There are numerous methods of determining the best methods of handling our money that didn’t exist a decade ago.  Most of us have personal computers at home that can be used to assist your financial development.  There are many software programs that can help guide you by showing where your money is currently going.  These programs can help you determine the best methods of using your cash to enhance your investments.  Determine how much is coming in, how much is going out and establish where the money is going.  It’s really that easy.  Once you know those facts, you can make your adjustments.

One question that you really should ask yourself is whether the investment methods you use are actually working for you to build financial wealth.  If there have been problems, changes in the market trends, an alteration in your personal lifestyle (a new baby, a recent move, a new job, you’ve just married, just divorced) then make the necessary changes to make sure your money is working to fit your life’s changes and goals.  Interest rates are down today and it may be time to consider refinancing your home but only you know whether that’s something you should do or not.  Plus, make sure you build at least three to six months worth of living expenses, if you don’t already have that amount put away safely. 

Other areas of interest to your personal financial life include your insurance coverage.  If your agent hasn’t called you recently, pick up the phone and dial your agent’s office and request that you take an inventory of your coverage (home, life, auto) and adjust where needed.  For goodness sake, examine your credit report at least once a year.  It might be a good idea to actually contact the credit agencies twice a year, especially if you are about to make a major purchase.  

Just as you need to develop and then redevelop your short and long term goals throughout the year, so it goes with the state of your financial well-being.  This should not be an unpleasant chore but rather something enjoyable.  Remember, by conducting these occasional checkups, you are insuring that positive financial results are more likely to be attained. 

Anything can happen throughout the year (as this year has shown), which can force you off your fiscal course.  Events that can make a difference in your life occur at a moment’s notice.  Just make sure that when unforeseen events occur, you make the needed corrections that will rebalance your financial life.  Plan to make a quick check every three months or so.  This is all part of goal setting that I believe is so important to leading a balanced and prosperous life.  Stay focused and make sure you perform your personal checkups on a regular basis. 

It seems that the real estate market runs in cycles, about five to ten years.  We just got through a big one where everything was going up.  Homeownership in the U.S. has risen to nearly 70 percent.  Now we are on the down side and we are already near homeownership levels of 1985.  The time for rentals is back.

But what you will see is that most of the apartment buildings that sprung up during the last great rental period have converted to condos, and thus have started to experience foreclosure.  Today we are facing a huge inventory of foreclosed properties, and all of the people that lived in those properties will be looking for places to live.  Why not in your condo or home?

The next great real estate cycle is now at your feet.  When is the best time to get into the real estate rental market?  How about when interest rates are low and prices are even lower?  Ah…..would that be now?  I think so.  Now what we have to do is get creative and we have to find out how to get into the market using leverage or better yet – cash.  I personally have begun a life of living debt free, I simply believe that cash is king and credit will enslave you.  However, with that said, leverage and finance have their place and you may not be able to run out and pay cash for your next rental property.

There is no question that buying bank-owned properties for cash will get you the best deals, but banks are now more motivated than ever before to get real estate they own off their books.  They are motivated by their own business model and oversight by the federal government.  So, these banks are more willing to loan you money now than ever before.  Laugh out loud if you will but it is in their best interest to do so.  You can get creative and work some pretty good deals out with them and they will be the bank.  It is better for them to loan you the money on the house than to have the bank sit on it.

The way this cycle will work is that you can go out buy a house or a condo for dirt cheap prices – I mean 30 cents on the dollar.  Remember that the real estate market will run in cycles (trends, if you will).  On average a typical home in the U.S. will double in value every eight to ten years.  And we saw that prior to the last pull back.  If you bought or buy at the end of the cycle you can get hurt, so we buy our home now when prices are at an all time lows; we rent the home and start using the strategy in which we pay extra principal payments.  With interest rates so low you should be able to have enough extra principal payments that will allow you to pay this home off in eight to ten years. 

You are then sitting on a piece of property that is 100 percent cash flowing, even if the market pulls back again you will still have cash coming in with little overhead which will allow you to make the next cycle.  But this is the best part, let’s say you buy a home for 50 cents on the dollar.  Say a $200 thousand home that in today’s value is $100 thousand. Believe me, you can get them for far less today.  Over the next 10 years you pay it off and the value of the home increases to nearly $400 thousand.  But you own it free and clear; so let’s say you have another correction.  It would have to go a long way down before it really starts to affect you because you own it free and clear.  Even if it went back to 10 year lows you still have equity to pull out. 

On a side note you can always get a mortgage or refinance later and pull cash out to invest tax free later.  Although this is not a debt free type of mentality, there are circumstances when leveraging money will be to your advantage.

With all that said, keep looking for more articles from me on this subject as I am personally doing this.  I love real estate as a way of diversification and now is the time to make your next fortune in real estate.

Happy investing,

James Dicks

I am probably not the best person to talk to about credit, or at least the credit bureaus; since I believe the credit bureaus are the biggest scam of all.  I mean they give you one free credit report a year so you can see what’s on it, but that only happened after they were forced to do so.

I pay for credit report monitoring and, unfortunately, I suggest you do the same.  Be assured I don’t get paid for recommending this but it’s the only way to really know what is going on with your credit reports.  All three bureaus have a monthly service that will send you alerts as things change on your report.  You probably don’t need all three just chose one, that way if you get an alert you can check it and then you will know most likely the other two reporting agencies will have the same information.

I have been keeping track of my credit reports for many years, and I literally have a three ring binder for each bureau that is five inches thick full of old reports. I keep very close track of what is on my file.  Listen in the last few months I have had several things hit my report that were erroneous.  It pays to check.

The first error involved a bank I had a loan with; they said I was 30 days late on a payment which wasn’t even close.  I had to actually show them my receipt of the payment to prove I wasn’t.  Then I had to diligently stay on top of the bank to make sure that they fixed my credit report. In the last year, I have had at least three or four separate instances where a payment was not recorded correctly.

Here is a good story for you.  I had a car that I wanted to trade in. I went to the dealer, bought a new one and traded in the old car.  Thirty days latter I received an alert that something had changed on my credit report.  I logged in only to discover that I had a 30 day late pay for the first car – the car I traded in!  After tracking down all individuals involved I came to find out that the car dealership didn’t pay off the first loan.  Can you imagine that!? Apparently this is going on far more than one would imagine.  Anyway, I finally got the dealership to do what they were supposed to do and, from that point, it took about a month to get my credit report fixed and back on track.

In the past, I have had erroneous inquires, people and organizations pulling my credit that shouldn’t.  Each inquiry can affect your credit score so you want to make sure that your credit report isn’t being pulled unnecessarily.

These examples are extremely important and fairly common, especially in today’s economic climate.  The credit bureaus are very busy right now and lots of people are having issues.  With all the reporting going on things are getting messed up more now than ever.  That’s why it’s ever so important to stay on top of your report and credit score.  If your score goes down you could be paying a lot more for your credit in the future.

The whole credit scoring system is just simply broken.  In fact, the FICO scoring system is one of the reasons the whole housing industry is crashing.  The credit reporting agencies were supposed to provide a score that helped lenders lend money, but obviously it didn’t work out well for them or for us.  In addition, I hear the major banks are in the process of suing the credit reporting agencies because of their scoring systems.

Just recently Experian pulled out of its agreement with myFICO.com, which had been the only place where consumers could buy their FICO scores from all three bureaus.

The FICO scoring system is suppose to be a leading credit scoring formula used by most lenders. Experian will continue selling it to lenders, acting like it’s no big deal by not offering it to consumers anymore. In my opinion, it is just another way for the credit reporting agency to keep us in the dark.

Experian spokeswoman Susan Hensen wrote in a recent e-mail, “There is no one credit score that all financial institutions use to make decisions, and there is also no one credit score that consumers must use to help them understand and manage their credit. There are many reputable credit scores on the market that consumers can use to evaluate their creditworthiness before making financial decisions.”

Experian Executive Vice President Peg Smith downplayed any disadvantage to consumers, saying Experian will still offer individual customers its own credit rating scoring system.

Yeah, whatever…don’t you believe that for a minute!  Bottom line – you should check your credit reports often.  It should be illegal for these reporting agencies to hold us hostage; basically extorting us into having to pay so that we can see what is on our credit reports but they do.  They pay a lot of money each year to lobbyists to push their agenda on us.  So it’s time to fight back, write your Senator and your U.S. Representative and tell them it is time to overhaul the Fair Debt Credit Reporting Act. 

To learn more you can visit www.JamesDicks.com

As always,

Happy Investing

All my best

James Dicks

All of sudden, everything I read in this new economic stimulus plan is about helping to create or SAVE 3.5 million jobs, when, in fact, this new federal stimulus plan was supposed to actually CREATE up to 4 million jobs.  This is a wakeup call and it is time for you, the American public, to get informed, stand up and speak your mind. Use the Internet to send emails to your senators and congressman.  With today’s speed of transparency, there is no reason that we, the American people, can’t find out exactly what is going on in our government in a moment’s notice.   

Hopefully some of the new initiatives that are being set in place will assist the American family’s homeownership problems. At lunch today, I was talking with someone who is no different than any of us, in that, his family is way upside down in their home.  They owe about $220,000, they paid $260,000 and the house appreciated to about $280,000 but is now worth, on a good day, about $175,000. 

I told him some great news, “Since you are paying your mortgage on time, you don’t qualify for the HOPE Now program, but you will qualify for the new $1,000 credit per year (max three years) for paying your mortgage on time.”

Okay, let’s work this one out.  Let’s say I pay $2,000 a month on the example above on a six percent mortgage.  I get a $1,000 tax credit per year for three years.  Let’s focus on this year.  That means, in reality, I would only pay about $1910.00 per month.  Sounds like a great plan, I save a little money each month and I have no chance to refinance my home ever because I am so upside down, due to no fault of my own.  And maybe 15 years from now the home values in my neighborhood will finally come back.

Now as I discussed in my previous writings, if I quit paying my mortgage for 60 days my bank will start working with me.  On this example, they will cut my mortgage to $160,000, give me a mortgage at four percent for 30 years and my payment goes to $1200.00 per month.  So I can save almost $10,000 per year every year, not counting the astronomical amount of interest I save each year.  Or I can keep paying and be 100k upside down and qualify for $1,000 per year for three years credit.  WHAT!! Are you kidding me?!  Who thought up this plan?  In comparison, let’s examine a project that IS included in the stimulus package. 

Congress included $38 million for wetlands restoration that the Obama administration intends to spend in the San Francisco Bay area to protect, among other things, the endangered salt marsh harvest mouse!

Now, I am not pointing fingers at any one person but House Speaker Nancy Pelosi and her $30 million mice may not be a smart investment for our country. Let’s see – save a mouse that has probably been around for a few thousand years or save a few hundred home owners, teachers, or jobs.  I just don’t get it.   Now don’t start calling me – I am “green,” but I’m not detached from reality.

Saving jobs is a priority but at what expense?  I say let the auto industry file bankruptcy. If the government is so worried about the jobs, then they can guarantee the reorganization, but you have to solve the problem.  The union mentality doesn’t work today and needs to change. I found it very funny when the CEO of General Motors was thanking the union presidents for their support in drafting their new solvency plan to Congress.  Why not thank the union for helping the company go down the drain?  Hey, here is some good news, we won’t have to change the logo for G-M; we can just change the name to Government Motors (GM).

Bottom line; fix the housing problem, get the money to the bottom and eliminate the trickle down affect.  Until then, little – if anything – changes. 

The stimulus package the U.S. Congress is working on would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. And according to Congressional Budget Office data, this is 13 times what the U.S. has spent so far on the wars in Iraq and Afghanistan.  Whatever….

Next, you would expect me to pull out the charts and graphs, but that’s not going to happen. I am not an economist, I am your next door neighbor, and you know the one.  I am the one that has seen my property value drop like everyone else in America, the one that has a vacant house next to them, the one that sees foreclosures in the neighborhood, the one that knows people losing their jobs, the one that is unfortunately laying people off, the one that can’t get business loans, the one that is suffering many of the same economic issues you are facing.

Listen, I can’t give you the magic formula to a successful economy, but what I can do is tell you what I think would make a difference and that’s what I am going to do.  I will let the smart people figure how we can do it.  I hear ideas everyday and some are good, well thought out and some aren’t.  Maybe my idea is one you feel is not well thought out, but that’s okay, at least I will get it off my chest and feel better about it.  I just hope and pray that someone along the way gets a small idea from what I’ve written and that idea will make it into the system somewhere…somehow.

As I write this, Fed Chairman Bernanke is speaking on TV.  I just heard him say something about what we are doing in certain areas is working.  One of the senators just cracked a smile to a fellow colleague, rightfully so. I don’t know of anything they are doing to help me, my customers, friends or family.  The problem is it is a trickle down effect from the top down and what we need is a flood up effect from the bottom up.

You want to make things take off quickly do something that helps the masses now, and thanks but no thanks, a $600.00 stimulus check won’t help anyone but Wal-Mart. So in an organized thought here is my basis for an economic plan form the bottom up.

First anyone in America that has a mortgage, let’s start with a primary residence, the federal government will take some of the bail out money and use it to help reforecast these mortgages. Yes, some will benefit and some will be penalized but in the end we all will be better off.  As mentioned above, we have enough money to pay off nearly all mortgages.  We don’t need all of the funds, so that’s good.  Let’s reset all mortgages to 85% of the current tax assessed value, not appraised value but tax assessment.  This does numerous things; one is that it gets consumers in a much more positive mind set.  Do this and then let the University of Michigan do their poll on consumer confidence and I bet it goes up.  Most people in America that own a home fall into a few categories; they stopped paying their mortgage and are awaiting foreclosure, they are paying but paying late, they’re paying on time but wish they weren’t, because all of these people most likely have  the same circumstance, which is their home is valued less than what they owe.

By re-forecasting the mortgages to 85% of the current tax assessment, the banks will get a new loan, one that actually has real value.  The home owner gets a mortgage with hope, one that they can now afford and one that has room to appreciate in value.  The re-forecasted loan will be 30 years fixed at 5%, and assumable.  The bank now has an opportunity to package the performing assets with real value and sell them to the secondary investment community.  The federal government can provide some assistance, as already outlined, by assisting investors with low interest loans and guarantees.  This cleans up the banks so that they can start making new loans. 

The banks will not be bogged down with home loans and chasing down their assets through foreclosure, what they will be able to do is focus on getting money to small business, thus starting from the bottom.  Allowing the money to flow to these small businesses will increase the opportunity for job growth.  As to the re-forecasted loans, banks will give forbearance as to the difference of the original loan amount and the new re-forecasted mortgage.  The government will waive any mortgage forgiveness rules and the banks in exchange will get an agreement that allows for the opportunity to recoup their initial investment or pass that opportunity along to the inventors that end up buying these newly re-forecasted mortgages. 

So, if you have a home that was worth $300,000 and your loan was $280,000, with a current tax assessment of $220,000 the new re-forecasted mortgage would be $187,000.  If in the future you ever sell your home you would owe the current lien holder of your mortgage the original amount of your current loan. That means sometime in the future the bank would have the possibility of collecting $93,000….no interest, and basically this would go to the government since they are backing the loans.

You may add a formula that includes an appraisal to go along with the tax assessment so that you could re-forecast the loan based on appraised value or tax assessment, whichever is lower.  That way you get an entire industry back off the ground; this would open the door to tens of thousands of appraisals immediately.

Mortgages and Home Equity Lines of Credit (Helocs), would be wiped out under my plan, but only up to 85% of the tax assessed value.  So, if you are under 85% of the tax assessment you wouldn’t get any help other than the fact that the homes around you go from vacant to occupied, foreclosures are stopped in their tracks, and home values start to appreciate again.  Furthermore, the economy gets better, which should be enough help for anyone.  The institutions forgiving their 2nd mortgages and Heloc’s get a tax credit for the forgiven amount to use toward their tax liabilities.  The mortgage forgiveness rules would be waived for these as well.

Next are the people that don’t own a home and feel they are getting the short end of the stick.  No problem I got something for you too.  The government will offer a 100% LTTA, not LTV, this is Loan to tax assessment not Loan to value.  It can be 100% of tax assessment or appraisal whichever is lower.  The rate is at 5% fixed for 30 years and assumable.  You have to show that you can pay the mortgage.  This is not a low or no document loan it is a full doc loan.

This gets the housing industry off and running, as well as the new home market and quickly eliminates bank owned properties from their inventories.  Lots of benefits to the industry here, title companies, real estate agents, builders, laborers, banks, local and state income increases through taxes and closing cost.  Wow, this would really stimulate the economy quickly and starts from the bottom up, it helps all of us. Even the Fortune 500 companies and the big “fat cats” sitting behind the helm of these companies will benefit. 

As a spillover from all of this, local and state governments can start to get back on their feet by having a new tax base, new homes sales coming out of the banks foreclosure departments and increasing the taxes collected by these governments. Better yet, because the homes are all backed by loans based on 85% of the current tax assessment, there is plenty of room to start seeing appreciation, literally in the next tax year, thus helping out these local and state governments by allowing them to increase their tax base.

Let’s talk credit; all the way around, this is a thorn in my side and one I see lots of questions from people on this topic every day.  We don’t need a band aid for our economic problems, we need a long term solution that will ultimately make us better off as the great country that we are.  I don’t want to be like Japan and be talking about the lost decade.  Basically the 90’s were lost in Japan because they waited too long.  We are moving in the right direction but let’s finish this now. 

The federal government will come out with a new credit scoring system. YIKES, I hear it already from the lobbyist, and from the worthless blood sucking credit reporting agencies out there.  I say keep your mouth shut and leave the elected officials alone.  The credit scoring system is a scam, it doesn’t work and it is time to fix it.  The FICO score is one of the reasons we got to the point we are today.  The government can create its own scoring system even if our tax supported government competes with the credit reporting agency – I say great!  You want to play you have to pay.  You want money or help from the government then you will have to use the new government credit scoring system.

Anyone that has had a foreclosure on their credit report during the last 24 months will have it removed, purged from their credit file. No longer does bad credit stay on your credit report for 7 years, we change the 7 years to 4 years.  Of course, the entire credit reporting system needs to be overhauled.  If the credit reporting companies can charge you to keep your credit clean let’s have a federal credit reporting agency and pay them.  The money can go to help reduce the national deficit.  The credit reporting agency can’t complain about it, competition is good for everyone.  This restores even more confidence in the American public.  Some people will take advantage of this and some people that should not be borrowing will but in the end it makes consumer confidence sky rocket.

That brings me to jobs; consumer confidence goes up, credit extension is restored, people’s homes are now sitting with appreciation.  What do you think will happen? People will go out and spend money, when they do, business will need to carry more inventory, they will need to hire more people, manufacturing will have to go up to keep up with supply, and you get jobs, lots of jobs. Businesses are making money again, and when they make money they pay their employees more, everyone is happy, and our economy is thriving.

To make sure that we don’t end up where we were and are, we have to put checks and balances in the system; eliminate low doc loans, eliminate no doc loans, and eliminate creative adjustable rate mortgages.  You buy what you can afford.  You need to refinance…no problem you must have equity in your home. The forgiven debt on the re-forecasted mortgages, seconds and Helocs, can be negotiated on the refinance.  But in the end the home must stay below the 85% loan to tax assessment, you can’t borrow more than 85% of tax assessment.

The rest is hard and easy, meaning you can’t have a budget and maintain spending if you don’t have money coming in.  Let’s start with the states that are going out of business.  Have the government step in and give the states zero percent loans, a giant debt consolidation loan, BUT the only way that the states can do this is to present a balanced budget within 90 days, much like congress required the car manufacturers to do.  They gave the car manufacturers a bridge loan, told them to come back in 90 days (which they are about to do) and when they show them a balanced budget and a feasibility of success for their business model the government they will loan them more money.  We should do the same thing for the states.  Of course, once you do this you get jobs flowing again on the state level.  The money that is ear marked for infrastructure will now get the states to focus on the job at hand instead of playing a shell game with cash flow.

And speaking of infrastructure, I don’t know all the numbers but I read somewhere that we are planning on spending about $38 billion on infrastructure in the U.S. in the coming years.  Thirty Eight billion, are you kidding me?  I am talking about pure infrastructure projects.  We should double or triple that amount!  It can’t hurt, it creates jobs, some states will get more some will get less but let Congress fight it out.  The only caveat is the money, if for pure infrastructure, no pork.  I saw China was spending $40 billion just on telecommunication infrastructure growth.  One special area of infrastructure and they are spending more than we are.  We are spending less than China on our entire infrastructure growth!

More on a balanced budget, as we start to cut those much needed projects and hard to make decisions on programs, we have to remember just like in business, if you wait too long to cut it’s too late.  Cut now so that you can be around to build later.  You will be able to add these programs back as you make more money but for now you have to get to a balanced budget.  You will also have an easier time to plan for your budgets on a local and state level as everyone is living in a home that is 85% of the tax assessment. The appreciation will kick in quickly allowing for more revenue, all the real estate closings that will be taking place will help the tax income go up for the local and state governments. 

Now for some not so exciting tax increases.  Overall we cut taxes, maybe even consider a flat tax.  They can argue this one in Congress too, but what we want to do is get everyone paying their fair share and increase taxes on things like cigarettes.  Cigarettes kill you and kill everyone around you.  So, if you want to smoke them, then you can pay more per cigarette. Use the extra tax money for the governments on a state level, as the tax collected would be higher in areas of where more smokers live thus creating more of a burden on a particular state’s health care systems.  Some of the taxes can be used to help people break the habit, lowering the tax collected in the long run, but exponentially lowering health care cost.

Increase tax on alcohol; all the same reasons for smoking apply to alcohol.  It kills people; people who drink it and people who don’t drink it.  You want to roll the dice then you have to pay to play; I don’t mean a small tax I mean an increase of, 20-30 percent.  Yeah, I hear it too.  The lobbyists are screaming at the top of their lungs… too bad.  Smoke a cigarette and drink a beer, great but we have to raise money.  A “use” tax is better than a general tax, everyone pays their fair share of taxes, but use taxes are for the people that specifically use a certain product.  I am not opposed to increasing sales taxes across the board.  We need to promote savings not wasteful spending. 

The wasteful spending and carefree borrowing mentality of the last 25 years is why we got here.  We need to be a nation of savers.  Yes, this contradicts some of what I said about increasing consumer confidence to get people spending money but that is natural, and people will spend when they feel better.  What we need to do is to get people to think before they buy.  Do you really need a new refrigerator, or are you better off saving for your children’s education.  I can guarantee you that if you do the above, people will go out and spend money to stimulate the economy and they will be able to find a job.

The best of both worlds – a job and stimulus.  Government, wake up! This is your wake-up call; we need stimulus from the bottom up not this high level garbage I am listening to on TV.   I listen to it every day and I have no idea what they are saying.  Just give me a job!

Happy Investing!

All my best

James Dicks

www.whoisjamesdicks.com

Look, our day-to-day routines with our families and our jobs normally guarantee a steady stream of decisions to make and problems to solve. So, why worry about the financial markets. Most of the events that change the direction of the markets are completely out of our hands anyway. What we should be concentrating on is how we can create a portfolio that is relatively immune to these outside events. Create a portfolio that can weather the storm of global uncertainty.

You’ve heard all of it before. Diversification and proper money management are the best methods of insuring that your investments (no matter what they are) will be protected from the highs and lows in the markets. In a diversified portfolio, should one investment react poorly to negative national or international events, you can normally count on another investment to make up the difference.

Examine your personal investment model on a semi-annual basis, or at the very least, annually. Really explore what you are invested in. Do your holdings include stocks, what about interest rate instruments, mutual funds, real estate, commodities, the foreign exchange markets? Choose the opportunities that give you the most comfort. If you can’t sleep at night worrying about your investments, then you shouldn’t be invested in them. Learn as much as you can about the investments you don’t understand that could possibly help your future financial growth. For instance, if you don’t understand REIT’s (Real Estate Investment Trusts), read about them, ask questions, study the topic before you make any monetary move.

Once you are involved in a particular investment, make sure you follow its progress. If you are trading stocks or Forex, always set your stops and limits to guard against losses. If you are investing in a 401(k) plan at work, study your investment options often and rebalance, when necessary. The key to a positive investment life is education.

You can count on the world situation being volatile today, tomorrow, next week, and probably for the rest of your life. The financial markets will continue to show weakness on some days and strength on others. If you meet the challenge of creating a balanced portfolio through diversification you most likely will worry less and definitely have more time to enjoy the most important things your life has to offer, family and friends. It really is that simple.

Happy Investing,

James Dicks