowering the Fed Funds rate, the ECB will lower the Euro interbank offered rate and the BOE, Bank of England will further lower the Libor.

Here is what Joellen Perry wrote in her article,  http://online.wsj.com/article/SB120601229992551599.html

“The ECB has been holding rates steady at 4% while the U.S. Federal Reserve has been reducing them. Many analysts argue that factors including a U.S. recession and the surging euro mean growth this year will slow more sharply than the central bank’s projection. They anticipate the ECB will start cutting its key rate in June.”

Here is what Carrick Mollencamp and Mark Gongloff wrote in their 2/7/2008 article about the Bank of England making decisions about the Libor. http://online.wsj.com/article/SB120234389156849037.html

“Some investors are already starting to look beyond the rising odds of a recession. In the fed-funds futures market, where investors make bets on the outlook for Fed policy, investors are betting the Fed will be done cutting interest rates this summer.

The euro, meanwhile, has been under pressure because investors increasingly think the European Central Bank is behind the curve in addressing economic weakness in the euro zone. The ECB will likely keep rates on hold at its policy meeting today, but policy makers could hint that they’re turning their attention from fighting inflation to fighting recession, which would hit the euro. The Bank of England is expected to cut its key interest rate, which could also support the dollar against the pound.”

So that is why you will see the ECB’s 30 day Euro interbank offered rate at 4.35% and the Bank of England’s Libor at 2.606% as of March  21, 2008. With the Fed Funds rate currently at 2.25%  and a lot of discussion about inflation vs recession, there is going to be a lot of attention paid to taking supplemental steps to support the economy, not just lowering short term interest rates. The respective governments are going to be taking other steps to bolster confidence in their economies, such as engineering “supports” (aka “bailout”) for failing banks (nationalizing Northern Rock in England, lending money to German lender IKB  to cover writeoffs) or investment banking houses (helping Bear Sterns in the US).

There has been discussion that in the early 2000’s the FED took the Fed Funds rate too far down to 1% and left it down for too long. So if you are waiting for the magical 1% Fed Funds rate mark to somehow revitalize confidence in the economy and cause long term mortgage rates to drop, you’ll probably be waiting a long time. The 1 month Libor may get down to 2.25%, and it’ll probably stay there for awhile, but don’t hold your breath for it to go down further. So if you are looking to refinance a variable rate loan during 2008 or 2009 the next three to six months would be a good time to do it.

 

  

How to get started in owning property

My wife and I recently had a chance to spend some time with our daughter and her fiancee. We had excellent time together talking about their careers and their desire to get into home ownership. Ok, Ok, don’t bring up the subject of them buying a home without being married. It’s scheduled for sometime next year. And they’re really debating how big of a wedding to have considering the alternative of investing tens of thousands of dollars into buying a property versus spending it instead on a bigger cake or a glitzier location. We discussed the alternative of buying a first home or buying a rental property in a more affordable part of the US and arranging with a good local property manager to keep it rented out. The challenge with trying to purchase a first home in California is affordability. They have the cash flow to make payments but not enough for downpayment on a $500,000-$800,000 “starter” home, but they do have enough saved for a downpayment on a $150,000-$200,000 property, maybe two within another year. If they purchased a rental property in parts of the US that have not experienced a real estate boom, but rather have good steady 3-5% per year appreciation and strong rental housing demand, they would be able to have a renter help them pay the mortgage. In a year or so the rental would be cash flow positive. The rental would enable them to deduct depreciation and property ownership expenses. If they purchased a rental home in the Gulf Opportunity Zone, the GO Zone of Louisiana or Mississippi during 2008 they would be able to deduct 50% of the depreciable basis of the rental property from 2008 taxes owed. We talked about the pros and cons of owning rental property out of state. We discussed the benefits of taking advantage of the investment networks that help to research good rental areas and link investors in with good local realtors and property managers.

The key deciding factor was the benefit of owning rental property on helping them legally reduce taxes in 2008 and 2009. By owning a rental property in the GO Zone they would be able to reduce their tax burden significantly and in fact be able to save more money for downpayment on their own home in California. They would be able to save enough in two years that they could purchase a California home for 10% down using a FHA loan.  Hopefully the real estate market would have stabilized but not totally rebounded by then and the risk of purchasing California property still in decline would be minimized.

I think it’s important to look at the big picture when considering purchasing real estate. Is the goal simply to own you own home? Or is the goal to increase your assets and make the best use of your household cash flow? If the goal is the latter, you can do better by being an investor and deferring purchase of your first residence. That’s what smart business minded people would do, but most young people are simply following the conventional wisdom that owning your own home is a good thing and they are stressed and stretched to accomplish that goal in California.

Here are the links to the investment groups that I recommend www.icgre.com and www.conferwithus.com

Also here is a spreadsheet from the www.Conferwithus.com group that really helps people think about what kind of cash flow they should be planning to be able to generate in the future in order to have a worry free retirement.  Much of the cash flow will come from 401K retirement accounts, but there is usually a gap between what is needed and what is being accumulated. That gap can be filled by enhancing your investment strategy with smart cash leverage and making investment decisions that produce beneficial tax treatment. Smart real estate investing is one part of a complete solution.

I suggest downloading this spreadsheet and the documentation and playing around with the financial gap in your plan. You may be motivated to attend an investment workshop in the future. 

retirement-account-planning-model-description.pdf

Link to download spreadsheet

     

You’ve got to do more than just have a job or two in your household

Having adequate surplus income to make strategic long term investments may require more than one or two sources of household income. Perhaps owning a profit making business in addition to having paying jobs can be a source of such investment cash flow. With the low cost of technology these days and with much of the population in the US using technology like TV, cell phones, and the Internet it shold be possible to  be entrepreneeurial and be employed.   

I attended a small business tax workshop this weekend sponsored by San Jose’s www.businessownerspace.com. It was aimed at small business persons and people planning to start a small business. There were two workshops: business structure (sole proprietor, partnership, C corporation, S corporation, Limited Liability Corporation (LLC)) and record keeping for sole prioprietors. I attended the business structure workshop given by Linda G. Coleman, EA (enrolled agent) (http://biztaxtallk.com) and she was excellent. Her handouts are the clearest set of PowerPoint resources I have seen on the subject of business structure. She certainly came across as knowledgable and approachable. There were many organizations that were available to offer aassistance to small business owners and those making plans to start a small business.

I highly recommend taking the time, 10AM-2PM to attend next weekend’s repeat session, March 15, 1290 Parkmoor Ave, San Jose. It’s just off the 280  Meridian Ave exit at Parkmoor.

While the attendance was good, there was plenty of room for more people. I thought about why more people were not taking advantage of such abundant free resouces. Can it be that everybody who is a small business owner is already totally knowledgable and has no need for free consulting? Could it be that the masses of people employed in Silicon Valley companies are totally comfortable and financially secure and have no need to think about doing something entrepreneurial on the side?  Could it be that those couples in the valley who met while both were working and who decided to live on one income when children appeared on the scene, have no need for some supplemental  income? Could it be that a household with one spouse working in a company has not thought about the at-home spouse doing something entrepreneurial from home to potentially provide a path to a second career for both spouses?  

I also thought about the insights I gained by playing Robert Kiyosaki’s Cashflow 101 game. I remember rolling the dice and discovering that I lost my job. But since I had previoously bought a small busienss and had some income producing rental property, I was set back during the job hiatus, but I was able to keep going, get another job, without skipping too many beats financially.   It seemed really valuable to have made the moves to diversify my income before encountering stormy times jobwise.

I also remember reading tax planning books and attending other seminars where tax advisors made it clear that the IRS allows for 20-30 tax write-offs for legitimate business owners, but only 2-3 for non-business owners, and mostly if they own their own home. Renters don’t get much in the way of tax relief. So I knew that it made sense for anyone to get set up be a legitimate small business owner, even if the owner was employed fulltime and the business was a home based business done seriously for a profit on the side. I knew that many ambitious people never let the notion of a 40 hour work week limit the number of hours they invested in doing productive things to improve themselves or to generate income. I was never able to relate to the concept of “Oh, It’s Monday, another week of work”, or “It’s Wednesday, hump day, halfway through the work week”, or “Thank God it’s Friday, TGIF”. I was always willing to put in something extra to get to where I wanted to go.

I think that many people who are currently well employed tend to think their situations will last forever, like the real estate boom would last forever. Or more likely people know they need to do something extra to diversify their income sources, but they are just so busy raising a family and working extra hours at work that they put off getting started. Procrastination is so easy to fall into when you think you need more money than you have to get started, or more time than you have to get started. The key insight that people need to have as early in their working life as possible is that time is your friend if you get started with 20-30 40 years of time to let compounding work for you. And it’s not a matter of lack of money or lack of time. You can always partner with those who have money and who have time. It’s a matter of lack of desire and commitment to an emotional future lifestyle or future life options and then it’s a matter of a lack of ideas. We all tend to let the good be the enemy of the great. I suppose people who are faced with life changing circumstances early in life will be motivated to make decisions that get them on a path to greater financial independence. The rest of us think that we are on the right path becuase we are doing OK, relatively better than our peers.  We fail to consider what could go wrong with our current plan. I do believe we all need to aim for the stars in order to hit the moon.

So I was surprised that more people were not taking advantage of the workshop and the free consulting. I did notice that 80% of the attendees were sharp looking women.  So maybe that’s a good reason for guys to attend next weekend. 

New FHA loan limits

I recently attended an FHA training by Terri Buckman of Franklin American Mortgage. Below is the press release from the government on new FHA loan limits which will make applying for an FHA loan an attractive alternative for homebuyers looking for low downpayment loans, even in high priced California!

Terri referred to the old days (circa 1990) where people who did not qualify under the stringent guidelines of lenders simply took steps to partner with non-occupant co-buyers. What a concept! Bring in a partner who will on paper help you be responsible for the payments in the eyes of the lender and the law, even if you were sure that you’d be able to handle the whole payment yourself.

In the late 1990’s with the advent of the low starter rates and low starter payment option ARM loans more people qualified at least during the starter periods of 1,3,5,7 years– at the risk of incurring negative amortization. And 1,3,5 years later, just like the policeman in the movie, Casablanca, they were shocked, shocked to discover their dilemma.

With the advent of stated loans instead of full documentation loans, borrowers were able to pay a bit more in rate and fees in order to have the lender accept their word for the sources of income used to make payments. They did not have to document their income, it was “stated”. Stated loans were designed to help non-employee independent contractors who have significant writeoffs due to running their own businesses, but who have good cash flow and are able to make payments on loans that traditional debt to income ratios would not have allowed. Naturally lenders chose to apply stated loans to anyone who would pay the premium and did not all require that employees with documentable income use full documentation loans. This, of course, appealed to everybody, but it opened the floodgates to all and helped buyers buy bigger houses than they could afford and helped investors really stretch into investment properties that they could not afford to carry if any little thing were to go wrong– like declining prices making refinancing impossible when flexible rate loans would reset to market rates as the starter/teaser rates expired.

With today’s return to higher lending standards and reduced risk for the bank, stated loans are going away. And partnering with co-borrowers is coming back into fashion, even for those with strong incomes, but little downpayment. In a FHA loan, gifts from family are allowed for downpayment.

See this excerpt from the FHA website (http://portal.hud.gov/portal/page?_pageid=33,717077&_dad=portal&_schema=PORTAL )

Why choose an FHA loan?

There are lots of good reasons to choose an FHA loan, especially if one or more of the following apply to you:

• You’re a first-time homebuyer
• You don’t have a lot of money to put down on a house
• You want to keep your monthly payments as low as possible
• You’re worried about your monthly payments going up
• You’re worried about qualifying for a loan
• You don’t have perfect credit

You’re worried about what will happen if you fall behind on your payments

If any of these things describe you, then an FHA loan may be right for you. Why? FHA-insured loans offer many benefits and protections that you won’t find in other loans including:

Lower cost: FHA loans have competitive interest rates because the Federal government insures the loans for lenders. Always compare an FHA loan with other loan types.

Smaller down payment: FHA loans have a low 3% down payment and the money can come from a family member, employer or charitable organization as a gift. Other loan programs don’t allow this.

Easier qualification: Because FHA insures your mortgage, lenders may be more willing to give you loan terms that make it easier for you to qualify.

Less than perfect credit: You don’t have to have perfect credit to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.

More protection to keep your home: The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, the FHA has many options to help you keep you in your home and avoid foreclosure.

The FHA does not give money to people for a home and it does not set the interest rates on mortgages it insures. FHA insures loans for lenders against defaults. For the best interest rate and terms on a mortgage, you should compare mortgages from several different lenders. An FHA-approved lender can help you start the loan application process.

Here is the press release from the FHA on the new loan limits.

FHA Max Limits Include 14 CA Counties

* FHA Press Release * 

WASHINGTON  – Tens of thousands of California families could be eligible this year to purchase or refinance their homes using affordable, government-backed mortgages, thanks to the economic growth package signed into law by President Bush.  The Economic Stimulus Act of 2008 will allow HUD’s Federal Housing Administration (FHA) to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country. 

“The Bush Administration is expanding the pool of eligible borrowers, enabling more American families to qualify for safe, affordable FHA-insured mortgage loans.  These temporarily higher loan limits are a shot in the arm for communities trying to sustain property values, bringing much-needed liquidity to the mortgage market, while helping many current homeowners who desperately need to refinance,” said HUD Secretary Alphonso Jackson at a forum on how to prevent foreclosure at the Operation Hope Center in Los Angeles and a Hope Now Alliance event in Anaheim.

Beginning tomorrow, HUD will offer temporary FHA loan limits that will range from $271,050 to $729,750.  Overall, the change in loan limits will help provide economic stability to America ’s communities and give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.  The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as: Los Angeles County , San Francisco County , Orange County , and Santa Barbara County .  Previously, FHA’s loan limits in these very high-cost areas were capped at $362,790.

The Economic Stimulus Act of 2008 permits FHA to insure loans on amounts up to 125 percent of the area median house price, when that amount is between the national minimum ($271,050) and maximum ($729,750). The new minimum and maximum loan limits are based on 65 percent and 175 percent of the conforming loan limits for Government-Sponsored Enterprises in 2008, which is $417,000.  The FHA used a combination of existing government data sets and available commercial information to determine the median sales price for each area.  The change in loan limits are applicable to all FHA-insured mortgage loans endorsed after HUD publishes the increased loan limits tomorrow, and it lasts until December 31, 2008 . 

By increasing loan limits nationwide, FHA will provide much needed liquidity and stability to housing markets across the country.  Already, as conventional sources of mortgage credit have been contracting, FHA has been filling the void. From September to December 2007, FHA facilitated more than $38 billion of much-needed mortgage activity in the housing market, more than $15 billion of which was through FHASecure, FHA’s refinancing product.  By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.

“This is not an easy crisis to address, and there is no silver-bullet, but I know that we can help hundreds of thousands of people keep their homes, and we can calm the waters,” said Jackson .

In January 2009, FHA’s maximum loan limit will return to $362,790, unless the U.S. Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill. 

“In January 2009 the loan limits will return to their previous setting,” Jackson said.  “That is why we need to permanently raise the loan limits to an acceptable level that more accurately reflect housing prices nationwide.  We also need to make the minimum down payment more flexible and create a fairer insurance premium structure.  This will allow more families to use FHA.” 

FHA loan limits are based on the county in which the property is located.  However, for properties located in metropolitan or micropolitan statistical areas, the limit is set at that of the county with the highest limit within the metropolitan or micropolitan area. 

The new temporary FHA loan limits for California are attached below.  The full text of the Secretary’s remarks can be found on the HUD website.

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HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development, and enforces the nation’s fair housing laws. More information about HUD and its programs is available on the Internet at  <http://listener.bliemail.com/forwarder.aspx?ID=a7ce4bbc-f4e6-439c-b9c3-12c87f0c7c0b|http%3a%2f%2frs6.net%2ftn.jsp%3fe%3d001GPnSaxHALMI9V0m-SS_aDrDc9GjPPLxF764nDn3D98O3HU8HasMH4X4vcljEJJroGI2weVOCxAFTcXuMM7YBwg%3d%3d> www.hud.gov and  <http://listener.bliemail.com/forwarder.aspx?ID=a7ce4bbc-f4e6-439c-b9c3-12c87f0c7c0b|http%3a%2f%2frs6.net%2ftn.jsp%3fe%3d001GPnSaxHALMLfalvNA5G0OJQdZAhCv-yTc2_iTBJOIL8MsnNYM0rnG9zRKsZKhdvV6JXfosypIhVdeASJRLMIaZLaujeErR2a> espanol.hud.gov. For more information about FHA products, please visit  <http://listener.bliemail.com/forwarder.aspx?ID=a7ce4bbc-f4e6-439c-b9c3-12c87f0c7c0b|http%3a%2f%2frs6.net%2ftn.jsp%3fe%3d001GPnSaxHALMLY6P5Am8cR-6cv87njBipB2zQ3VIQJyrQo7OTydYfIj5xjYdLT_9otCmzUR6qNTQ3NBvoPHuTrAg%3d%3d> www.fha.gov.

California County Limits

Obs prop_addr_st county_nm med_price FHA_1unit

185 CA Alameda County 995000 729750 – MAX

186 CA Alpine County 438000 547500

187 CA Amador County 355000 443750

188 CA Butte County 320000 400000

189 CA Calaveras County 370000 462500

190 CA Colusa County 318000 397500

191 CA Contra Costa County 995000 729750 – MAX

192 CA Del Norte County 249000 311250

193 CA El Dorado County 464000 580000

194 CA Fresno County 305000 381250

195 CA Glenn County 230000 287500

196 CA Humboldt County 315000 393750

197 CA Imperial County 260000 325000

198 CA Inyo County 350000 437500

199 CA Kern County 295000 368750

200 CA Kings County 260000 325000

201 CA Lake County 321000 401250

202 CA Lassen County 200000 271050

203 CA Los Angeles County 710000 729750 – MAX

204 CA Madera County 340000 425000

205 CA Marin County 995000 729750 – MAX

206 CA Mariposa County 330000 412500

207 CA Mendocino County 410000 512500

208 CA Merced County 378000 472500

209 CA Modoc County 125000 271050

210 CA Mono County 370000 462500

211 CA Monterey County 599000 729750 – MAX

212 CA Napa County 615000 729750 – MAX

213 CA Nevada County 450000 562500

214 CA Orange County 710000 729750 – MAX

215 CA Placer County 464000 580000

216 CA Plumas County 328000 410000

217 CA Riverside County 400000 500000

218 CA Sacramento County 464000 580000

219 CA San Benito County 790000 729750 – MAX 220 CA San Bernardino County 400000 500000

221 CA San Diego County 558000 697500

222 CA San Francisco County 995000 729750 – MAX

223 CA San Joaquin County 391000 488750

224 CA San Luis Obispo County 550000 687500

225 CA San Mateo County 995000 729750 – MAX

226 CA Santa Barbara County 615000 729750 – MAX

227 CA Santa Clara County 790000 729750 – MAX

228 CA Santa Cruz County 719000 729750 – MAX

229 CA Shasta County 339000 423750

230 CA Sierra County 228000 285000

231 CA Siskiyou County 235000 293750

232 CA Solano County 446000 557500

233 CA Sonoma County 530000 662500

234 CA Stanislaus County 339000 423750

235 CA Sutter County 340000 425000

236 CA Tehama County 250000 312500

237 CA Trinity County 200000 271050

238 CA Tulare County 260000 325000

239 CA Tuolumne County 350000 437500

240 CA Ventura County 599000 729750 – MAX

241 CA Yolo County 464000 580000

242 CA Yuba County 340000 425000

Is it time to refinance?

I have been helping homeowners answer this question a lot lately. It seems that when the stock market took a dive at the end of January long term rates went down for a couple of days  but then went back up. So loan brokers and bankers contacted clients waiting in the wings and locked the lower rates during that window. There was lots of added loan activity due to that very short term rate drop, including rate adjustments on already locked loans. Borrowers were offered the opportunity to slide the rate down by paying extra points. Also lenders experienced brokers who locked loans that were not able to be closed. Perhaps these loans were “hopeful” loans that the broker thought ought to close, or perhaps these loans were double-up locks that the broker made to help insure that some lender would approve the loan package. In any case, lenders got zapped with lots of extra activity and a lower pull through ratio than normal. The pull through ratio is the number of loans that get locked that actually fund. Brokers locking loans that do not close actually costs the lenders big dollars. Lender get blocks of funds to lend out from investors during a certain time window and at certain terms. If the lender commits hundreds of thousands of dollars to a certain borrower during the 30 day lock period, but the borrower does not qualify or the loan package is a duplicate and eventually the loan goes to another bank, the lender is really out thousands of dollars. The opportunity cost of committing funds to a loan that does not close is huge.

So the take away for borrowers is that it is a good idea to get your paperwork together and work with a broker or banker to get your loan package complete and ready to go so that when the rates rach a point where it is economical to refinance you can lock and close fast. This means doing you homework on the appraised value of your home in this market. Some values have gone down, so ask your broker or banker to do a product profile. This will include several moarket comparables and be an estimate of the value an appraiser will come up with. Do this before you ask your broker or banker to lock a loan. Also get your financial records organized so you can easily fill out the Uniform Loan Application (form 1003) and supply the backup documents to the underwriter.

I have been offering to do a free product profile analysis and assessment of current loan for prospective clients. This has been very beneficial for them since they know whether or not to be concerned about the need to refinance right away. They are less stressed and are more strategic in their mortgage decision making. Just because a banker says we’ll refinance your loan with no points and no closing costs, do not assume it is the best  decision. Some bankers are expecting homeowners to refinance during 2008 and simply want to lock you in to their bank for the refinance. This is not necessarily a bad thing and if you get the right rate at no fees and no closing costs you should be congratulated. But, how do you know it is the right rate? You’ve got to get your broker or banker to help you make a decision based on long term benefits to you, not just a reflexive knee jerk refinance when the rates drop a little bit.

ICG Mar 1-2 Real Estate Investment Conference in Burlingame, CA

I attended the ICG two day real estate conference this past weekend and it was eye opening. ICG brought together realtors representing 17 real estate investments. Land from Arkansas, Texas, Georgia, the UK. New single family homes in Orlando, Florida,  Charlotte, North Carolina,  Atlanta, Georgia, denver, Colorado, Dominican Republic, Savannah, Georgia, Bay St. Louis and Jackson and Hattiesburg, Mississippi, New Orleanms, LA, Oklahoma City, Oklahoma, Tulsa, Oklahoma, Raleigh, North Carolina. Special packages were offered such as no-money down land, new homes with deep builder’s discount, Gulf Opportunity (GO) Zone. Special techniques were offered such as non-recourse loans to buy properties with self directed IRA, increasing cash flow with residential cost segregation reports, lifetime financial strategies by coordination of insurance and real estate investments, delaying and minimizing taxes with proper planning. A special loan program offered from MacQuarrie bank in Australia offers accelerated loan payoff by combining a homeowner’s special bank account with a home loan and paying interest on deposits in the acocunt at the same rate as the home loan. This loan pays on the float in the bank account and motivates borrowers with strong cash flow and a savings habit to accumulate extra funds in the account and lower principal and hence interest payments. Readers of this blog will recognize this loan model as the same as the Home Ownership Accelerator from CMG Mortgage and GMAC Bank, an American bank. www.cmghome.com  Naturally I am able to help people understand and benefit from this innovative loan model. www.cmgcobblestone.com

One very interesting investment option that would especially appeal to beginning investors was called “Share the Wealth”. It is an equity share program offered by Missy McCall-Hammond, President & Founder of TurnKey Investments of Hamilton, Ohio. (www.turnkeyinvestments.biz) Think of being able to purchase a home in the $150,000 range in Southwestern Ohio, the Cincinnati-Dayton metro area, the only Ohio metro area to rank in the top 100  in Forbes Magazine’s “Best Places 2000″. The home has already been rehabbed and rented to good tenants. The net investment would be $3500 in closing costs and securing a 90% loan. You use your good credit to qualify for the loan and take advantage of all the income tax depreciation. The payments of principal, interest taxes and insurance are covered by your property manager partner who also takes care of renting the home to tenants and in fact handles that for you so there is no risk to you for coevering vacancies. You share any needed capital expenses 50-50.  The property manager partner gives you an immediate 5% of purchase price option for the right to purchase the home at mutually agreed terms in 5/10 years so half of your 10% downpayment comes back to you immediately at escrow. Missy even had a special additional offer that returned the other 5% back as well, but I am fuzzy on it so you’ll have to ask her. Then after five years you split the equity appreciation 50-50 after any paydown of principal is credited to you.  This is a win-win investment opportunity in a part of Ohio that is economically healthy with good rental  and appreciation prospects.

In my opinion, this is an investment “partnership” model that makes good sense for investors who take on the property manager role and for investers who take on the financer role. When I bought my second home I was married and we had a second income so we could afford to keep the first home that I bought as a single person and rent it out. But the third  house stretched us financially and we sold the second house to buy the third. Big mistake. In fact, if I had thought about partnering when I bought my third house, I would have kept both my first house and second house and rented them both out. I would have brought in investor dollars to the partnership through equity share which would have enabled me to purchase the third home. This would have been only a slight modification of what Missy Mccall-Hammond is doing, but would have been doable. Since at that time in my life I bought a truck anyway and got involved with my own home rennovation and maintenance, I could have easily taken on the property manager role. I did not have a lack of cash really. I had a lack of ideas.

I recommend first time investors dip their toes into the water and contact Missy.