Monday, January 17, 2011

Securities-Based Loan

Securities-based loan has gained popularity in today’s economy. It is using the securities as collateral to a loan. If you are one of the investors with solid stock investments such as Apple, Google or Citibank, it makes more sense to borrow against your securities than selling them today. This way, you have access to liquidity without immediately liquidating your securities and still maintain exposure to the market.

Lending against securities is not a new concept. It is also an option to traditional mortgage, in which Fannie Mae limits investors to finance up to ten properties. Securities-based loan is underwritten based not on the property you want to buy but on the stocks you own. This type of loan is also an ideal source of funds for foreign nationals and borrowers with undocumented income.

The loan is non recourse and is setup like a credit line with an attractive interest rate as low as 2.75% fixed interest only. However, if the stock value declines to less than the loan amount, the lender may require you to add additional collateral or repay part or the entire loan. Lender may also liquidate all or part of the securities, which may interrupt your long-term investment strategy. Since stocks are the collateral, the interest paid is investment interest expense, not a qualified home-mortgage interest. Read IRS Publication 550 for more detail on investment interest expense.

A Securities Based Loan is not a margin loan, and has significant advantages over a conventional margin loan. Regulated under Federal Reserve Board Regulation U, margin loan or purpose loan, is a loan backed by securities and used for purchasing other securities, subject to margin requirements. On the other side, non-purpose loan is a loan that can be used for any investment other than purchasing additional securities. Non purpose loan is not subject to margin requirements and typically carry lower interest rate.

If you are interested in this type of alternative loan, consult tax attorney.

Copyright © 2011 - All Rights Reserved

Monday, January 25, 2010

The Most Over-Hyped Housing ETFs

While everyone is debating when home prices will bottom, June last year, MacroMarkets LLC (co-founded by Robert Shiller) launched MacroShares which allowed investors to make a direct bet on housing. MacroShares Major Metro Housing Up (UMM), and MacroShares Major Metro Housing Down (DMM) were possibly the most over-hyped housing ETFs ever introduced. In fact, they aren't even ETFs, because it doesn’t hold an underlying basket of houses. Instead, it holds Treasury securities and cash, and shift assets according to the movement of the underlying indexes.

The benchmark index is the S&P Case Shiller Composite-10, an index comprised of real estate sales from San Diego, Los Angeles, San Francisco, Las Vegas, Denver, Chicago, Boston, New York, Washington DC, and Miami. Those 10 cities comprise about 30% of all the real estate transactions in the US. UMM and DMM were designed to deliver 300% of upward and downward movements of the S&P/Case Shiller Home Price Composite-10 Index, and was supposed to expire by November 25, 2014. Unfortunately, the MacroShares UMM and DMM did not track the Case-Shiller index they were supposed to follow, never attracted significant assets, and were liquidated in December 28th, 2009. Robert Shiller admitted it was a mistake and intends to try again.

Copyright © 2009 - All Rights Reserved

Wednesday, January 20, 2010

Worldwide House Price Indicator

The Economist compiles House Price Indicator for 19 countries around the world in addition to US Home Price Indices by Case-Shiller and FHFA.

Tuesday, January 12, 2010

Burj Dubai is Officially Open

Amid Dubai debt meltdown, Burj Dubai is officially open and was renamed after the UAE President, Burj Khalifa, last week on Monday January 4th, 2010.

For an earlier post on Burj Dubai, click here:

During construction boom, Dubai borrowed $80 billion debt hoping to transform the economy into a regional tourism and financial hub. According to Deutsche Bank, UAE suffered the world’s steepest property slump in the global recession, with home prices dropping 50% from their 2008 peak.

Talking about Dubai brought back personal memory a little more than a decade ago. Beside a job offer I received from US based consulting company, I also had few other interviews with Singaporean, UK and UAE companies. The recruiter from UAE based company told me I could have the same salary as the US based company, except it was tax free. Finally after careful consideration, money though important, but was not the only thing in life, I pursued the offer from US based consulting company. The rest is a history.

Copyright © 2009 - All Rights Reserved

Sunday, October 18, 2009

Why Should You Buy Land?

I am the basis of all wealth, the heritage of the wise, the thrifty and prudent.

I am the poor person’s joy and comfort, the rich person’s prize, the right hand of capital, the silent partner of thou¬sands of successful people.

I am the solace of the widow, the comfort of old age, the cornerstone of security against misfortune and want. I am handed down through generations, as a possession of great value.

I am the choicest fruit of labor, the safest collateral and yet I am humble. I stand before every person bidding them to know me for what I am and asking them to possess me.

I am quietly growing in value through countless days. Though, I might seem dormant, my worth increases, never failing, never ceasing. Time is my aid and the ever increasing population adds to my gain. I defy fire and the ele¬ments, for they cannot destroy me.

My possessors learn to believe in me and invariable they become envied by those that have passed me by. While all other things wither and decay, I alone survive. The centuries find me younger, always increasing in strength. All oil and minerals come from me. I am the producer of food, building materials and the home to every living thing. I serve as the foundation for homes, factories, banks and stores.

I have not been produced for millions of years, yet, I am so common that thousands, unthinking and unknowingly, pass me by.

Who am I? “I AM LAND.”

by: anonymous

Copyright © 2009 - All Rights Reserved

Monday, September 28, 2009

Land as an Alternative Investment for IRA Account

Are you tired of dealing with tenants? Are you stuck with the stocks that have sunk in value in your IRA account? Land is an alternative to diversify your asset, especially for your retirement account. If you are not familiar with this subject, please read my previous posting on self-directed IRA.

There are two distinct components of real estate, the land and the building/improvement. As the time pass by, the land component usually (no guarantee) will appreciate in value and the building component will depreciate because of wear and tear.

Be aware that you should not expect quick profit from investment in land. Land is not a way for you to get rich quickly, instead it is a way to get rich slowly, if it is done correctly. What do I mean by done correctly? If you buy a land in the middle of nowhere, populated by skunks and raccoons, your land may not appreciate at all after you hold it for 20-30 years. Instead, if you buy pre-developed land in the path of growth, there is a higher chance that the land will increase in value because of the demand. What else do you have to consider in buying a land?

The land should:
• Not have a slope in excess of 15%
• Not be located in flood zone or earthquake zone area
• Not be in wetland area
• Be in a close proximity to a major metropolitan area
• Be easily accessible by highway, train or air travel
• Be located in an area with enough jobs
• Have adequate infrastructures and utilities (roads, electricity, gas, water, sewer)
• Have existing residential and commercial development
• Have existing or planned school system

Imagine a house in San Francisco Bay Area cost $70K in 1970. That same house today costs around $500K. If you bought a land worth of $70K in 1970, the land costs well over a million today.

Are you prepared for retirement? Do you think you have a plan in place?

Copyright © 2009 - All Rights Reserved

Thursday, September 3, 2009

Oklahoma City's Major Projects Despite Economic Gloom

Core to Shore
Despite economic gloom around the country, two major projects are going on in Oklahoma City. The City of Oklahoma City plans 20+ years Core to Shore project, estimated at over $3 billion of public and private investment. The project will transform the underutilized area between downtown (the “core”) and the Oklahoma River (the “shore”) into a world class design urban neighborhood.

Core to Shore plan includes the following:
• Realignment of Interstate 40 (I-40)
• Public parks and open spaces
• Hotel and convention center
• Over 3,000 housing units, ranging from single-family detached houses to residential towers
• Up to 550,000 square feet of retail space
• Offices
• Major civic buildings
• Multi-modal transportation center.

Devon Tower
Devon Energy Corp, the largest US based independent oil and gas producer, plans to construct the new corporate headquarters building in downtown Oklahoma City. Devon Tower, will be the tallest building in the Oklahoma City metropolitan area. At an astounding 925 feet tall, the construction will start at fall 2009 and will be scheduled for completion at 2012. Hines will be the development manager of the 54-story, $1.9 million sq ft, $750 million tower.

Interested to check Oklahoma City metropolitan area demographic and economic? Click here.

Copyright © 2009 - All Rights Reserved