Should the Government Bail Out People in Foreclosure?

As I wrote in my article, Can the Government Solve the Foreclosure Problem, the state and federal governments are considering using taxpayer money to bail out people in foreclosure.  Is this a good or bad idea?

At first blush, it appears awfully unfair, in that the government would take your money and give it to someone who made an irresponsible financial decision and would thus profit from it.  On the other hand, one could argue that the government’s lack of regulation on loans, in part, led to the problem.

From a purely capitalist, free-market position, I’d say, “Absolutely not – let the market correct itself and allow economic darwinism take its course”.  From a sympathetic standpoint, what’s $300 million in the scheme of things, since most of it would go to HUD counseling agencies to help poor people refi and keep their homes?

Despite the animosity from people who object to paying for this “robin hood” program, it would help everyone, since less foreclosures helps keep your neighborhood home values up.  However, the harsh reality is that $300 million wouldn’t change anything, and like most government programs, it would be nothing more than lip service and bureaucracy.

Nobody wants to see low income families on the street, but it is a bad precedent for the government to have too many programs to bail consumers out of bad financial decisions.  True, some of the lenders are to blame, but they are already being punished in their pocketbooks.  Many lenders who originated and sold these loans are now having to buy them back from the investors they sold them to.

As a final note, most states do not have extensive regulation of the mortgage broker profession.  I am not much for excessive government ANYTHING, but having a sufficient fund to reimburse the victims of the worst predatory lending would be a good idea.  Real estate brokers, attorneys, and other professionals pay into a fund managed by the state for the protection of clients that are scammed, and so should mortgage brokers.  In my own state of Colorado, mortgage brokers have to carry a small bond, which is almost a joke.  California, on the other hand, requires a mortgage broker to first be licensed as a real estate broker, which I think is a good idea.

Click here to view my YouTube Video on the Suprime Meltdown

What Every Landlord Should Know About Discrimination

The Fair Housing Act of 1968, as amended, prohibits discrimination on the basis of race, color, religion, nationality, familial status, age, and gender. Many state and local laws also forbid discrimination on the basis of sexuality or source of income, and the Americans with Disabilities Act makes it illegal to discriminate against the disabled. If you harbor any such prejudices and would allow them to come into play when renting a housing unit, then you’re probably not cut out to be a landlord. However, many sincere real estate investors make honest mistakes that result in a lawsuits. The best way to avoid them is to be informed.

Read the rest of the story on William Bronchick’s Wealth Protection Blog.

Want to be Rich? Go into DEBT!

Social security is the biggest ponzi scheme every invested and for those of us between the ages and 25 and 55, we’d ought to be worried whether the system will even be there by the time we reach retirement age. 

Saving is good, but most people don’t make enough income to be able to save their way to a healthy retirement.  In order to retire wealthy, you need to go INTO debt.  If you want to become a millionaire and you aren’t already making millions, you need to borrow, not save.  I know that may sound unconventional, but most of the wealthy got that way by leveraging through debt.  Ask Donald Trump. 

Do you realize if you bought just a million dollars worth of real estate and just paid it off, you’d be a millionaire?  In this market, it’s only about 4 or 5  houses in most markets.  And, with inflation, that means the values will also go up, meaning you so will your rents.  In other words, you don’t have to necessarily adjust your strategy for inflation, it will do so automatically for you.

Debt is not always a bad thing, if you are using it properly for leverage.  Once you master the leverage principle, you will become wealthy and retire better than 95% of Americans.

Tax Breaks for Real Estate Investors

Taxes are your biggest expense in your lifetime, so choose your source of income wisely! Real estate has some of the BEST TAX BREAKS of any investment in America! The more you earn through your job, the more you get taxed, and the system is setup that way to punish hard workers and reward investors.  Have you looked at the bottom stub of your paycheck lately and seen how much the government steals from you?  Wage income not only requires work, it gets taxed at a very high rate, plus the government takes FICA, which is put into a system that may be bankrupt when you retire.

Real estate has so many tax advantages over wage income:

Capital Gains Rates 

The maximum federal tax rate on capital gains is 15%, whereas wage income is taxed at 35%.  There’s state taxes, too, and some states offer further discounts on capital gains income.  Remember, capital gains requires that you hold a property for 12 months or more before selling, as in the case of a lease/option.

Exemption for Principal Residence 

If you sell your residence, the first $250,000 is exempt from gain or $500,000 if you are married.  Remember, this requires that the residence was used as such for two of the last five years.

1031 Exchanges

Under IRC Sec 1031, you can roll your profits into more real estate and defer paying taxes altogether.  Your tax basis rolls into the next property.  The rules are rather stringent, in that the exchange must be completed with 180 days and the exchange property must be indentified with 45 days of the sale of the relinquished property.

Interest Deduction

You get to deduct interest you pay on debt you have used to acquire your real estate.

Depreciation

You get a tax deduction for the “wear and tear” on the structure, even if the property increases in value!  Thus, you can actually break even or make money, but on paper show a loss to offset other income.

No FICA Tax 

Your income from real estate is general NOT subject to FICA tax withholding.  Regular self employment income is subject to 15.3% tax on the first $97,000, and thereafter your earned income is subject to medicare withholding (which you may never get back in your lifetime the way things are going!).

It’s not just what you make, it’s what you keep… plan wisely where your income comes from, and you will keep a lot more.

Want to keep more of what you’ve earned?  Check out William Bronchick’s Wealth Protection Materials.

Bronchick Quoted in W.S.J.

Bill Bronchick quoted on flipping in W.S.J.

Buy Long Term

BUY REAL ESTATE LONG TERM. While real estate values may go up and down in the SHORT term – three to five years – in the long run, towards your golden years of retirement, real estate values always tend to go up…

Bronchick Quoted in Dow Jones Marketwatch

Bronchick quoted on Dow Jones Marketwatch

Bull vs. Bubble

Jim Kramer is a genius.  He hosts a show called, “Mad Money” on CNBC. He graduated top of his class from Harvard and is one of the most respected names in the financial news industry.  Jim has an expression – “There’s always a bull market somewhere”.  I like this so much I am going to PILFER it and use it in my presentations because it so aptly applies to real estate investing. 

If you invest in REITs, stocks or funds that are dependent on the real estate market, the housing news (bad news) is very relevant.  If you are a dealmaker, a house buyer, and a bargain hunter, you look for deals that exist DESPITE the market.  In other words, look at neighbhorhoods figures, not national or statewide figures on housing when investing.  In every city there’s certain neighborhoods that are up or down, no matter what the citywide or statewide news about housing is telling you.  Find those bull markets, and you will make money.

“B.U.L.L.” is my four part formula for beating a bubble market:

B – Buy local. If you focus on local news rather than national news, you will do much better.

U – Under value. If you buy properties UNDER their current market value, you will win in any market, because if the value drops, you’ll still have equity to spare before the market cycles around again.

L – Low Interest Rates.  Lock in low interest rates, and when things rebound, you’ll have a nice low payment.

L – Long Term.  If you are buying for the LONG term, the temporary drop in the market won’t hurt you, particularly if you buy UNDER VALUE and with low interest rates as described above.  “Dollar Cost Averaging” is the name of the game for long-term players, which means no matter when you buy in the cycle, in the end it always goes up.

There you have it – the B.U.L.L. beats the Bubble!

Buying “Under Value” vs. Buying Undervalued

Buying “Under Value” vs. Buying Undervalued

Bronchick makes Wikipedia on “Flipping”

Flipping has now officially a topic on the online encyclopedia “Wikipedia“, citing my book Flipping Properties as a reference.  Flipping Properties has sold over 200,000 copies all over the world, and is printed in Mandarin Chinese (although I imagine you can’t flip in China, it’s for people who speak the language in the U.S.)