Debt Free as easy as 1, 2, 3!

In my last post I talked about the seriousness of debt in America.  I was …and still am… incensed that the Treasury and our government think that the only way out of our current economic crisis is to have Americans spend more!  It’s craziness!

I have taken a new approach and it is unbelievabley exciting.  I am using technology to get myself out of debt.  If you have a moment I want to tell you a little story about my own situation.

You see, I own a mortgage company, and we’re not doing so well right now.  LOL.  But that’s okay, I’m blessed with a beautiful wife, good health and the God given talent to know when I have to change my business and my life to succeed.

I own a home in the burbs and two investment properties.  I have about $20K in debt associated with my business.  Total all the money I owe and it is over $750,000.  That’s three quarters of a million dollars!  It’s a little daunting to think I owe this much money, especially since I’m not wealthy by any stretch of the imagination.

My rentals break even every month, my mortgage biz is in the tank and my wife got laid off from her architecture job.  Thank the good lord above for the severance package.  Anyway, we would love to lower the interest rate on all of our mortgages, but with an income equal to our debt payment every month, we don’t qualify.

So I sat down to try and figure out how I could get out of debt.  Sell the rentals?  Not in this market, I’d take a huge loss.  Sell the primary, same thing, and I lose all that equity.  Then I found a better answer….

Technology!

There is a lot to be said about technology and what it has done for our country and our standard of living.  Now there is a tool that can help me become DEBT FREE in a very short period of time.  Under my current repayment structure, I will be debt free in 35-37 years (that’s because of some of the interest only mortgages I have.) 

However, using this software and paying my bills the way the software instructs me to, I can be DEBT FREE in 16 years without changing my income structure.  How is this possible you might ask?  I know I did, I couldn’t believe it!

Well I did some research.  The software recognizes long-term debt in two categories, open ended and closed ended debt.  In the closed end debt your interest payments are static and are set on an amortization schedule that gives the advantage tot he bank.  You pay them the interest first and the majority of the principal is paid at the back of the loan.  Good for the bank, bad for you.

In an open ended loan, an equity line or a credit card, the interest calculation is dynamic.  Interest is calculated based on the average daily balance.  The software picks strategic times throughout the year and within the am schedule of the closed end loan and uses the open end debt to pay off chunks of principal in the closed in loan. 

This strategy is important because the larger the chunks of principal that are paid on the closed end loan, the more principal reduction you will achieve with the regular payments on that loan.  Once the debt is transferred to the open end loan, the software has you transfer income into that loan to lower its balance immediately.

At first blush this sounds a little scary, but here’s the important part.  You pay your monthly bills out of the open end loan.  This has a two fold effect on your debt.  First, it lowers the average daily balance of the open ended loan.  This means that you are actually paying a lower effective rate on the principal balance that was ‘in’ the closed end loan.  Second, it gives the ability to operate your home finances in the same fashion you always have, there is very little change to the way you live your life.

Under this program I will save over $450,000 in interest payments.  Even if I sell the investment properties in 7-10 years, I will increase the equity in those properties by more than 10 times the current schedule!  That will mean hundreds of thousands of dollars in my pocket.

Do you want to be DEBT FREE?  I am so excited about this program I have added it as a product in my company.  If you can’t refinance and you want to get out of debt, or if you can refinance and create lower payments and you want to use that payment savings to get out of debt faster, I would like to show you what I can offer.

Give me a call and become debt free today.

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

Don’t Play the Rate Game!

Don’t playt he rate game, here’s why!  The chart to the right shows the 10-Year Treasury Yield for October 8th, 2008.  The Yield shot up to 3.72%, up 21 basis point from the previous day!

How could this be possible?  Didn’t the Fed announce that they were dropping the Fed Funds rate by 0.50% today?  Didn’t that reporter just say that rates were lower and this was being done to heat up the economy?

Now everyone is demanding a lower rate!  After all the Fed just lowered the rates and everyone should expect their rate will be lowered too!  Correct?

But hold on just a minute.  That’s no really how it works.  You see the Fed Funds rate controls short-term lending.  This would be the rates tied to your car loans, furniture and appliance purchases and credit card rates.  If you want a lower rate on something, call that credit card company and demand a lower rate from them.

Mortgage professionals deal in long-term rates.  These rates are set in the MBS (Mortgage Backed Securities) market and they closely follow the yield on the 10-Year Treasury Bond. (see the chart above)  As you can see the yield on this bond jumped drastically.  A 20+ basis point jump is unheard of in a market that thinks a 5 basis point swing is volatile.

In layman’s terms, this means that the interest rates on long-term debt is increasing today, not decreasing.  Let me try to simplify why this is…..

When people buy bonds they are seeking two things; safety and income.  When the Fed lowers the interest rate on short-term debt they are trying to stimulate the economy.  Essentially there ain’t enough consumin’ goin’ on and they are trying to get the party started …..to coin a line from an old 90′s club tune…. let’s get this party start right! let’s get this party started quickly! RIGHT!

When the econ heats up you get inflation.  Inflation eats away at the value and the income of fixed assets like bonds.  So investors sell the bonds rapidly because they are better off putting their money under the mattress than having it in stocks or bonds at the moment.

So as these bonds get sold off rapidly the laws of supply and demand come into play.  There is an abundant supply of bonds for sale but a lack of buyers.  This causes the price of the bonds to decline rapidly.  As the price declines the yield increases.  Since long-term interest rates are tied to bond yields, BAM, long-term interest rise.

So for the time being rates on long-term debt will rise or in a best case scenario, the will remain unchanged.  If the economy continues to deteriorate we may see interest rates ease.  The bottom line is that you should lock in gains now.  If you feel that the rate you have chosen on your long-term debt is good then lock it down and close the loan.

In this credit crisis it is to risky to play the ‘rate watch’ game.  Make a solid decision about what is right for you, your family and your business and lock it in.  Then spend the next couple of years doing all that you can do to eliminate the debt as quickly as possible. 

And then let’s pray that whoever is the next President of our great nation understands how to get our economy moving again.

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

When the Roof Leaks Put a TARP On It

The night was stormy.  The wind was trashing and thunder was crashing and trees were falling all around us.  It was a horrible storm.  The rain was coming down in sheets and water flowed through a gash in the roof filling bucket after bucket with water.

The next day we surveyed the damage.  After pulling a huge tree limb out of the roof it revealed a gaping hole.  Something had to be done so a huge blue tarp was strung across the house.  It was a temporary fix but it worked until the roof could be repaired and all could be made right again.

In a way, this is what has happened to our economic system and isn’t it appropriate that the government would name the portion of HR 1424 Emergency Economic Stabilization Act that is designed to stabilize home ownership T.A.R.P. (Troubled Asset Relief Program)

Many people ask me what this bill is all about and the answer is complex.  You see the bill is about a lot of things.  Some of what is in the bill is important, however I am sad to say that there is a lot in the bill that is not.  So let’s focus on what is important in the bill and for the time being, leave the pontification of what should not be there to the pundits.

One of the most important parts of this bill is the TARP (Troubled Asset Relief Program).  The TARP is the portion of the bill that gives the Secretary of the Treasury the authority to purchase non-performing and under-performing loan assets from banks.  This huge fund should start to get all of the bad loans out of the credit system so that the real value of the loan pools that are performing can be determined.

The American economy, our financial house, has just been through a really bad storm.  The TARP is there to temporarily cover the hole in the rough until it can be fixed properly.  It is truly and temporary fix.

However, don’t fret, there is a portion of this bill that is designed to permanently fix the hole and put our economic house in order.  After the Sec. Tres. buys these troubled assets he has several tools he can use to transform the troubled assets from worthless pieces of paper into valuable streams of income.

• First, the bill gives the Secretary the ability to adjust non-performing loans.  The secretary can lower the interest rate, lower the loan balance or reset the loan to a 30 year fixed.  He can do one or all of these things to help the borrower stay in their home and to make the home affordable based on the current income of the homeowner.  This should allow the homeowner to start making their payments on time and should turn a non-performing asset with no value into a performing asset that can be sold for a profit.
• Second, the Secretary has the authority to insure the payments on the new loan.  If the secretary feels that the new loan would sell faster and for more money in the tertiary market if it were insured, the secretary can add a premium to the payment.  This premium would insure the loan for up to 100% of it’s payment if it went into default.  Essentially this means that anyone purchasing the loan as an investment would have no downside risk.

As I said, there is much more in this bill that can be discussed.  Much of it has to do with technical issues relating to how banks lend to each other and how they borrower from the Fed.  The bottom line is that the TARP is the major portion of the bill that will help homeowners and that will stabilize the real estate markets.

So we’ve decided to do something about the hole in the roof caused by the storm.  We’ve put a TARP over it to stop the damage.  Now let’s hope our politicians have the knowledge and foresight to take the next steps to do the hard work to remove the TARP as quickly as possible and truly fix the gaping hole in our economic house.

No Closing Cost Loans – The Truth

It is 3:00 AM Eastern Standard Time and I’m wide awake. I can’t stop thinking about that ad. It keeps rolling through my mind and I can’t stop it. You know the one….

‘Don’t pay closing costs. Don’t give those pimps your money. We’ll close your loan for free, No Closing Costs! Then we’ll manage your loan for you. We’ll sit back, watch the market and the when the time is right, we’ll do it all over again. It’s the biggest no-brainer in the history of man!’

Well, he’s right. It is a no-brainer! It’s a no-brainer for many reasons, but let me point out a few of the biggest reasons why.

No-Brainer #1:

What bank, mortgage company, lender or broker do you know that works for free? I can’t think of one. You are paying for that loan somewhere.

It is usually in the form of a higher interest rate. Even though the ad says they don’t raise the rate, check it out. Get their GFE (notice I didn’t say their rate quote, get a valid Good Faith Estimate) and compare it to someone that is charging you closing costs.

There WILL be a rate difference of between 0.250% and 0.500%. That equates to a lot of money over the next 7-10 years, probably much more than you would have paid if you would have just rolled the closing costs into the refinance loan amount and got the lowest rate.

Think about it this way. If the closing cost equated to $4,500 but you take a no closing cost loan with a payment that is just $50 per month more and you stay in the home 10 years then you just paid $6,000 for your closing cost. Does that make any sense at all? Now imagine the payment is $100 per month higher, that’s $12,000 for closing costs that should have cost you $4,500.

No-Brainer #2:

If you are purchasing a home don’t do a No Closing Cost loan with any lender. There is no need to take a higher rate. In this buyers market most sellers are willing to pay your closing costs for you! Now that is the REAL No Closing Cost Loan.

No-Brainer #3:

Manage your mortgage for you? What kind of lunacy is this? Sure the mortgage is a financial tool, but its not a mutual fund or a stock portfolio. It is DEBT!

Who knows how to manage debt? Well, almost everybody with any since knows how to manage debt. If you think you don’t then here’s a true FREEBIE for you! I’m not going to charge you a dime for this little gem. Ready?…..

You manage debt by paying it off! And in this economy you pay it off as quickly as possible! You can’t get the return in the stock market equal to getting the lowest rate possible on all of your consolidated debt and then starting a 25, 20, 15 or (if you can handle it) a 10 year repayment schedule.

As I said, I can go on and on. The No Closing Cost loan is a huge no-brainer. For the lender it’s a huge no-brainer because they actually make MORE money off your loan because they can hide what they actually make in the loan. They never tell you how much money they are really making on your loan.

It should be a huge no-brainer to most of the public because it makes no financial sense at all. The only reason this type of loan exists is for those who plan to be in their home for 3-4 years at a maximum. For longer term stays you should look at low- and full-closing cost loans.

So don’t get tricked by fancy ads put out by slick operators. You don’t need a debt manager or a mortgage manager. Instinctively you already know what to do. Get the lowest rate with the lowest payment and then eliminate the debt as quickly as possible!

That’s the BIGGEST no-brainer in the history of the Universe!

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

Ladies and Gentlemen, Elvis has Left the Building

Do you remember the old saying; ‘Ladies and gentlemen, Elvis has left the building!’  The reason that the saying exists is because after an Elvis concert the concert hall would stay packed and people would not leave.  They would linger, not knowing what to do next.  Would he come back, was it all over, they had no ability to make a decision. 

Well, a similar thing has happened in the stock market and in the credit markets and everybody is milling around and wondering what to do.  Wonder no more, some important changes are happening and you need to take advantage of them.

The recent take over of Fannie Mae and Freddie Mac and the failure of Lehman Brothers and even the lifeline thrown to AIG have a positive side.  Even though our retirement accounts and stock portfolios are taking a beating, the stock market and bond market are finally working in unison.

Traditionally, when the price of stocks decline it causes the price of bonds to increase. This ying and yang of the financial world is caused by a desire by investor to find safe investments when the economy goes bad. Traditionally the fixed income Treasury Bond market has been the safe haven. But recent ‘structural’ problems related to the credit crisis had left investor with no place to hide.

Enter the Feds! The take over of Fannie Mae and Freddie Mac helped to right the markets. The take over caused a reduction in the spreads between the yields on Mortgage Backed Securities (MBS) and the Treasury Bonds. The actions by the government sent a clear message that our government would support our banking system and this caused the spreads to decrease to normal levels. Now this gobblee-gook doesn’t mean a whole lot too many people and explaining why this is important could take a whole day. We’re not here for an economics lesson so suffice to say that this is how the markets are supposed to work.

Many investors seeing that the markets are now working properly have begun to pour their dollars into the safety of government debt…..i.e. Treasury Bonds. As more and more investors purchase these bonds the price of the bond increases and as the price of the bond increases its yield decreases! Guess what happens to interest rates? That’s right, interest rates follow the yield. So as the yield decrease so do the interest rates.

This structural change in the market place has provided another great opportunity for home owners. Right now interest rates are below 5.5% – today they are as low as 5.25% on a 30-Year Fixed!(this is for a primary residence, of course the interest rates on an investment property would be slightly higher.) We don’t know how long this will last. Any sign of inflation, a weakening dollar or oil climbing above $110 per barrel could make all this opportunity melt away like butter in hot iron skillet.

If you know of any one looking to buy or who needs to refinance, they need to do it now. Don’t wait, get moving or get them moving before it’s to late.  Elvis has left the building and the entertainment hall is in turmoil. 

Don’t look back and regret not making a decision.  The exit signs are well lit.  You can be the one outside standing beside Elvis’ bus getting the autograph and adding value to your day just by being one of the first to make a decision.

If you have any questions please don’t hesitate to give me a call or to shoot me an email. I am here to serve.

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call him at 770-350-7373 or via email at mgross@dividendamerica.com

 

 

Real Estate and Your IRA

More and more people are becoming frustrated with the lack of growth of their IRA and 401K investments.  The stock market isn’t doing well and niether is the economy but there is one growth opportunity out there that many are turning to …. real estate.

With the proliferation of foreclosures, homes can be purchased relatively cheap and in many cases can be rented for positive cash flow.  The opportunity to purchase an investment at a discount and then have someone (a renter) pay for that investment for you is a huge draw in the current economic environment.

A large portion of the American investing public does not know that the IRA can be used to purchase real estate as an investment.  Others think that this is a tricky scheme.  The truth is that the IRS code allows for this type of investment through what is referred to as a Self-Directed IRA.

A Self-Directed IRA is managed by a custodian and the funds from the IRA can be used as a down payment to purchase an investment property.  The funds can be used for other real estate related ventures like lending to an LLC or consortium where the loan is secured by real estate or a business.  The funds can even be used to purchase mortgage notes.

The majority of investors use their IRA as a down payment to purchase a home.  This helps them to leverage a $50,000 IRA to purchase $100,000+ property.  Usually the benefits include positive cash flow of $150 to $200 per months as well as the ability to increase the value of the money invested in a relatively short period of time.

One scenario goes like this.  The investor invest $50,000 as a down payment to purchase a $125,000 property.  The property pays a return of $200 per month or $2,400 per year.  That’s a 4.8% return on the investment.  The property increases in value on average 5% per year.  The payments made by the renter provide the positive cash flow and reduces the balance owed on the mortgage.  At some point the property is sold.  If the property was held for 5 year then the estimated sales price would be $160,000 and the existing balance on the mortgage would be around $71,200.

Let’s do the math.  The investor’s input was $50,000.  He sold the property for 160,000.  He owes 71,200 plus he has to recoup his original $50K.  The gross profit is 38,800, plus the $2,400 per year for five years ($12,000) is $50,800.  Subtract approximately 7% of the sale price for transaction expenses and the gross profit on the transaction is $39,600.  The bottom line is the investor, using his IRA, has turned $50,000 into approximately $89,600.  That’s a 55.8% return over the 5 year period.  Not bad!

To read more about IRA investing visit my favorite financial information site, marketwatch.com.  Click this link: http://www.marketwatch.com/news/story/housing-market-beckons-more-invest/story.aspx?guid=%7B4740F69A%2D1CDE%2D4825%2D9122%2D7D7528968B61%7D

IMPORTANT NOTE:  A special type of financing is needed when you use your IRA to invest in real estate.  But, you’re in luck because I know exactly what you need and I can connect you with the people that can get it done for you!  Just email me or give me a call.

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please contact me at 770-350-7373 or via email at mgross@dividendamerica.com.

Fannie Mae and Freddi Mac Get Whacked

The rumors started Friday and by late Sunday morning (around 11:00AM EST) it was official.  Fannie and Freddie would be taken over by the Feds, placed under the FHFA (Federal Housing Finance Agency) and their CEO’s would be fired.  So Mudd and Syron’s name are mud!, excuse the pun.

Here’s what happened.  These two mortgage behemoths had a job to do.  Buy and guarantee mortgages in the secondary markets so that banks could make more loans and more people could own homes.  Here’s what their respective CEO’s lost sight of…..while it was their job to create a favorable market for making loans, in doing so it was their job to protect the system that was created to accomplish this goal.

Many secondary market investors, those companies that purchase loans from banks, followed the lead of Fannie and Freddie and the guidelines they set to approve loans.  Over the years these companies continually eased the approval guidelines in order to ‘compete’ for more loans.  If they would have never lost sight of the part of their charter that says ‘protect the system’ then we might not be where we are today.

The firings of the heads of these quasi-government, now government controlled corporations, is way over due.  Now let’s just hope that the Fed has put in two individuals that can wrap their minds around the idea that safey of the banking system comes first.

The good news is that Treasury Secretary Paulson and Fed Chief Bernanke are two very bright guys who are able to navigate the political waters deftly and who have slowly and methodically set plans in place to keep our economy moving through this turmoil.  Hopefully this is one of the final steps that was needed to give world markets confidence in the banking system and get things moving again. 

My fingers are crossed….

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please contact Mr. Gross on his direct line at 770-350-7373 or via email at

Housing Bill….Housing Debacle?

The Housing Bill passed both houses of congress with flying colors and now it seems that a threatened veto by the president has been reconsidered and he will sign the bill after all. So is the housing bill good or bad for America?

Let’s take a look at some of the finer points in the legislation.

· $7,500 Tax Credit – Yes that’s right, for those of us who buy a foreclosed home as a first time homebuyer, there is a tax credit. But wait, not so fast, the credit has to be paid back….

What, paid back? How is that a credit then? Sounds like Mr. Reed and Ms. Pelosi pulled a fast one. If you take the credit, you’ll have to pay it back in equal installments over the next 15 years.

· Increase in Conforming Loan Limits for Fannie Mae – Under the current system, home loans greater than 417,000 are considered to Jumbo Loans. Under this provision the new conforming limit will be $625,500.

This is good news for those of you were forced to take a Jumbo loan when you bought or refinanced your home in the past. If you have a loan amount between $417,001 and $625,500 it is time to investigate whether a lower rate is available! Call Today!

· FHA Revamped and Modernized – The good news is that FHA will be revamped and modernized and will act as America’s major subprime player in the mortgage market. The bad news is that the bill takes away down payment assistance.

If you are in trouble and on the verge of foreclosure, FHA may be the answer. Refinancing with an FHA loan is exactly what this new program is for.

However, if you are one of the more than 250,000 citizens each year that depend on down payment assistance in conjunction with an FHA loan, the Democrat controlled congress (you know, the ones who are ‘for’ the little people) just kicked you to the curb.

And, if you are a real estate investor, this means that your flip strategies with homes in the first time homebuyer market may be at risk. There are resources available to help you sell your homes using down payment assistance but they will now be very specialized sources and may require buyers to take certain home ownership courses to qualify. (for information on these sources visit dividendamerica.com and schedule a consultation)

The bill is a mix of good and bad, give and take. To be fair, this bill is more about giving stock market investors confidence in the mortgage market than about helping the everyday citizen.

As with all things government does, this legislation is a huge compromise that could have been better but is a step in the right direction.

For more information read the article on MarketWatch.com: http://www.marketwatch.com/news/story/fine-print-housing-bill-mutes/story.aspx?guid=8AA21F55-D848-4076-B9EF-282FEAD95B1D&print=true&dist=printMidSection

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please contact Mr. Gross on his direct line at 770-350-7373 or via email at mgross@dividendamerica.com

The Value of Time

Many people are worried about their home values. A recent study shows that home values dropped by 1.7% last month in 43 states. That’s the largest drop in recorded history. So what can you do?

First, don’t panic! Remember that real estate is an illiquid asset. In most cases non-liquid markets tend to stabilize faster than liquid markets. After all, you can make a run on a bank and you can dump a stock, but selling a home is a more drawn out process.

In historical terms, real estate has always been a long-term investment. In the final analysis, the home is much more than an investment; it is also a place of refuge, comfort and security for your family. If you are in a neighborhood with good employment, strong schools and low crime, time will heal the financial wounds inflicted on your home value by this economic downturn.

The value of real estate and the ‘investment’ aspect are a product of time. Most people achieve wealth in a primary residence from two forces that create equity and value. Over many years the market will incrementally increase the value of the home and the owner can pay off the loan on the property. This one-two combo punches up the equity in the home and creates a financial windfall for the owner in the distant future.

Homes that are located in good neighborhoods with positive histories benefit from patience and will be the first to retrieve lost value once the market perceives that the economy is okay again.

Focus on reducing the principal balance on your mortgage and on maintaining the quality of the property and the appearance of the neighborhood as a whole. Banding together with other concerned homeowners to maintain the integrity of the entire neighborhood will insure future value growth.

Patience and persistence are important. In this market the key to the return of your home’s value is time.

If you have specific questions or concerns about your homes value, the interest rate on your mortgage or the impact of an economic downturn on your market, please do not hesitate to call. We are here to help.