Income for Life

The Wealth Recovery Report

Want to recover and prosper from the real estate market crash? If so, download the Wealth Recover Report and learn how to...

-  Sell “underwater” properties using massive buyer incentives.
-  Use Zero Coupon Bonds to recover amounts lost and guarantee all of your future investments.
-  Get your tenants to pay higher rents, sign longer-term lease agreements and pay before your rent due date!
-  Turn EVERY new tenant into $25,000 of future wealth
-  To build a ladder of bonds that will supplement your retirement income.
- Why you should start investing now and what the best investments are in today’s market.

Download this 24-page report now at this link:

Download Wealth Recovery Report - PDF

25 percent of Americans are poor credit risks

According to an Associated Press article, more Americans have had their credit scores slip below the 600 mark and into the "poor risk" category.

The AP, citing data provided by Fair Isaac Corporation (FICO), reports that about 25.5 percent of consumbers -- more than 43 million people -- had credit scores of 599 or below at the end of April. That means they are unlikely to be approved for credit cards, car loans or mortgages under banks' tighter lending guidelines.

Historically, only about 15 percent of the 170 million people with active credit accounts have scores at 599 or below. So the 10-percent dip in that figure over the past two years is significant. What's troubling is that the figure impacts us all.

Consumer borrowing, though it ultimately played a major role in the financial crisis in the U.S., fuels the economy. The fact that one in every four Americans can't get a home or car loan -- or even that Target credit card -- HAS to be keeping the economic recovery in slow gear. People spend when they can borrow, and borrow when they can spend.

Interestingly enough, FICO also reports that people at the other end of the spectrum -- a score of 800 or better -- also number higher than the historcial norm. About 17.9 percent of consumers are among this group, up from the traditionally average of about 13 percent. This might be a result of those who are able paying down their debts while not borrowing more. This would help bump credit scores, but it doesn't necessarily help the economy.

The worst news might be that Amercians with moderate credit scores -- 650 to 699 -- are dropping in numbers, too. Those folks make up 11.9 percent of consumers, which is down from the norm of about 15 percent. This is the group that is probably most impacted by tighter lending standards, which in turn could affect the overall economy as much or more than the group at 599 or below.

The reason is because those with scores of 599 or below are less likely to attempt to borrow money than the group in the 650-699 range. It's the people in the latter category that probably spur the most consumer spending. If a guy with a 699 score today has a car loan that costs one or two more percentage points in interest, he is less likely to be able to afford the car.

Everybody is quick to hail the end of the "sub-prime" mortgage, but I can tell you for certain that there are people out there who have tried to buy homes and can't qualify now. And they are people who, a couple of years ago, would have qualified for a "prime" loan.

The stabilization of home prices and a drop in the unemployment numbers are often cited as keys to speeding up economic recovery, and we might not see a true recovery until we see dramatic improvement in those areas. But this new information on credit scores is something to consider, too.

In case you haven't noticed, Wall Street has been trending consumer confidence surveys recently. When consumer confidences jumps or drops, the market has responded. That's probably because investors understand that the duration of this recovery period is going to be affected by consumers' ability or willingness to spend.

What's ironic is that the easy-money lending practices that stuck so many banks with bad loans have gone so far the other way. Too much borrowing helped get us into this mess, and now too LITTLE borrowing is helping to keep us there.

The good news is that for those with strong credit scores, there is plenty of opportunity to borrow money at almost unbelievably low rates. Buying a home or a car, or putting that large remodeling job on a home equity line of credit -- typical things for which money is borrowed -- is possibly cheaper now than any other point in our lifetimes. And it's quite possibly cheaper than we will ever see again.

This is why it's important to keep that score up. It's much better to be part of the three out of four who CAN borrow than one of the four who now can't.

Source: This is getting ridiculous

You may or may not follow sports, but chances are you've heard at least a little bit about a guy named Lebron James in the past couple of weeks. Even for those of us who aren't sports fans, it's been unavoidable.

To catch you up, LeBron and a few other big names in the National Basketball Association are free agents. Meaning their contracts with their current teams are expired, and they are free to sign with other teams. But not any team, because the league has a salary cap, which means it can only spend so much on players' slaries. They're calling it "The Summer of Free Agency" because so many good players are available.

They should call it "The Summer of the Media Circus." In fact, the term "media circus" was probably coined just for this sort of occasion.

That's why we can't stop hearing about LeBron James -- or Chris Bosh, or Dwyane Wade -- even if we're not really paying attention. What we SHOULD be paying attention to is how the media are covering the story.

Basically, as of the end of the Fourth of July weekend, there is no story. LeBron has not decided where he's going to play. He might stay in Cleveland. He might go to Chicago, or New York or Miami. Nothing has been announced yet -- he's not speaking about his decision, yet the media are all over this.

They have his business manager's office staked out, and reported live from out front when various teams came to visit. They reported on what people wore. What cars they arrived in. Reporters also showed up at LeBron's Nike basketball camp, just watching him, reporting his every move.

How is it that an oil spill is spewing out 80,000 gallons of oil a day -- or something like that -- and we don't hear about it for weeks, but a basketball player has a lunch meeting and we find out what color shorts he had on. It tells you something about our priorities as a news audience. It also tells us about our news sources.

And this NBA free agent thing has been all about sources.

A "source" said it was a "done deal" that LeBron was going to play in Miami. Another "source" said it was Chicago. The media are quoting unnamed sources like it's going out of style. I've been able to find articles in which real estate agents were quoted as sources -- as in "where are these stars looking at houses?" I even saw an article in which a writer quoted a waiter in one of those cities. The waiter said a player told him during a dinner what team he was going to go to.

In other words, in this free agent frenzy, all the elements of responsible journalism have gone out the window. Nobody is checking facts, looking for confirmation from other sources. They're just running with any speculation they hear. They're blogging and tweeting and printing away -- whether their source be an NBA executive or a waiter.

It's pretty scary if you think about it. It's as if in competition for an audience, the media are falling all over themselves trying to "out-report" each other, when there really is nothing to report. In doing so, the coverage of the so-far-non-event has become the event.

It's fair to partially blame the Internet for this. In the day of instantaneous news, there is no time to be careful and confirm rumors, check facts, etc. If there's a HINT of a story, well, then THAT's the story. And you better get it online NOW. Bloggers who get media credentials make it worse. Reporters who use their Twitter accounts to share things that would not be comfortable printing in a real article make it worse. And the other "reporters" who then use those tweets to write their own articles REALLY make it worse.

I swear, I could ask the checkout clerk at my grocery store where he thinks LeBron will go, then post it to my blog, using my clerk as an "unnamed source," and ESPN would probably report it.

So why this rant? Well, this just sports, so who really cares, right? Well what happens when media so readily print rumors as facts in the coverage of other events? What happens when it's CNN, not ESPN, running report after report with just unnamed sources?

We have already seen how the media have affected this recovery from recession. It's taking longer than other economic recoveries, partially because negativity sells newspapers, and the general population is subjected to panic-inducing headlines every other day. Look at how the stock market has gone so far this year -- up and down and up and down, depending on how bad that day's news is.

So if the media can have this kind of effect on our economic recovery, and those media are becoming less and less responsible and more and more rumor mongers, it will be sensationalism, not facts, that guide our economic recovery?

This source says that's ridiculous.

Debt is a nasty four-letter word

As a real estate investor, I used to think that there was good debt and bad debt. Debt used to acquire assets that appreciated was acceptable. Today, I'm not as sure of that, as I have written before.

Before the real estate crash, it was assumed that the appreciation of your investment property would more than make up for the cost to acquire it -- your debt. Now that appreciation is much more questionable these days, it has made many investors re-examine at how leveraged they should be in their investment assets.

I still think real estate is a solid investment in that longer-term, properties will still appreciate. The problem is can properties purchased at the peak of the bubble cash flow enough for it to make sense to hold onto them long-term? Because of the kind of debt we investors took on to acquire properties when credit was easy, we are not enjoying the same kind of cash flow investors in today's, post-bubble market are enjoying.

Which brings us back to debt. It's not a good thing.

There was a recent study done by Scottrade -- the online investing firm -- that showed about 63 percent of people's retirement savings was affected by the debt they carried in 2009. The study showed that for 2010, even as lessons have been learned and a recovery is underway, 61 percent of people will have retirement savings be affected by their debt.

This perspective -- the impact of debt on your retirement -- provides a glaring example of how dangerous debt can be. Think about the retirements of the generations that went before us, for example.

Sure, when you retired, you stopped earning as much income. But, in general -- in our parents' or grandparents' time -- you also didn't NEED as much income. Your house was paid for. You paid off cars and kept driving them. You didn't have thousands of dollars of credit card payments to make.

But look at us now, the debt generation we have become. We took out exotic mortgages, or financed houses with little money down. We drive cars as expensive as the houses our grandparents lived in. We have student loans, credit card balances and home equity lines of credit.

Our grandparents didn't buy things without cash, so it might have seemed as though they had very little. We buy nothing with cash, and we have less cash. That's because buying on credit is way more expensive than buying with cash. Which means our retirements -- when, like our grandparents, our incomes will go down -- will be more challenging. Because of current debt:

1. We are not able to save as much for retirement now

2. We will need more money in retirement

In other words, debt costs our retirement savings now, AND will add to our income needs when we actually retire. So what to do about it?

Well, for years we investors have been concerned about our return on investments, our rates of return. But now our focus should turn on becoming debt-free, or as debt-free as possible. I know it's easier said than done, but if you take a minute to do some basic financial planning with the idea of attacking debt as your goal, you'll be amazed at what you can do. Instead of thinking "How can I earn the most money with my investments," ask "How can be free of debt?"

Think about it this way: If your'e taking 2 percent out of each paycheck toward retirement and putting it in a fund that earns 8 to 10 percent annually, how smart is it to carry a $7,394 credit card balance (the U.S. average per household) with an 18.8-percent interest rate (also the U.S. average)? Putting the money toward debt relief is the smarter investment.

So a good strategy might be to use the retirement money from your paycheck to pay the debt off, then take the extra money you'll have from not making payments on that debt and apply it to your retirement savings. Or once the credit card is paid off, you can take the extra money to pay off other debt with higher rates -- maybe a car loan, or a second mortgage.

The bottom line is that once you realize what a nasty four-letter word debt is, you can pursue financial independence from a debt-reduction standpoint, which, in this economy and in your retirement, will serve you well.

Could the mortgage interest deduction disappear?

For years, one of the benefits of owning a home in the United States has been the tax break that comes with it -- the income tax deduction for mortgage interest paid. This deduction has been in place since 1913, but it has come under some scrutiny lately.

In fact, arecently released paper published by researchers at the Tax Policy Center suggests it might be time to reform the tax policy as it pertains to this deduction.

In some ways that might make sense. Look overseas, and you will see a nation -- Greece -- that has all but collapsed economically because its government can't raise enough revenue to prop up all its expensive entitlement programs. The amount U.S. taxpayers will deduct for home interest in the tax year 2012 is expected to cost the U.S. government about $131 billion.

That's just a drop in the bucket of the national debt, but if you get the feeling that the U.S. government is going to have to one day "pay the piper" in regard to its spending, that $131 billion or so might seem like a good start to you.

It's also fair to ask whether the government should be subsidizing homeownership with tax policy, which, in effect, it does with the mortgage interest deduction. Even if promoting homeownership is something that's desirable -- I, for one, believe it is -- is the mortgage interest deduction an efficient way of doing it?

In Canada, mortgage interest is not deductible on a primary residence. Yet home ownership rates in Canada are largely the same as in the States. What's different is the amount of equity Canadians have in their homes -- about 70 percent on average compared to about 45 percent. So it's fair to ask if the MID promotes ownership of homes that could be too expensive for their owners.

The Tax Policy Center study mentioned above actually says that the deduction does not affect home ownership rates. In fact, many taxpayers don't use the deduction, even if they own a home. This is because most tax payers do not itemize deductions.

The paper also argues that the wealthy benefit much more than the lower class when it comes to the tax credit. More expensive homes mean larger mortgage interest deductions, and higher tax brackes mean the bigger dollar-for-dollar breaks for the better off. President Obama's budgets for 2010 and 2011 have included capping the MID at 28 percent, even for those in the 33 and 35-percent tax brackets. Congress has not enacted that cap, however.

The paper compares alternatives for reforming the tax policy as it pertains to mortgage interest. Making the tax break a credit rather than a deduction, for example, might help lower-income tax payers more than the current system, the paper finds. The study suggests that there policy could be reformed to either increase the U.S. tax revenue, or to promote home ownership more at the same dollar cost as the current MID.

Personally, I don't see this deduction disappearing any time soon.

For one, it would be political career suicide for any incumbent member of congress to start introducing any measures that would essentially amount to higher taxes during an election year. The fact that the home builders and real estate agents have some pretty powerful lobbying efforts in Washington would also make it difficult for radical changes to take place.

On top of that, real estate is an industry that's down right now, and for the federal government to kick it while it's down would deal a severe blow to the overall economic recovery in the U.S. Why would the feds prop the industry up with the tax credits that just expired, only to turn around and deal a blow that would knock the market back?

There's no question that the U.S. cannot keep spending money it doesn't have -- on social security, on proposed health care programs -- without somehow adjusting revenue to keep up. So you will probably continue to read about the mortgage interest deduction disappearing.

But don't bet on it any time soon.

A way to get back in the game

During the recent housing downturn in the United States, one of the constant challenges for investors has been the ability to continue to invest.

Unfortunately, when it was easy to get home loans, many investors did just that. Now that credit is much, much harder to come by, they are tapped out. What makes that situation more painful is the fact that NOW is when prices and interest rates are ridiculously low.

It's a terrible feeling to know you're missing out on deals because you can't get financing. Right now, those who have cash are cleaning up. Investors with good credit scores but cash shortages are sitting on the sidelines.

There might be some good news on the horizon for investors, however. Owner financing might be making a comeback. And not just in the U.S. With tougher lending criteria by banks in Canada looming, the conditions for owner financing might be stronger there, too. 

Owner financing helps investors in that you don't have to deal with a bank or other mortgage lender, possibly even avoiding an appraisor, too. If you've tried to invest in homes after 2007, you know that those parties can make it tough on a home deal.

If a seller is willing to finance the purchase themselves, though, you can avoid those headaches. The trouble is, of course, that there aren't a ton of sellers out there in position to finance the purchase themselves. I have noticed, though, that there seem to be more and more of these showing up in the multiple listing service lately.

That could be for several reasons, but the most likely is that because of the recent tax credits and low interest rates, more and more sellers came out of the woodwork. In fact, during the months leading to the expiration of the tax credits, even though there was a rush on homes and the volume of sales went up, inventory of homes on the market actually GREW. This is because sellers who were waiting decided that the expiration of the tax credit would give them an opportunity to sell their home.

The influx of more sellers is why we saw the volume of sales go up, but not home prices. There are still many homes on the market. For investors, this could be a good thing.

July and August are typically very busy home sales months. They will not be this year -- not with the buyers who jumped into the water trying to get closings before the end of June so that they could get the tax credit. The sellers who missed those buyers are going to be left holding the bag in July and August, and they are likely to be very motivated.

The guess here is that they will be very willing to negotiate and the fact that they were waiting to sell -- not forced to sell at a bad time -- makes it possible they will be in better equity positions and therefore will be better equipped to finance deals. Let's face it: Distressed sales can be good deals, but those sellers are not in a position to carry owner financing!

If you have been wanting to take advantage of some of the deals in today's market, but have not been able to qualify for a favorable loan, think about looking for owner-financing deals. All it takes is an MLS search, and you might have investment homes to pick from again. It might be your way to get back in the game.

BP shows us what NOT to do

The scope and seriousness of the oil rig disaster in the Gulf of Mexico are astonishing. Even more astonishing is the way BP has handled the mess after their oil rig exploded.

More precisely, it's astonishing that they have no way of handling it. It sure seems as though the company had no real plan for what to do in the event of such an oil leak, almost as if they believed it couldn't happen. If you are drilling 5,000 feet down into a resevoir of oil that can send 20 to 40 million gallons of oil into the ocean in six weeks, don't you have some kind of emergency plan in place?

If it were me, I'd have contingency plans for my contingency plans. BP doesn't seem to have any contingency plans, and that's a big lesson.

I am not a pessimist, but thinking like one on occasion can help you make plans for bad situations you might find yourself in at some point. I don't think you should plan ON the absolute worst thing happening to you, but you should plan FOR the worst that could happen.

If you own a business, put cash away when times are good. Plan ahead as if you know bad times are coming, and plan for them to last a while

If you're an investor, plan for the market to turn for the worse. Know where you will move your money BEFORE you lose it.

What is the worst thing that could happen to your household's financial situation? Plan for that. What will you do if you lose your job? What will you do if your spouse loses his or her job?

Look, life's "emergencies" happen all the time. Some things, like a sudden illness or a bad car accident, can't be foreseen. But other things, like loss of income, CAN be planned for. Your life's plan needs to have contingencies built into it.

Since the oil rig exploded, BP's share prices have plummeted. The company has lost $63 billion of its value, and it has also spent nearly a billion more dollars trying to control the leak. Of course, nothing so far has worked, and it might be months before a solution is in place. No one knows the ultimate impact the disaster will cause, but you can be sure it wouldn't have been as bad if BP had had some sort of preparedness plan spelled out ahead of time.

There is too much at risk to not be prepared for potential disasters. BP has certainly taught us that lesson.

Do the due diligence!

You might not have seen this, but in early May, real estate website Zillow.com released the results of a survey on Americans' home loans.

The data showed that American consumers spend more time researching car purchases and as much time shopping for computers and vacations as they do shopping home loan products. The study showed that the average car purchase requires 10 hours of research and negotiating, and the home loan shopping takes only about five hours.

True, shopping for a mortgage product is not as much fun as buying a new car. But you would think that with all the problems mortgage products got us into during the real estate bubble, people would be at least a little more diligent in their home loan comparisons. It's a mistake not to spend time, read the fine print and get yourself the best mortgage loan you can.

During the real estate bubble, investors couldn't sign loan papers quickly enough. If you have multiple properties like I do, you know that when you found someone who would keep financing you, you generally signed on that dotted line. Now, you might be looking back at some of your loans and thinking "What was I thinking?"

Whether it's your primary residence or an investment property, chances are your mortgage payment will be one of your biggest expenses. Doesn't it make sense to get the best deal possible? Even if you are working with someone who has come recommended to you, ask them to give you some different options on loans. Go over all the papers, make sure you understand the terms and ask questions.

A home is a much bigger purchase than a car, and yet we are not as careful about buying a home as we are a car.

"The last few years should have driven home the lesson that understanding one's home loan is critically important, but mortgages continue to be something that most people don't want to spend time thinking about," said Zillow chief economist Stan Humphries in a press release. "Not understanding a home loan can have catastrophic consequences."

We've seen those consequences, with all the delinquencies and foreclosures of the past couple of years. If you have a loan -- or even multiple loans -- I am stressing to you that it is a good idea to revisit the terms. Is your payment going to go up soon? Could you refinance? Now that equity is returning to some markets, refinancing or securing a home equity loan at a low interest rate and paying down a high-interest loan might again be realistic strategies.

Even if you didn't spend time getting a mortgage that was the best deal, not spending time investigating possible alternatives now just makes the problem worse.  

Are all the foreclosure efforts worth it?

I don't know if you've read about it in the news recently, but a plan called the Hardest Hit Fund was hatched by the U.S. government in February. It calls for $2.1 in U.S. Treasury funds -- read: tax dollars -- to be distributed among 10 states, which then would provide assistance for unemployed and under-water homeowners.

The 10 states are: Arizona, California, Florida, Michigan, Nevada, North Carolina, Ohio, Oregon, Rhode Island and South Carolina.

The states have submitted, or will submit, to the feds proposals for the use of these funds. Some are sure to include using the funds to pay down principal balances or make monthly payments for those who are unemployed and/or under water.

And whether that's a good use of tax dollars is sure to be a hot debate.

On one hand, you could really help stem the tide of foreclosures. Statistics show that mortgage assistance in the form of principal paydown has a better record of success than simply lowering the interest rate or extending the loan term to make the monthly payment more affordable. Since the Obama administration seems to be all for principal balance reduction on loan modifications, you can bet that the states' plans for the funds will include helping reduce outstanding loan balances.

Some will argue that slowing the rate of foreclosure is a benefit to all. Sure, your tax dollars could be going to your neighbor to help him pay down his debt while you scrape your own payment together every month, but his avoiding foreclosure might help the whole neighborhood. It's hard to argue that a few foreclosures can affect an entire neighborhood.

Some might also feel that using tax dollars to directly help homeowners is better than using that money to incentivize banks to work with the homeowners on modifications. That, unfortunately, has met with mixed results. 

But are there bigger-picture issues when the government starts paying for people's homes? For example, aid to homeowners who are unemployed might not exactly be viewed as a good thing. If you're unemployed and either your state or your federal government -- or a combination of both -- is making your house payment, how eager are you going to be to find work? This welfate-state, government-will-bail-us-out mentality could pose a real threat to people's motivation to be self-sufficient. And in the long run, that could hurt the economy more than a few more foreclosures might.

It's a tough situation. As a real estate investor, it's sometimes hard to watch irresponsible borrowers get assistance for home loans, while those of us who have the same hardships but certainly don't get any breaks for our non-owner occupied homes.

At the same time, and I have written this before, the economy is not going to turn around completely until people are again in equity positions in their homes. That sense of financial security is what helps convince consumers to consume, and when consumers are again consuming, employers will again employ.

You have to think that principal buy-downs to underwater borrowers in the 10 hardest-hit U.S. states could improve the overall equity situation. But by how much? And at what cost, beyond the actual dollar figures?

I guess we're going to find out. 

It takes effort to win the 50-50 scenarios

I'm not really much of a sports fan, but I was reading an article about a recent NBA playoff game, and there was a term in the article I was kind of curious about. It was a coach calling certain situations "50-50 balls."

From the context, I took the term to mean loose-ball situations in which neither team had possession and each team had a "50-50" chance of getting to the ball. I did some quick internet research and found that it's a term in soccer, too. A "50-50" ball is one that neither team has, but each has a chance to get to.

It's cliche in sports, especially, but it would seem to me that situations like this come down to -- as the announcers might say -- "who wants it more?"

I would think that winning 50-50 balls is a hustle stat. A desire thing. When the ball is up for grabs, who will run harder, jump higher, dive further or sacrifice their body more to get it?

It occurred to me that there's a parallel between this kind of scenario in sports and in the rest of our lives. When there's a 50-50 ball, how bad do you want it? What kind of effort do you put forth to make sure more 50-50 balls go your way than don't?

I would think there are plenty of times in our businesses or careers, in family situations and with our investments that an outcome could go one way or another. What I wonder is how many people, when faced with a such a situation, let chance or luck determine which way it goes. I would think that successful people, when faced with such a situation, turn things up a notch and try to influence which way the outcome goes.

I know I do. I try to stack the deck in my favor every way I can. It takes effort -- just like diving for loose balls in sports. You sacrifice, you risk going out of your comfort level, so that you can affect the outcome postively. Unlike a coin flip, which truly IS a 50-50 proposition, other 50-50 scenarios aren't purely up to chance.

Coming in early or staying late to do a better job than the next guy could influence whether you get that promotion. An extra hour or two each week devoted to marketing in your business could determine whether you get those extra sales. Having that conversation with your child, even when you feel too tired to have it, could be the difference he or she needs right now.

Things like careers and family relationships -- they're too important to leave up to chance. When there are "50-50" scenarios in these aspects of our lives, we HAVE to be like the basketball or soccer players who use extra hustle and effort to win them. We can't simply expect things to go our way.

We need to run harder, dive on the floor and out-work the next guy, so that we MAKE more 50-50 scenarios go our way.