Moving on up

Before we get into specifics I just want to comment again on
the US market as most of our bad news stems from the USA in terms
of housing.  So in case you didn’t know……American home loans are normally non recourse which means when values
drop they can simply hand the keys back to the bank and the bank
takes the hit.

Amazing but true.  In other words the banks have no recourse
to the borrower, just the actual house.  This is an enormous
difference to commonwealth countries and results in a completely
different and more volatile market.

Right now one in 6 Americans have negative equity in their property.
America has a 401K (Superannuation fund) and many people borrowed
the deposit from this super fund.  This money has to be repaid
to the fund and now that they have no equity in their home and are
forced to sell they end up with a high interest debt to their super
fund instead of income from it.

This is a real tragedy and will send many to bankruptcy.

So whenever you hear of the US situation remember these underlying
differences.  Our bad news will be nothing like theirs.
We have better government and less of a credit addiction.

OK so let’s look at the positives in the market right now.

• Vendor Conditioning:
  Never has there been so much bad news world wide at the same
  time.  Housing values are falling, no one can sell. There
  has never been so many negatives in play at one time since the
  1920’s.
• Vendor Motivation:
  Tied into the above is the fact that most people selling currently
  are doing so because they have to.  Not all but certainly
  a lot more than normal.
  So far we have sellers who are motivated and willing to sell
  at low prices, thousands of them all over NZ and Australia.
  And every day they are being warned that things are going to
  get much worse.So for an investor you couldn’t have things much better
  could you?

But wait there’s more……

• Interest rates:
  Who would have thought 6 months ago that you can get money in
  Oz for under 5% and in NZ for under 7.  Positive cashflow
  pretax on both sides of the ditch, just unbelievable!!
  But even more exciting is that there is more to come.
  RBNZ is likely to go another 1% and OZ is anticipating up to
  1.5%.  England has just dropped its bank deposit rates
  to 0%, first time in 400 years.
• Fundamentals:
  We have seen in the last few months that many supposedly low
  risk investing mediums, like shares and managed funds, aren’t
  in fact low risk at all.
  And whilst property has taken a bit of a hammering in NZ and
  Oz it certainly is showing itself to be much more robust than
  anything else and it has the enormous advantage of being an
  essential, not an optional thing for human beings.
  So I believe that as the dust settles property will not just
  recover but become “the” primary investment vehicle
  of even more people than it has been.

Ok Dean but what about me??

So where do we start if we are not in a position to take advantage
of all this good news.  I can’t hope to cover everybody’s
position in a newsletter but let’s try and cover off the most
common issues and possible solutions.

Bank Knocking??

Some of you may, like me, be full time investors and have the bank
unhappy about their level of exposure to you all of a sudden.
This can be an issue particularly if you have loans with companies
that have been on-sold.  For example I have mortgages with
Origin, National Bank and ANZ.  They are now all owned by ANZ
so they looked at me as 1 client and combined all my borrowing,
even though I was with 3 different banks as far as I was concerned.

Or you may be a trader like me and have had a buyer not settle leaving
you with mortgages and properties you never wanted.  This might
create a cashflow issue you can’t solve.

The Number 1 thing to know when dealing with bank pressure is to
be proactive.

If you have the bank wanting financials and/or generally being aggressive
then you need to sit down with them and come up with a plan BEFORE
they decide to solve it for you.

The banks are more than happy to hear that you have a problem as
long as you also have a solution.  If you think your situation
unsolvable then sit down with someone like me or another property
coach and get some answers. (NOTE: Generally speaking you want a
property professional, not a generic financial planner.) If you
want to sit down with me, click HERE

I can’t stress the importance of this enough.  Once the
bank decides you are in trouble they will simply take you to mortgagee
sale and you run the highest possible risk of losing everything.
However if you go to the bank and say “Look I have a problem
because of XXXXX.  I have met with my advisors and here is
how we are going to solve it.  I  need the bank to do
XXXX to assist us.”This approach works.  I know, I have done it myself and I know
of many other people working through similar issues.  Unfortunately
most people wait till they have missed a payment or they get a PLA
and then it is too late to talk to the bank.

Train coming??

If you know you have a problem coming up then now is the time to
take some action.  Now that we know things are going to be
weird for a while yet the best course of action is likely to be
SELL!!.

Not a pleasant thought perhaps but the highest probability is that
your property is going to fall in value over the next 12 to 18 months.
It may be a small drop or a large one, but a drop it will be.
So sell NOW!!.  If you have property you know you can’t
afford to hold, get it sold.  If need be, talk to the bank
and get them primed for the possible need for you to sell for less
than the mortgage and/or break fees.  They will listen providing
you are talking to them BEFORE you have a problem.  Living
to fight another day is more important than losing a bit of equity
now.  You will be able to more than make up those losses as
soon as the pendulum starts to swing the other way.

If you are looking for a financial solution then contact Kris HERE
and have a consult with him (or
myself) and see what your options are.

Big bang but no buck??

Getting your hands on money is one of the biggest issues in the
short term.
I cover this in depth in my Up Strategies DVD, Click
Here, but the bottom line is that there are solutions.

You will likely fall into 1 of 2 camps.  Some of you simply
don’t meet current lending criteria due to tight lending and
the demise of so many finance companies.  Your plan of attack
needs to start with talking to someone like my broker Kris
and establishing what you have to do to qualify.  Selling 1
property, canceling a credit card, getting a second provable income
into the household, any number of relatively simple steps may get
you to where you can get pre-approved again.

The other large group is those of us who are unlikely to qualify
with a bank for some time, either due to credit issues or the fact
that you are entirely rent reliant and won’t possibly qualify
anytime soon.

Your key phrase for this year is going to be “Wanna JV?”.
Your simplest means of moving forward is going to be getting together
with someone who can borrow money and doing stuff together.
This is not as hard as it sounds as most people who can get mortgages
can do so because they are in high paying jobs which means they
often have little time to chase deals.

There’s a number of ways to structure this and there is even
a new partnership structure that means you can use your own entities
and stream the income directly without any tax implications.
Come and see me or get Up
Strategies if you want more detail on all this.

Crystal Ball Gazing:

So what is likely to happen over the next 12 months??  Well
the short answer is “who knows”, but that doesn’t
help much does it so here are my observations based on my research.

The USA.  There is no doubt that the USA is in trouble.
Their game plan is to spend their way out of recession as they tried
to in the Great Depression.  The effect of this in the 30’s
was to make the depression last over a decade longer in America
than the rest of the world.  So the strategy that failed last
time is going to be employed again??  Obviously Mr. Obama hasn’t
heard the definition of a fool recently

(What is the definition of a fool?  Doing the same thing over
and over again and expecting a different result).

I think there is a significant risk of the USA actually going bankrupt
in the sense that their “spend their way out of recession”
will simply empty the government coffers that are already hammered
by funding so many wars and they will end up in another 30’s
style depression. It took 28 years for their sharemarket to recover
last time.
As I mentioned above their property market is very different to
ours so the impact on US housing may be unbelievably huge.

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