What Will Become Our Alternative To Oil?

With the price of oil hovering around $120 a barrel, there is talk coming from seemingly every direction proclaiming that we need to find an alternative to oil, but talk and reality are two different things. So on what can we hang our hopes?

There are several alternative energy sources out there, but most of them have little to no chance of becoming our long term solution. The one the White House has been backing is ethanol, but recent studies and food prices have shown the vast weaknesses with it. So we know for sure that ethanol (at least the food-based version) is out, but what else do we have?

There is a lot of talk about hydrogen, clean coal, natural gas, nuclear and even non-traditional oil sources, but alas all of them have major weaknesses. There appears to be no perfect solution to our oil dependence. Among these alternatives, to my mind the best solution involves a heavy dose of nuclear energy, but the cost and time frames involved can be prohibitive.

The idea of nuclear power itself is great, but what about all the radioactive waste produced by the plants and the major security risks involved? These are a couple of the big questions brought up by nuclear power opposition, and until recently there really wasn’t a good answer. Not too long ago I came across a company that is working towards implementing thorium in place of uranium in nuclear reactors. This is an interesting development because the byproduct of a thorium based reactor cannot be used to build a nuclear bomb (always a good thing), and the half life is a fraction of its uranium counterpart. This technology is fairly new, but if it works it could potentially solve a couple of the major concerns brought up by those opposed to nuclear power.

The thing to keep in mind here is that there is no perfect solution. We are going to be dependent on oil for some time yet, but the longer we take to address our oil problem, the worse off we are going to be. President Bush recently said “I think we better understand that there's not a lot of excess capacity in this world right now," According to Reuters. The demand for oil is increasing at a much faster pace than the supply, so according to economic theory the price of oil probably won’t be coming down anytime soon. If we don’t look for the best solution, one will be forced upon us eventually.

This problem is real in my mind, and as an investor I’m of course trying to figure out what the solution will be and how to profit from it. The best solution I see long term is with nuclear energy; what do you see? I’m curious to hear what others are thinking, so if you think you know what the solution to our oil problem will be, fill us in.

Federal Reserve Meeting Today: BYOB, Pizza Will Be Served

The Fed is meeting again today and tomorrow. To mark this diminishingly historic occasion, I have composed the following ditty. Ahem...

There once was a man named Bernanke:

For the banks, an immaculate flunky.

When their assets all failed

with our money he bailed

them all out like a good little monkey

Thank you. Thank you.

As the Fed disappears behind the curtain yet again, ‘O we of little faith’ are bracing for yet another quarter percent drop in interest rates. Soon it will be official: You will likely see more appreciation on kitsch from the Franklin Mint than anything that comes out of the U.S. Mint. My friends all laughed when I plunked down 100 smackers for my Mystical Dreamcatcher Pocketwatch, but who’s laughing now?!

For those of you who didn’t have foresight enough to invest in chilling likenesses of dead royalty and zirconium encrusted daggers, allow me to predict what the Fed is planning to do. Just let me look into my Dragon of Lore Crystal Ball (a steal at 5 payments of only $39.99!)...

Abra-cadabra!

~~Ah yes...I scry a rather stoned-looking Bernanke telling the table that he knows exactly what needs to be done. Well! That’s good news!~~

~~Oh. He wasn’t talking about the economy. He was suggesting that they order pizza.

But still...based on his track record, that’s one of his more reasonable suggestions.~~

~~Now someone else at the table is telling him that no one there can afford to have a pizza delivered

because food and gas prices have soared again.~~

~~Bernanke insists that “Referendum Deepdish” be passed as they can just print more money

in the office next door. The motion is passed.~~

~~Someone raises a new motion: Will the Reserve lower interest rates again despite the fact that it has done nothing to mitigate the housing crisis or prevent a recession? They ask the chairman directly.~~

~~Bernanke teeters in his seat for a moment, opens his mouth...and then passes out on the floor.

The attendees concur with the chairman’s motion to drop the interest rate again. Motion is passed.~~

~~The pizza arrives. The delivery fellow receives a lousy tip.~~

As we can see, it’s all business as usual at the Federal Reserve. But before I go off to polish my collection of Elvis Head Silver Dollars, I leave the Fed with three bits of advice:

1. These are tough, confusing times, and I do in fact sympathize with anyone tasked with sorting this out, but your methods have proven to be the financial equivalent of bloodletting for the ailing economy. Try something new for once, PLEEEEEEEASE!
2. We know the banks own you (literally), but at least pretend that you have the interest of the American people in mind. You know, we love a good circus act. And if you piss us off, then...
3. Don’t stiff the pizza boy: He knows where you live.

Barack Obama Could Win The Election Thanks To Ron Paul?

The fact that the Ron Paul Revolution is still kicking, despite the fact that the Republican nominee has already been decided, could potentially help Barack Obama and hurt John McCain’s chances at the presidency. I read an interesting blog post from Tommy Christopher at the Political Machine that brought up a key point. According to Christopher, one of the strongest ties of the Ron Paul revolutionaries is that they strongly oppose the war in Iraq. Since McCain plans to keep the Iraq war going indefinitely, this will likely lead to many Ron Paul supporters crossing party lines to vote for the Democratic candidate, which will likely be Obama.

McCain’s party hasn’t worried too much about the Ron Paul fallout, probably assuming that it would taper off once he clearly won the nomination, but that doesn’t appear to be happening. In the recent Pennsylvania primary, Ron Paul won 16% of the vote, which in itself is not a huge number, but if a majority of these Ron Paul supporters turn to Obama come election time, they could easily swing the race.

Ron Paul seems intent on continuing to use his platform as a presidential candidate to spread his revolutionary ideas for as long as he can. The more people who hear Paul’s message, about the Iraq war in particular, the more people who could demand the end to this war, which would likely only come if Obama is elected president.

By staying in the race Ron Paul is in effect helping Obama. I don’t think that Ron Paul supporters are truly excited about the prospects of McCain or Obama, or they would be supporting one of these candidates by now. Which way they go in the end though could possibly decide the presidential race, and it is hard to ignore that the biggest issue in many of the Ron Paul Revolutionaries minds is the Iraq war. I can’t imagine many things more upsetting to Republican leaders than the idea of the Ron Paul Revolution helping Obama win the presidency, but it just might happen.

Where Do Fed Bailouts Come From?

There are a lot of conspiracy theories out there about who really owns the Federal Reserve and how they profit from the actions of the Fed. If you’re looking for a good explanation of the real ownership structure, I recommend reading the following article from an economics professor at The Citadel: http://www.libertyunbound.com/archive/2004_10/woolsey-fed.html.

In reality the Fed is owned by its member banks, though the benefits of ownership are commonly misunderstood. The main benefit provided by the Fed is not the direct profit potential. Rather, the benefit to the member banks is protection. The Fed not only offers liquidity in the event of a bank run, it also offers an entity with the power to increase the money supply. That’s a handy benefit for bailing out a bank that has dipped its depositors’ cash into too many risky and highly leveraged investments.

The majority of directors on the boards of the Federal Reserve banks are appointed by the banks themselves. Is it any wonder that the Fed is so motivated to step in and offer bailout packages to keep these banks afloat? It’s not difficult to see the actual origin of these bailouts.

Whether bailouts should or shouldn’t occur seems to be a moot point to me. We have given the Fed the power of currency production. Do we expect them to use it to benefit the average American? If so, we ought to reconsider how the Fed is structured. Although the Fed certainly has to play the political game in pandering to Americans, at the end of the day they don’t work for us.

Tax Rebate Checks Are In The Mail: Well Maybe…

It appears that the first set of tax rebate checks are in the mail and should be received by people shortly. So if you are wondering when to expect your tax rebate check--and how much it will be for--check out the resources below.

To find out how much you will be receiving, the IRS has put together a handy tax rebate check calculator that can help make this determination: http://www.irs.gov/app/espc/

To figure out when you will be receiving your tax rebate check, see the payment schedule on the IRS website: http://www.irs.gov/irs/article/0,,id=180250,00.html

Now that you’ve figured out how much you’ll be getting and when it will be arriving, the next step is to figure out what to do with it. There are many ideas floating around out there for how to spend your new-found wealth, some of them better than others. It is for this reason that NuWire has decided to put together their own list of the top ways to spend--or better yet, invest--your tax rebate checks. Look for the article later this week.

Analyzing Investment Hype

There is a lot of hype in the investment world. Here is a good example:

http://www.isecureonline.com/Reports/PSF/EPSFJ320/?o=1473323&u=16012317&l=844775

It appears that this newsletter author has some interesting ideas about how to filter through the mass of penny stocks available and choose ones with a decent likelihood of gaining value. I don’t object to this kind of analysis. It’s the kind of filter I would expect to be employed by someone publishing an investment selection newsletter. I do, however, object to some of the language used to market this opportunity.

Here are a few words used in this advertisement that I think are telling:

• “Scientifically selected:” What does science have to do with selecting stocks? Scientific experiments require control groups that allow scientists to observe behavior when specific variables are changed. In that way scientists can make theories about the effect each of these variables has on the outcome (results). Looking at historical numbers of stock prices incorporates so many variables (buyer psychology, societal values, access to capital, other investment alternatives, inflation, etc.) that it would be nearly impossible to control for even a few.



• “Winnings:” This word implies that you aren’t earning a return, but hitting a jackpot at the casino. Part of me wonders whether this was careful calculation on the part of the author and his attorneys in case an investor ever takes them to court for misleading claims of returns.



• “Theoretical:” Using historical performance to build models for predicting the future is not a new concept, but it has hardly proven successful over the long run. This author is clearly communicating that there wasn’t an actual person turning $200 into $1.2 million. Rather, this is an example of what an investor could have done with perfect foresight.



• “Ordinary investor:” This implies that you don’t need to have any experience with or knowledge of penny stocks. Rather, by just following this author’s monthly recommendations, you can make these huge returns. I understand that risk disclaimers do not make effective marketing material, but I doubt this author will take liability if the investments don’t pan out. Oh, and it’s helpful that “ordinary investors” typically do much less due diligence about claims of returns than “extraordinary investors.”

For the record, I’m always wary of promoters that advertise such high potential returns. If this author were assured of his ability to double money in six months, he would be working adverse to his own economic interests by sharing this information. While I’m all for believing there is some altruism left in the world, I haven’t seen many instances of people not wanting their fair share of value they help create. This author, if his claims are correct, would do much better to start his own hedge fund and rake in billions in profits and bonuses risking other people’s money. The fact that he is writing a newsletter instead makes me a little skeptical.

Property Taxes On The Rise Across The Country

Property taxes are on the rise across the country as local governments are feeling the effects of the economic downturn. According to an article in the Wall Street Journal, property taxes account for around 40 percent of municipal governments' funding. Falling property values coupled with higher material costs have caused local governments to feel the pinch; they are now preparing to pass that on to homeowners.

The article it pointed out a few cities which are working to raise property taxes. One of the largest cities was Memphis, Tennessee. The mayor of Memphis is proposing a 17 percent increase in property taxes, according to the article. This was one of the larger proposed increases, but if this measure actually gets passed, it will surely have a huge impact on homeowners and investors in Memphis.

Property taxes are one of the harder expenses for real estate investors to swallow because they typically own several properties and can feel as if they are paying more than their fair share. The taxes go towards things such as roads and schools, which can help bring in quality tenants, but the immediate benefit to investors is less than it is for the typical homeowner. Investors usually can pass on property taxes to their tenants through the rent, but when property taxes are raised, investors are many times forced to eat the difference, especially if they are locked into a fixed-term lease. One of the benefits of typical commercial property leases are that landlords are able to pass on any increases in expenses directly to the tenants.

Residential landlords might want to think about taking a page out of the commercial investor’s book and put a clause in their contracts which allow for a bump in the rent if property taxes are raised. After all it is only fair for the tenants to pay for the added expense since they are the ones directly benefiting from the services provided by property tax revenues.

Money Markets Paying More Than CDs

Bank of America recently rolled out a money market savings account paying a higher interest rate than their four month CDs. What that tells me is that Bank of America is counting on further interest rate reductions from the Federal Reserve.

Perhaps now that B of A owns Countrywide, they have an ever better crystal ball for seeing the extent the subprime shakedown. They are casting their bet that the Fed will continue to drop rates. Where are you casting yours?

Costco And Sam’s Club Memberships: Are They An Investment?

Typically I would shy away from calling things such as Costco and Sam’s Club memberships “investments,” but in light of recent events they might just be entering into that category. I read an article from the Wall Street Journal yesterday that opened my eyes to the concept. In the article, it is explained that food prices are increasing by so much that it makes sense for people to stock pile non-perishable food rather than put that money into savings or money market accounts.

According to the article, food inflation for the average American household is running around 4.5 percent right now. Many foods are seeing price increases much higher than that. Cereal prices are rising by more than 8 percent a year, and flour and rice are up more than 13 percent. Milk, cheese, bananas and peanut butter are all up by more than 10 percent. Eggs have increased 30 percent in the past year and ground beef and chicken prices are up 4.8 percent and 5.4 percent respectively.

It is obviously not possible to stock up on perishable items such as milk and eggs, but you can buy extra cereal, rice and flour. You certainly aren’t going to make 13 percent on any bank account, so in actuality using some of your savings to purchase extra food might not be such a bad idea, or investment, for that matter.

That is where the Costco and Sam’s Club memberships come in. These warehouse stores offer much better prices than typical grocery stores; the catch is that you have to buy large quantities of the items. If you are planning to stock up on certain staple goods, you can save money by buying at these stores. So let's say you can save 5 percent off of the items you purchase at Costco or Sam’s Club over your neighborhood grocery store (though, in my experience, buying in bulk at these stores should save you much more than that)--now your “investment” looks that much better. Instead of making a 13 percent return on your money, purchasing your rice now actually could earn you 18 percent. Obviously those numbers don’t take into account the cost of your membership, or any subsequent storage or other costs which may be associated with holding the extra food, but I think you get the picture.

Also, as an added bonus, you will be in good shape in the event of a complete economic collapse, as many Ron Paul supporters are predicting.

Tax Credit For Homebuyers In The Works

Lawrence Yun, the National Association of Realtors’ (NAR) chief economist, is pushing hard for a tax credit for homebuyers. In a recent NAR press release he said, “Monetary stimulus is plentiful – what is needed more at this point is a home buyer tax credit to get buyers off the sidelines and prevent the market from overshooting on the downside.”

Is more buying stimulation what is really needed for the long term health of our economy? It would certainly provide a nice benefit for the dwindling number of Realtors helping pay Yun’s salary. Yet it would add one more artificial stimulus that will cost taxpayers money, specifically the people who can’t afford to move because of negative equity.

A bill was proposed in the House of Representatives April 2 that would make just such a tax credit available, but only for a short period of time. The bill provided for termination of the up to $10,000 tax credit after one year and would have restricted the credit to owner occupants for one time only.

The Senate approved its own bailout plan with a tax credit provision April 23. This version provides up to $7,000 in tax credits, but only to owner occupants purchasing foreclosed homes.

The House of Representatives is working on an answer to the Senate’s plan which would provide a 10% tax credit up to $7,500 for first time homebuyers and renters.

Is it just me, or does a rebate check for purchasing a home sound an awful lot like equity skimming legitimized by the government?

30-Year Mortgage Rates Top 6 Percent As Investors Fear Inflation

Homebuyers who thought mortgage rates were heading down because of all the Fed interest rate cuts need to think again. According to Freddie Mac, 30-year mortgages rates increased 0.15 percent this week, despite all the rate cuts from the Fed. If you think that is strange, remember that 30-year mortgage rates are not tied to the Fed interest rates, but instead are controlled by the mortgage-backed securities market. Read our previous post: How Do Fed Interest Rate Cuts Really Affect Mortgage Rates? for more background on that. The bottom line is that when 30-year mortgage rates go up, despite the lowering of key Fed interest rates, it is typically because of inflationary fears.

It seems that mortgage rates won't be going down until the Fed can get inflation under control. The Fed is likely to only cut rates by 0.25 percent at their next meeting because they are concerned about inflation, according to the Associated Press. My thought is that if they were truly concerned about inflation they wouldn’t be dropping interest rates, even by the quarter point. Considering past actions from the Fed, I would say that inflation concerns are not at the top of their list.

I’m not sure who in their right mind is buying these mortgage backed securities anyway. I wouldn’t touch these, or even U.S. treasuries, at this point in time. Considering that the returns they offer are barely above inflation--that is, if you believe the government’s CPI numbers are accurate (I think they are much higher than that)--they just aren’t worth it…but that is a post for another day.

The moral of the story is that if you are in the market to buy a home, don’t wait in anticipation of mortgage rates going down. You can wait because of the market and you can wait for better opportunities, but don’t wait because you think mortgage rates are going down, because they just might not.

House Flipping: 5 Reasons It Shouldn’t Make A Comeback

House flipping has officially gone out of style. It is no longer the subject of cocktail party discussions and the dreams of underpaid desk jockeys. Many investors are stuck with pre-sale properties and remodels they purchased at the height of the market which they can no longer sell for what they owe. Some are trying to avoid foreclosure through short sales. Others have added significant overhead to their personal expenses to carry properties indefinitely.

Are there lessons to be learned from the real estate downturn and house flipping? Absolutely. Even before the bull market in real estate there were fundamentals that made house flipping risky. Here are five reasons why house flipping shouldn’t make a mainstream comeback anytime soon:

1) Transaction costs
When homes are bought and sold, there is a large number of benefactors in the transaction in addition to the buyer and seller. Real estate agents, mortgage brokers, escrow officers, title representatives, mortgage investors and inspectors all take a piece of the action to help get the deal closed. The transaction costs are especially high for someone purchasing the property and then turning around to sell it within a short period of time. Transaction costs for selling are the highest and include:

• 3% to 8% sales commission: The statistics continue to support that homes marketing on the multiple listing services receive offers significantly better than FSBOs (for sale by owner) to justify the added cost. Discount brokers can get you on the MLS, but you will likely still need to pay a buyer’s agent to find a buyer for your property.
• Real estate transfer tax: Most states charge some type of transfer or excise tax on the sale of real estate, up to 4% of the total sale value of the home. On a $500,000 home, that could amount to as much as $20,000.
• Escrow costs: Escrow costs vary from region to region and are usually tied to the value of the home being sold. In typical transactions these costs are usually split between the buyer and the seller.
• Carrying costs: This is one of the big killers for house flippers. If you use bank money, your carrying costs include the mortgage interest, the mortgage origination fees and interest you have to carry while the property is being remodeled and waiting to sell. Hard money loans can cost even more. Even if you use your own funds, there is still an opportunity cost associated with your funds sitting idle in the property.

2) Short term capital gains
The government provides a generous tax exemption for individuals who sell a residence they own and have lived in for at least two out of the last five years. Investors, on the other hand, are not offered this same luxury. The best investors can hope for is to qualify for the capital gains tax which is at 15 percent. To qualify for capital gains treatment, investors are typically required to own the home for at least a year. Selling a home that you have owned less than a year will result in the gains from the property being taxed as ordinary income. This can push the effective tax rate on the property gains up to 35%. Even worse is if the gain from the property pushes you into a higher tax bracket. Short term owners also benefit little from other real estate tax advantages such as deprecation.

3) Competition
The bull was alive and well in the real estate market up through most of 2006. The market grew quickly and new real estate gurus were popping up every day with their tales of millions made with little work. Real estate hit mainstream in a big way and flowed over into entertainment. TLC’s “Flip that House” and A&E’s “Flip this House” continue to draw millions of viewers even in today’s real estate climate. House flipping has become a mainstream idea and the competition has followed.

Internet listing aggregators such as Trulia and Zillow have made it even more competitive. House flipping tends to rely on an investor’s ability to purchase an undervalued piece of property. Trulia and Zillow have taken comparable sales reports and put them in the hands of anyone with an Internet connection. Buyers can see exactly what was paid and when it was paid it through these services. A large increase in price from a recent sale price will be a red flag to most buyers.

4) Legislation
The real estate market saw a large number of new and a small number of unscrupulous investors enter the real estate market. An increasingly competitive investor climate led to more and more creative ways to purchase undervalued homes and squeeze profits out of real estate sales. This has brought about a nationwide wave of state governments passing legislation aimed at regulating some of these investor strategies. Two primary targets have been protection for distressed sellers (especially those in pre-foreclosure) and warranty requirements for remodeled homes. These cut directly into the potential for house flippers by limiting their ability to find undervalued property and requiring additional expenditures and liability for their brief remodel work.

5) Reliance on market timing
The nature of house flipping requires an investor to be adept at timing the market. You must know not only when to start buying and flipping properties, but also when to get out of the market before prices slow or retreat. Warren Buffett has a famous saying: “The market can stay irrational longer than you can remain solvent.” This is precisely the concern for house flippers that believe in their powers of prognostication.

Conclusion
Will house flipping come back into style? Maybe. The general concept of buying and flipping continues to make its way through almost every type of investment, from the tulip bulb mania of the 1600s to the dot-com stocks of the late 1990s. Investors have a collective short term memory. People generally give too much weight to recent experience and extrapolate recent trends at odds with longer term statistical averages. That means that house flipping will likely come back into fashion at some point in the future, regardless of whether or not it should.

Hire A CPA: Life Is Too Short To Do Your Own Taxes

Those of you who recently completed the painstaking process of filing your income taxes might want to rethink that strategy next year and instead hire a CPA. According to an article by MSNBC, the average person spends more than $200 and 26.5 hours of their time because of tasks ranging from record keeping and studying the tax law to preparing and sending their tax forms. Obviously those numbers are just averages, and are likely influenced by extremes on both ends of the spectrum, but I think they make an interesting point.

Investors in particular are probably better off hiring a CPA than doing their own taxes because their tax returns can get complicated. Keeping up with the latest deductions and changes to tax law is probably better left to professionals anyway. Turbo Tax is great, but I would rather trust my taxes, finances and sanity to a CPA. For me, doing taxes is about up there with going to the dentist, and not having to deal with it is alone worth the $800 bucks a year I pay my CPA. Even if I liked doing my taxes (a twisted concept), it would probably take me the 26.5 hours, at least, to do them considering all the crazy things I’ve got going on. I can assure you that my CPA charges more than the $30 an hour equivalent here, but what takes me 26 hours to accomplish he can finish in just a few.

Instead of sitting at my desk, pulling my hair out and complaining to my wife that I can’t concentrate because the baby is crying, I can go to the park or on some other outing with my family which is worth way more than $30 an hour. Life is too short to spend it doing taxes, so next year spend a few bucks, hire a CPA and then go enjoy your life. If you aren’t a family person, then just think of it as an investment: If you can make more than $30 an hour (or whatever the equivalent hourly rate for a CPA would be in your case) doing something else, then do that instead of your taxes. You will make more money, and assuming that you enjoyed working on the other activity more than you did your taxes (shouldn’t be too hard), you also are adding to your overall happiness.

Buying A Short Sale? Think Again…

If you are planning on buying a short sale, you might want to re-think that plan. According to an article in Reuters, real estate agents across the country are calling the short sale system broken. Lenders have unreal expectations of property values, and even if their values are in line with the market, they are often so overloaded with properties that dealing with them becomes impossible. From personal experience I’m going to have to agree with their assessment.

On the surface short sales appear to be a win-win-win strategy for the seller, buyer and the bank, yet trying to complete one tends to be a losing proposition. Until lenders change how they manage their short sale process investors are probably better off spending their time and efforts elsewhere. Don’t get me wrong, money can be made in short sales, but the time and energy taken to complete these deals can be better used on other investment opportunities which are just as good, if not better.

I have personally gone through the short sale process in order to buy one of my investment homes, and I can say it was the most stressful deal I’ve ever been a part of. Dealing with the lender was a complete nightmare, and the deal nearly fell through at the last minute. I would say that the time and effort I put into this one investment deal was at least double the time and effort required for a typical deal, and the profit was basically the same. I tried it once, and I’m not going back--I recommend you do the same. Unless you have some relationship with a lender that gives you an advantage over the average Joe, buying a short sale just isn’t worth the effort.

Ideas For Philanthropy, Without Using Your Cash

In case you are looking for ways to give back, but don’t have any cash to give away, I put together some ideas for philanthropy which don’t require you to give up your precious savings. We all know how important it is to give back to those in need; besides making a difference in the lives of other people, giving back benefits the giver as well (for more on this, read Want Happiness: Give Away Some Money).

Philanthropy doesn’t have to be monetary, but, there are ways to give monetary donations without using your cash. One great idea is to use philanthropic credit cards. Many charitable organizations have established relationships with major credit card companies which will donate to them a portion of all purchases made by the consumer. So you can give back simply by using your credit card as you normally do. One such credit card is the KIVA business card through Advanta. Business owners know that Advanta offers some of the best rates around on their credit cards, and now offers this philanthropic opportunity alongside the low rates. For every dollar spent on the card Advanta will move a dollar into your KIVA account (up to $200 a month), which allows you to sponsor aspiring business owners in developing countries. A few more examples of charity credit cards can be found here.

BizCovering did a write up on this subject awhile back as well, and in their article they point out websites that donate a portion of their advertising revenue simply for you using them. Instead of using Google for your searches, you can use a search engine such as Search Kindly, which donates a portion of their advertising revenue to charities determined by the users. There are also sites that you can use for e-mail, shopping and so on, which all donate their proceeds to charity.

Another way to give back without giving up your cash is the donation of your time. There are more volunteer opportunities out there then I could ever hope to list, but volunteermatch.org is a great place to start your search if you need some ideas.

Giving back doesn’t have to cost money or even time, so no matter whether you are busy or cash poor, you should still make sure that you are practicing some sort of philanthropy. Hopefully my ideas for philanthropy were helpful, and if anyone else has some good ideas feel free to share them.

Remodeling: Cost Vs. Value

Investors who are looking to remodel homes for resale should always keep in mind the cost vs. value of the alterations. For example, remodeling a kitchen is worth considerably more than remodeling a spare bedroom. But what about deciding between a deck and a bathroom upgrade? Is better to replace the windows or do a new roof? Investors who are pondering these questions can refer to the remodeling Cost vs. Value guide issued by Remodeling magazine each year. There are also some additional considerations investors should keep in mind.

The remodeling Cost vs. Value guide is a helpful resource for investors, as it helps put a figure on what the actual value of a particular remodel is compared to its cost. For example, the 2007 Cost vs. Value guide says that adding a deck costs an average of $10,347 nationwide, but only increases the home’s value an average of $8,835. That means that every dollar spent on a new deck equals a loss of 0.146 cents, which on the surface would appear to be a poor investment. As most real estate investors know, though, real estate numbers should not be looked at nationally because real estate differs widely from one city to another and even from one neighborhood to another.

To help with this, Remodeling provides regional and even city-specific numbers, although their regions are large, so investors would do best to focus on the city-specific figures. For example, a deck remodel on average nationally returns 85.4 percent compared to an average in the Pacific region of 108 percent and an average of 120.4 percent in Seattle. So you can see how much the cost vs. value of repairs can change depending on coverage area of the data. But investors shouldn’t stop their analysis there.

Investors must always take into account the specific neighborhood and the types of homes surrounding the home they are remodeling. A major upscale kitchen remodel might return an average of 99.2 percent of its costs in the city of Seattle, yet if this remodel was done to a home in a bad neighborhood, the returns would be significantly less than that. When remodeling for investment, you should always make sure to keep the upgrades within the norm of the neighborhood. As an investor, you never want to be stuck with the nicest house in the neighborhood.

Used correctly, the cost vs. value data provided by Remodeling can be valuable, but investors need to add their own common sense and analysis to the equation as well.

Housing Crash Contrarians Say “Buy!” But Who Buys That?

Housing Market Meltdown! Mortgage Crisis! Recession! Recession! Recession! The media sure is being an awful killjoy these days, aren’t they? Since when did the fourth estate care so much about real estate? Can’t they bring us some good news? Can’t they compare the market meltdown to rich, gooey fudge, or the collapse of our economy to a light-hearted game of Jenga?

As the news of the market grows increasingly dour and consumer confidence sinks further into the toilet, a few voices have arisen hither and thither, proclaiming that the market may not be as bad as it seems and that now may still be a good time to buy. Some of these voices go so far as to claim that our negativity may be our own worst enemy. One such voice belongs to Mr. Bob Mathe, a Realtor for Coldwell Banker quoted in the Oshkosh Northwestern. Mr. Mathe had the following wisdom to share:

"The market really hasn't been bad here. We're still selling stuff.”

Great news, Bob! “Stuff” is good, and “selling stuff” is even better. Really! Kudos!

Cultural and commercial meccas such as Oshkosh, which are ostensibly more recession-resistant, are seeing growth in housing prices. Mr. Mathe seems to think that it can only continue to go up, right? Because that’s not at all what people were saying before the market burst everywhere else. Could a guy named “Mathe” have his numbers so wrong? Heaven forefend! So why aren’t people buying?

When in doubt, blame the media:

"If the media would stop talking about it, people would not be so hesitant."

You’re right, Bob. I’m sick and tired of these party-poopers telling me to prepare for a storm. Sign me up for a dozen pre-construction condos. I just can’t go wrong!

But it isn’t just biased peons like Mathe that are preaching good vibrations. Seasoned guru Suze Orman also just released an article in which she states that buying a house now may not be such a bad idea, but she’s careful enough to specify areas of particular caution.

“All those stressed-out developers are motivated to make deals. That can mean sharp price discounts or great offers to help with your mortgage financing,” she advises, but is quick to remind readers that being surrounded by half-finished homes is hardly conducive to your home’s value appreciating. For a real horror story on this subject, see this recent article from the AP about residential projects abandoned or delayed in the wake of the housing crisis. Empty homes, new or not, can have serious ramifications for those living or investing nearby. This definitely applies to home buyers considering foreclosure properties as well.

With recent polls declaring that 60 percent of Americans will not purchase a home in the next two years, it’s no wonder that people like Mathe are rallying the consumer. These are lean years ahead, and even Orman’s position, at heart, is a carefully frosted bitter pill that ultimately admits that only a select few are in any position to be buying a home at this time, and even those who can find the funding and commit to “stay put for at least five years” are taking a risk.

So bring on the doom and gloom. Wishful thinking and betting on imaginary wealth are what caused the housing crash and the mortgage crisis, and erring on the side of caution may take a toll on the economy as a whole, but it’s the only way one can ride out this recession. “Buy now”? Don’t buy it...

This was a guest post by Trenton Flock, Web Editor at NuWire.

Fannie Mae And Freddie Mac: Will They Need A Bailout, And At What Cost?

I read an article this morning in CNNMoney that discussed the potential for a Fannie Mae and Freddie Mac bailout that I thought I’d share. For those who aren’t familiar with the companies, Fannie Mae and Freddie Mac are government-sponsored entities which help stabilize the mortgage market by purchasing mass quantities of loans and packaging them into securities. With the credit markets in disrepair, the importance of these two companies has increased dramatically. According to the article, 82 percent of U.S. mortgages are being backed by one of the companies, up from 46 percent in the second quarter of 2007. With the value of real estate continuing to decline, the mounting losses and increased exposure of the two companies could lead to disaster. The government can’t and won’t let these companies fail--and will come to their rescue if necessary. The price tag of a potential bailout could be more than $1 trillion dollars, along with additional ramifications to the U.S. economy. Let’s look at some of the warning signs and potential outcomes as described in the CNNMoney article:

Risks and warning signs

“...other experts expect that declining home values will force more borrowers who have a Fannie- or Freddie-backed loan to stop making payments in the coming months, rather than continuing to make payments on a home now worth less than their loan balance.”

“Rising job losses may also make it difficult for other borrowers who formerly had good credit to stay current on their mortgage payments.”

“Some economists suggest that if investors start to see problems in the performance of loans backed by Fannie and Freddie, they'll dump them. And that would force the federal government to step in.”

“’I would say there's at least a 50-50 chance of some sort of bailout. I'm not saying it will necessarily cost $1 trillion, but they'll need some kind of help, and it very well could happen this year,’ said Dean Baker, co-director of the Center for Economic and Policy Research”

“The yield premium for securities backed by Freddie and Fannie compared to the yield on Treasury bills has grown to about 2.25 percentage points from 1.7 percentage points at the beginning of the year. That's a sign that the investors see a greater risk of Fannie and Freddie running into bigger problems.”

“OFHEO, in its annual report this week, said that while Fannie and Freddie have made progress clearing up accounting problems that had dogged both firms, they remain ‘a significant supervisory risk.’”

“...since current home price declines are without precedent, the firms will have a difficult time correctly pricing the risk of the mortgages they're backing.”

“...Fannie and Freddie's role in the mortgage and real estate markets is likely to grow, as Congress recently allowed them to back larger mortgages, up to $729,750, up from the previous limit of $417,000.”

“The Office of Federal Housing Enterprise Oversight (OFHEO), which regulates both firms, also recently lowered the capital requirements for Fannie and Freddie in an effort to pump $200 billion more into the credit markets.”

“The new loan limits will increase the risks and losses for Fannie and Freddie, said Wagner and other experts.”

“The high priced markets where homeowners and buyers need larger loans are now the ones seeing steep home price declines. And the default rates on larger loans are greater than the smaller loans that had previously been the core of their business.”

Potential costs for a bailout

According to the article, Standard and Poor’s predicted a bailout out of the companies could cost between $420 billion and $1.1 trillion dollars of taxpayer money—a cost so high that it puts the U.S. government’s AAA credit rating at risk. This has potentially enormous ramifications, because the lowering of the government’s credit rating would mean the cost of borrowing money would go up and the number of potential investors interested in buying U.S. treasuries would go down. Since the U.S. is financing its extravagant lifestyle with debt, if our ability to borrow decreases significantly we are going to have to make serious changes as a nation.

Commercial Properties: Best Places To Find Them On The Web

Commercial properties are something that many investors consider investing in, however, finding listings online can prove to more difficult than your traditional single-family homes. Commercial properties such as mobile home parks, offices, retail spaces and hotels, and residential properties in excess of four units usually aren’t listed on the MLS alongside single-family homes, but instead are advertised on a handful of websites.

By far the biggest and best site to find commercial properties is LoopNet. Any investors looking to enter the commercial real estate market should familiarize themselves with this site, as they will probably become frequent visitors. Viewing basic listings is free, but to see the complete inventory you need to sign up for one of LoopNet’s membership packages, which start at $39.95 a month. Most of the listings can be viewed for free, so if you are just casually window shopping, it probably isn’t worth the expense. Once you come to the point where you are ready to seriously consider buying a commercial property, you can become a member at least temporarily. Many commercial real estate agents have memberships to LoopNet, so you might also try asking your agent to send the desired listings to you and save yourself the trouble and expense.

Many commercial real estate brokerages also provide listings, although some of the brokerages simply pull them from LoopNet. Some of the larger commercial real estate companies are: Grubb & Ellis, RE/MAX, Coldwell Banker Commercial, CB Richard Ellis, Cushman & Wakefield, Colliers and Marcus & Millichap.

I recommend starting with LoopNet, but for those who want to try other commercial property listing sites, here are a few:

• CIMLS

• Commrex

• CoStar

• Property Line

As a last note, some areas of the country have local commercial MLS systems. The Pacific Northwest for example, has CBA (Commercial Brokers Association) otherwise known as the Commercial MLS. They offer a wide variety of listings in Washington, Oregon and Idaho. To see if your market has a local commercial MLS, search online using “your state” and “commercial real estate” as the search term, or simply ask a local commercial real estate agent.

Good luck finding your next commercial property investment, and if you notice any other good sites that I missed, let me know and I’ll add them.

Social Security Benefits: Apparently We Have Nothing To Worry About

I read an interesting article yesterday from MarketWatch that said all the talk about the failing Social Security System, and how it is going to soon run out of money is completely overblown. According to the author, Dr. Irwin Keller, the social security system may never run out of money, let alone run out of it in the near future. He claims that people are reading only the summary page from the annual report issued by Social Security’s board of trustees, which offers a warning of the possibility of a shortage in funds, and that if people read further they would see that the projections used in predicting the fund shortage scenario are drastically conservative. Using growth projections that are more historically consistent, the fund would actually never run out of money.

This is an interesting view, but I’d like to point out one thing that he neglects to mention: there is no money in the Social Security system right now. All that’s there is a bunch of IOUs from the U.S. government that they plan to pay back to the supposed trust fund. Let’s look at some quotes from President Bush himself in an MSNBC article a few years back:

“’A lot of people in America think there is a trust—that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you,’ Bush said in a speech at the University of West Virginia at Parkersburg.

‘But that’s not the way it works,’ Bush said. ‘There is no trust ‘fund’—just IOUs that I saw firsthand,’ Bush said.”

The article goes on to explain that the so called “trust fund” is actually a white notebook filled with physical evidence of a couple trillion dollars worth of Treasury Bonds.

We have loaned our retirement funds to the U.S. government—the most indebted country the world has ever seen—and the government doesn’t have the money to pay us back. Of course they can print more money to pay us back, but the actual buying power of currency will likely be far less than what we put into the account in the first place. Even if we get our full Social Security benefits, as Keller argues we will, in reality the value of those benefits will have been drastically reduced.

Personally, I’m a big fan of moving at least a portion of our Social Security benefit payments into an investment account that is controlled (at least somewhat) by the taxpayer. I wouldn’t hire a financial planner with the spending habits of the government, and I certainly don’t want them in charge of my retirement money. The more control I have over my Social Security benefits, the better I will feel. I hope that Keller’s assessment is correct, but I’m certainly not counting on it. I suggest you not plan for your retirement with the assumption that you will get your full Social Security benefits either. It is far better to be pleasantly surprised and have extra than to count on your full Social Security benefits and not have enough money for retirement.

Housing Crisis: Is The Solution To Allow Inflation To Run Amok?

John Makin, a scholar at the American Enterprise Institute, is proposing that we solve the housing crisis by letting Inflation run high according to an opinion piece he published in The Wall Street Journal. Makin suggests that the alternative methods of correction are worse than high inflation, and he even goes so far as to say that the mortgage market could be nationalized if we don’t do something soon.

I don’t agree with many of Makin’s views, and particularly I don’t foresee a nationalized mortgage market. First of all, his argument assumes that the government should be responsible for solving the housing crisis. If you agree that it is the government’s responsibility then Makin’s plan might not be such a bad idea (at least considering the alternatives), but I personally believe the government should stay out of it and let the market take its course. Housing prices should have never gone as high as they did relative to what people's incomes are, and the real estate market is now simply adjusting to where it should be in the first place. You could even make the case that the government exacerbated the problem through low fund funds rates and their willingness to bail out banks that made stupid decisions.

Makin’s warning of a nationalized market seems implausible to me. History has proven that private industries are more efficient than nationalized ones, and I would be shocked if lawmakers actually legitimately considered a nationalized mortgage market as a potential solution to the housing and credit problems.

The government is feeling the strain as more and more homeowners experience declining property values and request governmental support, but high inflation is not the answer. In the end, it will still cost us. Instead of having homes with negative equity we will just have worthless savings and retirement accounts. In addition this plan would really hurt those individuals who don’t own their own homes. They would feel the full impact of inflation, but without the benefit given to ailing homeowners. The only real answer is the easiest one of all: Let the markets take their course.

Iraq War: Is It The Cause Of The U.S. Economic Recession?

The Iraq war is being debated on many different levels. One is the idea that it could be the cause of the U.S. economic recession. Politicians and economists are divided on the subject. Most Democrats, including presidential candidate Barack Obama, claim that the Iraq war has had a substantial effect on the U.S. economy and should be examined as one of the primary reasons for the U.S. recession. Most Republicans quickly dismiss the claim as being without merit, but a growing number of Republican s, including Republican Presidential candidate Ron Paul, strongly oppose the war based on its economic fallout. But is the Iraq war to blame for our economy’s problems? Let’s look at arguments from both sides of the debate:

The Iraq War caused the U.S. economic recession

In a Washington Post article, Nobel Prize-winning economist Joseph Stiglitz argues that the Iraq war is to blame for the economic recession for the following reasons:

• The oil-producing countries have so much money that they don’t need to produce much oil. Because they don’t have the immediate need for cash, they are able to plan better for the future by pumping less oil and charging more for what they do produce. By doing this they are able to keep more oil for future use.
• The government has spent so much on the Iraq war and gone so far into debt that it has been unable to keep the domestic economy in check through tax cuts and other internal investments.

Senator Barack Obama had the following to say at a recent forum, according to the same Washington Post article: "If we can spend $10 billion a month rebuilding Iraq...we can spend $15 billion a year in our own country to put Americans back to work and strengthen the long-term competitiveness of our economy."

Senator Obama has a valid point to his argument. This war was entirely financed with debt, which in itself is bad, but ultimately what has our country received in return for that investment? At least if we are going to go deeper in debt, we should probably be using those funds for something that might actually help our economy, and our country.

According to a CNN poll, 71 percent of Americans believe that the Iraq war is at least partially responsible for the economic downturn.

The Iraq War Is NOT responsible for the U.S. economic recession

While it is easy for politicians to say the Iraq war has caused many of the world's problems, there is little evidence that the war is directly responsible for the economic recession. In response to the arguments made by Stiglitz, according to the Washington Post most economists believe that the price of oil is rising because of increased demand rather than a shortage of supply. Furthermore, Martin Baily, former chairman of Bill Clinton’s council of economic advisors, had this to say: “The credit crisis we got into is because of the housing boom, the relaxation of lending standards and certainly a lack of adequate supervision," Baily said. "I don't see a connection with government borrowing."

Conclusion

I can see validity in the arguments from both sides. Considering all the other problems that the U.S. is facing—in particular, the housing bubble—while I think it is a little farfetched to say that the Iraq war was the sole cause of the economic recession, it is equally foolish to say that the costs of the Iraq war have had little if any impact on the U.S. economy. Wars are not free, and the U.S. has spent billions of dollars on this war, financing it entirely with debt, which will have to be repaid one way or another.

Sure Hope You Weren’t Banking On That Home Equity Line Of Credit (HELOC)

Many people have set up a home equity line of credit (HELOC) to use in case of emergency or as a cash flow buffer for their businesses. Many investors even use their HELOC to buy foreclosures or international properties. All of these individuals may need to rethink their strategies. Several lenders have recently begun freezing borrowers' HELOC accounts without warning and without disclosing the reason for the freeze to the homeowners, according to an article in the New York Times. Washington Mutual, Indy Mac and the GreenPoint Mortgage unit of Capital One are specifically mentioned in the article.

According to the banks, the measures are being taken to protect themselves from declining property values, but even homeowners in markets which have not seen declines in value have been affected. These markets include: Yakima, Wash.; Appleton, Wisc.; Raleigh-Cary, N.C.; and Champaign-Urbana, Ill. So if you think you are protected because you are in a market thus far unaffected by the housing bubble, think again.

This news will be hard on those who were banking on using their HELOC for their business, investments or tax payment, who are now simply out of luck. The banks are within their rights to do this, and considering the housing market it is surprising they didn’t do it sooner, but the negative impact on the economy will surely be felt.

Let this also be a warning to those who were counting on the equity in their home to save them in the event something bad was to happen: Home equity is not a substitute for savings.

Investment And Health Savings Accounts (HSAs)

Health savings accounts (HSAs) are becoming more common as businesses across the U.S. place more of the onus of health care costs on their employees. As a result employees are now faced with a problem of not only learning the health insurance side of these new accounts, but also the investment side of Health Savings Accounts. Read our article, Health Savings Account (HSA) Basics, if you aren’t already familiar with HSAs.

My company recently switched to an HSA plan, so I thought I would share some of what I have learned.

Some investors may welcome the switch to an HSA plan because it offers the potential to generate returns inside the account. Money going into the HSA account is pre-tax, and as long as the money is spent on medical expenses, the money (and any gains generated inside the account) is also tax-free when you spend it. Sounds pretty amazing, right?

HSA providers typically offer several investment options to account holders, ranging from a basic money market fund to several different types of index funds. The HSA account my company offers gives us the option to keep the funds in a money market to which we can charge medical expenses directly via a debit card, or to invest in one of 13 Vanguard index funds. Most investors would probably think this is a no-brainer, and the Vanguard funds are the way to go. That was certainly my first reaction, but then I started to think of some potential drawbacks.

The first potential pitfall of investing in the funds is the time and convenience factor. With the Vanguard option, you are not able to get a debit card, and to get reimbursed for any expenses you must prove the legitimacy of the claims with receipts and other paperwork. In addition, it will take time to sell out your positions and issue a reimbursement check.

The second issue is the volatility of index funds, which are not guaranteed and may lose value. In the long term, most investors accept this risk, because historically the market has trended up over time. However, what if you get in a major accident next month and the market just lost 15 percent of its value? Some health expenses are just unpredictable. If you have a healthy savings account on the side you may be able to overcome this potential hurdle, but if you are relying on your HSA funds, you must make sure they are there when you need them.

If you are like most Americans and don’t have much in the way of extra savings, then you are probably better off keeping your HSA investments in a money market fund or low-risk bond fund--at least until you get the balance of your account high enough to cover your deductible. If you have a cushion to fall back on, then it is probably safe to invest in those higher-risk funds.

Cuba: Economy Finally Heading In Right Direction

Cuba’s economy was long held down by dictator Fidel Castro but his younger brother, Raul Castro, the new acting President of Cuba, has enacted some small reforms that are stepping stones toward economic improvement. He has legalized the sale of computers, DVD players and cell phones, allowed Cubans to stay at hotels previously reserved for tourists and, most recently, lifted the wage ceiling for employees in Cuba.

The wage restriction was a major damper on production in Cuba and one of the strongest sources of complaints from Cuban workers because they were paid the same regardless of how hard they worked. Naturally if employees can’t make more money the harder they work, there is little motivation for them to exceed the absolute minimum for productivity. The fact the Raul Castro has heard these complaints and is taking action is a great sign.

Cuba has been off limits for a long time for American investors, and there is much untapped potential in the country. For more insight about Cuba’s future investment potential, read my post: Fidel Castro Resigns: What’s Next For Cuba?

I look forward to more changes in Cuba’s economy and hope that it won’t be much longer until Cuba and the U.S. can reconcile their past differences.

Pawn Shops: Profiting In Times Of Financial Hardship

Pawn shops are ringing up big profits in the midst of a faltering U.S. economy. As people struggle to make ends meet, they have increasingly turned to pawn shops for fast cash. Pawn shops historically do not offer the best terms on loans, or the best prices for sold items, so it is ominous that people are turning to pawn shops en masse. This is a trend that is very typical in times of financial hardship though.

Investors who wish to profit from this trend could invest in stock of a large pawn shop company, such as Cash America (CSH) which is traded on the New York Stock Exchange, buy an existing pawn shop, or open a new pawn shop.

Online pawn shops are an emerging trend, as even brick and mortar pawn shops are now selling inventory for a higher amount on EBay. Low overhead can mean higher profits for online pawn shops, and also allows them to offer customers more money for their valuables or better terms on loans. In addition online pawn shops are able to offer their services to a wider geographic area. It appears clear to me that the future of pawn shops is on the Web.

If you ever were thinking of getting into the pawn shop business, then now is the time. If you prefer a brick and mortar business, and don’t want the added hassles of a startup company, there are also pawn shop franchises available. Two of these franchise opportunities are Cash America and PeoplePawn.

Think Barack Obama Is Going To Be The Next President? Wanna Make A Bet?

If you are so confident that your candidate—be it Barack Obama, Hillary Clinton, Ron Paul or John McCain—will become the next President of the United States, then why don’t you put your money where your mouth is? To show just how far the free market has come, there is now a website that allows you to make money by betting on the outcome of world events from the U.S. presidential race to whether or not Venezuela or Ecuador will declare war on Colombia. The company, which operates out of Ireland, is called Intrade. The website offers a trading platform similar to the U.S. stock exchange, but traders on Intrade buy and sell options on things most people might consider a bit out of the ordinary.

Investors who consider placing bets on Intrade should keep in mind that Intrade is still a small marketplace. This means that positions can be volatile and may be difficult to close out of. Therefore, Intrade should not make up a large portion of an investment portfolio, and should probably be viewed more in terms of entertainment than an actual investment.

Smart investors may be able to profit from some of the holes in the Intrade system and capitalize on the small marketplace. According to an article by The New York Times, a professional poker player named Serge Ravitch made a 35 percent return on his money in just 6 weeks by identifying these weaknesses. One trade he took advantage of was based on the Republican Presidential nomination, which more than 10 percent of traders on Intrade thought would go to Ron Paul. No one in the Republican Party—or any party for that matter—was giving Ron Paul a prayer to win the nomination. Because of the market’s small size, the diehard supporters of Ron Paul raised the percentages in his favor higher than they really should have been.

For other events, Intrade’s predictions have proven surprisingly accurate. The following is a quote from The New York Times article:

“In 2004, President Bush won every state in which Intrade’s contracts—as of the night before Election Day—gave him a better than 50 percent chance of winning. He lost every state where the traders thought Mr. Kerry was the favorite. Late on election night in 2006, while the talking heads on CNN and MSNBC were still saying that the Republicans would hold onto the Senate, Intrade knew better.”

Investors should take caution when making bets on Intrade, and not invest too much at this point. If nothing else, Intrade could prove to be a source of entertainment for investors who want to see if they can outsmart the public. For those investors who want the entertainment value without putting up real money, Intrade also offers play money accounts for free.

Safe Deposit Boxes: They Aren’t As Safe As You May Think

Safe deposit boxes, kept in bank vaults behind thick layers of steel, are widely believed to be one of the most secure ways to store valuables. However, people should make certain considerations and be aware of certain misconceptions before placing their valuables in a safe deposit box.

One major misconception is that valuables placed in a safe deposit box are covered by FDIC insurance. The FDIC only insures bank deposits in FDIC-insured banks, but safe deposit boxes are not considered to be bank deposits and are not covered. In addition, only banks found to be negligent are legally required to cover losses in the event of damage or theft of a safe deposit box’s contents. Some homeowner insurance policies will cover losses, so check with your insurance provider. Bank robberies and major natural disasters happen more in the movies than they do in real life, so these aren’t huge concerns, but safe deposit box holders should understand the limits of their protection.

An interesting story was published in the BBC today that should be of interest to people who keep their valuables in safe deposit boxes. The story is about a man in India who kept his life’s savings inside a safe deposit box in a bank that developed a termite problem. The bank posted a notice warning customers, but the man did not visit the bank on a regular basis and never saw it. On his next visit to the bank, all he found in his safe deposit box was a pile of termite dust where once there had been money and investment papers. Because the bank posted a notice, and because the safe deposit box itself was not damaged, the bank was not found liable.

The lessons of this story are 1) Make sure you understand exactly what is and is not covered by the bank when you open the safe deposit box, and 2) Make sure you have insurance to protect whatever is not covered by the bank. If you put your entire life savings in one spot, make sure it is 100 percent safe and secure.

Safe deposit boxes have their place. Your valuables are certainly much safer in a safe deposit box than they would be in your home, and many insurance companies will charge lower premiums for coverage of certain valuables if they are held in a safe deposit box. If you are storing investments such as gold or other precious metals, a safe deposit box will probably be your best bet. However, it is important that people understand exactly what they are getting with a safe deposit box, so they do not enter the arrangement with any preconceived notions. If you want to make sure your valuables are protected, ask questions and then get additional insurance if necessary.

Real Estate Commissions In Excess of 6 Percent: Should Investors Consider When Selling House?

In an effort to sell their vacant homes faster, some investors are now offering higher real estate commissions—in excess of 6 percent—to their real estate agents. It is no surprise that sellers are using such desperate measures, but is offering higher commissions really the best use of funds? Let’s look at the pros and cons.

Why to offer higher real estate commissions

By offering a higher commission to your listing agent, you can expect them to offer more services, including more advertising to draw more potential buyers to your property. Selling agents—the agents representing buyers—often have limited time, and if they are trying to choose five homes to show from 20 candidates, a higher commission may be a determining factor in their decision. In essence, a higher commission may mean more traffic from potential buyers.

Why not to offer higher real estate commissions

Good agents find the best house for their clients rather than the house that will net them the highest commission. Agents who are only interested in their own commission are less likely to complete the deal because they likely used a hard sell, which could later lead the buyers to change their minds and exit via one of their contingencies. If this happens, not only have you wasted your time handling the offer, you have lost valuable market time and exposure.

Extra marketing by the listing agent will have minimal effect. Most houses are sold simply because they are on the MLS. Newspaper ads and open houses are better methods of gaining exposure for the real estate agent, than your house.

Conclusion

Instead of offering a higher real estate commission, you would be better off lowering the price of the house. Having worked in the industry, I have seen people give priority to homes that offer higher commissions, but the buyers make the decisions, and they generally aren’t swayed by how much their agent is going to make. A house that is not selling is likely overpriced, and no matter how much a real estate agent attempts to influence buyers, an overpriced house will always be a tough sale. It would also be unethical for the agent to try to influence buyers just to get a higher commission.

There is one thing, in my mind, which may justify a higher commission: If your agent offers staging for your home, but only at a higher commission level, it could be worth considering. Home staging has been proven to help homes sell more quickly and for more money. Depending on the condition and location of your home, paying a little extra for home staging may be a good choice.

The Housing Market Roller Coaster

I came across an interesting video on YouTube that takes literally the phrase, “The housing market is like a roller coaster.” Feel free to take the ride:

I believe the ride stops at the end of 2006, and we all know what happened then. The video illustrates well that the housing market does not increase 3 to 7 percent every year like some real estate agents might lead you to believe. It goes up, then it goes down, then it goes flat but overall it trends up. This is basic information that most investors already know, though it is easy to get caught up in the panic of a crashing market. Remember smart investors make their money when they buy the property, so the ups and downs have little effect on them.

Be smart: Make sure the numbers make sense before you buy. In rough markets such as this, add in extra cushion to your numbers and don’t rush into decisions. Investors who are adverse to risk, or just scared to death of the current real estate market, should focus their efforts on cash flow properties. With cash flow property investors have the security of knowing that no matter how bad the market gets, at least they don’t have to worry about how they are going to pay the mortgage. After all people will also need to live somewhere, and if they aren’t buying then they are renting. Cash flow properties aren’t as sexy as some other real estate investments, but over the long haul they generally provide a great return with minimal risk.

Corn Prices Surpass $6 A Bushel: Investors, Grab Your Overalls

Corn prices have jumped dramatically during the past few months, hitting a record high of more than $6 a bushel. Demand for corn has increased, and the outlook concerning whether future supply can meet this demand is uncertain. This news is great for agricultural farmers, at least agricultural farmers, but it will have several negative repercussions for just about everyone else. Corn and corn-based additives—such as corn starch and corn syrup—are used in many foods and in animal feed for pigs and cattle. An increase in corn prices is one of the driving forces behind the price increases of numerous other foods.

The use of corn in ethanol production is also driving up the price of corn. The government recently passed legislation calling for more ethanol production, which could result in even higher corn prices. I wrote about the validity of ethanol as a long-term alternative fuel source in a previous post, and you may want to read it for more insight.

The harsh weather in the Corn Belt region is also having an impact on corn prices, but this phenomenon may only affect this year’s crop. A bigger issue could be the amount of land being dedicated to corn production. This year there is expected to be around an 8 percent drop in the amount of farmland planted for corn according to a recent AP article. You may recall that last year, farmers increased the amount of farmland planted for corn quite dramatically in response to the then-record $4 a bushel price. When time comes to plant crops for next year, we can probably expect to see a similar increase, which should eventually help regulate the price a bit.

One thing to keep in mind is that there is only so much farmland, and if farmers choose to plant corn on that land it means they are doing so at the expense of some other type of crop. The last time farmers went to corn en masse, wheat and soybeans saw tremendous gains--maybe this will be an area of opportunity for investors once again in the future.

Investors who want to investigate the potential opportunities available with farmland investment, and see how they might profit from the rise of corn prices, should read our article: Farmland Investment.

Thailand Medical Tourism

Thailand’s medical tourism industry is one of the strongest in the world, so why didn’t it make the cut for NuWire’s recently published list of the Top 5 Medical Tourism Destinations? We received an e-mail from a reader asking why Thailand was not included on our Top 5, which was a valid question. Here is some background on Thailand’s medical tourism industry:.

The main medical tourism hospital in Thailand is Bumrungrad International Hospital in Bangkok. The hospital is state-of-the-art, equipped with top-of-the-line technology and a well-trained staff. According to Bumrungrad’s website, more than 200 of their doctors are U.S. board certified. The only difference between the care patients receive there and the care they receive in the U.S. is that it is much cheaper in Thailand. Bumrungrad serves more than 400,000 international patients annually. It is one of the biggest medical tourism hospitals in the world.

As a medical tourism destination, Thailand indisputably ranks as one of the top countries in the world, but it did not make our list because we were also considering each country’s investment potential. Thailand has been a great place for investors for years, but recent political turmoil there has been cause for worry. The military ousted the former prime minister and the new prime minister is friendly with him, so another military coup seems possible. If Thailand can prove its long-term stability, it could once again be a great place for investment as well as medical tourism.

New Housing Bill: How Will It Affect Investors?

It appears that the Senate is ready to pass a housing bill intended to help the ailing real estate market. Democrats and Republicans have fought over the details, but agreed yesterday to a tentative deal, according to an article in the New York Times. Below is an excerpt from the New York Times article that talks about the key points of the bill, some of which may be of interest to investors:

“Senate staff members, speaking on condition of anonymity because the bill was not yet fully drafted, said it would include $100 million to expand counseling for homeowners at risk of defaulting on their loans, tax-exempt bonds to let local housing agencies refinance subprime mortgages and some $4 billion in grants for local governments to buy foreclosed properties.

“The Senate measure is also expected to include several tax provisions, including a credit of $7000 for purchasers of foreclosed properties that have been sitting vacant, and a break for struggling home-builders, allowing them to claim current losses against taxes paid in earlier, more profitable years. This provision, intended to aid home-builders, would cost about $15 billion in the first year.”

The biggest potential impact of this bill for investors appears to be the credit for purchasers of foreclosed properties. If that credit is allowed to investors, and not just buyers of owner-occupied properties, then investors could profit handsomely. It sounds like Republicans were trying to raise this credit to as much as $15,000, while Democrats were pushing for less credit and more counseling for homeowners.

The homebuilder tax aid will help those investors who own stock in homebuilders, or who are in the home building business themselves, but it may be too little too late to save many of these struggling companies.

It will be interesting to see how the $4 billion allocated for local governments to buy foreclosed properties is used. The question is: For what will they use the properties after they are acquired? If local governments effectively take foreclosed properties off the market, then it should boost their real estate markets as they decrease available inventory.

Investment Opportunities From “The Tourism Time Bomb”

International tourism is ready to explode with investment opportunities, according to an article published in the Harvard Business Review titled “The Tourism Time Bomb.” The writers--Paul F. Nunes, a research fellow at the Accenture Institute, and Mark Spelman, global managing director of Accenture’s strategy practice--state that international tourism is growing exponentially, and that this growth will soon lead to dramatic changes in major tourism destinations as well other locations which are likely to benefit from the resulting overflow

The following are important excerpts from the article:

“According to the United Nations World Tourism Organization, international tourist visits are expected to double soon, from roughly 800 million in 2008 to 1.6 billion by 2020.”

“First, most tourism-related prices, such as hotel room rates in popular cities, will continue to escalate as demand outstrips supply.”

“Second, rationing, and the resulting waiting lists, will become commonplace. Some groups, for example, are already calling for limits on traffic to ecologically sensitive destinations, such as the Incan ruins at Peru's Machu Picchu.”

“Finally, jaw-dropping prices and decades-long waiting lists will prompt the creation and the expansion of destinations in both developed and developing economies. The Chinese, for example, are developing Hawaii-like Hainan island and Macao, a gaming paradise on China's southern coast.”

“Companies and governments are also creating facsimiles of popular destinations.” (for an example read The Brink Tank’s post: How Do You Say Rocco In Arabic?)

“Just as sites and structures can be successfully replicated in new locations, so can institutions. If the swelling ranks of global travelers can't all come to you, you can go to them.”

“As the scarcity of places grows, many companies will find opportunities to profit by meeting new levels of demand for authentic, and inauthentic, experiences.”

“A billion or two additional international travelers represent both a massive potential headache and an opportunity for business.”

Real estate in both urban and suburban areas is one of many investments that may benefit from this explosion. As demand increases, tourism and hospitality businesses should also perform well, and there are many new businesses that could be created to cater to international tourists. An entrepreneur’s imagination is the only limit.

Is Zimbabwe Leader Robert Mugabe On His Way Out?

According to an article in the New York Times, Zimbabwe’s leader Robert Mugabe could be on his way out of office. Several advisors on Mugabe’s staff are in negotiations with opposition leader Morgan Tsvangirai. The election appears to be much closer than the Mugabe camp anticipated and now some Mugabe officials are calling for the leader to resign.

The following is an excerpt from the New York Times article:

“‘The chiefs of staff are talking to Morgan and are trying to put into place transitional structures,’ said John Makumbe, a political analyst and insider in local politics who has spoken in the past in favor of the opposition.

“‘The chiefs of staff are not split; they are loyally at Mugabe’s side,’ said Mr. Makumbe. ‘But they are not negotiating for Mr. Mugabe. They are negotiating for themselves. They are negotiating about reprisals and recriminations and blah blah blah. They are doing it for their own security.’”

I sincerely hope that Tsvangirai will knock Mugabe out of power in a peaceful, democratic manner, and that he doesn’t fall victim to the power of his new position. It would be great news for Zimbabwe, Africa and the world. Zimbabwe was once an attractive emerging nation for investors and I want to see it regain that status.

A word of warning to investors eager for the potential of a Mugabe-free Zimbabwe: Even if Tsvangirai does take power, there will be a risk that things will not improve any time soon. It is best to wait for the new leadership to show some stability, in how they plan to run things before investing.

Foreclosure Revenge: Borrowers Say Pay Up Or Else

Home buyers facing foreclosure are giving lenders an ultimatum: Pay up, or else you will get the house back trashed. Investors who buy foreclosures know that many properties are found in bad shape, often without appliances, light fixtures, and other items which came with the house. It is common for homeowners facing foreclosure to rip every saleable thing out of the house, then take their frustration out on whatever is left. However, homeowners and lenders are coming to a compromise. Lenders are paying homeowners hundreds, or even thousands, of dollars for turning in the home in good shape. Ultimately, this works out better for both parties, but I can’t help but think that something isn’t right with this picture.

Here is an excerpt from a Wall Street Journal article on the topic:

“The owner, a 43-year-old man with two children who spoke on the condition that his name not be used, says he bought the property in 1993 for $140,000. Three years ago, he says he had the house appraised for $440,000 and took out a $207,000 home-equity loan to pay off credit-card bills and buy his wife a new van. His initial payments were an affordable $1,800 a month.

He fell behind, however, after he went through a divorce and his landscaping business faltered, just as his interest rate was rising. The man worked out a payment plan with the bank and borrowed heavily from his father, but, including penalties, his monthly payments rose to $4,000, he says. After two months, he says, he ran out of money, and the bank foreclosed.”

When I look at this example, I feel it is hard to put any blame on the bank. This guy pulled all the equity from his house, spent the money, and then had some personal issues that left him in a vulnerable situation. The bank worked with him on a payment plan, but he still couldn’t make the payments, so the bank foreclosed. Out of good faith, the bank also made him an offer of $500 to leave the house in good condition. He proceeded to reject that offer as not enough, and forced the bank to pay him $2,800.

So not only is the bank going to lose money on this deal, because the home isn’t worth what is owed on it, but they are paying this guy $2,800—even though he still owes them thousands. What is wrong with this picture? I understand completely why it is happening, but come on...what kind of precedent are we setting?