Recent Fed Rate Cuts are music to my ears.  In my estimation, the Fed increased rates far too swiftly and far too high over the last couple of years.  Today’s rate cuts bring us back to the lowest level they’ve been since December 2004.  Recent talk of recession and mounting foreclosures have induced the Fed to cut rates at a rapid pace.  Whether you’re a homeowner with a home equity line of credit, or a commercial borrower who floats with a Prime based product, you will save interest costs as a result of these recent rate cuts.  Investing in this market has become incredibly exciting.  I have purchased several homes lately as the perfect storm of Falling Rates, Falling Prices and Increasing Rents has forced my hand.  If you’re not buying now, you’re almost certainly missing out.  The “bottom” is difficult to gage, but I have to imagine that my experiences are an indication that the bottom is here, near or passed us.  A recent up tick in the amount of competition for these units has signaled to me that investors are nearly forced to take advantage of these incredible opportunities.  Many investors who were unilaterally focused on buy/sell or “flipping” crashed and burned.   For those of us who realize that successful real estate investors own (and hold) real estate, this has been an incredible opportunity.  If you consider the following, you will see why I have always done extremely well with real estate in both “good” and “bad” markets.

“Bad Real Estate Markets” are largely caused by Interest Rates Increasing = Prices go down, Rents go up
“Good Real Estate Markets” are largely caused by Interest Rates Decreasing = Prices go up, Rents go down

In good markets, I can sell projects that I’ve purchased previously and generate profits.  In bad markets, rents typically increase in collaboration with interest rates dropping, which results in better cash flow.  Either way, as an investor, money can be made in either “good” or “bad” markets.

There are some qualifiers that allow this process to work for me, and should help guide anyone buying investment real estate.

1. I buy low end real estate - I have 2 nice homes…both are for personal use.  I have 18 other homes ( I have had as many as 31 at one time) that are all valued under $250,000, most of which were purchased around $100,000.  These homes are generally in Aurora, Elgin, Joliet and Dekalb.

2. I rent the properties out - With rentals I’m able to cash out (refinance all of my invested capital, often creating even more capital  at my disposal) and cash flow, which allows me to utilize the banks money rather than my own.  Another key to my success is that I take advantage of the taxation surrounding long term capital gains.  Much of my income comes from the sale of homes I have purchased previously.  This income is taxed at 15% rather than my ordinary income tax bracket.

3. I don’t get emotionally attached to homes - When I want to sell a home, I simply price it right and sell it.  I don’t argue with the market.  I don’t demand a price.  I simply take what I can get.  With that being said, I also don’t “need” to sell anything.  If I “need” capital, I often borrow from my portfolio rather than selling my portfolio.

4. I have multiple income streams - Many folks wonder why I broker these homes, rather then buying them myself.  I broker 100 - 200 homes per year.  There is no bank around that will lend me $10M - $20M.  They will however lend me several million.  When I reach their lending limits or comfort level I focus on brokerage.   My brokerage business is a lot like many of my investor’s full time jobs.  Real Estate is likely a 2nd or 3rd profit center for most investors.  For me I need both Brokerage (Income for the Banks) and my projects.  My typical project yields me 5 to 10 times what brokering a project yields me, so it is advantageous for me to actually own the project rather than brokering it, however there are limitations to my purchasing power.  This is one of the principles that has kept me successful.  I never stopped “working” simply to invest.   A key here however, is that I’ve also never stopped investing either.

5.  I have stayed with what works - In 2005 many of my peers started building homes and focusing on high end real estate.  I’ve never built a home, although originally I wanted to become a custom home builder.  I did not however do this because the risk was not justified.  I could buy a lot for $175K next store to my home, general the project, build the home for roughly  $100 - $125/sq. ft.   4500 sq. ft. later I’d owe $625,000 - $740,000 on a home that is not rentable.  That same $625,000 could be used to buy 6 or 7 rentals, that would almost certainly yield $7,000/mo. in rental income.  This safety net of rental income provides me incredible security.  At the high end of the spectrum, you are limited to selling the home.  Having a plan B is priceless.

Prices are down, Rents are up, Rates are low.  This is the perfect storm for investors.  Now is the time to buy.  We have a small window of availability to really capitalize.  Coupled with our creative programs, you can really make hay while the sun shines.  Rates are going to drop 50 to 100 basis points (1/2% to 1%) today.  This translates into great cash flow potential for investors.

If you are interested in participating in a Joint Venture, Mass Consumption, LLC can partner with you.  You can use our line of credit to fund projects that we send out.  There are a wide variety of structures available.  Utilizing this partnership can be a tremendous opportunity.  You may be able to purchase real estate with very little cash out of pocket.

Our typical structure works as follows, on a case by case basis:

Procurring Partner (Mass Consumption LLC) provides funding for the project.

Managing Partner (Investor) will ultimately refinance the project and take advantage of the benefits of owning real estate.  Appreciation, Cash Flow, Cash Out and Tax Benefits.

• 90% of the Purchas Price will be funded by First Choice Bank, utilizing our Line of Credit.

• A Procurring Partner (Mass Consumption LLC for example) will provide you with funds for down payments (and in certain circumstances, rehab funds).

• As a Managing Partner, it will be your responsibility to manage the project and refinance the home in your own name (or legal entity) within 90 days.

• As a Managing Partner, you will have full ownership rights of the property upon refinance of the orginal partnership.

• Initial costs are limited to the Series LLC (typically $5,900 - $8,900).  You can put the Series LLC costs on a credit card if you’d like.

• Your 10% down payment will be provided for you at close.

• You can either put the rehab costs on a credit card or pay cash (in special circumstances the Procurring Partner will fund the rehab).

• Partnerships are limited to our projects.

• You will need a good credit score (680+) and solid income to qualify.  You will need to be approved with one of our lenders to refinance.

• If you have not refinanced the project within 90 days, you will make 1 interest payment and be allowed another 90 days.

• If you have not refinanced the project within 180 days, your interest in the property will be disolved.

The purpose of these Joint Ventures is to allow investors to buy real estate with as little cash out of pocket as possible.  The costs for this venture vary by project, but typically range from $5,000 - $10,000.

Investors are always struggling with finding banks who understand foreclosure investing.  My investors tend to have great success with Banks who understand my process.  The reason?  I spend countless hours meeting with banks and appraisers to explain our program.  After nearly 8 years in the business our track record speaks volumes.  At this point, we have banks competing for our business.  Currently we have several banks that will provide my investors a 90% home equity loan on investment property.  This program is VERY competitive in a VERY conservative market.  It’s important to understand our process and experience when working with banks and appraisers.  No matter how much success we display, appraisers tend to be conservative in order to protect themselves.  My front end research regarding comparables should more than justify our numbers.  In any market, good or bad, we do our homework on the front end to justify our values.  Every house we send out, will come with comparables homes that have sold recently.  Many appraisers will need to see these comps and consider them when preparing their appraisal.  Many appraisers will mistakenly provide comparables that were also sold in foreclosure.  This is an extremely common and a grossly inaccurate practice.  Appraisers need to consider the rehab that was done to the property.  They also MUST look at recent, sold comparables.  When these 2 things are considered, our process is very accurately displayed through the appraisal.  If you ever have an issue with an appraisal, call us!  We will fight on your behalf to defend our accurate values and assist you with the explanation of our values to the appraiser.  We can also refer you to appraisers who have experience with foreclosures.  If a retail (often conservative and inexperienced wtih foreclosure) appraiser is involved, the appraisal will inevitably be inaccurate.  I highly recommend using an appraiser with foreclosure experience.  Call us for the name and number anytime you are working to cash out refinance a property or obtain a home equity line.

I was contacted by Caroline Kim in response to the media frenzy surrounding foreclosures.  Check out the article here.

The article was great, but there are some miscommunications…I do not fault Carolin one bit however, as I do speak pretty fast and the interview must seem like a million numbers being thrown around.  I have not personally totalled 150 foreclosures, I sold 150 foreclosures in 2007.  I personally have owned up to 31 homes at once, which is quite a lot to manage.  Currently I own 15 homes, 5 of which are under contract for sale.  The final comment is perfectly accurate however…I don’t have a single stock, just cash and houses! 

Here is a great clip of Robert Kiyosaki (Authur of Rich Dad, Poor Dad) and Doug Crowe (founder of a successful real estate education and training program Springboard) discussing the value of holding real estate.  This is one of our basic principles and seems to be a common theme among successful real estate moguls.  I have been preaching the value of holding real estate since I started in 2000.  This is a great clip, enjoy.

What does another rate cut mean to investors? It means that the Fed is making a serious attempt to curb the struggling real estate market.  By lowering the fed funds target rate to 3.0%, the Fed has established a sincere effort to remedy their overzealous increases of the recent years.  The theory behind raising rates 17 consecutive times, was to hedge against inflation.  Inflation is extremely difficult to gage, and in all honesty, I have a hard time depending on the government to accurately gage inflation. In my opinion energy costs and gasoline are the major source of inflation in the country.  As we continue to see interest rates cut, this will ultimately help the US economy and will ease some of the “inflation” that the average Joe feels. 

I studied economics at the University of Illinois.  The theory or idea that increasing interest rates curbs inflation may be valid, but I have another perspective.  As rates go up, as they did from 2005 to 2006, this hurts the average American’s pocket book.  Think about it.  Credit card payments go up, home equity loan payments go up, and ultimately this cannibalizes the paychecks and pocket books of the American people.  I understand the theory, I really do. My argument here is that we (and the Federal Reserve Bank) need to examine rates and inflation in a different way. Inflation is defined as the increase in the price of some set of goods and services in a given economy over a period of time. It is measured as the percentage rate of change of a price index.[1] 

In my opinion, the price of milk, cars, food, etc. has not increased or “inflated” beyond a reasonable scope. The price of money however was “inflated” drastically from 2005 - 2006 and was kept artificially high in 2007.  By the 7th time rates were increased, I felt as though the Governmet/Fed was egregiously overreacting.  I predicted that this was a foolish move that would ultimately hurt the US economy.  Many made the same prediction.  Many people, as I do, feel that the Fed typically overreacts.  It’s just my opinion, but the fed funds rate cuts to 1%(post 9-11) was aggressive. With all the uncertainty post 9-11, I did feel that it was deemed as necessary and prudent. The increases in fed funds rate (and ultimately the prime rate) from 2005 - 2006 was excessive, to say the least. Economic growth has slowed, the “R” word is everywhere..and here we are cutting rates again.

So what does all of this mean to us as investors. This means that the softening economy has forced the Fed to lower rates, which will cost the average Joe and the average investor less to own their home.  Rates go down, prices tend to go up.  We’ll see if this happens.  It’s my opinion that 2008 will be a year full of incredible deals and incredible cash flow opportunities.  I’d suggest fixing your rates with Prime for the remainder of the year, for short term real estate transactions.  For your homes and your long term holds, I’d recommend locking in longer term products.  I have a 30 yr. interest only loan on my home.  Great product! The majority of my investment real estate is fixed at 7% until early 2009.  If you are investing in our program today, First Choice Bank, will fund your purchases at 90% with a prime (Currently 6%) floating product.

I have said this over and over again, “NOW IS THE TIME TO BUY”. Our average foreclosures is priced at $100,000. At 6% interest only, your payment will be $500/mo.  Add in your RE taxes and Insurance, and you’ll likely be around $750/mo.  Our average rents are $1,100.

With just 10 purchases, you could be cash flowing $3,500/mo.  This will likely take care of your personal mortgage and maybe even your car payments.   But Josh, What if Prime jumps back up?  Well that’s a great question.  We don’t know when rates will go up, but if you were to fix rates now you may pay a slight premium.  That being said, your cash flow situation will likely remain tremendous, as the mortgage crunch has forced first time home buyers to remain renters.  Take advantage now, the opportunities are abundant.

One of our goals here at Robert Anthony Real Estate is to protect our investors.  Through Series LLCs we are securing an incredible level of protection for our investors. Each property should be run like a separate business, each property’s expenses and income will flow through their respective bank account.  If you feel this is excessive, no need to worry, you can combine LLCs via quit claim deed if you would like.  The reason we are so adimate about utilizing Series LLCs is that this process provides an incredible level of protection for investors.  A wide variety of potential law suits may largley be covered by your home owner’s insurance policy. This is our first line of defense.  Our second line of defense is the Series LLC.  If you really want to protect yourself there is a 3rd recommendation that I could give you.

If you are having a roof installed, it’s always a good idea to have yourself added to the Roofing Contractor’s General Liability Policy AND their Workman’s Comp Insurance.  There is no cost to do this, (I just recently did this) and it provides another level of protection.  There are all sorts of ways that you can protect yourself, but in my opinion these 3 layers of protection, in conjunction, are nearly iron clad.

Nothing in this world is certain, but these 3 steps will be a tremendous way to indemnify yourself, and allow you to sleep easy at night. 

According to foxbusiness.com, foreclosures were up 79% in 2007.  That may sound like an extremely high rate of foreclosure, however a further analysis may provide a different perspective.  Obviously, foreclosures are up, but if you were to listen to the media, you may think that 50% of the U.S. housing market was in foreclosure.  According to the article from foxbusiness.com, more than 1% of all U.S. households were in some phase of the foreclosure process in 2007.

While 1% is quite an increase from 2006, I’m amazed that the number is that low!  It’s shocking. My amazement may be due to the fact that I deal with foreclosures daily.  Maybe I’m so entrenched in this business, that my perspective is skewed.  Or…maybe the media has covered this topic ad nauseam.  I’m guessing it’s the latter.

I’d like to thank all of my investors for the great turn out we had for our Seminar/Party.  Despite the weather, there was a fantastic showing from current and new investors.  If you were not able to make it, please call to set up a one on one meeting.  It was a great night that was full of new networking connections and real life stories.  Some of the highlights of the night were our testimonials to the strugles and successes that go along with this business.  The footage below is a brief clip of the night. 

Our raffle was a blast this year, with 11 winners.

9 Winners - $250 Gift Certificates

2nd Place - $1,000 Gift Certificate, went to Dan Pigatto

GRAND PRIZE - 42″ Panasonic Plasma HDTV Flat Panel, went to Trigon Properties

Thank You for joining us!

I am pleased to announce our new 100% financing program.  I assure you this program will revolutionize the way we invest.  First Choice will continue to finance our initial purchases at 90% (First Lien), while a private funding company will allow my investors to borrow the remaining 10% (Second Lien).

This will basically work like a 90//10 loan.  Funds will need to be paid off via refinance or home equity loan within 90 - 120 days, well within our standard time frame.

I could not be more pleased with this program. There will be credit and income requirements, but they will be accomodating and facilitating for my investors.  The costs for the 100% financing will vary depending on credit.  Typical costs will be $1,400 - $1,900 for the additional 10%.  This is EXTREMELY competitive pricing for 100% financing on a foreclosure.  This is the most innovative program I have ever seen, in fact there is no other program like this in the business.  This program will allow you to purchase multiple properties, grow your portfolios faster and capitalize on Other People’s Money.  This program further distinguishes Robert Anthony Real Estate as the leader in foreclosure real estate. 100% financing is available to approved borrowers and is limited to our projects.  

I will be out of the office 12-5 to 12-18 due to my upcoming wedding, we will have office coverage for pending transactions and questions.  Thank you for a great 2007 and I look forward to seeing you all at our post holiday party in early 2008.

Happy Holidays!