Trust, value, respect for one another, confidence, a person’s word plus a laundry list of other descriptives comprise not only our social fabric but our national financial landscape. If it were otherwise, we’d all need to walk around with pistols strapped to our leg.

That is my segué into a nasty trick Wall St pulled on a few million investors. You may be one and not even know it. The investment at the root of the trick goes by the acronym ARPS.

ARPS stands for auction rate preferred shares. I like the sound of auction preferred shares. Don’t you? It has a flair and bon vivonce about it almost unequaled in Wall St fictions.

You should also know these things called ARPS go by the names of other cash and cash alternatives. You should also know these were mainly, and still are, found in money market mutual funds.

History of Cash and Cash Alternatives

Other cash and cash alternatives have been around for a good number of years. At least 20 years by my research. They were simple little instruments that were safe and paid like clock work.

There was little or no risk to an investor’s principal because like the letter A – auction – said, the major players in the game conducted an auction in which they set the interest rates. All above board because it was done with the blessing of the SEC and, mind you, done in the public arena.

I use the verb were in the above paragraph in its strictest sense because this past February Goldman Sachs, Citigroup, Merrill Lynch and every other brokerage house quit bidding. This nasty trick immediately evaporated liquidity. I mention these three houses because they were the ones who created the auctions.

The lack of liquidity means people with money in this fund cannot take their money out. The fund is still carried on the holder’s statement at par (face) value because the underlying Triple A rated bonds are still in the fund’s portfolio and these bonds are still paying interest but the money simply isn’t available to the fund’s owner. In other words, the owner is not getting a dime from their account.

I bet if you are like me, you are incredulous and either can’t, or refuse, to believe what you just read. If you have money in one of these funds, you are nodding up and down and screaming out loud to anyone who can hear not to invest a cent in these boat anchors.

Of course Wall St still charges its fees and expenses just as if nothing has happened. There is a lot of speculation as to why the brokerage houses quit bidding but that doesn’t help the fund’s owners one bit.
The government has stepped to the plate to relieve the fiasco in the CDO and SIV markets but hasn’t done a darned thing to help ARPS owners. There is a lot of speculation as to the why of that non governmental action but that doesn’t help the fund’s owners one bit either.

I think there is something rotten at the U.S. Treasury. Just an opinion but if one looks at the man at its helm one sees deep Wall St roots probably still being watered by the good ole boys sitting in the leather chairs in the board room.

Joe Citizen is denied access to his funds but the creators, promoters and hucksters behind CDOs get a nice bailout. By the way, did anyone notice not only the Merrill-BoA “merger” but the $85 billion dollar bailout this last week… not to mention the MASSIVE $700 million bailout?

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Tags: bank crisis, banking, cash

“BOOM!  Here comes the BOOM….ready or not!” - from the song Boom by P.O.D.

Greetings from the Metropolis of Cedar Crest, New Mexico!

With a torn achillies tendon, I hobbled my way into the gym and turned up my Ipod.  The song Boom by P.O.D. (one of the best workout songs there is) came on and I started to tear it up…pain and all.   Pull ups, bench press, back rows……..Arrggh!

I hate working out…but I have a body type that if I do not workout I will ballon.  Bad memories of being called “fat tard” back in the sixth grade start to infiltrate my mind when I move up pant sizes.

Anyway…..

After my workout, I sat on a bench and listened to the song again…..and I started thinking real estate.  “Boom…here comes the Boom…ready or not!” The chorus continued to repeat itself in my mind..and I  thought long and hard about all the articles and books I have read in the past about what is to come in the Real Estate Market.  Unfortunately, the “boom” is not in regards to “good times”…but…bad times for most…and opportunistic times for the smart investor.

One thought that sticks in my mind is what I read in Harry S. Dent’s April 2008 newsletter “….due to the fact that we have three major concurrent bubbles - stocks, real estate, and commodities - all unwinding in a similar time frame within a global economy with very different demographic and bubble trends.  The last time all three major assets cycles peaked was the crash from 1835 to 1843, which led to the depression of the early 1840s”  (there is a lot more to the report….but this caught my eye and my simple mind).  Interesting huh?

“Obviously things are not going well.” - Captain Obvious

So….assuming things are going to get worse (which they are) and assuming real estate values you are going to plummet (which they are).  Also assume that gas prices go up (which they will) and the population starts to hoard it’s money (economics 101). One more thing….assume we are heading into what most experts agree…deflation.  Now the questions are….what is a real estate investor to do?  Is it too late?

What do the experts say?

Well… here are three schools of thought (there are hundreds more…but who would read all that?) that come from a range of so called experts (Harry S. Dent, Robert Kiyosaki, Nouriel Roubini,  Robert Prechter, and  John Williams) and they all have to do with the philosophy that “cash is king” (This is how I interpreted the information and by no means should you think that I interpreted the information correctly…do your own research please):

1. Raise as much cash as possible via LOC (lines of credit…if you can get one), HELOC (Home Equity Line of Credit…if you can get one)…then hold on.  Be a scavenger and cherry pick deals as they come up.  My feeling is you will not see the “cherries” until early next year.  Remember…when the market hits bottom…here is where you will make your money….on the purchase…and you will be ready if you have cash.
2. Sell everything….and hold on to your cash.  Same as number one…but with the thought that if you sell now, most experts believe you can buy it back at 40 - 50 cents on the dollar in the future.  Holy cow!
3. Sell your non-cash flowing properties (i.e. land) and under performing assets now (if you have a buyer).  Also sell your A and B properties.  Hold on to properties that serve lower income populations.  The thought process here is that class “C” apartments, mobile home parks, and retail shopping centers (retail that caters to lower income populations) will provide nice cash flow and probably over perform (if you purchased right) in the coming years.

Smart investors make their money in good markets and in bad ones……which one will you be?  Only time will tell.

OH…..I would love to hear what you are doing to prepare.  If you are not…I want to hear from you anyway..so please comment….

Until next time…..rob

Tags: cash, cashflow cash flow, depression, Economy, finance, Harry S. Dent, heloc, investor, real estate, Real Estate Investing, recession

Wholesaling provides an opportunity for someone to build income with little capital or credit. All it requires is ambition and some specialized knowledge. The more ambition you have, the more money you will make. Wholesaling does not require a real estate license. A license is not required to buy or sell any property that you have an equitable interest in. That interest can be a contractual interest (you have the property under contract) or you actually own or have title to the property.

What is Wholesaling?

A wholesaler in a nut shell puts property (normally distressed property) under contract and assigns or resells the property to another investor. The investors a wholesaler sells to either use cash, lines of credit, or hard money loans. This allows quick closings on properties that sometimes need extensive repairs.

A wholesaler lives off of the idea that price overcomes all objections. If you can sell a property for a low enough price it doesn’t matter what’s wrong with it, somebody will buy it. A wholesaler focuses on developing two things. Finding deals and their network of investors to sell to.

Getting Started Wholesaling

Getting started, a wholesaler should normally not ever buy a property. You put properties under contract with a contingency and focus on quickly selling the property for more money to other investors. If you end up not being able to sell the property before you are expected to close then you utilize your contingency and walk from the contract.

A wholesaler is a middle man, and a good wholesaler becomes a very well payed middleman that other investors love. The thing is that if you have a good enough deal under contract, there are other more established investors out there that will be glad to pay cash for it in a matter of days. If you have a house that will sell fixed up for $100,000, it needs $10,000 in remodeling, and you have a contract on it for $55,000, then with a developed investor network you could have an investor buyer for it for $60,000 in a matter of days. You sell it or assign the contract for 60K, you bought it for 55K so you just made $5,000 in a matter of days.

Thanks to Ryan Webber for his insight!

Tags: biggerpockets, cash, estate, house, properties, real, Real Estate Investing, successful, wholesailing, wholesaling