10 Numbers That Prove That America’s Current Financial Condition Is A Horror Show
I am passing this information along, not a a pessimist but, rather a realist in that history does repeat itself. The Feds have been kicking the can down the road for a long time.
How does this relate to notes? Capstone Capital USA is a value buyer of real estate assets verses a spectulative buyer. As such we only buy assets with a 35%-40% equity cushion — with a strong Payment history and seasoning on performing notes. With proper and detailed due diligence, notes are & will be a safe haven. Safety and security is everything. The following article from the Economic Collapse clearly articulates what is in front of our economy…………………
America’s long-term “balance sheet numbers” just continue to get progressively worse. Unfortunately, since the stock market has been soaring and the GDP numbers look okay, most Americans assume that the U.S. economy is doing just fine. But the stock market was soaring and the GDP numbers looked okay just prior to the great financial crisis of 2008 as well, and we saw how that turned out. The truth is that GDP is not the best measure for the health of the economy. Judging the U.S. economy by GDP is basically like measuring the financial health of an individual by how much money he or she spends, and I will attempt to illustrate that in this article. To read more CLICK HERE.
Street Smarts puts you in the fast lane to Outsmart your Competition
I receive Harvey MacKay’s inspirational emails from his weekly column. This particular email caught my attention.
I’m back with another installment of street smarts, those skills that go beyond what is taught in school – the lessons we learn by experience and practice. Never underestimate the value and importance of “extracurricular” education.
First idea: Don’t be afraid to make a decision. Be afraid NOT to make a decision. Good judgment is a critically important skill for any person to have, but especially for those in leadership positions. Good judgment is such an important attribute that it is often listed first by employers as required qualities of job applicants.
In business, the success or failure of the organization hinges on judgments made at all levels. Good judgment is the ability to make the best decision possible based on the information you have, without being swayed by others or predetermined ideas.
What kind of a decision-maker are you? Take a few minutes to contemplate the question, because once you become aware of how you make (or don’t make) decisions, you will be more apt to make wiser choices in the future.
Next idea: Never make a decision until you have to. Always bargain for more time to postpone doom. Things can change over time.
For example, there once was a king who was trying to find someone who could teach his horse to fly. As the king was conducting court one day, two guards dragged in a beggar who had just stolen a loaf of bread.
The king said, “Take him away and chop his head off!” As he was being dragged away, he said, “But my king, my king, I can teach your horse to fly. Just give me two years.”
“Granted,” the king said.
As the beggar is being carted out, a guard quizzically asks him, “Why did you promise that?”
“Look … In two years, I may be dead. The king may be dead. Or who knows, maybe I can teach the horse to fly!”
Next idea: Practice the rule of ten thousand. This rule helps determine whether something can’t be done or whether someone doesn’t care enough to get it done.
The Rule of Ten Thousand says, “If I give you an extra $10,000 to get to work by 8 a.m. every work day for six months straight, can you do it?” Watch how fast the obstacles disappear, contingencies are set up, departure time from home is earlier and so on.
You don’t necessarily give people $10,000, but it’s a good way to see if something is possible.
Next idea: Always put the pressure on yourself and tell everyone what your goals are. I do this with all kinds of projects. It’s great motivation.
Next idea: You can take any amount of pain, as long as you know it will end. For example, I was running the Twin Cities Marathon several years back and a woman stopped me with two miles to go and said she wasn’t sure she could finish. She said, “Mr. Mackay, motivate me!” I gave her this lesson on pain as we ran side-by-side.
Next idea: It’s not the people you fire who make your life miserable … it’s the people you don’t fire who make your life miserable. And whenever I say that I get more amens than a Billy Graham sermon.
Next idea: Maximize your education dollars. When your company sends its people to conferences, make sure you get maximum value. At our company, we insist that our people come back from conferences and teach the rest of the staff what they learned. This way we get a terrific return on our investment.
Next idea: Never give an ultimatum unless you mean it. A close friend shared this story of a high stakes negotiation. He’s living in Minnesota and wanted desperately to buy one of his competitors in Los Angeles. He had information that whatever his bid was, the owners had a local businessman who would bid for the business as a wedge to get the price up.
There was a summit conference call with the six owners plus my friend to negotiate and finalize a price. Then came the knockout blow. My friend bid 15-20% more for the company than his previous proposal, but his new offer was on the table during the call only. They either accept it or they don’t. The offer was so good the owners decided to take it. They weren’t going to chance it on their friend matching it.
Mackay’s Moral: Use your street smarts to outsmart your competition.
http://www.harveymackay.com/this-weeks-columns/
Mulvaney unveils sweeping plan to dramatically alter CFPB
Over the past few months, Mick Mulvaney has provided smaller indications about how much differently the Consumer Financial Protection Bureau will function under his leadership than it did under the bureau’s former director, Richard Cordray.
But Monday, Mulvaney fully revealed his plan to dramatically alter how the CFPB operates.
The CFPB on Monday released a new strategic plan, in which Mulvaney lays out how the CFPB will now operate and established new goals for the bureau.
“If there is one way to summarize the strategic changes occurring at the bureau, it is this: we have committed to fulfill the bureau’s statutory responsibilities, but go no further,” Mulvaney said in a statement. “By hewing to the statute, this strategic plan provides the bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers.”
According to the CFPB, the plan “draws directly” from the Dodd-Frank Wall Street Reform and Consumer Protection Act, and “refocuses the bureau’s mission on regulating consumer financial products or services under existing federal consumer financial laws, enforcing those laws judiciously, and educating and empowering consumers to make better informed financial decisions.”
Included among the changes is that the CFPB will now focus on “equally protecting the legal rights of all, including those regulated by the bureau,” a tactic Mulvaney previously revealed in a memo to the CFPB’s employees.
Also, it appears that the only new rulemaking the CFPB will engage in will be to “address unwarranted regulatory burdens and to implement federal consumer financial law and will operate more efficiently, effectively, and transparently.”
As Mulvaney previously stated, the CFPB will no longer be “pushing the envelope” when it comes to new rules, regulations, or enforcement.
“Indeed, this should be an ironclad promise for any federal agency; pushing the envelope in pursuit of other objectives ignores the will of the American people, as established in law by their representatives in Congress and the White House,” Mulvaney says in the strategic plan. “Pushing the envelope also risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes. I have resolved that this will not happen at the bureau.”
In pursuit of this goal, the CFPB establishes a new mission that is much different from what it was previously.
Under Cordray, the CFPB’s mission (as taken from the CFPB’s previous strategic plan) was the following: “The CFPB is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.”
The CFPB’s new mission, as laid out by the new strategic plan is this: “To regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws and to educate and empower consumers to make better informed financial decisions.”
According to the new plan, the CFPB will accomplish its new mission by: seeking the counsel of others and making decisions after carefully considering the evidence, equally protecting the legal rights of all, confidently doing what is right, and acting with humility and moderation.
The new strategic plan also lays out new goals for the CFPB.
Previously, the CFPB had four goals:
- Prevent financial harm to consumers while promoting good practices that benefit them
- Empower consumers to live better financial lives
- Inform the public, policy makers, and the CFPB’s own policymaking with data-driven analysis of consumer finance markets and consumer behavior
- Advance the CFPB’s performance by maximizing resource productivity and enhancing impact
Under Mulvaney, the CFPB’s new goals are:
- Ensure that all consumers have access to markets for consumer financial products and services
- Implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive
- Foster operational excellence through efficient and effective processes, governance, and security of resources and information
Part of that first goal will be to “regularly identify and address outdated, unnecessary, or unduly burdensome regulations in order to reduce unwarranted regulatory burdens,” according to the plan.
Under the second goal, the CFPB lays out two objectives that are designed to help meet the goal, including protecting consumers from unfair, deceptive, or abusive acts and practices and from discrimination.
To meet that objective, the CFPB will “enhance compliance with federal laws intended to ensure the fair, equitable and nondiscriminatory access to credit for both individuals and companies and promote fair lending compliance and education,” and “strengthen prevention and response to elder financial exploitation.”
Additionally, under the “implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive” goal, the CFPB will “enforce federal consumer financial law consistently, without regard to the status of a person as a depository institution, in order to promote fair competition.”
Included in the strategies to achieve that objective is focusing supervision and enforcement resources on “institutions and their product lines that pose the greatest risk to consumers based on the nature of the product, field and market intelligence, and the size of the institution and product line.”
The third goal deals mainly with the CFPB’s internal operations, including safeguarding the CFPB’s data, maintaining a “talented, diverse, inclusive and engaged workforce,” and working to manage risk and promote accountability at the bureau.
To read the CFPB’s new strategic plan in full, click here.
NOTE INVESTORS FORUM – MARCH 6th
Fellow Note Investors:
The next Phoenix Note Investors Forum will be Tuesday March 6th.
MEETING TOPICS
Our special guest will be Charles Parker of AZ Credit Medix.
He will discuss how to build business credit so a business owner can borrow funding without personal indemnification.
Additionally we discuss the broad basics of seller financing your investment properties with a case study.
Look forward to seeing everyone Tuesday March 6th 11:30am – 1:30pm!!
Dave
RESERVE YOUR SPOT @
https://www.eventbrite.com/e/note-investors-forum-tickets-42219550813
Meeting Location:
1644 S Dobson Rd Mesa, AZ Dobson Ranch Inn Resort–Fiesta Bar & Grill
SW Corner of Dobson & Superstition Route 60
Mesa, AZ
Real Estate Mortgages – Niche Investment
With real estate being so competitive, may investors are
investigating real estate mortgages.
This short video explains the variables.. WATCH HERE
NAR: Pending home sales rise for 3rd straight month–but….Trouble on the horizon
Pending home sales rose in December for the third straight month, providing further evidence that 2017 was a positive year for housing, but the National Association of Realtors doesn’t expect the good times to keep rolling.
Recent data from NAR, the Census Bureau and the Department of Housing and Urban Development showed that 2017 was the best year for new home sales and existing home sales in a decade.
Now, new data from NAR shows that pending home sales rose in December to the highest level since March 2017, but NAR is concerned that Republican-led tax reform will dent home sales in 2018.
According to a new report from NAR, which was released Wednesday, the Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.5% to 110.1 in December from an upwardly revised 109.6 in November.
That marks the third straight month that the index has increased.
But combine continually low housing inventory and the Republican tax plan, which President Donald Trump signed into law late last year, and you have a recipe for a slowdown, according to NAR Chief Economist Lawrence Yun.
“Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018. Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now,” Yun said.
“Sadly, these positive indicators may not lead to a stronger sales pace,” Yun added. “Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices – especially at the lower end of the market.”
According to NAR, there’s an “imbalance” of supply and demand, which has led to price increases of 5% or more for each of the last six years, but Yun expects that to slow this year.
Yun said that while tight inventories are still expected to put upward pressure on prices in most areas this year, he expects overall price growth to shrink, with some states even experiencing a decline, due to the negative effect the changes to the mortgage interest deduction and state and local deductions under the new tax law.
“In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand,” Yun said. “However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.”
Three of the states where the tax bill’s changes to property tax deductions are expected to have a significant impact are already threatening to sue the government over the tax bill.
Last week, the governors of New York, New Jersey, and Connecticut said they plan to sue the government due to the Tax Cuts and Jobs Act’s elimination of certain state and local tax deductions.
The tax bill installs a cap of $10,000 on state and local tax deductions, but several states (including New York, New Jersey, and Connecticut) have state and local tax burdens that far exceed $10,000.
Yun said that he anticipates the changes to the SALT deduction rules to disproportionally impact certain segments of the housing market.
“Just how severe is still uncertain, but with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas,” Yun said. “This could in turn lead to both a decrease in sales and home values.”
New tax law gives many real estate investors a federal tax deduction of up to 20 percent of net rental INCOME
The new federal tax law took away some benefits of homeownership but
gave real estate investors a gift they might not be aware of yet.
Owners of investment property — from mom and pop landlords to big-time real estate moguls — could get a federal tax deduction of up to 20 percent of their net rental income for tax years 2018 through 2025. Most people who own shares in real estate investment trusts can also
deduct up to 20 percent of their ordinary REIT dividends.
This income limit would apply to real estate agents but would not apply to real estate investors because their principal asset is their property, not their skill, said Kenneth Weissenberg, chair of real estate services at EisnerAmper.
If you are not a service professional and your taxable income exceeds $157,500/$315,000, then your pass-through deduction may be limited by a convoluted computation. It says: Yo
ur pass-through deduction can’t exceed the greater of either 50 percent of W-2 wages or 25 percent of W-2 wages plus 2.5 percent of the “unadjusted basis” of depreciable assets, which generally means what the owner paid for the assets, excluding land. Real estate investors would be subject to this nutty math if their income exceeds the limit.
To get the deduction, real estate investors must have net income from a property. Many real estate investors have net losses thanks to depreciation, interest, repairs and other expenses.
Suppose Donna is single, earns $100,000 a year working for a tech company, and owns a duplex that generates $20,000 a year in net income. Her taxable income, we’ll assume, is $10
8,000.
Under the new law, her pass-through deduction would be 20 percent of $20,000 or $4,000. It is not reduced because $4,000 is less than than 20 percent of her taxable income..
Now suppose she makes $200,000 at her tech job and her taxable income including the rental is $208,000. In this case she would have to do the complex computation.
We’ll assume she bought the duplex for $600,000 but $100,000 of that was land value. Her unadjusted basis is $500,000, and 2.5 percent of that is $12,500. She doesn’t pay anyone a salary, so her W-2 wages are zero. Her deduction still is not reduced because $4,000 is less than $12,500.
“The wages and depreciable property limits won’t impact most real investors,” said Stephen L. Nelson, a CPA in Redmond, Wash., who wrote a monograph on the new deduction.
One gray area is whether people who own real estate in their own names and file their rental income on Schedule E would qualify for the pass-through deduction.
“It’s not 100 percent clear,” said Jeff Levine, director of financial planning with Blueprint Wealth Alliance. To get the percent deduction, “it has to be a qualified trade or business.” The new law does not clearly define trade or business, and the term is defined differently in different parts of the tax code. “Depending on IRS interpretation, a taxpayer’s involvement in the rental property could be a factor” in whether he or she qualifies.
Luscombe said he believes Congress intended real estate investors who use Schedule E to qualify for the deduction, and a congressional committee report supports that idea.
Weissenberg said they clearly would qualify for the deduction.
Nelson also said they should qualify, “but we’ll have to see what the IRS says” when it issues regulations.
Real estate investors do not need to form a limited liability company to take this deduction, Nelson added. They can put property into an LLC (many do for liability reasons) as long as it’s not taxed as a corporation.
The law does state that people who own shares in a real estate investment trust can deduct 20 percent of their ordinary dividends (but not capital gains dividends) starting in 2018. This deduction cannot exceed 20 percent of their taxable income, but other limits do not apply.
“Real estate is a big-time winner” in the tax law, Weissenberg said, thanks to this and other provisions.
Investors Focusing on Fundamentals in New Year to Prepare for Wider Range of Potential Outcomes
Article originally appeared in CoStar
Most Financial Services Firms Maintain Optimistic Outlook for US Capital Markets in 2018, but Also Advising Note of Caution
Investors and lenders are expected to closely monitor
property fundamentals in the markets and property sectors they invest in for 2018 as the U.S. economy continues its extended recovery now heading into its 10th year.
Despite record low unemployment, increased consumer confidence and a strong stock market, many in the industry see slower growth ahead for rent increases, property prices and overall demand for commercial space. As the capital market moves later into the current real estate cycle, financial services firms are maintaining an optimistic outlook for the U.S. economy, although many are also recommending a cautious approach.
S&P Global Ratings, for example, does not expect a steep correction in real estate prices in the New Year, but is forecasting modest price pressure given slowing fundamentals in light of lower economic growth than in previous years.
There are other risks that could develop, S&P added, that could potentially cause a steeper correction in real estate values, including capital market volatility from a steep equity market correction or sudden spike in interest rates. In addition, bank exposure to CRE is at peak levels and a significant reduction in loan originations could dampen valuations.
In its outlook for 2018, LaSalle Investment Management refers to a Goldilocks environment, in which investors should look for an investment that is neither too ‘hot’ nor too ‘cold’ driven by balanced fundamentals and steady pricing.
LaSalle is expecting debt for real estate to remain plentiful in 2018. At the same time, it expects lenders will continue to tighten their underwriting, especially for specific sectors that become “overheated.”
Over the course of the year, Morgan Stanley noted that larger banks of more than $20 billion in assets tightened their lending standard much more than smaller banks. Multifamily loans had the greatest increase in net tightening and loan demand declined more in that category more than others in 2017.
On the positive side, LaSalle expects less hurdles for the major lending sectors in 2018 after the market overcame several potential obstacles in 2017, including the maturity of 2007 vintage loans, CMBS risk retention and Fed oversight of bank real estate.
As 2017 progressed, it became clear that risk retention wasn’t going to be a major market impediment, and issuance increased as the year went on, according to Kroll Bond Ratings Agency (KBRA). Transaction sizes, however, largely remained under $1 billion, which was partially attributable to risk retention that forced a number of originators to exit the market, as well as the size of the CMBS investor base.
On the up side of peaking property this year, KBRA noted, is that single borrower refinancing deals should continue to thrive as borrowers look to lock-in gains from property value increases. Borrowers may also want to lock in rates the Federal Reserve sending signals that more rate increases are to come in 2018.
As always, job growth will be a critical driver of real estate demand. And to the extent that the recently passed tax legislation that slashed corporate rates spurs additional business investment and hiring works as intended, job growth could exceed expectations.
“We’re now confronting a wider range of possible outcomes for the economy, depending on how various initiatives such as federal policy changes play out,” said Spencer Levy, CBRE Americas head of research and senior economic advisor, who added that agility will be more important than ever for investors this year.
Investors should shift to focusing on income gains rather than appreciation as their primary source of returns as cap rates flatten out or, in some cases, start to rise, Levy noted.
Major U.S. office markets are on the verge of a cyclical tipping point, with new construction and softening demand mirroring the evolution of previous CRE cycles, Moody’s Investors Service reported.
And while the markets may be hoping the supply-and-demand cycle plays out differently this time, that isn’t likely, Moody’s noted.
“New office construction is ramping up in many major U.S. cities, so that by the end of next year new inventory will be coming online at roughly double the rate of the past three years, while at the same time the growth of office-using employment will be slowing,” said Kevin Fagan, a Moody’s vice president and senior analyst.
As we enter 2018, there is 154.5 million square feet of new office space under construction, according to CoStar data. That compares to 97.8 million square feet delivered in 2017.
While the amount of office construction is increasing, the 252 million square feet delivered last year or under construction is still one-third lower than the 381 million square feet delivered in 2006 and 2007 when CRE markets last peaked.
However, underwritten office property values today far surpass those of the pre-financial crisis peak, particularly for CBD offices, Moody’s Fagan said.
Similar to the office market, new supply is also running high in the industrial property sector going into 2018 with 318.1 million square feet under construction following 311.6 million square feet delivered last year.
The big difference compared to office is that demand remains very robust for both bulk warehouse and closer-in delivery hubs as e-commerce continues to reshape and boost demand for distribution space. This positions the industrial market to perform well in 2018, although risks would escalate should economic growth slow, according to LaSalle.
While E-commerce is boosting the industrial investment potential, the retail sector continues to bear the brunt from lower traffic and sales. Construction of new retail space continues to decline with just 86 million square feet under construction at the beginning of 2018, well down from the 103.6 million square feet of retail space delivered last year.
Investors see exceptions within the sector, however. Grocery-anchored retail space in well-located centers remains in demand as reflected in the strong capital market activity at these centers that we believe will continue, according to LaSalle.
CBRE sees retailers and investors gravitating to either the discount and off-price sectors or luxury. This may create weakness, and, in many cases, investment opportunities, in secondary and suburban markets.
Five Star President and CEO: Housing Microbubble Ahead
The Federation of Certified REO Experts (FORCE) met Tuesday at the annual FORCE Rally within the 2017 Five Star Conference and Expo. Ed Delgado, Five Star President and CEO, spoke to the state of the industry, which he says is headed toward a microbubble.
“The market is about to change and we need to be ready,” said Delgado. “REO is going to increase in 2018 as we see more fractures in the market—how much is determined by location and how big the fall off in price points will be.”
According to Delgado, the real estate market is white hot while demand is still strong. These factors are driving price points, appreciation, and values way up. However, 5 to 10 percent spikes in appreciation along with price points that are overvalued by 15 to 20 percent aren’t a new observation—it’s something he witnessed in 2007 and 2008.
“This is what we think will happen in the next year: Regional or microbubbles will start to burst—pay attention to Denver, Dallas, San Antonio, Las Vegas, Phoenix, Los Angeles, and San Francisco,” said Delgado. “Delinquency will rise and foreclosures will increase.”
Additionally, after being devastated by Hurricanes Harvey and Irma respectively, Delgado said Houston has an understated delinquency population by as much as 300,000 while Florida homeowner insurance deductibles will create long-term hardships putting a greater financial strain on homeowners.
Delgado also spoke at the American Mortgage Diversity Council (AMDC) meeting Monday, detailing that though the group is working toward a better mortgage industry, there is still more work to be done.
In 2016, Judy Dominguez of Cherry Creek Mortgage, a residential lender based out of Greenwood, Colorado, had her spousal health insurance revoked and was saddled with about $40,000 in medical bills after her wife had a heart attack. Though they have a recognized marriage, the bank cited the decision to revoke as recognizing marriage as a union between a man and a woman.
“Every once in a while when discussing the AMDC I’ll have a well-meaning executive ask ‘what’s the point’,” said Delgado. “Ensuring that stories like this don’t happen again is the point.”
Delgado said that discussions are important and should be had, but anyone can pull professionals together so they can say the right things and feel good about themselves. Once the steps are defined, they must be walked out.
“It is up to each of us to pursue the change that we want to see with passion,” Delgado said. “The stakes are simply too high for us to give anything but our best.”