Do We Really Want Increased Government Oversight Of The Mortgage Industry?

The Bush administration is calling for a major overhaul of how we monitor the financial industry in what would be the largest financial regulatory makeover since the Great Depression. It isn’t as much oversight as many Democrats are demanding, but it is fairly substantial.

I am generally against added government regulation, so this doesn’t sit well with me. The government has a way of making things more complicated and costly than they need to be, and it is taxpayers who bear the burden. Increased regulations in the financial and mortgage industries will only make lending tougher. It seems that people want the government to protect them from themselves and from lenders who might take advantage of them. If the government gets involved, some people may be protected, but fewer people will receive mortgages. In an already struggling market in which it is increasingly difficult to find funding, the last thing we need to do is to make it even more difficult.

I expect that the regulatory agency will, at a minimum, call for increased documentation and transparency on the part of the lenders. I’m all for transparency, but the documentation is already overdone. When I signed the docs for the last house I bought, my hand started to cramp halfway through signing all the paperwork. If increased paperwork is all they do, and they do not become too restrictive, then the legislation shouldn’t have much negative impact, though it will mean more work for the loan officers, processors, lenders and escrow agents. If they start modifying loan qualifications and guidelines, or imposing penalties on lenders, it might scare many lenders out of even remotely related programs. If lenders become even more hesitant and restrictive, this only spells more bad news for the housing market.

Corruption In Mexico’s Baja California Sur Taking A Toll On Land Owners

Corruption in the Los Cabos area of Mexico’s Baja California Sur is a bigger problem than some investors might think. According to a recent press release from the Association for the Protection of the Environment and the Marine Turtle in Southern Baja (ASUPMATOMA), government officials in Baja California Sur have seized hundreds of acres of beach front land from a group of investors and conservationists even though the claims being presented have been proven to be falsified.

The press release states that ASUPMATOMA has provided evidence that the land titles submitted by a Sinoloa company on July 27, 2007 were forged by a man who was recorded legally dead several months prior. State officials still proceeded to clear the land last week, actually reversing the charges against René Pinal, who is the main owner.

This land was being used as a sanctuary for sea turtles, and was open to the public to visit them in their natural habitat. However, it seems the government has other ideas for this valuable land: probably something more along the lines of hotels and resorts, which provide taxes to the government.

Corruption can be common in developing countries, adding extra risk to foreign investments, but this situation in Baja California Sur is more the exception than the rule. If these unsubstantiated seizures become more commonplace, then investors will have reason to think twice before investing in Mexico, but for now it seems to be a rare event.

ASUPMATOMA is still campaigning to fight the seizure. If you want more information about them or their cause, visit www.savetheseaturtles.org.

The Zimbabwe Situation: Is There Hope?

The Zimbabwe Situation, as it is being dubbed by some, is a combination of mass inflation and human rights and property rights violations. I think most people would agree that long-time leader Robert Mugabe is responsible for the present state of the country, and it's economy.

For those unfamiliar with the Zimbabwe Situation or Robert Mugabe, there is a website dedicated solely to providing information on the subjects: zimbabwesituation.com. I also wrote a blog post last month that talked about the inflation problems in Zimbabwe.

According to recent press covering the Zimbabwe Situation, there appears to be some hope for the upcoming elections. For years, the opposition party has been suppressed and elections have been rigged. Mugabe would punish any supporters of the opposition by cutting off their food supplies, among other things. Many people are not even registered to vote out of sheer hopelessness, and the last few elections in Zimbabwe have been—more or less—a waste of time.

This election seems to be different; there is a growing sense of hope among Zimbabweans. Both the opposition leader, Morgan Tsvangirai, and a rival leader from Mugabe’s own Zanu-PF party are running. Though Mugabe has employed some of his traditional election tricks, this election has been relatively peaceful, according to an article from BBC News.

Zimbabwe was one of the brightest stars in Africa prior to Mugabe’s destruction of the economy. The country is rich with natural resources, and it has much to offer both tourists and businesses, but investors will shy away until Mugabe is out of power. If Zimbabwe can elect a good leader who welcomes a free market, things could turn around for Zimbabwe. I’m not holding my breath, but hopefully someday soon we will see an end to the infamous Zimbabwe Situation.

Investor Psychology: Why Can’t We Accept Losses?

I read an article in the New York Times yesterday that made me think of investor psychology. The following is an excerpt:

“...dropping the asking price below their purchase price—is especially difficult. It’s tantamount to admitting defeat. David Laibson, a leading behavioral economist, categorizes this sort of behavior under the heading of ‘the principle of the matter.’ His point is that people often go to great lengths to avoid taking a loss—or simply having to acknowledge one. ‘Even a small loss evokes a sense of frustration,’ said Mr. Laibson, a professor at Harvard. ‘There’s something magical about at least breaking even.’”

Laibson is so very right in his diagnosis. I know that when I see one of my investments losing value, and all signs suggesting things will only get worse, pulling the plug is one of the hardest things to do. For some reason, we would rather keep a bad investment in hopes that it will miraculously turn around than move on to things that could be more profitable. It is common for investors to keep their poor investments too long and sell their great investments too soon. This is one reason why it is said that most people are better off investing in index funds than choosing their own investments.

Last year, NuWire released an article about investor psychology. It was interesting to look back at that article and reflect on my own investment decisions. Looking at them now, I can see many mistakes that I’ve made—selling certain investments too soon, holding onto others too long. I’ve certainly not proven to be an exception to the rule, even though I like to think that I evaluate potential investments more on data and facts than emotion.

I think that, in an effort to avoid being wrong, we make allowances for our poor investments. It is certainly easier, and much more exciting, to sell off an investment that made money than one that lost money. And who wants to go talk to their investor friends about this bad investment they just got out of? Not I. We prefer to revel in the glow of our victories and sweep our failures under the rug, hoping that someday we will lift that rug up and find a pleasant surprise.

To help combat this problem, one suggestion I have is to make an effort to solicit outside advice from trusted investors. They won’t have the same attachment to the investments that you do, and they could be better equipped to come to a rational, objective solution. Even being able to talk with others about your failing investments is a good step towards recovering. Sorry if that makes it sound like an AA meeting for investors. A good investment club might be a great resource to find people for this type of thing. You can help them, and they in turn can help you. If anyone has other ideas on how to combat negative investor psychology, I would welcome the discussion.

Global Warming: How Could It Affect Future Real Estate Values?

Global warming is on the minds of many people after yesterday’s news that a 160 square mile piece of Antarctic iceberg collapsed. According to an AP article, that ice formation had been estimated to be approximately 1,500 years old.

Most of us have heard evidence for and against the theory that human activity is the cause of global warming. I’m not a scientist, and I won’t debate whether global warming is a natural phase of the earth’s climate or the product of human industry. However, I will discuss how real estate values could potentially be affected if the polar ice caps melt, as some believe is already happening at an unnatural rate.

In an article in USA Today, scientists at the U.S. Geological Survey estimate that the maximum rise in sea levels would be approximately 215 feet, or 65 meters. This estimate assumes that all of the ice sitting on land in Greenland and Antarctica were to melt. That is the worst-case scenario that they predicted, and they said it would probably take a few thousand years to reach that point. For more details, read the USA Today article.

I found an interactive map that helps identify the areas that would be impacted. By changing the estimated sea level rise, you can see how the different areas are affected. As most people know, the biggest threat is probably to Manhattan. The area is home to millions of people and it is barely above sea level. It is also the financial center of the country, if not the world.

In a worst-case scenario, if Manhattan were to go under, millions of people and businesses would need to relocate, and there would be billions--if not trillions--of dollars in losses.

Here are just a few questions to consider: Would property insurance cover some or all of the losses? If they did cover such losses, how many insurance companies would go under as a result? Would the government come to the rescue, and if so, how much would it cost taxpayers?

I don’t believe that the worst-case scenario will happen. Many cities across the world would be lost--not just Manhattan--and the world wouldn't just sit back and let that happen. Scientists are already working on ways to combat the effects of global warming.

But if no action is taken and the sea levels rise, I believe that there will be widespread panic and people will head for high ground. If I were investing with the long term potential effects of the global warming in mind, I would stick to markets and areas that are at least 215 feet above sea level. Even if it will take thousands of years for sea levels to rise that much, people will become extra cautious much earlier on. Real estate values could increase dramatically in these areas as many millions of people are displaced and have to look for new homes.

I don’t think we will probably have to worry about this sort of chaos (at least stemming from the current global warming threat, but who knows what will happen when we start implementing the counter measures I mentioned earlier) but were it to happen, severe global warming would shatter the markets and send the world into financial turmoil such as never before witnessed. Even though desire for real estate in certain areas will increase, there may not be people who enough people who can afford higher prices, and actual demand probably wouldn’t equal investor expectations. Investors who think the effects of global warming will be felt in their lifetime might want to purchase gold. In times of panic, investors have always been able to count on gold.

Property Taxes: Are You Paying Too Much?

Property taxes are often overlooked when we examine total property expenses, but they can amount to hefty sums, especially in states such as Florida and Texas. Since most mortgages include property taxes as part of the total monthly payment, it is easy to see why this might be a problem. If you own multiple properties—which is the case with most investors—property taxes can become an even bigger burden. If you haven’t done so already, now might be a great time to take a closer look at your property taxes and see if there might be opportunities to make some cuts.

Many people either do not know or simply don’t care that they can challenge the tax assessment of a property. If you find that your assessment is more reflective of 2005 property values than today’s values, challenging those property taxes can be well worth the effort. If you don’t take the time to do this and you have property in an area that has seen huge price drops (such as Phoenix, Las Vegas, Miami, etc.), you are basically giving money away.

As most investors know, many investment properties are valued according to the net income that they produce. Therefore, cutting tax expenses will increase the value of a property. For example, a $300,000 duplex being sold on a 5 percent cap rate has a net income of $15,000 a year. If you were able to cut your property taxes by just $500, that same property would suddenly be worth $310,000.

If you are lazy or if you don’t have the time to do it, there are companies that will challenge the assessments for you and take a cut of any savings they generate. In places such as Florida, where the potential savings are substantial, this arrangement could be costly, but would still certainly be better than nothing.

If nothing else, I hope this post has at least encouraged you to actually look at how much you are paying in property taxes. It might be more than you think.

The Boutique Hotel Industry Enters Suburbia

The boutique hotel industry was created in response to demand for hotels offering unique, chic and intimate environments, with top-notch service. Demand has spread as vacationers and business travelers who have fallen in love with the boutique hotel industry want to be able to stay in boutique hotels even when visiting the suburbs. The boutique hotel industry has listened and is starting to deliver.

According to Jim Anhut of InterContinental as quoted in a USA Today article, business in the suburbs has really begun to thrive in the last 10 years. “More business is being done in the suburbs, and mass retailers such as Ikea, Pottery Barn and Target helped pave the way for ‘democratization of design,’” Anhut said. This means that more people, including business travelers, are visiting the suburbs than ever before. The suburbs have suddenly become an attractive market for the boutique hotel industry. And let’s not forget another big bonus for boutique hoteliers: Land is much cheaper in the suburbs.

There are several major boutique hotel operators building in suburbs across the country, but most of them are focusing on the suburbs of the 25 largest cities, according to the USA Today article.

Aspiring boutique hotel owners can follow suit and stick to the larger cities, or they can blaze their own trail in a smaller market. Personally, if I were looking to start a boutique hotel in suburbia, I would probably avoid competing with the larger companies. Larger hotel chains have the luxury of big marketing budgets and intercompany referrals. The suburb market is still fairly new and untested, and it could become saturated if too many boutique hotels enter the same suburb. New boutique hoteliers are probably better off focusing on the suburbs of the 26 to 50 largest cities. This would allow them to both enjoy a good-sized market and avoid major competition until they can at least establish their boutique hotel brand.

Business travelers and tourists are the lifeblood of the boutique hotel industry, and investors should analyze the numbers of both of those groups in a city when seeking a market. Some suburb locations are more business-oriented or tourism-friendly—or both—than others. Curious investors and entrepreneurs should read our article for more information: Boutique Hotels: Owning, Operating and Investing.

As Foreclosures Accumulate, Where Are The Opportunities For Investors?

The wave of foreclosures sweeping the nation has probably piqued the interest of most real estate investors. As more and more foreclosed homes flood the market, prices are plummeting, and there are seemingly more deals than one could ever hope to count. Should investors really be excited about these foreclosure opportunities? The answer to that question lies in one’s estimation of the real estate market.

Investors who believe that the market has hit bottom should seriously be looking at some of these foreclosure investment opportunities. Banks are becoming overloaded with REOs, and they are increasingly willing to deal with investors. This is not the case with all banks, but persistent investors are getting properties at 70 to 80 cents on the dollar, or even better in some instances. In Michigan and Ohio particularly, banks have more foreclosures than they can manage, and investors are getting especially attractive deals.

Investors should still use caution when looking at foreclosure investments. Areas that have a lot of foreclosures tend to be on the down trend. Neighborhoods that have a plethora of foreclosed homes are often faced with higher crime levels, lack of property upkeep and other negative features. This can lead to severe price drops in the neighborhood as it becomes less attractive to potential homebuyers. Unless investors are specifically looking for a neighborhood renewal project, they would do well to locate properties in neighborhoods which have not been as negatively affected by the downturn.

Investors must also consider that real estate prices could continue to slide. Even if one is able to buy a property for 70 cents on the dollar, if its value decreases another 20 or 30 percent, it no longer looks like such a good deal. In order to protect themselves, investors can look for properties which can be easily rented out to cover property expenses, including the mortgage. Cash flow property typically retains its value because it is not speculative like other investments, and investors can see the returns when they buy it.

If investors have the required funds, another foreclosure investment opportunity is to buy properties in bulk from lenders. Some lenders are more willing to offer discounts on their foreclosed properties if they can unload them in large quantities. Investors could then turn around and sell them off individually to other investors at a profit, or they could simply keep them for their own portfolio.

Housing Market Records Largest Drop In History Of S&P/Case-Shiller Index

The woes of the U.S. housing market are not news to most people, but how bad is it really? This may put things into perspective: The widely-used Standard Poor’s/Case-Shiller index saw an 11.4 percent drop in January—the largest in the history of the index, which was created in 1987.

The index has shown 19 consecutive months of falling house prices. Some people may believe that this is the absolute bottom, but this assumption may prove to be premature. If full-fledged recession takes hold in the U.S., as 71 percent of economists believe, then things are going to get much worse before they get better.

The S&P/Case-Shiller index tracks 20 metropolitan areas as part of its 20 city composite index. Of those 20 MSAs, only Charlotte, North Carolina showed a rise in home prices, but it was only 1.8 percent, which isn’t too exciting. Real estate in Charlotte has held up fairly well during this housing crisis for various reasons. For more background, read our article: Investing in Charlotte Real Estate.

On a darker note, 10 of the 20 cities tracked by the index showed double digit losses (Washington DC, Minneapolis, Phoenix, San Diego, Los Angeles, Detroit, Tampa, San Francisco, Las Vegas and Miami). In addition, all 20 of the cities tracked, including Charlotte, have shown diminishing growth over the past five months.

Investors should make sure that they are selecting investment properties very carefully. If you buy cash flow property that is making money from the day that you buy it, your risks are substantially reduced. Knowing how you will make the mortgage payment each month will help immensely in the volatile housing market we have today.

Economic Recovery Won’t Come Until 2009 Say 90 Percent Of CFOs

According to a survey done by Duke University and CFO Magazine, nearly 90 percent of the chief financial officers (CFOs) surveyed don’t foresee economic recovery coming until 2009. Why is this important? CFOs are one of the key decision makers in companies, and if they see economic woes continuing through 2008, then their companies probably won’t make many expansionary investments this year. One wild card in this is the business investment tax breaks given as part of the Bush administration's economic stimulus package.

Since business investments are a major part of our economy, it is not a positive sign that most of the businesses out there are hesitant to make them at present. If businesses fail to make investments in equipment and other expansionary measures, the road to economic recovery will become much more difficult. Their fear will become a self-fulfilling prophecy. I can’t say that I blame them, though. I too am pessimistic on this point, and personally I think that a 2009 recovery is rather optimistic.

How the Bush economic stimulus package tax breaks will affect business investment this year remains to be seen, but I feel that it won’t have the impact that the administration is hoping it will. If the economy shows improvement later in the year, then one can bet that more businesses will take advantage of the tax benefits before they expire, but, at this point, it appears that most businesses think expansionary investments are too risky.

Investors out there should take note of what these CFOs are saying. If they believe that economic recovery won’t come until 2009, then their approach will likely make it a self-fulfilling prophecy and recovery won’t come until at least then. Unless one finds a tremendous investment opportunity, one is better off playing it safe, or focusing investment monies on investments that better perform during economic slumps.

New President Of Taiwan Calls For Closer Relations To China

For years the rift between Taiwan and mainland China has grown as the Chinese government asserted ownership of Taiwan and Taiwan called for independence. The Taiwanese government took a hard-line stance and heavily restricted travel and immigration from the mainland out of fear of sabotage or attack, but this has affected trade. Taiwan is now unable to compete with mainland China and other lower cost countries on several exports, and the economy in Taiwan, which was very healthy only a few years ago, is starting to suffer. For this reason, many residents of Taiwan were calling for change from their leadership.

Well, change is on the way. The people of Taiwan have elected Ma Ying-jeou as their new president. Ma is of the opposition party and favors closer relations with mainland China. According to an article in the International Tribune, Ma said in an interview yesterday that, in his first 100 days in office, he hoped to have an immediate effect on the economy by opening up Taiwan to mainland Chinese tourism. After that, Ma has other plans on how to better incorporate mainland China into Taiwan’s economy.

The former leading party of Taiwan, the Democratic Progressive Party, thinks closer relations with China will only result in disaster. If Taiwan can successfully reintegrate China into their economy without major disruption, then Taiwan’s economy should experience a nice surge. If the Democratic Progressive Party is correct in their conspiracy claims against China, and the situation turns ugly, then Taiwan may decline further.

Investors who think that Taiwan and China will live harmoniously should buy into Taiwan now. Taiwan’s tourism sector especially is in for a boost. As an indication of how investors are thinking, Taiwan’s stock market saw a 4 percent jump today in response to the election results. One should remember that certain Chinese leaders deeply despise Taiwan, and not discount the risks in this relationship. The Chinese seem to support Ma, so hopefully the two sides will be able to resolve the issues between them in a peaceful manner.

Want Happiness? Give Away Some Money

It appears that people who are searching for happiness need look no further than their wallets. According to researchers at the University of British Columbia and Harvard Business School, as reported in Science, people who give to others are happier than their peers.

The researchers took three different approaches in their study, but the results of each method confirmed that people who gave to others were happier than those who spent money on themselves. If you are interested to learn more about this study, visit this New York Times blog post about it.

I believe these findings are accurate, as I—and most people, I think—agree that it is better to give than receive. Here at NuWire, we try to highlight not only monetary investment opportunities, but also social investment opportunities. We attempt to identify companies that are creating social change through investing and business principles. These companies are able to stretch every dollar donated to them further than traditional non-profits. In case you missed some of our past social investment articles, here are some that you should check out:

Top 15 Charities for Investors
MicroPlace Thinks Big to Alleviate Global Poverty through Microfinance
Microfinance Institution Reviews
Non-Profit Venture Capital Aids Developing Nations

NCAA Basketball Tournament And Investing In College Town Real Estate

There is nothing like March Madness, when the NCAA basketball tournament takes center stage. Even people who don’t like sports will join office pools, and water cooler discussions become gloating over the successes and lamenting the upsets in our brackets. But what does all this have to do with investing you ask?

Many of us long to relive the energy and excitement of the college atmosphere, and for that reason many retirees are choosing to settle in college towns across the country. With the enormous number of baby boomers facing retirement over the next several years, investors should attempt to identify places where retiree populations—and consequently the price of real estate—are ready to boom. We all know about Florida and Arizona, but every state has college towns that are likely to benefit from these retirees, and investors might do well to investigate these towns. Retirees love the college vibe, but they need medical services and hospitable weather is a major plus as well, so universities with medical research facilities and a good climate could be prime candidates for future retirement havens.

In addition to the retirement angle, college town real estate also offers the added benefit of a steady supply of renters and a more educated population, which is a draw for businesses. Research universities are especially attractive locations for start-up businesses, and you never know if one of those start-ups will really take off and become a major employer for the area.

For a more in depth look at investing in college town real estate, read our article: College Town Real Estate. If you are already sold on the idea, check out our article on the Top 10 Small College Towns for Investment.

As Obama And Clinton Fight, McCain Is Closing In On Presidency

There have been some interesting turns of events in the Presidential race. Last month, Barack Obama enjoyed a huge lead over Hillary Clinton, and was largely favored to win over John McCain. Obama is now only slightly ahead of Clinton, and the margin seems to be getting tighter. Even worse for the Democratic Party, the new Reuters/Zogby poll released on Wednesday shows that McCain is now favored over Obama.

The problems began for the Democrats for two main reasons: 1) McCain clinched the Republican nomination early on, and has been able to focus his full efforts on the race for the Presidency. 2) Tactics and arguments have gotten dirty between the two Democratic nominees. Clinton especially has bombarded Obama with attacks in an effort to expose alleged weaknesses.

Whether or not the attacks on Obama are warranted, they have changed public opinion. If nothing else, they have worked to cast doubt in voters’ minds about the chances of Obama to win against McCain. During the Republican primaries, McCain’s biggest problem was fundraising, and his early victory has aided him greatly. Not only was he able to conserve funds, but his clear nomination allows him an advantage in raising additional funds going forward.

Results differ greatly from poll to poll, and many voters don’t really decide until the very end, so no poll will be perfectly accurate. Democrats probably shouldn’t worry about the Reuters/Zogby poll at this point, but they should be aware that the longer the battle for the Democratic nomination draws out, and the more intra-party fighting goes on, the more advantage McCain will gain.

Las Vegas Real Estate Developments Running Into Problems

Las Vegas real estate has certainly seen better days. It was announced last week that two of the strip’s major developments—The Cosmopolitan and The Plaza—are now faced with some problems.

The Cosmopolitan is a mixed-use building located by the MGM Mirage’s CityCenter complex. The project was originally budgeted to cost in the range of $2 billion, but rising construction costs put the project closer to $4 billion to complete and Deutsche Bank is now foreclosing on the development. The developer, Bruce Eichner, has been attempting to save the project, but the problems in the credit market have made it rough going. 83 percent of the units have already been sold, according to The Wall Street Journal, and each buyer made at least a 20 percent non-refundable down payment to secure their unit. The development will probably be completed eventually, but how long it will take remains unknown.

The Plaza is a huge project scheduled to open in 2012 on the north end of the Strip, on the site of the former New Frontier. The development was projected to cost around $6 billion. It would offer 4,100 hotel rooms, 2,600 condominium units and the Strip's largest casino at 175,900 square feet. Because of the problems in the Las Vegas real estate market, The Plaza’s developers have decided to put the entire project on hold and construction on the project has been suspended altogether.

The good news for investors in all of this is that, with the various project delays and stoppages, the pipeline of nearly 45,000 new rooms which were scheduled for completion by 2012 will be drastically reduced. With that many rooms coming available at once, the market would have been flooded and rates would have plummeted. We might now see a more gradual increase in the number of units available and less market volatility as a result.

Investing in Las Vegas real estate—be it residential, commercial or otherwise—is certainly a gamble at this time. The market is still unstable and prices will likely continue to fall. However, Las Vegas remains one of the most popular destinations in the world for visitors, and investors with a long-term focus are generally safe investing in such a market. In the short term, I would probably advise against investing in Las Vegas real estate, but investors should watch the market and be ready to jump in when things start to improve.

Buying Vacant Land As An Investment

Buying vacant land is something that many investors ponder. They can see the long term value, but they don’t like that the property produces no cash flow. Many investors have made their fortunes by buying vacant land, but others made little to nothing on their vacant land purchases.

As with most real estate investments, location is critical when buying vacant land.. Ideally, investors will buy vacant land that will be in the path of future development, but identifying an expanding market and predicting which areas will most be in demand is easier said than done.

Investors should consider areas that are better located for future infrastructure expansion and near major employment centers. Natural barriers such as mountains and rivers can inhibit development in certain directions, as developing past those areas can be cost prohibitive. If development has not yet reached those natural barriers, investors might look to purchase in that area. If development has already reached the river bank, or mountain side, then the city is likely to start developing elsewhere.

Good views and waterfront properties are always in high demand. When buying vacant land for its natural beauty, investors should try to determine find property that is likely to remain beautiful once development reaches the area. This is easier to do with waterfront land then with view property, because it can be difficult to tell if views may someday be blocked by development.

It is also possible for vacant land to produce some income, so don’t listen to people who say this can’t be done. Vacant land is often used for recreational purposes and can produce income while the investor waits for development. Investors can rent vacant land to hunters or fishermen or turn it into a camp ground, an off-road vehicle track or even a paintball field. Investors who can think of activities that are in demand and a good fit for the property are limited only by their imagination. Once expansion reaches the point where the vacant land is valuable, investors can sell it off or develop it on their own.

Investors should evaluate in advance the development potential of the vacant land (its soil, terrain, access) and determine if it will be suitable for building once city expansion reaches it. While some challenges with land can be overcome, the more build-ready the land is, the more valuable it will be down the road.

Buying vacant land as an investment can result in some of the biggest returns in the real estate investment market, but it is a form of speculation and not without risk. To put it in terms of the stock market, I would equate buying vacant land to buying small cap stocks. Small cap companies fail more frequently than their large cap counterparts, but the ones that make it tend to make it big, and small cap stocks have consequently shown better overall returns. As with stock portfolios, investors who are looking to buy vacant land as an investment should diversify and not buy in one area or one city alone... Beyond the ability to take a risk, investors buying vacant land need cash and time to spare. If an investor has all of that, then buying vacant land as an investment might not be a bad idea.

Fed Cuts Interest Rates By 0.75 Points: U.S. Dollar Now Second Lowest Yielding Major Currency

Yesterday, the Fed did what everyone expected by cutting interest rates. The 0.75 point interest rate cut was lower than the full 1 point rate cut that futures traders were expecting, but within the range most people expected. It is doubtful that this interest rate cut will revive the economy for more than a brief showing on the stock market, and most people expect further interest rate cuts in the future. President Bush also mentioned yesterday that he is willing to take further measures to revive the economy, but first he wants to see how his economic stimulus package pans out.

Rather than discussing future cuts and policies, let’s talk about the present: The U.S. dollar is now the second lowest yielding major currency. The lowest yielding currency is the Japanese yen, which has pretty much maintained that title since Japan’s financial meltdown in the '90s (see previous post: Could The U.S. Be Headed For A Recession Similar To Japan's In The '90s?), which was eerily similar to the one the U.S. is experiencing. The U.S. dollar yields 2.25 percent, while Japanese yen yields 0.5 percent. The dollar still has some room to fall before it gets that low, but it is well on its way.

Why is the yield of a currency important?

Investors want to see return on their money, so if they aren’t getting the returns they seek at home, they will start to look elsewhere. For a good example of this, we can look to Japan. The Japanese don’t want to keep their savings in yen because they earn almost nothing on it, and with inflation is higher than interest rates, they are actually losing money. Because of this, people take their savings elsewhere. As more people sell off their yen, the currency goes lower.

There are also the carry traders who borrow money at low interest rates and invest that money in higher yielding currencies hoping to profit from the yield difference. Again, these traders are selling the low-yielding currency (lowering its value further) and buying higher yielding currencies (raising their value). Carry trading has become popular of late, and its power to move currencies should not be overlooked.

For the reasons mentioned above and others, as currencies decrease their yield their value goes down, and as the yields get raised the currency value goes up. The fact that the U.S. keeps lowering the dollar yield is further reason to believe that the dollar will continue its slide.

International Real Estate Investment: Best Countries For Long Term Investment

Many investors are now looking overseas for real estate investment opportunities as the era of globalization grows and the problems in the U.S. continue. Choosing the country in which to invest is one of the first steps, and one of the most difficult.

Investors must first decide what their motivation for the investment is. Is it to make money, or is it a combination of money and personal enjoyment of the property.

Global Property Guide is a great online resource that helps investors evaluate international real estate investment opportunities. The site calculates average rental yields for various countries and provides information on tax policies and long-term growth prospects. Based on the different investment factors, the site rates each country on a scale of 1 to 5 stars. The following is a list of the locations which have a 5 star rating, and are listed as the best places for long term real estate investment by Global Property Guide:

1) Buenos Aires, Argentina
2) Bahamas
3) Sofia, Bulgaria
4) Cairo, Egypt
5) Hagatna, Guam
6) Bratislava, Slovakia
7) Montevideo, Uruguay

Personally, I think that it is a good list, though I don’t know that I agree with the Bahamas’ and Bulgaria’s rankings. The yields in those countries aren’t all that great, and I think that Bulgaria has a serious bubble on their hands. The website offers a great resource for aspiring international real estate investors to start their search, but it should not substitute for real due diligence.

Bear Stearns, Carlyle Capital And The Fed

For those who haven’t already seen the headlines in the local paper, Bear Stearns agreed this weekend to be acquired by JP Morgan for $236 million or about $2 a share, a sharp contrast to its 52 week high of $159. In addition, on Sunday the mortgage-bond fund Carlyle Capital decided to close up shop. Many people believe that this is only the beginning of the financial melt down. How will the Fed respond to these recent events at their meeting today?

The Fed will likely lower the key interest rates yet again, anywhere between .5 to a full point. Most traders will welcome as large a rate drop as Bernanke will give after the hammering the markets took this past week, but people who have their savings held in dollars might have other thoughts.

I know that I’ve been pounding this point home a lot lately, but the Fed is destroying the value of the dollar. I can’t imagine that it will be much longer before any foreign countries buying up U.S. treasuries start to think twice. What will happen then? The U.S. is funding its enormous debt by issuing more debt, and if that option gets reduced or eliminated there will be serious consequences. The options come down to printing more money (and further deflating the dollar) or default, and neither scenario would end well.

I’ve said it over and over again, but if you aren’t already diversifying out of the dollar, do it now. It is ok to keep some savings in dollars, but people really need to start looking at a basket of currencies. EverBank offers a product called a foreign currency CD which will pay interest on your money and also allow you to easily diversify into other currencies. They even offer various baskets of currencies to aid with diversification. EverBank also offers silver and gold CD’s, which is a simple way to diversify into the precious metals market.

St. Patrick’s Day: Green, Irish, Beer And Investments?

St. Patrick’s Day brings 3 words to my head each year: Green, Irish, and Beer. So in honor of St. Patrick’s Day we are going to take a look at how those 3 words can be looked at in terms of investment.

We all know that if you don’t wear green on St. Patrick’s Day, you are going to get pinched. In addition we also know that green is the color of money, or at least of the U.S. dollar, and the point of investing after all is to make money. The catch right now is that the greenback is losing so much value that investors are better off keeping their hard earned money in currencies other than the dollar. The Euro has been the alternative of choice for most people, but it is not green…oh well.

Irish...this one is much tougher to think of in terms of investment, but an Irish pub might be a good investment for the right individual. For more information about opening a bar, read our article: Owning and Operating a Pub or Bar. The food and beverage industry has some of the highest failure rates for new businesses, so it is not an easy thing to do, but the right person with the right motivation and ideas can have great success. The Irish Pub Company, which offers consulting and design services for bar owners, makes the following claim on their website: “In Britain analysis of the sales performance of Irish Pubs reveals that where an existing pub has been converted in to an Irish Pub outlet the total sales turnover has frequently more than tripled.” That is a pretty dramatic improvement, and although the statistics are based on numbers in Britain, Irish Pubs are gaining popularity in the U.S. and this could well be the reason.

Beer of course is related very closely to the Irish Pub business, but is also possible for investors to invest in beer manufactures or even to start their own brewery business. For a list of the various brewers listed on the NYSE, click here. If you are an aspiring brew master, I wish you the best of luck. Starting a successful new brewery business will not be easy, but nevertheless appears to be a fun venture. To get you started, here is a website with the basics of beer brewing.

Green, Irish, and Beer are obviously not the 3 words that best express the true meaning of this holiday, but they are representative of what the celebration has become in the U.S. For those who want to know more about the history of St. Patrick’s Day, visit the History Channel’s website where they have a great background on the holiday.

Recession Has Arrived, Say 71 Percent Of Economists

According to an economic forecasting survey conducted by The Wall Street Journal, 71 percent of the 51 economists polled believe that we are in a recession. This is in stark contrast to the economic poll done by The Wall Street Journal in December, in which only 38 percent of the economists thought the U.S. were even heading towards a recession. If 71 percent of that same pool of optimistic economists thinks that a recession has already arrived, then it is a safe bet that it has.

Let’s all take a minute to remember that recent, laughable announcement from our President Mr. George Bush stating that the U.S. was not facing a recession. Come on, George. At what data were you looking? I know that you have to keep a positive spin on things, but to flat out say that the possibility of recession was slim was simply lying to the American people.

Now that a majority of economists agree that we are in a recession, the next topic to debate is how bad it is going to be. According to the same survey, the economists put the odds of a deep recession at 48 percent. Looking at how overly optimistic the group has proven to be, it is safe to assume that the real odds are significantly higher The problems in the U.S. economy are so numerous that I must believe that the recession will be hard felt and that they won’t be fixed any time soon.

Investors who have not already begun preparing for a recession need to start now and ask themselves certain fundamental questions. During a full-on recession, job cuts are rampant. Do you have adequate savings to get you through in the event of a job loss? Plan for the worst, but hope that it doesn’t come to that. People must also evaluate their investments. The market is going to be very volatile during a recession. Are you properly diversified? Have you considered alternative investments? Many of these will greatly outperform stocks during a recession. For some investment ideas take a look at NuWire’s top 5 recession investments.

New Conforming-Jumbo Loans From Fannie Mae And Freddie Mac

New higher conforming loan limits (See New Conforming loan limits post) created by temporary federal legislation have resulted in a new type of loan: The conforming-jumbo loan. Strange as it may be to say those two words together, the conforming-jumbo loan amount is above the previous conforming loan limit, but less than or equal to the temporary limit which will last until at least the end of this year.

The conforming-jumbo is being treated differently than the previous conforming or jumbo loans. Fannie Mae and Freddie Mac add on a .25 percent rate adjustment for conforming-jumbo loans, and they require a minimum credit score of 660 to qualify. There are other requirements, and if you are interested, you should read this post from Rain City Guide.

It is important to note that those are only the standard adjustments from Freddie and Fannie, and each individual lender then decides whether they should make additional ones. One loan officer commented on a Rain City Guide post that Plaza (a mortgage lender) is adding a 2.5 price hit on FHA loans above the previous conforming limit. Many other loan officers suspect that several other lenders will be making similar adjustments, although it is not certain that they will be as extreme.

In order for the new loan limits to work, they need to be an available and sensible option. If they turn out to be just as difficult and/or expensive as jumbo loans, then this all will become a big waste of time. It doesn’t seem that this will be entirely the case; they should help high-cost markets somewhat, and they won’t be as bad as jumbo loans, but it does seem that these loans will be more expensive and of less help than many people anticipated.

Say Goodbye To The Once Mighty U.S. Dollar

I think that almost everyone is aware that the U.S. dollar is struggling, but many are not truly aware of the severity of the situation. The Associated Press released an article yesterday which talked about some of the issues. It mainly focuses on how many businesses in foreign countries no longer accepting the U.S. dollar, but it also talks about some of the underlying issues as well. Here are some excerpts:

“Experts say the bleak U.S. economic forecast means it will take years for the greenback to recover its value and prestige.”

“The dollar has steadily eroded in value against the euro and other currencies since 2002 as U.S. budget and trade deficits ballooned, but fears of an American recession and credit crisis have sent the dollar to stunning lows amid predictions the slump will continue for a long time.”

“The dollar fell to a 12-year low against the Japanese yen Thursday, dropping below 100 yen to the dollar for the first time since November 1995. The euro rose to all time high and is currently trading above $1.55. Meanwhile gold hit a new benchmark today at $1,000 an ounce. That's a jump of nearly 20 percent just since Jan. 1.”

“While dollar cycles have come and gone, experts caution that it's now much more difficult to predict when this one will end because the euro didn't exist as competition for the dollar before.”

“During previous U.S. economic downturns, big foreign funds typically snapped up U.S. Treasury securities, helping to shore up the dollar to a certain degree. But the euro and currencies from other nations are now seen as legitimate options, and interest rates are higher outside the United States — meaning the funds can get better returns on investments elsewhere.”

“Nations that were once seen as incredibly risky for investments — such as Brazil — are now seen as good long-term bets.”

I have long been warning that the U.S. dollar was on the way down, as many other financial experts have been, but many people still seem to be in denial of the situation. Those who are still in denial need to wake up...and fast. The problems in the U.S. are going to be around for a while, and, in the meantime, investors need to look at diversifying across currencies in order to maintain the integrity of their investments’ value. Stubborn investors who refuse to abandon (or at least strongly diversify) the dollar, are likely to be very unhappy and very poor.

$1,000 Gold Has Officially Arrived: A Warning From Ron Paul

It long appeared inevitable, but it has now officially happened: today the price of gold hit the $1,000 mark. Wondering what’s so important about the $1,000 gold price? Well, let's see what Congressman Ron Paul has to say.

The following excerpts were pulled from an article posted on Lewrockwell.com by Paul (all emphasis mine):

“Buying gold and holding it is somewhat analogous to converting one’s savings into one hundred dollar bills and hiding them under the mattress–yet not exactly the same. Both gold and dollars are considered money, and holding money does not qualify as an investment. There’s a big difference between the two however, since by holding paper money one loses purchasing power. The purchasing power of commodity money, e.g., gold, however, goes up if the government devalues the circulating fiat currency.”

“Holding gold is protection or insurance against government’s proclivity to debase its currency. The purchasing power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency goes down in value. In our current situation, that means the dollar.”

“A soaring gold price is a vote of ‘no confidence’ in the central bank and the dollar. This certainly was the case in 1979 and 1980. Today, gold prices reflect a growing restlessness with the increasing money supply, our budgetary and trade deficits, our unfunded liabilities, and the inability of Congress and the administration to reign in runaway spending.” (This was written back in 2006, so you can probably add the uneasiness being felt from the credit crisis.)

“Likewise, a fiat monetary system encourages speculation and unsound borrowing. As problems develop, scapegoats are sought and frequently found in foreign nations (hello China). This prompts many to demand altering exchange rates and protectionist measures. The sentiment for this type of solution is growing each day.”

Congressman Paul then gets in-depth about how the fiat system will inevitably fail, as it has throughout history (which is an interesting truth). If you are interested in knowing the details, read the complete article. It is fairly lengthy, but well worth the time to read, whether or not you agree with his ideas—it will get your mind spinning a bit if nothing else.

I don’t envision the U.S. moving to a gold standard as Paul suggests, and I’m not sure exactly how I feel about that idea one way or the other. Paul makes an interesting—and extreme—point at the end of the article that I do want to bring up:

“Economic law dictates reform at some point. But should we wait until the dollar is 1/1,000 (which arrived today) of an ounce of gold or 1/2,000 of an ounce of gold? The longer we wait, the more people suffer and the more difficult reforms become. Runaway inflation inevitably leads to political chaos, something numerous countries have suffered throughout the 20th century. The worst example of course was the German inflation of the 1920s that led to the rise of Hitler. Even the communist takeover of China was associated with runaway inflation brought on by Chinese Nationalists. The time for action is now, and it is up to the American people and the U.S. Congress to demand it.”

The Top 5 U.S. Job Markets

If you are out of work, or are being faced with that possibility thanks to the looming recession, then you might want to take a closer look at one of these cities which comprise the list of the top 5 U.S. job markets.

Investors should also pay close attention to this, because a vibrant job market typically reflects well on real estate values in the area.

The list was compiled by ABC News. I have added commentary for each city:

1) Salt Lake City, UT- This city represents a great opportunity on many fronts: for job seekers, retirees, vacation rental home owners, and real estate investors. Salt Lake City is hot market right now and has already seen some high appreciation.

2) Wichita, KS- Wichita offers tremendous real estate value in addition to its job market. Real estate is cheap, and cash flow is fairly easy to find, which is indeed desirable in an uncertain real estate market such as the current one. Wichita made NuWire’s list of the Top 10 Places to Invest for 2007.

3) Austin, TX- Home of the University of Texas and the Texas Longhorns, Austin has received many accolades of late as a great city in which to live, invest, and, of course, find a job.

4) Atlanta, GA- Atlanta has a vibrant job market, but because of the rampant overbuilding and urban sprawl, property has not appreciated there as much as it has in other cities on this list. Atlanta offers many investment and job opportunities if one looks in the right place.

5) Fort Worth, TX- Fort Worth is one of the fastest growing cities in the U.S., both in terms of job market and population. In addition, Fort Worth offers very affordable real estate, and abundant cash flow opportunities. Fort Worth also made NuWire’s Top 10 Places to Invest for 2007.

Whether you are looking for a job or an investment opportunity, any of these 5 cities will offer you many to choose from.

Sell Property Now While Capital Gains Is Low, Or 1031 Exchange?

It is very possible that we will have a Democratic President next year, and with them an increased capital gains tax rate. From the sound of things, Barack Obama or Hillary Clinton were plan to let the Bush tax cuts expire, which includes the lower (15 percent) capital gains rate.

Clinton would probably just let them expire, and we would return to the pre-Bush 20 percent rate), but Obama plans to raise it above the pre-Bush rate, and could attempt to change the legislation prior to the Bush tax cuts’ expiration at the end of 2010.

The Wall Street Journal pointed out that this uncertainty should compel investors to make necessary arrangements now to maximize their returns. If an investor knows that he or she is going to need the money sometime in 2009, for example, it might make sense to look at selling the property this year to avoid the potentially higher capital gains rates. Considering the struggling real estate market, I wouldn’t suggest this strategy unless you need the money out of the property..

If you don’t need the money and if you later decide that you want a different property, then you can 1031 exchange into a different investment property, and defer those taxes. The beauty of the 1031 is that you can keep deferring those taxes until you die, and when that happens: A) You won’t care about taxes anymore, and B) Your heirs will take possession a the new higher base value, so they don’t have to pay the taxes either.

1031 exchanges can be a little confusing when you try to figure out all of the timelines and regulations, but once you understand the basic concept, it really isn’t all that difficult. Every real estate investor should at least be aware of 1031 exchanges, and if you are not familiar with how they work, then I suggest that you read our article: Defer Taxes with 1031 Exchanges. . It won’t always make sense nor will it be possible to use them in every situation, but 1031s can save investors thousands in taxes if used properly.

We Know That Big Banks Are Hurting, But What About Local Banks?

I think that most people are wary about investing in big banks like Citi-Bank, Bank of America, or JP Morgan at the moment. Even though they appear to be undervalued, who knows what baggage (subprime write-offs) they still have hiding in their closets. It seems that every time they start to rebound and people begin to think that things are turning around for the better, they drop another hammer and the stocks plummet. The yields being offered are appealing, but what if you fear that you might have a heart attack the next time that there is another big adjustment? Are there any banking sector investments out there that might offer something different?

Interestingly enough, it is possible to invest in your local community banks. Of course, some community banks invested in the same troubled subprime debt that big banks did, but many other local banks have taken a different, very conservative approach. For example, there are several community banks in the Midwest that specialize in lending to farmers (who, by the way, are making money hand over fist right now), and subprime debt isn’t even in their vocabulary.

These opportunities aren’t available on the stock market—at least not yet—so not only do they potentially offer access to the banking sector, but they also offer a tremendous amount of growth potential. It is not without risk, as small banks can and do fail much more frequently than large banks. However, there is potentially much more opportunity with small banks, and by getting in on a new bank (or niche one) you can avoid many of the mistakes and problems currently plaguing the industry.

One of our contributing writers recently wrote a “how to” article called, “How to Invest in Community Bank Stock with a Self-Directed IRA.”I recommend reading it if you are interested in learning more about how to do this. As the article title suggests, it is possible to buy this stock inside your self-directed IRA, which can be a nice way to diversify assuming that you have a large enough IRA balance.

Good News...The Trade Deficit Wasn’t As Bad As Expected

I saw the headlines in the news today and couldn’t help but laugh. It appears that people are so desperately seeking positive economic news that they will cling to anything which can remotely be skewed into a positive light.

While it certainly is good news that the trade deficit came in better than expected, and that exports improved, people are forgetting a couple of important things: it still grew, and the deficit was $58.2 billion for January! Yes, folks...I said $58.2 billion U.S. dollars, not Japanese Yen, for the month of January. That was an increase of .6 percent over December’s trade deficit of $57.9 billion, according to Bloomberg.

When I look at those numbers, I certainly do not get a warm, fuzzy feeling. I get further indication of the shakiness of the U.S. economy. Despite the fact that the dollar has been beaten to death against the world’s other major currencies, we still can’t chip away at our trade deficit. If not for the ridiculous price of oil, it appears that things would have turned out a little better, but that is beside the point. Oil is our biggest import, and it isn’t going to go away anytime soon. Therefore we have to account for that.

If I just ruined your day by spoiling this shred of hope, I sincerely apologize. I’ll tell you this, though: It was just announced that the Fed is going to issue $200 billion in new loans to the struggling banks, and the Dow is up almost 200 already. Oh, shoot...I just saw that the Fed is allowing them to secure those loans with mortgage securities. Hmm...that should be interesting.

Pollution Is Now Officially A Sin: What Can We Do To Avoid Going To Hell?

According to a recent article from Reuters, the Vatican released a list of modern sins, one of which was pollution. I’m really not sure what to say to that other than I guess that it just reinforces the old saying that all of us are sinners. I can’t think of one person in the entire world, let alone the U.S., who isn’t responsible for pollution in one form or another. I’m also not exactly sure how one can avoid polluting altogether, but it is completely possible to pollute less, which is probably what they are trying to suggest with the recent announcement.

That being said, if investors want to avoid the wrath of God, then there are several ways that they can incorporate a little greenery into their investments. Socially responsible investing is one emerging trend that investors can look to follow. In addition, real estate investors can do things like making their investment properties LEED certified, as well as implementing other low cost green additions.

Even if investors aren’t worried about going to Hell for polluting, there is still a big reason for them to pay more attention to the environment. Whether or not they are on board with the green movement, an ever growing amount of the population is. As the number of environmentally conscious people grows, so to will the demand for environmentally sound businesses and properties. Investors who are savvy enough to catch onto this stand to make a lot of money. One has to imagine that a decent number of Catholics who were previously uninterested in the environment will now become interested due to this announcement, which will only swell the growing ranks of the environmentally conscious.

Which States Are In Recession?

While I was reading blogs this morning, I came across an interesting post from Pat Kitano over at Transparent Real Estate. In his post, he has a recession map of the U.S. which shows how different states are in various stages of economic development. Each state is designated as in a recession, at risk of recession, in recovery, or currently expanding.

Surprisingly enough, the map shows that a majority of U.S. states are actually in a period of expansion right now. It is no reprise that states experiencing the worst from the housing meltdown, such as Michigan, Nevada, Arizona and Florida, all made the recession list.

When people look at the term “recession,” they generally look at it in terms of an entire country. Breaking it down to the state level is a novel concept. If you are curious about the recession map and the category into which your state falls, check out Pat’s post: Recession Map.

Does The Latest Jobs Report Confirm A Recession?

There is a debate right now in the financial world concerning whether or not the U.S. has entered into a recession, but who is right? Does the government’s latest jobs report, which showed that employers eliminated 63,000 jobs last month, confirm the recession?

Ultimately no one knows exactly when we “officially” enter a recession or not. The government certainly won’t admitted to it if we are, and they are going to do their very best to delay any mention of it. To identify whether or not we are truly in a recession, we have to look at the GDP. A recession is defined as two straight quarters with negative GDP growth. The problem is that those numbers are reported so far behind, and then later adjusted (typically for the worse), that by the time we can look know what the real numbers are we’ll quite possibly have been in the recession for some time.

The job report came as a surprise to most people, as the official estimates anticipated an increase of around 25,000 jobs. Typically in a recession, jobs are a trailing indicator. It takes some time for businesses to start feeling the effects of a recession which ultimately lead to layoffs. The fact that jobs are declining would typically back up the argument that a recession is already here.

The difference in this jobs report, though, is that the unemployment rate actually fell (to 4.8 percent), which means that people were leaving the work force entirely. The baby boomers are beginning to retire, and so we are entering a period where this will be a common phenomenon. The question we have to ask is whether these jobs will be replaced. If companies are forcing employees into early retirement, or removing the jobs altogether, then it will still have the same net effect as typical job reductions. However, if these companies will eventually replace these retirees with new people, then the outcome is a little different.

My gut tells me that the first possibility (forced early retirement) is very prevalent. I have felt for sometime that we are looking at an unavoidable recession, and to me this is just the first round of “nice layoffs.” I suspect that there will be much harsher ones still to come.

So while this latest jobs report does not “officially” tell us a recession is here (as only the GDP numbers can do that), one can begin to see the writings on the wall. My advice is to start planning for a recession (save your money, “what if” you lose your job, etc), because if you plan and it doesn’t come you are much better off then if you didn’t plan and it does come.

Nicaragua Breaks Ties With Colombia, And Venezuela Threatens To Seize Assets

In the latest drama in Latin America, Nicaragua has officially broken diplomatic ties with Colombia, and Venezuela’s Chavez is threatening to seize Colombian assets in the country. Naturally this has had a dramatic effect on the Colombian corporations operating in Venezuela, which was evident in the sell-off of those corporations’ stock yesterday.

In my previous post, I said that the chance of a full on war was minimal, which was echoed by U.S. defense secretary Robert Gates according to a CNN article. However, there could be serious economic consequences. It appears that Venezuela, Ecuador, and now Nicaragua might be preparing to engage in economic warfare.

I’m not sure if Chavez will actually follow through on his threats—as he tends to make a lot of them—but threats alone have already caused damage to Colombian investors. It doesn’t appear that this thing is going to end as quietly as many thought.

Now Effective: New Higher Mortgage Limits For FHA And Conforming Loans

HUD officially rolled out the new higher limits for FHA loans yesterday, and the conforming loan limits for Fannie Mae and Freddie Mac were also increased. The government is hoping that these new limits will help an estimated 250,000 new people become homeowners and benefit areas with high real estate values. The cap increases max out at $729,750 for single family homes, $934,200 for duplexes, $1,129,250 for triplexes, and $1,403,400 for fourplexes.

The maximum levels were reached in several counties across California, as well as places like Washington D.C. and the metro New York City area. To see the new conforming loan cap in your county check out the FHA mortgage limits tool on HUD’s website. The tool also has the new Fannie Mae and Freddie Mac conforming loan limits, although they are basically the same as the FHA ones.

These new loan limits last only for the rest of the year and revert to the old levels in January 2009, barring any legislative changes. For more details about the new limits you can find out more on HUD’s website.

The Federal Reserve And European Central Bank: A Difference Of Opinion

The Federal Reserve and European Central Bank have a very different opinion when it comes to managing economic policy. This is especially apparent when one looks at how their respective currencies, the dollar and the euro, have performed against one another. It seems that every day, the euro is setting a new high against the dollar. There is a great article in The New York Times that talks about this very issue, but I will attempt to summarize it here. Let’s take a look now at how the two central banks ideologies compare.

The Federal Reserve’s number one priority is economic growth. Their thought is that if growth stalls, then so will demand and inflation. To the Fed inflation is simply a byproduct of growth, so they aren’t too concerned with controlling it directly. They would rather control growth, and thus indirectly control inflation.

The European Central Bank focuses on growth as well, but they are also very concerned with inflation. They do not necessarily agree with the idea that inflation can be controlled (at least to their satisfaction) solely by focusing on growth.

Growth has been slowing both in the U.S. and in the European Union, but the central banks have had very different responses. The Fed has responded with a series of rate cuts, and will likely make even more of them, while the European Central Bank has left their key interest rates in place. In the U.S., the drastic rate cuts haven’t had much effect in ramping up the economy, and growth has come to a halt. In addition, inflation has been increasing dramatically, inspiring some to proclaim that the U.S. is entering into a period of stagflation. Growth in the European Union has continued to slow and inflation is above target at around 3 percent, but on both counts they are doing a little better than the U.S.

It is extremely hard to compare economic policies in this way because the two subject economies are very different. It will be interesting though to see how the two differing policies turn out in their results. I’m not a big fan of how Bernanke runs things, and I’m leaning towards the European Central Bank working out better, but we will just have to wait and see.

The Kenya Elections: Violence And Entrepreneurial Dreams

Violence brought about by the elections in Kenya has stymied—but not stopped—an inspiring story of entrepreneurial innovation and spirit. Kenya’s Youth Ministry was holding a business plan competition to inspire and support entrepreneurs and create new businesses. From an initial 5,000 participants, the best 100 were chosen for further training and judging. Kenya recognized the need for new businesses and the benefits that they bring to the economy. Some experts estimate that for every one person who receives work in Africa, 10 others will have food, clothing, shelter, school fees and other necessities. Unfortunately, six weeks after the competition began, so did the horrific violence which has claimed over a thousand lives and displaced hundreds of thousands.

But now the entrepreneur competition has brought about a new life, and there is a film already being made about the events which have taken place. The film is called “Kenya Stories”, and it was originally intended to be a simple documentary about the competition, but it has now become something much more important. On their website, they discuss the film and the 100 top entrepreneurs in greater depth. Their goal is to generate interest in what is happening right now in Kenya, tell more about these aspiring entrepreneurs, and hopefully create support for the cause. They are looking for mentors, angel investors, referral business, networking help, donations and so on.

In the midst of such tragedy, it is truly inspiring to see how people can rise up. I wish the very best for each of these entrepreneurs, and hopefully we will witness their business plans come to fruition someday. I also wish the best for the “Kenya Stories” film team, and I can’t wait to see the finished product.

For more background information on the violence in Kenya, read The New York Times’ article.

Real Estate IRA: What Is It? Which Type Is Best?

A real estate IRA is just another name for a self-directed IRA. For those who are unfamiliar with self-directed IRAs, they are IRA accounts that let you invest your retirement funds into a wide range of alternative investments: from real estate to tax liens to cattle breeding ranches. There are only a few restrictions: namely that you can’t invest in collectibles or life insurance, and you and some members of your immediate family can’t personally receive benefits from your IRA investments. For the complete list of rules and regulations, talk with a custodian, self-directed IRA facilitator or an attorney familiar with IRA regulations.

Through a self-directed IRA or real estate IRA, one can invest in almost any type of real estate, domestic or foreign. In my personal experience, the only issue that I have ever faced was with foreign real estate, and the problem was with the country, not the real estate IRA. The country in which we were investing had never seen nor heard of a real estate IRA, and properly registering the title became a long and grueling process. To be fair, this was a developing country with a very unsophisticated and very manual property registration process. To date, it is the only country where I have encountered this difficulty, but if you use a real estate IRA to buy property in any developing country, then I would plan for delays.

Real Estate IRA: Which type should I get?

There are two types of real estate IRAs. The first is the traditional one, which is done through a self-directed IRA custodian. The biggest self-directed IRA custodian is Equity Trust. Setting up your real estate IRA in this manner will have the smallest upfront fees, but will include on going fees tied to the value of your IRA account. These can add up over time, especially if you have a large account. Keep in mind that there are also some time sensitive investments that may be difficult to invest in because of the approval process with the custodian. This is typically the best real estate IRA type for those who have less than $50,000, and who can spare the extra time.

The second type of real estate IRA is the checkbook control real estate IRA. As the name suggests, a checkbook control account has its own checking account and checkbook. The holder is designated as the representative and can issue checks at will. This does not, however, release the holder from the rules governing IRAs, and with more freedom comes more responsibility. In the other model, if you attempt to enter a prohibited transaction, your IRA custodian will likely stop you. In the checkbook control model, account holders must use their own discretion, and the penalties are severe if one enters into a prohibited transaction. There are several self-directed IRA facilitators who can create the accounts, the largest of which is Guidant Financial Group. The main benefit of the checkbook account is that you can react quickly to investment opportunities, and you can avoid a lot of hassle and additional paperwork. Most real estate investors know that the best opportunities don’t last long, so being able to react quickly is vital to success. This route is not cheap on the front end, but it has fewer ongoing fees, and the fees are not tied to account size. This can be a good option for investors with more than $50,000 or that are dealing with time sensitive investments.

Colombia, South America: What’s Going On Down There?

Things appear to be getting a little sticky down in Colombia, South America. The nation has shown signs of moving away from its long-standing reputation as the cocaine capital of the world, but it is now facing new turmoil. This time, the trouble is with their neighbors Ecuador and Venezuela.

In short, Colombia crossed the Ecuador border in a raid on the FARC (a Colombian guerilla group) which claimed the life of the FARC’s number two in command, Raul Reyes. The major conflict is that they did so without the permission of the Ecuadorian government, and naturally that did not sit well with them. The FARC is a group of leftist-leaning rebels who have the support of Venezuela and Ecuador, which are both leftist-leaning governments. That fact only adds another log to the fire.

In response to the raid by Colombia, Ecuador and Venezuela have both started moving troops to the Colombian border. There is no knowing where this will lead , but either way it doesn’t appear to be a good thing for people who have invested in Colombia.

Colombia was on the road to a dramatic turn around, and many investors looked to Colombia as a great emerging opportunity for investment. That still might prove to be the case, but until this situation gets resolved, most potential investors are going to wait to see how this thing pans out. Nothing scares away investors like the threat of conflict.

My thought is that Venezuela and Ecuador are just ruffling their feathers in response, and that they won’t take any military action beyond that. The bigger concern would be how this event affects Colombia’s economic relationship with its two neighbors and, potentially, other Ecuadorian and FARC sympathizers.

The Latest Gloomy Forecast For The Real Estate Market

To add more salt to the wound which is the real estate market, Federal Reserve Chairman Ben Bernanke is now proposing drastic measures be taken by mortgage lenders. His outlook on the future of the real estate market, if the decline is left unchecked, is very grim, but he wasn’t without ideas on how to curb the carnage.

Bernanke’s brilliant idea is to have mortgage lenders write down some of the principal owed by borrowers who are struggling to pay their mortgage payments. His reasoning is that if people have negative equity in their homes, then they have no incentive to keep paying the mortgage. If mortgage lenders were to write down some of the principal owed to make it more in line with the actual home value, then less people would default on their loans.

Previous talk of principal write-downs has gone nowhere, and for good reason. The thing is, Bernanke and those politicians who support his approach aren’t the ones who stand to lose money here. They are asking the mortgage lenders and the investors in mortgage securities, who have already taken a beating, to suck it up some more. Naturally, this idea isn’t going to sound all that appealing to them, but Bernanke and friends sure look good to the people. I know that if I owned a house with negative equity, then I would love a nice, easy fix to that problem at no cost to myself. Who wouldn’t? But if I were the one with money to lose, this type of deal would make me uneasy, and the fact that the government would be making me out to be the bad guy wouldn’t sit too well with me.

Who’s to say that these people are actually going to continue paying? Are they just guessing that the reason people aren’t paying is because of the negative equity? Bernanke was quoted by Bloomberg as saying, the “recent surge” in delinquencies has been “closely linked” to the slide of home equity. My thought is that they are using past information that suggests that people with equity in their home pay their mortgages at a better rate. Here is a potential problem: in the past, people with equity have been able to refinance and pull money out if they got into trouble, but that opportunity no longer exists unconditionally. Sure, if you have 20 percent equity, then you can probably refinance, but I don’t think that lenders would even contemplate a write down of that extent.

Writing off the principal to even it with the home’s value (100% LTV) still probably wouldn’t allow homeowners with negative equity to refinance. How far do they want the lenders to go with this write-off? If people don’t have the ability to refinance, will having the negative equity removed really make that much difference? I’m sure that it will have some effect on the amount of people paying their mortgage and avoiding foreclosure, but will those savings be enough to offset the additional costs to the lenders? That is the question that they will have to analyze for themselves.

Even if this plan could work the way Bernanke suggests, I don’t think that the lenders and investors will be able to come together to enact something like this. I just don’t see it happening, but if it does somehow come together, it will certainly be interesting to see how things turn out. Will it keep more people in their homes, helping the overall housing market? Or will it lead a mass fire sale of homes by people who now think that they can get out from under their house?

A proposal like this even being mentioned is an ominous sign for the real estate market. Investors who regularly read my blog know that I am very into cash flow real estate, especially right now. If I can’t see the income before I buy it, then I’m not interested; it’s that simple. I’m sure that there is money to be made in other non-cash flow properties, but with the way things are going right now, that is just more risk than I’m willing to take.

Edmonton Real Estate: Is Alberta Too Hot Right Now?

We have written several pieces in the past about investing in Edmonton real estate, but the question remains: how long can the boom last? It seems that the world is waking up to the economic powerhouse that Alberta, Canada—and Edmonton in particular—is becoming. The price of oil just hit another high, and oil drives Alberta’s economy. Is it too negative to think that the gravy train has to end at some point?

As long as the price of oil remains as high as it is now, Edmonton is likely to remain a hot commodity. The oil sands region in Alberta contains an enormous amount of oil, and being that it comes from a friendly, neighboring country, there will continue to be huge demand for their oil. With the amount of money flowing into the Edmonton economy, people there can afford to pay a premium for their living expenses. With that in mind it’s possible that the real estate values could continue their rise for awhile longer.

On the other hand if the price of oil were to drop off significantly, Edmonton, and Alberta as a whole, will be hurt dramatically. Edmonton has done a good job of working to diversify their economy, but the fact remains that oil is the number one industry in the area. It is also possible that environmental regulations could have an impact on the oil sands region. It is no secret that the oil sands produce an enormous amount of pollutants, and it is possible that restrictions could be placed on the production which could prove very costly for the oil producers and the area’s economy. Let’s also not forget that real estate values in the area have skyrocketed over the past few years, and history tells us what goes up, usually comes down. Read our article Resource Driven Real Estate Booms and Busts for some more insight.

Overseaspropertymall.com just did an interesting blog post on the subject. In their post, they looked at both sides of the argument and offered some insight as well. I would recommend that you check it out if you are curious about investing in Edmonton real estate.

Summary of Barack Obama, Hillary Clinton and John McCain Tax Policy

I came across an article today by Jeremy Siegel on Yahoo Finance that gives a nice summary of each Presidential candidate’s tax policy. I will attempt to summarize the summary.

Barack Obama

Obama wants to increase the dividend and capital gains tax rate to 24 percent. At the same time, Obama recognizes the power of start-up companies to create jobs, and wants to eliminate capital gains tax on them. Obama would also like to raise the top income tax bracket to a 39.6 percent tax rate.

Hillary Clinton

Clinton is essentially advocating for the same rates as when her husband was in office, before the Bush tax cuts. That would mean capital gains taxes would be raised to 20 percent from their current 15 percent rate, and dividend income would be taxed at a maximum 35 percent. Clinton also supports a raise in the upper tax bracket rate to 39.6 percent, same as Obama.

John McCain

McCain wants to keep the current tax rates, but Siegel points out that he may not be able to. The Bush tax cuts are set to expire in 2011, and taxes will revert to pre-Bush rates if the cuts are not re-approved. Seeing as the Democrats strongly oppose the Bush cuts, and that they are likely to control Congress, McCain could have a difficult time getting the necessary laws passed. It should be noted that McCain and several other Republicans voted against making the Bush tax cuts permanent, which is why Bush had to settle for a test run of the current rates.

The City Of Gainesville, Florida Is On Fire

Before everyone starts to panic, I should say that the city of Gainesville, Florida is not literally on fire, so please don’t call the fire department. What I mean by saying Gainesville is on fire is that the city is gaining a lot of positive national publicity right now.

The most recent press was released yesterday by SmartMoney.com, who rated Gainesville, Florida as the top recession-proof place to retire (Apparently SmartMoney didn’t get President Bush’s memo). In addition, Gainesville was rated the number the number one place to live in 2007 by Sperling’s Best Places. Of course, we can’t forget that NuWire rated Gainesville, Florida as one of the top college towns for investment.

Probably the biggest claim to fame for Gainesville is its beloved Florida Gators. The University of Florida is the driving force behind Gainesville socially, and economically, it is Gainesville’s heart and soul. Sports fans can’t help but be familiar with the Florida Gator teams who have won nearly every major NCAA championship over the past few years, which certainly doesn’t hurt Gainesville’s image on the national scene.

The vibrant university and emerging business climate in Gainesville should help it keep a fairly stable real estate market over the coming years. Florida has been on the front lines for the housing crash, but Gainesville has held up pretty well. According the NAR the median sales price for homes in Gainesville is $196,700, which is down 7 percent year-over-year. So maybe we can’t really say that Gainesville’s housing market is on fire, but considering the rest of Florida’s housing woes, 7 percent isn’t bad. I’m sure all those investors who bought up Fort Myers real estate a little late would take that 7 percent in a heart beat.