The Fed Hints - Bernanke's a Numbers Guy

'Bernanke raised the prospect of an end to rate hikes, but also made it clear that a pause in interest-rate increases wouldn't necessarily mean the Federal Reserve was done raising rates.'

I read this today a marketwatch.com and my heart leapt. being a mortgage guy, it's tough when rate rise, but there may be an end site.....or not. Bernanke is a numbers guy and I like that. He's taking Greenspsan's theory, mere hypothesis, and turning it into mathematical truism. Just as words mean things, so do trends in numbers and Greenspan was able to guess and feel his way into a pattern that can now be turned into a science. I look for more years of Greenspan sized growth accompanied by controlled inflation at reasonable levels. Greenspan proved that you can have low inflation and low interest rates and that the economy can still grow. He did that without proof. He did it based on his gut that he was right. Now Bernanke gets to take all those years of data, of trial and error and turn it into a proof and a system to run the fed in a semi-predictable and systematic way. The future's so bright I've gotta wear shades!...I hope. :)

Real Estate Investing Rethink

Okay, it's getting tough out there. You've got the gurus traveling around the nation heating up every market they roll into. Home prices are out of control and anyone who can fog a mirror can get a loan to buy a home. It's so out of control that even Donald Trump himself has started a nationwide tour to educate the masses about the virtues of real estate investing as a wealth building tool.

All the hype is causing a tremendous problem for the old timers who know how business should be done. The furor and exuberance is driving prices up, up, up. In days gone by an investor could by an ugly house for fifty cents on the dollar and a pretty house, one needed only cosmetic repairs, for sixty five cents on the dollar. With a little paint here and there and some handyman know-how an investor could make a tidy little profit and move on to the next project or hold the property and make some decent positive cash flow.

The problem today is that prices have risen so high that the profit is gone from the deal. Real estate investors need a rethink. New strategies that give old fashion stability and profitability to their business. So what should investors do? First try seeking higher yields by purchasing new homes and then put it right back on the market. This is an especially good strategy with apartment to condo conversions. Another strategy is use a reverse lease purchase strategy to generate cash flow and profits over a one or two year period. At my firm we teach people the InvestSmart system. (click for details) Or try buying on the fringe in areas where development is approaching but hasn't quite made it yet.

The point is in today's world of rising interest rates and extreme hype about real estate investing, savvy investors have to rethink their traditional strategies. Don't be a lemming to sea and march off the cliff with all the other zombies following the guru crowd. Be like Warren Buffet. Real estate investing has become a commodities business, you need to find a way to make your real estate investment business into a franchise. (For more information on what Warren Buffet says about business change email me at mgross@dividendamerica.com)

The Housing Bubble - Maybe

Every day I hear about the housing bubble. Honestly, being in Atlanta I can't see it. Values inside the perimeter haven't even reached their full potential yet and there are many other growing cities with similar real estate markets. So if the bubble is not here or in other similar size cities with booming growth, where is it?

I think the housing bubble is along the coasts, the lake, the rivers and in the mountains. Where ever you have highrise resort style condominiums catering to the wealthy retiree or where the communities are centered around the retiring baby boom generation. The baby boomers are one of the largest segments of our population and they are gobbling up retirement and vacation homes at a staggeringly fast pace. What happens when the people of this generation are to old to take care of their second homes are need to move into nursing homes, back home with their children or during that unfortunate time when this generation leaves us for the great beyond?

That's when the bubble bursts! There are not enough people in the generations that follow to absorb all the property that will be available. A classic supply and demand situation will exist where an over abundance of supply will overwhelm the capable buyers and prices will come tumbling down. If you're buying a vacation home you may want to focus on a short-term plan and think about a strategy that keeps you focused on selling within 10 years when the bubble may begin to burst.