Great Lakes Secured Investments Blog » Bank Failures

EARNING HIGHER INCOME IN A LOW YIELD MARKET

Randy Michael — Fri, 20 Nov 2009 15:20:57 +0000

Unless you are a full-time investor—i.e., you don’t rely on a job for your primary income—then your goal is likely to achieve steady income while lowering your risk. But in today’s market, that’s easier said than done.

For one thing, interest rates on bank CDs, money market funds, and even short-term Treasury securities are locked at abnormally low yields.

For example, one-year jumbo CD rates, are just 1.6% while many money market funds pay less than 1%, making life quite difficult for fixed-income investors right now. Other potential threats include soaring federal budget deficits and the chronically weak U.S. dollar.

The once almighty buck continues to lose value against global currencies … DOWN another 14% in the nine months ended September … and if the slide continues at this pace, it could easily lead to higher inflation down the road and potential lost value in EVERY dollar-denominated asset you own.

What options are available for fixed-income investors to deal with these challenges? Here are a few:

Earn higher current yields from a broad mix of income-producing investments. Consider diversifying into a wider range of income producing securities such as corporate bonds or income securities with longer maturities.
Capture gains from shifts in global interest rates. The low rates on safe, income-producing securities that we see in other countries is not necessarily as extreme as what we see in the USA, especially with government backed securities. For example, I was earning a fixed, secured 7.85% on a CD in Australia. And usually these securities can be purchased without having to travel to that country (I purchased mine on the Australian bank’s website).
Provide a hedge against the falling dollar with international fixed income diversification. So, for example, even if you had owned British fixed income securities that were paying the same crummy, low rates that US securities are paying, you would potentially have made an additional 10 percentage points in gains just by fluctuations in the British pound against the dollar!
Seek out “private” offers to invest / lend money for a business. In this cash strapped economy where bank financing is tight, there is no end to the opportunities you have to invest your cash in a new business venture where someone else is running the business, and you’re just the bank. As a side note, even though we generally feel more comfortable lending money to a friend / family member, try to be objective. You may trust they’re intentions are good, but is this really a good business and are they really the right person to manage it. Recently, for example, a friend of mine lent $250,000 to another private individual (that he had no prior relationship with) to start a McDonald’s franchise. Now, since the guy had long been in the fast-food business and he’s choosing McDonald’s (who has a track record, to say the least) rather than, say, Joe’s Hamburgers, I’d say my friend’s investment is safe.
Seek out “private” offers to invest / lend money for cash-flowing real estate (office buildings, apartment buildings, long-term rental houses, NOT flipping!). This is certainly my preferred strategy but it always comes with the same warning: make sure the cash flow of the property is adequate to make a payment to you every month. Yes, we want to check the creditworthiness, financial condition, and experience level of the real estate investor you’re partnering with, but we are more interested in the investment itself and whether it is self-funding. No matter how well intentioned he/she is, we want to know that our payments will be coming from the profit of the property, not from the individual’s job income or life savings.

Not for the faint of heart, please don’t go this last one alone. Certainly Great Lakes Secured Investments LLC can provide you with up to five times the income of other fixed, secured investments collateralized by a property whose cash flow easily covers the payment due you every month.

MORE SIGNS OF UPCOMING DECLINES IN TREASURY AND SAVINGS BONDS

Randy Michael — Mon, 21 Sep 2009 10:55:53 +0000

How are you going to cultivate your finances in these economic times with the rapid destruction of the money balances?

When it comes to foreign creditors selling off their U.S. Treasuries, it seems like they’ll always buy our debt because our bond market is the most liquid, safest warehouse for their money. In the short-term, that’s probably true. But the longer-term trend is much different. Like irresponsible teenagers throwing a party and trashing the house while their parents are gone, the Fed and Washington politicians don’t want to tell their constituency the ugly truth: that the current government spending spree is not only mortgaging America’s future, but will destroy the financial foundations of this country.

But over time, they WILL gradually lower demand for U.S. debt, pushing bond prices lower, and interest rates higher.

Why are foreign creditors trying to avoid U.S. debt? First, the U.S. government has adopted an unofficial policy of U.S. dollar debasement or, at best, an official policy of not-so-benign neglect. Second, despite a U.S. federal deficit that’s at least three times larger than the worst in history, there’s no plan to bring it under control. Third, the U.S. Federal Reserve is monetizing the debt with printed money, a classic cause of rising gold, rising commodity prices, and a declining currency.

Concern is rising sharply in places like China. The country has more than $2 trillion in reserves. Perhaps as much as ¾ of that is in US dollars. If the dollar keeps declining, so too will the value of those Treasuries, corporate bonds, and equities. In fact, the former vice chairman of China’s Standing Committee warned that concern is rising, and rising fast.

China’s Ministry of Finance also said that it would sell $900 million worth of government bonds soon. This is the first issue of Chinese government debt targeted at global investors. The idea is to increase international confidence in China’s currency and China’s bond market.

Please don’t disregard this important long-term trend. It’s going to lead to higher interest rates, whether the Fed and Treasury like it or not. That sounds like a good thing if you own those securities, but it’s not…remember, when interest rates rise, the value of the underlying bonds decrease substantially.

For those of you with a long-term horizon in your retirement planning, make sure you understand that it is a near certainty that US savings bonds and Treasury bonds will drop dramatically in value.

At GLSI, we offer up to 10.0% fixed interest, secured by real estate whose cash flow is nearly double that. And when we say secured, we mean secured by a 1st position mortgage. You’re not second or third in line behind other lienholders. Contact us for a truly fixed and secured investment!

The U.S. Mortgage Industry–By Its Refusal To Take A Leadership Role In The Foreclosure Crisis—Has Cut Themselves And The Taxpayer A Rotten Deal

Randy Michael — Wed, 09 Sep 2009 01:31:17 +0000

Rather than losing untold billions by mindlessly taking back houses in foreclosure regardless of the circumstances of the customer in foreclosure, you’d think the banks would be proactive in preventing the foreclosure in cases where it is so clearly in the bank’s interest. I mean, at least be willing to listen to your customer. Was the government bailout so lucrative that an entire industry doesn’t need to care about profitability anymore?

After all, it’s not like foreclosure’s an isolated problem. The Mortgage Bankers Association recently reported that nearly 1 in 7 US mortgages is in some stage of distress (either being paid late or already defaulted on). That’s almost 13 million households, an estimated 30 million Americans. It’s the worst this country has ever seen and it’s affecting every type of American!

Meanwhile, the industry is taking billions—soon trillions—in write-downs of property value. Just looking at the two most recent income properties Great Lakes Secured Investments bought makes a great example. In both cases, the house was bought for 80% or so less than what was owed the bank when it foreclosed on last year. And that doesn’t even include the countless other expenses such as utilities, insurance, clean-up, commissions, legal and title fees, etc. that the bank had to incur just to get that miserably low price.

And yet odds are the previous owner would have stayed and continued to make payments if the bank would have lowered their loan balance and payments by say, 40%. The bank could have saved the remaining 40% plus all those other extraordinary expenses and loss of income. You see, increasingly, there’s NOT an income or employment issue behind the foreclosure. Lowering the amount owed on the mortgage and / or the interest rate would have saved everybody a lot of grief and money. After all, I’d lay odds that the previous owner is now renting a similar place for about what the bank should have accepted for a loan modification payment.

But when it comes to banks dealing with customers, no news is good news. There will be no conversation with the bank about alternatives because that’s not the way banks do things. You can’t talk to the bank BEFORE foreclosure strikes. Instead, only after a borrower has already defaulted on the loan and ruined their credit can they get past the Customer Service gate to talk about an alternative to foreclosure. But by that time the opportunity for a win-win solution has passed.

I see this every day of my life: the homeowner with a 20-year perfect credit record, whose house is worth less than half of what it was a couple of years ago. They try to sell their house for a year, expecting no money whatsoever anymore. The housing market has humbled them. All they want to do at this point is walk away with nothing but their credit intact. But they can’t even do that!

This homeowner really has two choices, both of which involve destroying their credit:

a) Endure the hassle of trying to sell their home, this time at a discounted “short sale” price (less than what is owed on their mortgage), knowing they’ll not get one red cent from the sale

b) Don’t bother doing anything except let their house go completely into foreclosure by stop making payments, stop paying taxes, and live for free for up to a year, at least in most states

It’s no wonder most pick “b”. If you’re not getting any money and you’re credit’s getting destroyed anyway, why not live free for a year? (Some people claim that a “short sale” doesn’t have the negative impact on a credit report as a “foreclosure”, but not so).

The banking industry wants you to believe the foreclosure problem is symptomatic of the general economy, because it gets them off the hook of taking responsibility and being part of the solution.

By the way, written on the walls of one of the recent houses we purchased were the words: “we did not want to leave”.

Paying off and Making Money from the Plastic

Hanh Brown — Sun, 06 Sep 2009 14:27:34 +0000

Have you wondered if you’ll ever get the hang of making purchases with and paying off the plastic? You’re not alone. Changing times, changing rules and changing interest rates leave a lot of consumers feeling both lost and alone navigating the world of plastic and that uncertainty has led to an amazing turn of tables on the credit industry.

The “season of the staycation” is in full swing. Gone are the days when American families took big vacations financed on credit cards that they planned only to pay off sometime next year. Instead, those same families are rediscovering happiness in their own backyards; skipping extravagant vacations to hang out at home. Even people who are not struggling financially are making adjustments. They’re choosing less expensive vacation locales and cutting extras from their travel packages.

And this fundamental change in spending behavior hasn’t been relegated only to the arenas of travel and luxury either. Americans are spending less in almost all categories. Shopping is no longer a fun weekend pastime; for many it’s a special occasion. One that is often marked by a trepidation that curbs spending even further. What’s better than money in the bank, after all?

In fact, Americans aren’t just spending less to keep their money where it belongs. They’re unloading debt at record pace. In June, Americans paid off $10.3 billion dollars in debt, according to consumer credit statistics from the Federal Reserve. Half of that was revolving debt — mostly credit cards. What makes it incredible: debt and revolving debt usually go up, not down, says Steven Rick, senior economist with the Credit Union National Association. Instead, Americans are paying it off as fast as they can.

Can we blame them? Financial struggle is often cited as a leading cause of stress in adults. Where problems exist marital, familial and health problems often follow close behind. People are unable to sleep, their choices in food often deteriorate and their health follows. Marriages fall apart, families suffer. For most people, money problems start when they lose all or part of an income — job security and a little money in the bank goes a long way in not only ensuring economic health, but overall health as well.

Granted, some of the recently seen debt payoffs could be triggered by changing terms. Higher minimum payments, lower credit limits and the higher bar set to obtain credit in the first place could no doubt be spurring even those in robust financial standing to abandon the debt holding ways of their past. Still, it makes sense that in this economic climate people are pulling back on their own as well.

But is a full withdrawal from investing a good idea, even in this economic climate? Perhaps for a rare few, but for most at least some investment of funds is still in order. Money in the bank may be nice, but there is one thing better – money making money. For these people a Great Lakes Secured Fixed Income is a worthwhile consideration. Great Lakes Secured Fixed Income investments offer risk-shy investors a way to invest without the worry that comes with participating directly in the volatile stock market today. A fixed secured note of $32,000 at 10% APR (interest only) for a 5 term would pay the note holder $267 per month, for instance. This means over the 5 year term the note holder would receive a total of $16,000 in 60 monthly payments. That’s a 50% ROI. Plus, the original $32,000 principle is also returned at the end of the term.

Using Credit Cards or Credit Lines to Create a Fixed Income

Randy Michael — Sat, 01 Aug 2009 23:52:59 +0000

The banker’s traditional lending model pre-dates the history of the United States—in fact, it dates to biblical times at least. That model could be referred to as making money “on margin”.

Essentially, a bank borrows money at one interest rate and, of course, lends it out at a higher rate. If a bank pays you 1% interest for your money in a savings account, but lends it out in the form of mortgages or commercial loans at, say, 7%, it’s clear how they make money. In this example, the six percentage points of “spread” between the cost of their money and what they receive from their borrowers is their margin.

Every American is now aware of the credit crisis currently facing this country. It’s not that banks don’t want to lend money because their spread is too low. They don’t want to lend money period, at any interest rate. Can you see the opportunity for a person with good credit who has the ability to borrow fairly cheaply?

Now, if you had a million dollars of cash to invest that you really don’t need for living expenses right away, you can imagine ways to lend it out for a healthy profit margin just like banks do (or did, at least). But did you ever think that you could “play the bank” even without having a lot of spare cash? You can. I do.

I have bought more than a couple of houses using credit cards or unsecured lines of credit. In recent years, rates on those cards averaged around 8%. But by putting that cash into an appealing rental property, the investment provides up to 20% cash on cash return. After I made my monthly credit card payment, my spread was 12 percentage points. A grand slam by anybody’s standards. If I had used my own money, my return on investment would have been 20%. That means I would get back all the money I invested in 5 years. But because I had to pay the credit card for the use of their money, my return was only 12% (20% minus my 8% cost).

But was it really only 12%? No! My true return was infinite! That’s because I used none of my own money. The investment itself only returned 12% of the capital used. But because NONE of that capital was my own money, my personal return was infinite. I make a small payment, but I receive a big one every month for doing nothing. Powerful stuff.

Now, fast forward to 2009 where credit cards (and debt in general) have gotten a bad name. But that’s all about the “bad” debt that consumers incurred—where they used their credit cards to pay expenses like vacations or buy “assets” like bicycles that obviously provide no cash flow whatsoever. Those people had to pay the 8% or whatever interest rate but how much income did they receive from the thing they funded with it??? Zip, zero, zilch. That’s bad debt and it deserves to have a bad name. That’s not what I’m talking about here.

I’m talking about “good” debt—the banking model. You borrow at one rate, put it into a solid property that will be rented out for a cash flow that is greater than the cost of your debt. Just like banks do.

If you have credit cards or unsecured lines of credit that are not being used, you have two problems. One is that, if you don’t use it you might lose it, even if you have good credit. Credit card companies systematically review accounts and reduce unused credit lines to hedge their risks against people who use them as a lifeline. The other problem is you are not leveraging it to create an income for yourself.

Contact Great Lakes Secured Investments if you would like to explore the opportunity to make money not by using your money—but by using your credit card companies’ money.