LIVING OFF DIVIDENDS & PASSIVE INCOME

Foreclosure is not a fun process.

Losing your house for any reason is a stressful, disheartening experience. And banks are notoriously difficult to deal with. Mainly because they’re not really interested in working out a deal with you. Especially if you have equity in your house.

That being said, I’m greatly amused by people who get the better end of the foreclosure process, especially when it comes to Bank of America. (I’m not a big fan of Bank of America – I have my reasons…)

Bank of America filed for foreclosure on a house in Florida, about six months ago. The strange thing was that the homeowners, Mr & Mrs. Nyergers, owned their home free and clear. They had bought their house with cash. They had never had a mortgage on it.  Read more... (370 words, 8 images, estimated 1:29 mins reading time)

Time Cover: Rethinking Home Ownership

Time magazine recently had an interesting article, The Case Against Home Ownership which explained why the American dream wasn’t all it was cranked up to be. Mainly, because it just doesn’t make economic sense. It prevented people from being able to migrate to where jobs where, resulted in a 49% higher consumption of energy amongst detached-home owners, and cost the government hundreds of billions in lost tax revenue every year. And the often quoted inverse correlation between teenage pregnancy and home ownership is sketchy and inconclusive (apparently the correlation between car ownership is higher than home ownership!).  Read more... (411 words, 9 images, estimated 1:39 mins reading time)

Every few months, someone wants to know if its a good time to buy real estate. A reader asked an interesting question:

Interest rates are artificially low and we won’t see rates this low for a long, long time. What are your thoughts on buying vs renting for a first timer? In my gut I know that housing is still overvalued, but should I jump on low rates and lock in a fixed payment knowing that future inflation will make this payment even smaller?

Most people do not pay cash for their homes, they get a mortgage. And the monthly payment they can afford, along with the current interest rate determines how large a mortgage they can qualify for.

Lets do some back-of-the-envelope calculations. If you can qualify for $2,000 a month (lets  ignore principle, taxes and insurance for now) and rates are 5%, you’ll qualify for approximately $480,000 worth of mortgage. If rates rise to 6%, you only qualify for $400,000 worth of mortgage.  Read more... (604 words, 8 images, estimated 2:25 mins reading time)

The Wall Street Journal had an article advising homeowners who were upside down on their mortgage to just throw in the towel and walk away from their mortgage. Here’s the abridged version:

Millions of Americans are now deeply underwater on their mortgage. If you’re among them, you need to stop living in a dream world and give serious thought to walking away from the debt.

No, you shouldn’t feel bad about it, and you shouldn’t feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family’s finances first.

If you are reluctant to give up on “your” home, realize that it isn’t “yours.” If you are in negative equity, it’s the bank’s home. You’re just renting it. And right now you may be paying way above market rates. You need to be ruthless about your cash flow.  Read more... (608 words, 8 images, estimated 2:26 mins reading time)

Just read this news article from the Associated Press:

Tue Feb 23, 8:17 am ET

MOSCOW, Ohio – An Ohio man says he bulldozed his $350,000 home to keep a bank from foreclosing on it.

Terry Hoskins says he has struggled with the RiverHills Bank over his home in Moscow for years and had problems with the Internal Revenue Service. He says the IRS placed liens on his carpet store and commercial property and the bank claimed his house as collateral.

Hoskins says he owes $160,000 on the house. He says he spent a lot of money on attorneys and finally had enough. About two weeks ago he bulldozed the home 25 miles southeast of Cincinnati.  Read more... (229 words, 9 images, estimated 55 secs reading time)

Over the past few weeks, several of friends have asked me if its a good time to buy a house now that real estate prices have bottomed. Encouraged by the media, everyone seems to think that home prices have bottomed out and the recovery is about to begin.

Even Jim Cramer jumped on the housing recovery bandwagon and declared that June 30th would be the bottom! As I mentioned before in Are Jim Cramer’s picks worthless?, you shouldn’t be taking your investment advice from him. I don’t know what sort of crystal ball he has, but his track record isn’t very good. Besides, people who can predict the future (like David Einhorn) tend to invest for themselves and not make broad public statements.

Home prices may be fairly valued, but whenever you have a bubble of huge proportions, valuations do not simply revert to the mean, they overshoot it and become grossly undervalued.  Read more... (946 words, 8 images, estimated 3:47 mins reading time)