Reality Check Q&A #9
Oct. 9, 2009
BANKS
How do I find a legitimate list of banks at significant risk of insolvency?www.veribanc.com
RUT
How'd you get of the rut? Think your subscribers know what to do, but don't know how to actually do it and change their habits.I was never in a rut. I was in the groove.
Anyway, the question is valid. We are servants to the tyranny of the urgent. We cannot break free.
We can set aside time and money to start projects that are part of a long-term plan. On my free site, www.DeliveranceFromDebt.com, I have three departments devoted to goal-setting. Visit them for guidance.
Things do not take care of themselves. Each person must start dealing with step-by-step projects that are part of a lifetime goal. This involves setting mid-term and short-term goals. Budget both time and money.
What is your #1 lifetime goal? Devote 10% of your time and 10% of your money to this goal.
2008 MELTDOWN
It was claimed (by Secretary Paulson and others) at the time that the large bailout was passed by Congress last Fall, that failure to execute would be catastrophic to the US and Global financial systems. In the time since, I have seen nothing resembling true reform of the system. Was the threat real or not and if real (and unchecked), when will the temporarily averted catastrophe catch up with us / what will it look like when it does?
It was real. First the bankruptcy of Fannie Mae and Freddy Mac threatened the housing market. Those boondoggles supplied 80% of the funds for mortgages.
Second, the bankruptcy of Lehman did threaten the supply of funds for other banks. But, ultimately, the money had to go somewhere. So, some large banks would have failed. The government will not allow this. Neither will the Federal Reserve. So, in that sense, we were not facing a collapse. We are always facing more government interference.
The future crisis will look different from the last one. It will be marked by rising unemployment, rising prices for food, and a falling dollar internationally. It will be marked by falling productivity. But there will be inventions and new ways of doing things. Most people will muddle through. The government will be forced to cut back Medicare and Social Security benefits. Oldsters will lose the free ride they have planned on.
GOLD
Did the gold standard prevented the money supply from legitimately expanding as the economy experienced real growth?
Yes.
INFLATION/DEFLATION
Some predict deflation, others inflation and still others deflation followed by inflation or both concurrently. How should I prepare for all of these possible outcomes?
Move to a small town. Buy a place with a large, fenced back yard. Make sure it has a well shallow enough for a hand pump to draw up water. Plant non-hybrid crops. Pay cash. Make close friends with your neighbors. Join the local church of your choice. Join Rotary, if there is one. Show up to volunteer.
REAL ESTATE
I own an apartment building in East Orange, NJ. What are your thoughts on the future of this business sector? My building is profitable. My ten-year, 6.75% loan that will expire in 2015. I will need to refinance then. I have 60% equity. Should I sell now?
You will be facing tight times for the next three years, minimum. Real estate is in bad shape and will get worse.
People must live somewhere. You have experience managing apartments. But expect to find it harder to collect rents.
If you can re-finance at a lower rate before 2015, do it.
What happens if you can't get funding in 2015? Don't assume that you will be able to. That's why I would sell it and buy single- family dwellings. They are more liquid. Liquidity is worth plenty. Follow John Schaub's system: www.JohnSchaub.com.
REAL ESTATE
I've heard you mention a few times that if you could find the correct house in this market it would be a great time to buy, but you would need to do it "right." Well right to me is first of all being sure I'm able to afford it. Here is my criteria:20% down to avoid PMI.
No association dues.
6 month emergency expenses covered.
Ability to maintain a 10% a month savings rate on top of mortgage.
No more than $100,000 * currentRentCurrently I live in a rent-controlled mobile home that I'm not planning on selling or borrowing against to buy this house. It's something I would like to keep in my family, since it's rent- controlled (selling it would allow the rents to be the market rate). I pay $444 a month for rent currently, so the max house price I was looking at was $444,000. However, given my pay rate and the requirements above, this may require a larger down payment.
Here is my financial state
-No debt
-$1497 a month pay (military contractor, I'm a computer programmer)
-$3,300 dividend paying stocks
-3.5 ounces of gold
-15,000 dollars current savingsMy question is, do you think my criteria above are well thought out? Would you improve them in any way?
You cannot afford to buy a house. You are barely above the poverty line. You have no savings. Stay in the mobile home.
REAL ESTATE
Age; 54
Location: Philadelphia suburb
Occupation; American craftsman with 12 employees
Retirement date; 2030
#1 goal in life; to make useful objects from my imagination.
Deadline date:My home (#6) has a $400,000 mortgage; asking $640,000; should I dump it at anything over mortgage?
I have 50% equity in 5 houses with flat cash flow.
I do not think the housing market will improve for at least two years. It could be longer.
You need a website devoted to selling the house. You need a YouTube video. You need advertising.
Buy a copy of Victor Schwab's book, How to Write a Good Advertisement. Read it with this in mind: "How to sell my house."
Spend money on marketing. Cut the price if the marketing does not work. I would tell your realtor: a price cut of $5,000 a month, on the 1st of the month. Get interest going.