Preparing for another economic crisis

Housing prices will collapse with a nominal increase in interest rates. Get your financial calculator: N=360 (30 years), Rate=4% per year, PV=100,000, PMT=477.52, FV=0. Those are the numbers for a $100,000 mortgage debt at 4% per year, fully amortizing over 30 years. Change the interest to Rate=6% and recalculate PV=79,628.87. That’s 20.4% decline for the amount of debt that the monthly payment can support. That translates directly to a loss of 20% in the property value, which *just happens* to equal the down payment required by the Banksters. When folks lose all of their equity, they will walk away from their devalued houses, the government will step in and take ownership through the Federal Reserve printing counterfeit currency to buy the bad mortgage notes.

Just a few years ago, a 6% interest rate was considered a very good rate. Artificially driving down rates below 4% caused prices to inflate. When the rates reset to “market rates”, the real estate market, especially commercial, will collapse and banks will fail and merge with larger banks.

You can prepare for this by calculating what the rental property can afford to pay when servicing debt at 8% with a debt coverage ratio of at least 1.5 to tolerate recessionary pressure on income and expenses. Don’t pay more than what the property can afford with those numbers.

With a portfolio of positive cash flow income properties, you’ll have some protection from the next great depression. Acquire rental income properties in “rental communities” with long-term fixed rate financing with the lowest possible down payment and the highest possible debt coverage ratio. You will repay the debt with debased dollars from your tenants (stay away from rent control areas, low income housing, and socialist governments).

See my YouTube channel for more information about real estate finance.

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Buy or Refinance Now

The valuation of income properties is directly tied to the cost and structure of financing. Real estate is a “borrowed money” business. As interest rates rise, the capitalization rate required to service the debt for a purchase or refinance also rises, and thus the valuation falls. As the valuation falls, existing debt Loan to Value (LTV) ratio exceeds the agreed maximum for commercial lenders, thus forcing a “margin call” on commercial debt that borrowers cannot pay, causing a technical default. Then the tide flows out and everyone sees who has been swimming naked. Commercial banks will crater and the FED will desperately try to print more counterfeit money at the expense of the tax payer to buy the bad debt.

Class C “Bread and Butter” apartments with high debt coverage ratio (DCR>1.5) can tolerate recessionary pressure on income and expense, but avoid Section 8 and Low Income Housing Tax Credit (LIHTC). Also try to refinance or buy now with FHA fixed rate with no balloon, amortized 25 years or longer and no prepayment penalty. You will be able to pay off the debt with debased “Bernanke Bucks”.

Learn how to buy apartments with Other People’s Money (OPM) with my course “Introduction to Income Valuation and Syndication” (click here).

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The Equity Waterfall for a Syndicator

I just wrote an article about my preferred structure for structuring the equity financing with senior equity, preferred equity, and common equity.

A syndicator that raises private equity may consider an equity waterfall that is similar to a combination of debt and equity. Treat the senior equity like a 1st lien and the preferred equity like a 2nd lien, with a debt-like structure with a fixed annual rate, amortization term, and rolled-in points. An amortization schedule shows…

You can read the article by clicking here.

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Guru Interest Rates

I am often astonished at the real estate “Guru” who charge outrageous (unpublished) interest rates for their products. As if their astronomical pricing isn’t bad enough, they offer time payment plans that are nothing short of usurious, making high credit card interest rates seem reasonable in comparison.

I recently sat through a yet another long-winded video pitch for an over priced product. At the end of the pitch (interspersed with assertions of the “good life” with easy riches), the price tag came in at $497 for a single payment, or three monthly payments of $175. You can choose to pay on your credit card $497 now, or three payments of $175 totaling $525. That seems reasonable, right? A $28 finance charge for the convenience of spreading out your payments doesn’t seem so bad, when you consider it’s a $497 product. Yeah, right!

First, why would you need to spread out the payments when buying on a credit card? Most credit cards allow paying off a purchase over time. Is your credit card maxed out? Then why are you buying yet another guru product when you can’t even manage your own personal finances?

Next, what is the effective annual interest rate on that time payment purchase? Three payments of $175 with the first payment now, leaves $322=$497-$175 to pay over the next 2 months. Get out your financial calculator, plug in 2 payments, Present Value $322, periodic payment -$175, Future Value zero, and solve for the interest rate. That comes to 68.92% annual interest rate! You would be better off just paying the full price and paying off your credit card at a 20% annual interest rate (less than one-third of the guru interest rate).

The guru is preying on financially illiterate folks who are desperate for a solution to their money problems. (Hint: They have money problems precisely because they are financially illiterate!) This is one of the ways that I filter out the greedy online marketers. Is their price reasonable considering the amount of real content versus puffery? Are they truly committed to their customer’s success? Or are they just trying to squeeze out every last penny from anyone desperate, foolish or naïve enough to fall for their latest pitch of easy riches?

If you are truly focused on getting out of personal debt, then take a look at my Excel 2007 spreadsheet Power Debt Plan by clicking here.

What if you are so broke that you can’t afford Microsoft Excel 2007? Just buy a $7 thumb drive (also called a “Flash Drive”) at Best Buy or Staples to hold your computer files, go to a public library and plug into one of their computers that already has Microsoft Office 2007 or later. Buy my product, download it and save it on your thumb drive. Then run the numbers on the public computer. I show you how to do it with several mp4 video tutorials. You can download a free mp4 video player for your Windows or MAC computer from QuickTime.com.

Financial literacy is the key to financial freedom. Take the first step by understanding what your personal debt is really costing you, then make a plan to get out of your personal debt by clicking here.

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Capitalization Rate and Cash on Cash Return

I just added a new article on the correct way to calculate the Capitalization Rate (CAP) according to the cost and structure of financing.

An income property is generally valued on its cash flow, either the current cash flow or the anticipated future cash flow after repositioning. The valuation of the cash flow is calculated according to the cost and structure of the available financing at the time of purchase or refinancing. 

The fundamental equation that is used (and abused) is:…

You can read the article by clicking here.

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Generate a PDF syndication package or a loan request package

I just made a major update to the very affordably priced  “Introduction to Income Valuation and Syndication” course. With the sophisticated macro-enabled Excel 2007 ProFormaStabilized.xlsm spreadsheet, you can now generate a multi-page PDF presentation package for syndicating to your private financiers or for submitting a loan request to a commercial lender. There are several tutorial videos showing how to use the spreadsheet and its presentation worksheets. Generating the package is just a point-and-click away!

Customers with active purchase plans will receive free download links via email for the update. If your purchase plan has expired or you want to learn how to get paid to buy income properties with Other People’s Money, then you can buy the course (click here for the sales page). Watch the YouTube versions of the tutorial videos on the sales page!

There’s even a bonus “mini course” with tutorial videos on taking over income properties with the Master Lease and Option strategy for no money down. It’s included at no extra cost!

This update proves my commitment to your success by updating my courses with the latest features and educational content. My students have already reported earning several thousands of dollars by using the strategies and techniques that I teach in my downloadable courses.

You won’t pay thousands of dollars like those Guru want to charge for their courses. I don’t want my prices to be a barrier to your success! I always offer a 60-day money back guarantee. If you’re not happy, then I’ll immediately refund your money with no questions asked. My refund rate is the lowest in the industry, because my customers recognize the awesome value of my courses. They cannot get my educational content or sophisticated software anywhere else at such a low guaranteed price! This is software that I personally use for my own real estate investing!

Watch the YouTube video by clicking here.

Buy the affordably priced course by clicking here.

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New Video: Master Lease and Option RUBS

I added a powerful spreadsheet for calculating and generating invoices for the Ratio Utility Billing System (RUBS). There are 2 video tutorials showing how to use the spreadsheet and how to generate the mail merge templates. The spreadsheet supports unlimited number of residents, you can bill pro-rated for electric, gas, water, sewer, or any combination thereof (selectable at the resident record). The spreadsheet calculates the pro-rations by square footage, or the number of persons occupying the unit, or both. You can generate a mail merge worksheet for Microsoft Word to generate invoices for printing or PDF files for emailing.

You can watch the YouTube versions of the tutorial videos by clicking here and here.

The “Introduction to Income Valuation and Syndication” course is available by clicking here.

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New Video: ProFormaStabilized Spreadsheet – Finance Package Tutorial1

I just uploaded a major update to my course “Introduction to Income Valuation and Syndication” (at http://bit.ly/itivas-1) that updates the ProFormaStabilized.xlsm spreadsheet and a new video tutorial for generating a PDF finance package.

You can watch the YouTube version of the video by clicking here.

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Update: Introduction to Income Valuation and Syndication

The course is updated with more improvements for the MasterLeaseAndOption.xlsm and for the ProFormaStabilized.xlsm spreadsheets. A new video tutorial is added for demonstrating how to perform “what if” calculations on actual operating data. Check out the course by clicking here.

You can review the product update history by clicking here.

Thank you for your support!

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Update: Pro-Forma Stabilized Spreadsheet

A quick note that I just updated the ProFormaStabilized.xlsm spreadsheet to include an “actual data” input column and a “Seek Actual” button. The button calculates the required gross Return on Equity (ROE) and net cash flow required for the specified actual operating data. Now you can use the spreadsheet to calculate a required Capitalization rate for a specified financing structure or to calculate the ROE for the specified actual operating performance parameters.

You can watch the tutorial videos here and here.

You can learn how to get paid to buy income properties with Other People’s Money by clicking here.

Posted in Introduction to Income Valuation and Syndication, Real Estate Investing | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Comments Off on Update: Pro-Forma Stabilized Spreadsheet