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 often contrast my program to the “safe” or “easy” returns I hear about in the stock market.  I believe with just a few minutes of analysis, you will see that our program consistently outperforms the market, and basically all other investment opportunities. The key is that our properties require very little capital to start (consider our $0 down program) and within 60 - 90 days, all (or more than all) of our investor’s captial has been recaptured.  Through cash out refinances, our program largely leverages the bank’s money, which is paid for by our tenants.  With $0 of our own capital in a project, the return is infinite.  Real estate can generate cash flow, cash out, tax benefits, and equity.  Our program is designed to generate a variety of each of the aforementioned benefits.   Here’s what the market has done since December 1999.    

In December 1999 The Dow was 11,497 Today, January 2008 The Dow is 11,971  

In December 1999 the S&P  500 was 1,469 Today, January 2008 the S&P 500 is 1,310

http://moneycentral.msn.com/investor/charts/chartdl.aspx?Symbol=%24indu&CP=0&PT=10  

That’s basically a loss over, nearly 9 years.  Accounting for inflation, both indices have provided a terrible return.   You may have timed the market and gotten in and out at the right time, but it’s largely likely that you didn’t.  Most investors can not time the market.  

The median home price in January 1999 was $164,800 (Keep in mind my investors buy foreclosures, which average 30 - 50% under retail values)

The median home price in Nov 2007 is $239,100 (The homes my investors and I buy average $110,000 - Less than half the Chicago Metropolitan Average and again at 30 - 50% discounts to retail values)

http://www.census.gov/const/uspricemon.pdf  

Over the same period, the median home price in our market is up 45%.  The fact that we purchase homes at significant discounts, more than accounts for vacancies and maintenance.  Our program is proven, consistent and provides safe returns.  The only major drawback is the liquidity factor, which has a downside as well.  It’s true stocks are more liquid than real estate.  Liquidity may seem like a benefit, however it is this reason that stock “bubbles” burst, and real estate “bubbles” deflate.  The liquid nature of the markets induce panic and sell off which runs rampant in today’s markets. The median home price may fluctuate, but there is no camparison to the volitility of the stock market.  From the peak of 2007, the Dow is down nearly 2000 points (nearly 14%).     Remember, real estate does require some effort and my program is not designed to be “Get Rich Quick”, but when I woke up today and watched the market, I was glad that I have 2 types of assets: Cash and Houses.

Recently, on my honeymoon in Kauai, I was a little fried from the sun and decided to hit the bookstore for a brief reprieve. I have been on a reading kick lately, as I’m in the midst of writing my book.  The more books I read, the more I realize that most "experts" typically offer vague, bland or even bad advice.  Whether business or real estate related (I only read non-fiction) I’ve been utterly disappointed with what I’ve come across.  Most real estate books are glorified RA-RA sessions that are a means of selling a product rather than providing successful and tangible advice to investors.  Needless to say, I’ve been disappointed, that is, until I read "The 4 - Hour Workweek".  The author, Tim Ferriss, has an incredible insight into productivity, efficiency and quality of life.  I highly recommend this book and have found his principles to be highly effective. 

I am a huge fan of communication via email, as phones are completely archaic, in my opinion.  A 30 second email often accomplishes more than a 20 minute phone call.  In my business, a phone conversation typically lasts 15 - 20 minutes.  Assuming I work an 8 hour day, that allows me to talk to a maximum of 24 people.  With limitless negotiation involving foreclosures, construction and leasing, I need to communicate with hundreds of people per day.  The moment "The 4 - Hour Workweek" delved into the principles of effectively using email, I was convinced that Tim Ferriss was not only bright, but shedding light on a subject that truly needed to be addressed.  Email has allowed me to communicate with banks, distressed sellers and investors in a highly effective manner.  I can send 1 email to nearly 1000 clients in a matter of seconds.  If I were to attempt to contact hundreds of banks and investors via phone, my business would have grown at a snails pace.  In order to communicate and broker nearly 300 real estate transactions a year, I have had to move nearly exclusively to email. 

While many people would prefer to speak with someone on the phone, I am simply not able to communicate via phone without some sacrifices. The best use of our time is effectively researching projects and negotiating improved finance structures on behalf of my clients. Initially, I was concerned that this would appear as a limitation on customer service.  However, over time I’ve learned that my investors appreciate effective communication, as much as I do. Better pricing and more aggressive financing options have allowed my investors to create incredible equity positions, cash reserves and cash flow.

Ferriss also delivers a highly effective proposal on "outsourcing your life". While this is difficult in a service based business, his principle remains true.  Through 3 assistants and effective use of my time, I am much more productive. Another offering from Ferriss, that I found to be extremely valuable, is that over worked entrepreneurs are less effective.  Over stimulation, multi-tasking and poor use of time are killers in business as well as real estate investing.  Remember the movie Office Space? Think about how effective you are when you are burned out, overstimulated or simply working to stay busy.  Ferriss does a great job throughout the book of providing tangible applications for his ideas and effective implementation strategies.

This book is a must read and will help you realize how you can shed meaningless hours of "work" with effective implementation of some basic principles.

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!

Typically when rates fall, prices soar.  It’s my belief, that 2008 will be a year filled with incredible opportunities.  For a very short time, I believe we’ll see price and rates falling at the same time.  Interest rates and home prices typically have an inverse relationship.  In addition, as rates decrease so do rents.

The bad part about the mortgage shake up, is the fact that buy-rehab-sell has become less feasible due to inventories and market times.  The good part is the following possibility for 2008:

Rates decrease (Highly Likely - The Fed has started this already)

Prices decrease (Supply of homes is up, demand will be down thus forcing prices down)

Rents Increase (The mortgage shake up and skiddish lenders will force more buyers to remain tenants, thus more demand will force prices up)

First off, “flipping” is a term that is grossly misused.  Most people and investors confuse “flipping” with rehabbing.  If you buy, rehab and sell a property, you have just “rehabbed” a property.  If you buy and then sell a property at a profit, you are “flipping”.  Flipping is acquiring and selling a property in a short time without making improvements.  The goal of course is to make money.  I know 2-3 people of the thousands I have met that actually have success flipping.  There are several reasons why it’s difficult to flip properties.  We’ll examine that later.  For our purposes now you’ll need to realize that flipping is a fairly advanced process that is risky and requires a huge network of end buyers as well as incredible resources.

Check out the video below to see the process of rehabbing a house. This is a house I bought in Naperville, IL, and I went out there a few times to take before, during, and after video. I ended up flipping the house because the area and market called for it, but this is the exception, not the rule. I rent out my properties 99% of the time.

The YouTube version below is the abridged version. Please contact our office if you would like to see the extended DVD version.

You will need to download the Flash Player to see this video.

Every day, every month, every year, people put money into the stock market. Where does it go? If we put money into these companies and these mutual funds, why doesn’t the stock market go up? The answer is, corporations use our capital for investments! Yes, they invest your money in their companies. Why not invest your own money? Do you mean to tell me that someone else knows better than you, where your money should go? Mutual Funds are for Old Ladies.

Why is it everyday corporate America puts 3%-5% of their paycheck toward their 401K? Because the company matches it? OK, consider the following:

That is assuming a 10% return!

Practical Math

The $5,000 in the above example is roughly what I started with. I got a job after school and saved my checks until I had 3% down for a first time home buyer program. I purchased a home that people laughed at. They told me I was crazy, that I couldn’t sell it, and that my ideas were simplistic. While I didn’t set out to prove anyone wrong, I did just that. I purchased it for $142,000, and sold it for $190,000. I grossed $48,000. That was more than my annual salary at the time. Needles to say, I was on fire for real estate!

PS - My Return on the $5,000 was over 500%!!! Corporate America and Mutual Funds can’t match that.

I will say this again. We are not investing in a piece of paper with numbers on it…we are investing in an asset that increases in value!!  This article is a great confidence builder for those of you who are on the fence!!

If the specter of a real estate crash keeps you up at night, here’s something to dream about: The biggest construction boom in U.S. history will unfold between now and 2030. According to a new report from the Brookings Institution, nearly half of the residential and commercial structures needed by 2030 — about 100 billion square feet — have yet to be built. That estimate includes 60 million new housing units.

So how do you bet smart on the next residential real estate boom? One way is to look at how the nation’s top homebuilders size up new markets.

The magic formula centers on job growth, says Bob McLeod, CEO of Newland Communities, the largest residential community developer in the United States. The $4 billion privately held company owns top-selling developments in five red-hot real estate markets — Phoenix, Sacramento, Southern California, Tampa, and the Washington, D.C., area. Before Newland buys a plot of land, McLeod says, the company’s researchers pore over job forecasts for the region, looking for a minimum of 5,000 to 10,000 new jobs created annually over a decade. If it’s below that, he’ll pass.

Nearly as important is job diversity. In the Tampa area, where 30,000 Newland units appreciated an average of 25 percent in 2004 (the average for the region was 10 percent), McLeod expects to continue developing for 10 years, because farming, the military, port operations, and technology are all driving job growth. No single industry dominates, so the pool of potential buyers doesn’t dry up if one sector takes a big hit.

By Michael V. Copeland, Damon Darlin, Matt Smith, G. Pascal Zachary,  February 16, 2005

So where would McLeod like to break ground next? California’s Orange County, Dallas, Houston, and Minneapolis are all on the list, as well as secondary cities like Atlanta, Charlotte, Portland, Ore., and Raleigh. Says McLeod, “All these places are bubble-proof.” – M.V.C.