Should the Government Bail Out People in Foreclosure?

As I wrote in my article, Can the Government Solve the Foreclosure Problem, the state and federal governments are considering using taxpayer money to bail out people in foreclosure. Is this a good or bad idea?

At first blush, it appears awfully unfair, in that the government would take your money and give it to someone who made an irresponsible financial decision and would thus profit from it. On the other hand, one could argue that the government’s lack of regulation on loans, in part, led to the problem.

From a purely capitalist, free-market position, I’d say, “Absolutely not - let the market correct itself and allow economic darwinism take its course”. From a sympathetic standpoint, what’s $300 million in the scheme of things, since most of it would go to HUD counseling agencies to help poor people refi and keep their homes?

Despite the animosity from people who object to paying for this “robin hood” program, it would help everyone, since less foreclosures helps keep your neighborhood home values up. However, the harsh reality is that $300 million wouldn’t change anything, and like most government programs, it would be nothing more than lip service and bureaucracy.

Nobody wants to see low income families on the street, but it is a bad precedent for the government to have too many programs to bail consumers out of bad financial decisions. True, some of the lenders are to blame, but they are already being punished in their pocketbooks. Many lenders who originated and sold these loans are now having to buy them back from the investors they sold them to.

As a final note, most states do not have extensive regulation of the mortgage broker profession. I am not much for excessive government ANYTHING, but having a sufficient fund to reimburse the victims of the worst predatory lending would be a good idea. Real estate brokers, attorneys, and other professionals pay into a fund managed by the state for the protection of clients that are scammed, and so should mortgage brokers. In my own state of Colorado, mortgage brokers have to carry a small bond, which is almost a joke. California, on the other hand, requires a mortgage broker to first be licensed as a real estate broker, which I think is a good idea.

Click here to view my You Tube Video on Subprime Mortgages.

What Every Landlord Should Know About Discrimination

The Fair Housing Act of 1968, as amended, prohibits discrimination on the basis of race, color, religion, nationality, familial status, age, and gender. Many state and local laws also forbid discrimination on the basis of sexuality or source of income, and the Americans with Disabilities Act makes it illegal to discriminate against the disabled. If you harbor any such prejudices and would allow them to come into play when renting a housing unit, then you’re probably not cut out to be a landlord. However, many sincere real estate investors make honest mistakes that result in a lawsuits. The best way to avoid them is to be informed.

Read the rest of the story on William Bronchick’s Wealth Protection Blog.

Want to Get Rich? Go into Debt!

Social security is the biggest ponzi scheme every invested and for those of us between the ages and 25 and 55, we’d ought to be worried whether the system will even be there by the time we reach retirement age.

Saving is good, but most people don't make enough income to be able to save their way to a healthy retirement. In order to retire wealthy, you need to go INTO debt. If you want to become a millionaire and you aren’t already making millions, you need to borrow, not save. I know that may sound unconventional, but most of the wealthy got that way by leveraging through debt. Ask Donald Trump.

Do you realize if you bought just a million dollars worth of real estate and just paid it off, you’d be a millionaire? In this market, it’s only about 4 or 5 houses in most markets. And, with inflation, that means the values will also go up, meaning you so will your rents. In other words, you don't have to necessarily adjust your strategy for inflation, it will do so automatically for you.

Debt is not always a bad thing, if you are using it properly for leverage. Once you master the leverage principle, you will become wealthy and retire better than 95% of Americans.

Stop Working, Buy More Real Estate

Taxes are your biggest expense in your lifetime, so choose your source of income wisely! Real estate has some of the BEST TAX BREAKS of any investment in America!

The more you earn through your job, the more you get taxed, and the system is setup that way to punish hard workers and reward investors. Have you looked at the bottom stub of your paycheck lately and seen how much the government steals from you? Wage income not only requires work, it gets taxed at a very high rate, plus the government takes FICA, which is put into a system that may be bankrupt when you retire.

Real estate has so many tax advantages over wage income:

Capital Gains Rates

The maximum federal tax rate on capital gains is 15%, whereas wage income is taxed at 35%. There's state taxes, too, and some states offer further discounts on capital gains income. Remember, capital gains requires that you hold a property for 12 months or more before selling, as in the case of a lease/option.

Exemption for Principal Residence

If you sell your residence, the first $250,000 is exempt from gain or $500,000 if you are married. Remember, this requires that the residence was used as such for two of the last five years.

1031 Exchanges

Under IRC Sec 1031, you can roll your profits into more real estate and defer paying taxes altogether. Your tax basis rolls into the next property. The rules are rather stringent, in that the exchange must be completed with 180 days and the exchange property must be indentified with 45 days of the sale of the relinquished property.

Interest Deduction

You get to deduct interest you pay on debt you have used to acquire your real estate.

Depreciation

You get a tax deduction for the “wear and tear” on the structure, even if the property increases in value! Thus, you can actually break even or make money, but on paper show a loss to offset other income.

No FICA Tax

Your income from real estate is general NOT subject to FICA tax withholding. Regular self employment income is subject to 15.3% tax on the first $97,000, and thereafter your earned income is subject to medicare withholding (which you may never get back in your lifetime the way things are going!).

It’s not just what you make, it’s what you keep... plan wisely where your income comes from, and you will keep a lot more.

Want to keep more of what you've earned? Check out William Bronchick's Wealth Protection Materials.

Great Review, Unpaid Endorsement

While randomly looking around the Internet, I found a nice review of one of my programs...

http://www.realliferealestateblog.com/2007/04/26/review-of-alternative-real-estate-financing-by-william-bronchick/

Alternative Real Estate Financing is one of my favorite works, a revision of an earlier course called, "How to Create a Real Estate Cash Cow". It covers how to buy and sell properties in a non-traditional way, using owner financing. The focus of the program is wraparound transactions, using installment land contract aka "contract for deed".

You can find it on www.legalwiz.com in the online store.

Bronchick Quoted in WSJ on Flipping

The Winston Salem Journal did an interesting article on Flipping, insert some very nice quotes and advice from yours, truly!

Click here to read

Bronchick Gets Quoted on MarketWatch

Interesting article on foreclosures which quotes me:

http://www.marketwatch.com/news/story/story.aspx?guid={0B5B0D3B-0630-460D-9F5B-5E3F20693614}&siteid=rss

Not sure how long before they archive it, so click quick!

BULL vs. Bubble

Jim Kramer is a genius. He hosts a show called, “Mad Money” on CNBC. He graduated top of his class from Harvard and is one of the most respected names in the financial news industry. Jim has an expression - “There’s always a bull market somewhere”. I like this so much I am going to PILFER it and use it in my presentations because it so aptly applies to real estate investing.

If you invest in REITs, stocks or funds that are dependent on the real estate market, the housing news (bad news) is very relevant. If you are a dealmaker, a house buyer, and a bargain hunter, you look for deals that exist DESPITE the market. In other words, look at neighbhorhoods figures, not national or statewide figures on housing when investing. In every city there’s certain neighborhoods that are up or down, no matter what the citywide or statewide news about housing is telling you. Find those bull markets, and you will make money.

Buying “Under Value” vs. Buying Undervalued

People often speak of buying a property “undervalued”, as if they are discovering something nobody else figured out. Stocks, land, and real estate can all be purchased undervalued, but this is different from buying property UNDER value. There’s a BIG difference, in fact!

Let’s say you think a company is ripe to expand within the next few years. You are speculating that the value of the company’s stock will increase, so you buy AT MARKET PRICE and hope you are right. You can also buy a property at MARKET PRICE and hope demand will increase and thus its value will go up. You can buy gold at today’s price and hope it will go up in price. However, in all cases you are speculating that the asset will increase in value and that it is CURRENTLY undervalued.

Compare this thinking to buying a property UNDER VALUE, that is below its CURRENT market value. If a house is worth $200,000 based on similar houses that have sold recently, the market value is $200,000. It may be an “up and coming” neighborhood with a good school district that most people have not yet discovered, so you can buy it for $200,000 based on the idea that the future value will be more, so it’s currently ”undervalued.”

Or, you can buy a property with a current market value of $200,000 and pay $150,000 because the seller is in a divorce or a foreclosure. In this case you are buying BELOW value, or with BUILT-IN value. Why is there built-in value? Simple - you can sell it tomorrow for up to $200,000! If you buy real estate undervalued, you have to wait until everyone else realizes what you suspect to be true, that the property SHOULD be worth more.

Bronchick Makes Wipipedia

Flipping has now officially a topic on the online encyclopedia “Wikipedia“, citing my book Flipping Properties as a reference. Flipping Properties has sold over 200,000 copies all over the world, and is printed in Mandarin Chinese (although I imagine you can’t flip in China, it’s for people who speak the language in the U.S.)

BS = "Bubble Speak"

I hate B.S. (”bubble speak”), that is, people who keep saying there’s a bubble. Since 2002, when I first wrote about this on my website, I de-bunked the ”B.S.” of a national real estate bubble. The media loves to talk negative, because negative sells papers, and papers sell ads.

This is not the first time in history we’ve seen this kind of “BS”…

“Houses cost too much for the mass market. Today’s average price is out of reach for two-thirds of all buyers”
- Science Digest 1948

“The era of easy profits in real estate may be drawing to a close.”
- Money Magazine 1981

“Financial planners agree that houses will continue to be a poor investment.”
- Kiplinger’s Personal Financial Magazine 1993

I prefer to take the advice of a more positive source:

"Life is too short to spend your precious time trying to convince a person who wants to live in gloom and doom” - Zig Ziglar

You can find all the statistics you like to convince you the “market” is bad, but you can always find ways to profit in ANY market with the right attitutude, the right knowledge, and a little bit of hustle.

I'll wait until the bottom...

There’s going to be some GREAT opportunities over the next few years to buy properties at tremendous discount, and those who stand up, TAKE ACTION, and BUY NOW will get wealthy. Those who sit on the sidelines, will not.

Some people are thinking they should wait it out until the market hits ROCK BOTTOM before taking action. That may not be the best idea …

Remember when your favorite department store went out of business – what did advertise? 25% off. You found lots of bargains. Then it was 50% off, and you still found a few good bargains, but not as many. Finally, it was my wife’s favorite words, “FINAL CLEARANCE SALE 75% OFF” – then what’s left? Members Only Jackets. You waited too long and you missed out, right?

That’s what’s going on right now. We’re at the point of the first round of clearance sales, and the window of opportunity is closing. By the time the media says a particular market is hot, it’s generally a year too late.