Real Estate 2008 is going to CRASH CRASH and CRASH!

Last month was an unbelievable month to me. I have seen prices in many the so called "prime area" near where I live have experience price dropped in an extraordinary fashion. Price sometimes could go down as much as 100,000 in a matter of days and weeks. With the record high foreclosure still coming to the market, tightened lending environment force out many buyer, losing confidences in real estate market, tons of bank owned property on the market, I really think year 2008 will probably the worst year for real estate price for decades in many many area. Today , the not so desirable get hit , tomorrow, even the better area will start to experience the FALL. Prices is going to toilet. It will be common to see all the equity built up last several year just evaporated over night. Even worst, many more people are thinking to just walk away from the house because they started to think foreclosure is a normal process that many people would just do. Especially with the new tax law "Forgiveness debt relief act 2007 " give people a break from not paying the income taxed owned from a shorted amount when a foreclosure sold, many more will take this "opportunity" to just walk away. There will be tons of foreclosure coming to the market at least until end of year 2008. I think the price would probably dropped back to the year 2000 level in many area. This means a property used to sold over 600K in the peak would probably go down half in value to 300K or even less. Whether you believe it or not, it's happening and can only get worst. If you're upside down already and has no equity in your house, be prepared to hold on your house for at least 5 more years. If you don't think you can Handel the payment for the next few years, call the lender now to work out a solution. Worst come to worst, be prepared and seek advice from CPA or attorney to plan for the foreclosure soon because price is going to drop even more down next few months. Whether you like it or not, be mentally and emotionally prepared to this greatest Market Fall in year 2008. See you at the bottom.

TDAmeritrade Backtest strategy feature

Few weeks ago, I have a friend told me the online broker TDAmeritrade. It is discount broker like scottrade, etrade, that charge discount transaction fees compare to traditional broker. The interesting feature that attract me is the back test strategy they provide to the user. Basically, one can enter a set of trading rule (entry and exit condition) based on certain technical indicator and test it with the real historic data of the stock you're interested. It let you see how much money you make or lose based on your input trading rule. I open an account with them few days ago and now is busy testing the trade idea I've had in the past. It is quite an impressive tool so far. I'll update with you when I find a formula that I like and have consistent winning result.

what I learn from recent market crash?

Dow Jones index drop almost 1000 point from the last 10 trading days. This is the biggest drop and bear market for the entire year 2007. Many people lost the entire year profit in just one single week. Wow, that's a really bloody market! My positions also get hurt in the last few days, especially for the purchase I made in last few weeks when the market was peak. Anytime I make a mistake or bad move in the stock market. I like to go back and study what went wrong and what could I do next time. Over the last weeks, I spent a lot of time to learn different kind of technical indicator and check the validity of them. For example, if the indicator is correct, it should have told me to stay out the market BEFORE the crash. While most indicator fail to indicate, I do find one particular impressive one that I find useful to indicate bear market. That is MACD. Moving average convergence divergence. I encourage you to check out this interesting indicator to keep track of the market so you can learn to STAY OUT the market when bear is coming. When you Google MACD, you can find great info on the net. Whenever divergence becomes negative, that's the signal to stay out!

Holiday Real Estate on Sale

Tonight, I received a phone call from a home builder representative. His name is Mike, he is sales agent for this new home tract I went to visits six months ago. He called me around 9pm tonight. I was quite surprised he worked so late. Basically, he told me on this weekend, there will be a special deep discount on all the houses for sale. The discount is as big as 20% with special in-house financing, no money down required, no closing cost, interest rate can be offered as low as 5.5%! Wow, I told him, this sounds too good to be sure. And Mike explained, "Yes it is a great deal, the builder is doing the year end sales push and want to get rid of all the inventories. While I think this is a great bargain, my gut feeling tells me to be patient. It's because I'm believing the price could come down even more in the next few months. So, I told Mike, I'm very interested, but I'd pass on the opportunity. I'm waiting for more and more mouth-watering bargain at a even deeper discount price pop out in next few more months or so.

Opportunity: Commercial mortgage industry companies

With the recent turmoil in sub prime market, many financial lenders are badly affected in their quarter's earning performance. CitiBank, Wamu, WellsFargo are all trading currently at their 52 week low due to overall negative mortgage industry environment. But if we look at it closely, the sub prime mainly affecting "Residential" market. What I mean is these are related individual with low income or bad credit bought a house with price they can't normally afford. With interest rate resetting, these borrowers 's payment is increasing dramatically, and because of their lower income, they can't afford it anymore. They walk away leaving the bank's bunch of bad loan in their account, badly hurting bank's business. However, it rarely happens in the "Commercial" market. Commercial here refers to projects like shopping mall, hospital building, office building, apartment, warehouse. Since the underwriting guideline in commercial market are much more tightened and require a significant high down payment from buyer to initatie the loan process, commercial lenders are seldom at risk for their mortgage not getting paid on time. Therefore I believe commercial lenders 's business is minimum, if any, affected by the sub prime. With recent drop overall mortgage companies in stock market, I'm betting the commercial lender are going to perform well. These are the lists of stock I'm betting on . Check it out here. The earning for these companies are coming out next week, it'd be interesting to see how they do in 3rd quarter and their projection of future business.

House Price v.s Rent

Tonight, I want to share an interesting relationship I learn between house price vs rent. In the area I live in, the house price has increased dramatically over the last three years. In this year, house price have been stable. In the same time, rent is pretty flat , if not declining over last three year. But this year, the rent has increased quite a significant amount. I find that this is also true in another area that I invested real estate in. House price and rent has a inverse relationship. When price increase intitally, there will be more people interested to buy house, this reduce the number of renter in the market. When the price has increased a significant level, house become less affordable and lesser buyer are interested or qualify. When it happens , the renter increase and drive up the market's rental value . Therefore, the rent is always lag the house price. As a investor in real estate, this is quite a good news. This means that the rent we're able to collect is likely to increase in the next few years down the road since house price in most area tends to become stable over next few years. This will certainly help our cash flow position.

Magic Formula Investing works like Magic for me!

Tonight, I want to share my experiencing using Magic Formula Investing concept to buy and profit from stock market. The Little book that beat the market, arguably the best stock investing book ever written from Wall street Analysts. This is a very easy to read and understand stock investing book I'd recommend to people. Basically, the concept is followed: Mr market is a very emotional guy, his decision in short run may not make sense, but in long run, he is a logical being. This means that sometimes he offer a stock at a very high price, but other time, he will offer you a bargain. It is magic formula's mission to find good company at bargain price. It is that simple!
How do we define good company?
According to magic formula, it looks at how much the return is generated from the invested capital or the return on assets (ROA). The higher the better.
How do we define bargain price?
Magic formula look for company's earning from the price, or earning yield, kind of like the reverse of P/E. Again, the higher, the better
Magic formula look for the universe of stocks and rank each company based on the above two measurement. Every day, it will update the list on the website: http://www.magicformulainvesting.com/
I've been buying stock from the list for the last six months, and the result has been very rewarding. So, tonight, if you've free time sitting at home watching TV, I highly recommend you go get this book to learn magic formula and how it can help you possibly achieve the north 20% annual return to build your wealth tonight.

Don't Diversifiy, Concentrate into high perofrmance investment

Many people said diversify is the key to succeed in investing world. I do not completely agree with it. Especially, when you're young, you should consider take more risk since time is on your side. I'd rather concentrate my capital and energy into some higher risk AND potentially higher reward investment. For example, let's say you have a set amount of capital (say 30,000) to invest in Mutual Fund. It's normal for most people to invest 5 or 6 Fund to diversify. But I believe the more effective way to build wealth in a shorter period of time is to concentrate into high performing Fund. I'd do the research and analyze which fund will have a higher chance to increase in value. After I'm confident on my research, I'd concentrate all my seed money in it. I 'd buy no more than 3 Fund and watch how good or bad my picks are. I will go back and learn the mistake I make from the research and analyze if my fund go down in value. So, next round I can be more informed and make a better selection. So, diversify is the easy and lazy route. You could reach your goal when you're 65 or 70. But if you want to build wealth tonight, we should learn and train ourselves to select right investment with the right market to maximize our return.

Wrong questions to ask lead you wrong result!

Five years ago, I purchase my first stock thru an online broker. I have no idea what I'm doing. I get curious about stock market when everyone around me is talking about how easy to make money. Without any knowledge in stock investing, I remember I will ask people I ran into, my boss, my doctor, my neighbors, and even the person who cut my hair this question " which stocks I should buy?" Everyone around me seems to be expert and they will tell me a list of stock symbol to buy. I collect this list and buy these stocks. As you may guess , my return is pretty ugly. I think I've lost a couple grand just by asking this questions to people I ran into.

I didn't let this setback discourage me from investing stock. I just know I need to become more educated. I read books, I attended seminar, I listen to educational program to learn how to make money in stocks. I figured out I 've asked the wrong question in the beginning and that's the exact reason why I lost money. Now, I learn to ask the right questions to people I ran into : "What system (method) I should use to screen, time in and time out stock?" Interestingly, almost on one around me can tell me any thing or don't have clue what I'm asking. The amazing things is after I learn the screen method that fit my investment style, the time in to buy and time out to sell (either capture a gain or minmize a loss), my return has been gradually increasing. If you're interested to learn what are few of the system I'm using (maybe not be the best, but it's making money consistently for me), simply leave a comment and say "529pm, tell me more!". I'd love to share what I know (my stock investing method) to you if you're interested to know. I'll reveal my method when there are 10 comments to this post. Will you comment? $D

An excellent website to research the real estate market

As a real estate investor, it's crucial to gather
information about the city to decide whether the market you're interested to invest is in growing, declining or stable phase. The fundamental data include: population growth, the job growth, unemployment rate, cost of living, cost of housing, household income, demographic data, crime rate, climate, education level, property tax rate, percentage home rented vs home vacant, on and on... Basically, the more data you 're able to collect, the more educated you become about the market, and more intelligent decision you could make about your potential real estate investment. These data could usually be found in library or in the city's website. However, most of these data are not layout in a easy-to-read format. You might end up spending a lot of time to gather the information together from different sources, and process could be very tedious. Tonight, I found a excellent site provide these important data for most cities in U.S in a very easy to read and search format. WWW.BESTPLACES.NET It's very easy to search information about the cities and you can even compare it with national average data. The membership is FREE. Check out this site whenever you need any data about the city you're interested investing. It will definitely help you make a better decision about your investment.

Subprime mess and what can you do.

Three years ago, when mortgage interest were at historically low (~4%), many people take advantage of this incredibly low rate and refinance their home with a fixed period of low interest rate. Many choose the 3 year or 5 year fixed program and because of the lower monthly payment, they could afford the house otherwise wouldn't qualify. Now after 3 years, many of these short term fixed rate program become expired, and mortgage rate has increased to 2-3% higher. Many people are experiencing a payment shock! A 2% increase in interest for a 400,000 home could means as much as 1000 dollar increase in the mortgage payment. This is a big burden and lot of people just couldn't afford it. Many end up losing their house in foreclosure. This is what you should do if your loan program is about to expire and you know that you will not be able to afford the payment increase: CALL YOUR LENDER to negotiate a solution. Many people have payment behind too long (3-4 months) and the bank couldn't do much to save you. It's too late! But if you call your lender before you have any late payment, and explain to them your situation, many banks will try their best to work with you to help you continue to make payment. It's bank's interest to reduce the default property. Ex:the bank can extend the current interest rate for one more year, or the bank can gradually increase the payment such that you have more time to adjust and save for payment. Foreclsoure can be avoided! Dig into your statement and call the 1-800 to initiate the talk with bank. Give the bank time to come up a solution. If you waited and you have late payment already, the bank most likely cannot help you but foreclosure your property.Do this tonight if your mortage progam is expireing soon. Don't wait!

Buy high sell higher

The old folks saying " Buy low sell high" just don't quite work for me, especially when it comes to stock investing. The biggest problem is when you buy low, you really don't know if the price has hit the bottom or still going down even more. Nobody knows. Even if the stock price is not going any lower after you bought, the second problem is when the stock going high again? Will it be next week, next month, next year or in some extreme case, never? So, "Buy low sell high" is a pretty risky method for me. Instead, I follow the method "Buy high sell higher" A things in motion tends to stay in motion. When a stock is at the 52 week high, it tends to keep getting higher and higher. Then, I use (the system ) to sell portion of my holding one at a time to capture the gain and continue enjoy the ride. Of course, nothing is guarantee in stock market. We just have to use the method that has higher chance to win than to lose. Buy high sell higher works out great for me.

7 things to consider before buying your first house

Tonight, I want to share the experience I gone through of buying the first real estate property as my own primary residence. There are things to consider before you jump into the market. Let me do my best to summarize below:
1) Emotionally be prepared. Buying a real estate is a long term commitment. There are sacrifices. Ex: Unlike living in apartment or renting a room, you can't move around every 3 to 6 months whenever you like. Make sure the property you're going to buy is really the place you want to live in for the next 3-5 years
2) Carefully calculating your budget. Before you consider to buy your own place, you should know very well the expense that incur about owning a real estate in your area. I blog on this subject few weeks earlier, check it out
3) Know what you want. After looking into the expense, you should have a brief idea how much the property you can afford. A qualified mortgage agent can help. Then you decide which area and which type of property you can afford and like to live in.
4) Consider a roommate to help out. I was a single when I bought my first condo. My idea is to rent out a room to get extra money to pay for my expense, so I can save more money for other investments
5) Select an agent that understand your needs. Interview with agents, check his/her background, ask him what is his speciality. If you're first time buyer, I strongly recommend you find an agent who has expertise working with first time buyer. Finding a right agent is crucial part of the whole process, spend time to select agent. Do not just go with an agent because he is your cousin or neighbour. Try to ask for referrals if possible.
6) Prepared to save down payment. The norm in today's market is 10%. Most banks require the source of down payment to be in your bank for at least 2 months history. If down payment is an issue, consider borrowing money from your friends or family members at a market return. Using the house as a collateral if needed. (Most private money lender charge + 10%) Create a deal such that both you and the borrower can benefits.
7) Stay clam. Find the right property, finding the right type of loan, working with the right agent, preparing the down payment, structuring an offer, negotiating with the seller, closing the transaction etc, ....are long and complicated process. Expect to run into problems. Don't let your emotion make decision, use your judgement. You're making the probably biggest purchase in your life. There are many things to learn in the process. Be positive and look for the bright side. After all, buying real estate is proofed to be one of the most rewarding and stable investment you can ever make.

Create Value in Real Estate

When I buy a stock, I ask myself "What can I do in this moment to increase the value of the stock I own?" Answer: Tell all my friends to buy the stock I own and hope my friends will tell his / her friends to do the same, and eventually, the stock's demand increase and it's price value increase. This is certainly not very practical if not impossible. Basically, the answer is NOTHING. One of the biggest advantage in investing real estate is the buyer can have many many ways to increase and create value of the property he / she already bought. It's only limited by imagination. Tonight, I want to share a few classical ways an investor can do to add value to the pieces of property already owned

• Add number of bedroom or bathroom. The more rooms your property has, usually the more it's worth
• Convert a open carport into a enclosed garage
• Remodel the kitchen and bathroom. If you have limited budget for remodel, always start with kitchen or bathroom first. These are the two places most buyers pay attention
• New paint, New Carpet, New fixtures, New lighting. A minor improvement detail could significantly add value to the property.
• If your property is rental or multi units, research into the rental market and consider increasing the rent whenever possible. Increase rent could increase the property's value dramatically. Vice verse, reducing your monthly expense will have a positive impact to the value as well.
• Consider an expansion, especially if you 've big lot. You must get permit to make it legal and recorded properly with the county to make it official approved. Careful budgeting is vital to monitor the anticipated value increased after expansion is more than the cost itself.

These are just few example I've considered to use. The goal is to THINK VALUE. It's only limited by our imagination. Let me know what have you done to increase the value of your property?

Full Doc vs Stated income

When I apply the loan for my investment property, my broker will ask me if I want to do full doc or stated income? Full doc require full job verification, income proof (W2), tax return in past 2 year, 2 months bank statement to verify source of down payment , etc to show the lender you're fully qualified for the loan. The interest rate is more advantageous when full doc is used. However, in some case, when the broker see that full doc is not possible. Stated income is used. This mean the income is merely stated and no proof required. The interest rate in Stated income is usually 0.5 pt to 1 pt higher than the Full doc, but the process is much simpler for borrower to get approved. Stated income is very popular during the last 2 year when market was HOT. However, due to recent sub prime market hit, many lenders has tighten the guideline and disallowed many stated income loan. The bank see the stated income loan are too high risk. I think this restrictions will further depress the already slow real estate market.

Two indicators to stay out stock equity market

While everyone of us want to make the big return in stock market, sometimes, it's more advantageous to stay out the market when market become unfavorable and decline. Two great indications to signals I use are :
1) stay out market when interest rate is rising. When rate go up, business will have higher cost to expand and growth is slowed. Also, think of stock and bond competing money from investor. When bond rate increase, more people will buy bond instead of stock. This could means stock's demands is less and price tend to fall. I usually compare the interest rate in the beginning of each month and compare its with six months ago. If the current interest rate is slower, I'd be more cautious to get into stock market
2) stay out market when 6 months treasury bond is higher than 10 year treasury bond. This is called inverted yield curve. Normally, the longer the bond period, the higher interest rate investor is supposed to receive. However, in some unusual situation, short term bond rate happens to be higher than long term bond rate. This phenomena could indicate that recession is around the corner. It'd be not a bad idea to leave the money in money market or saving account until the 6months treasury bond is lower
These 2 signal applied only to U.S market. If you 're investing in international market, these 2 signal does not has much correlation and not applied. Interest rate is dropping, yield curve is normal, so I'm investing more into stock market these periods.

Full force into equity market in next 2-3months

With FED reducing the rate by 0.5%, stock market has soared last two trading days. My portfolio has took the biggest increase of the year, rising almost 7% in last two trading days. It's exciting! I 'm going to put in more capital into stock market to capture the growth. Few area I will be focusing are ETF, Value Stock, Stocks that pay dividend, and using option to turbo-charge the return. I'm aiming to make another 10% (min) gain in my overall portfolio. I will give you update from time to time.

I finally did my cash out refinance.

Few weeks ago, I mention in on of my post I have a difficult time getting refinance of my condo. I bought this condo with 20% down pay. After few repairs and remodel, I put the condo back on market for sale, aiming to flip it in short period of time. However, market turns and demand affected quite badly by the sub prime turmoil. After 2 months of listing, I wasn't able to sell it the price I wanted. I decide to take it back and get a refinance to get back my original investment as cash so I can move on the next investment projects. It was very difficult, most bank refuse to lend me money since the house was just listed on market. The bank's underwriting guideline was very stricted. After countless attempt of visiting banks and mortgage brokers, I finally found a broker who found the Bank willing to loan me money. This is ING lending. After all the process (which take about 1 months), tonight I finally get the refi done and able to pull out most of my original investment. My interest was 6.875%, fixed for 5 yr ARM, interest plus principle payment, with 90% Loan to Value ratio, one loan. Not bad.

Turn a 2bed2bath into 3bed2bath

3bed2bath single family house is usually the most desirable type of property in most cities. Married couple who has 1 to 2 kids, or plan to have a kid in future will likely to pick 3bed2bath over other type of floor plan. Therefore, 3bed2bath is always filled with high demand, and hence, the value will be driven up.
I have a friend has a creative idea to make some good money by focusing this niche market. He will consider any smaller property to buy and turn it into 3bed2bath. Because it has less demand, a smaller property 's price range could be significantly lower. In one of his best deal he creates, he locates a property with 2bed2bath that has asking price 100k less than a typical 3bed2bath in the same neighborhood. He finds professionals to submit plan for legal construction permit, and contractors to build an additional bedroom with 100 sqft. (In fact, it's a pretty small bedroom...) The total cost is only 30K. After its completion, he quickly put it on the market advertise it as a 3bed2bath, which is much more desirable now. He make a handsome profit 70K in short period of time by using this simple and obviously working strategy.

stock is up, but we're entering worst month of the year: SEPTEMBER

Today is the last trading day for month of August. Market make a nice rally in responds to the positive words from FED regarding subprime and credit crisis. However, my feeling is the market will continue its downward movement in next month or so. Especially, we're entering month of September, which in history all the major index perform worst on this month. So, I sell most of my holding today just to get back cash. I'm prepared to hunt for great bargain when opportunity strike in September.