Investing in a falling market is a completely stupid thing to do, right? I mean, who would be so completely and irredeemably stupid as to invest their money in property market that’s actually going down? And what’s worse, a market in a country with serious economic problems, facing a major recession and with a grossly overvalued currency?
Well I would.
There’s a lot more to investing than just buying something and waiting for it to go up in value. Ayshe Kadir runs a series of seminars and programmes to introduce some seriously smart ways to invest in the States, regardless of whether you’re investing your cash or your time. There aren’t many courses that can make a boast like that.
Normally, I wouldn’t have even bothered turning up to a course about US investing, but there are two reasons why I felt this was a must-see event series. Firstly, as a result of my own work I’ve ended up stumbling on US deals. I needed to know how to go about buying these properties with a minimum of time and money invested. Secondly, the US is the undisputed capital of creative property financing, and I was totally blown away by the innovative techniques that Ayshe teaches. This is stuff that I’ve never seen done before – and embarrassingly enough I’d never even heard of. And bearing in mind that since the age of 12, I’ve been convinced that I knew everything, this is a personal disaster. My entire self-image has come crashing down in ruins.
A few Cautionary Notes
I want to start off with a few cautionary notes, because the US is in big trouble economically. It’s important to understand what’s happening there and why. The US economy is a great case study for all investors. Furthermore, as the World’s largest economy it affects us all – so you’d have to be a complete ostrich not to care what’s happening over the pond. The US housing market is now falling significantly. Obviously, price changes vary according to the location and property type you’re looking at. However, there’s a clear general picture – and it’s not good. So what’s gone wrong? US Interest rates have been low for years.
Many would argue that rates were foolishly low, and were reduced to prop up the economy after the dotcom crash. Bargain-basement interest rates mean low mortgage payments, which logically tends to push house prices higher. As a result, the housing market has become seriously inflated. Because the US has a highly developed finance industry, homeowners have been able to access this bloated value by remortgaging their properties. Human nature being what it is, large amounts of this ‘value’ has been ripped out by aggressive remortgaging and spent on consumer trinkets and luxuries. This whole situation has inevitably had several dangerous effects:
Firstly, it has been responsible for a ludicrous balance of payments problem. US consumers have been tearing money out of their over-valued houses and spending it on goods and services originating in India and China. Sadly, the Chinese don’t want America’s obsolete cars in return. Long gone are the days when America manufactured things that people actually wanted to buy, so the trade is mostly flowing one way.
Secondly, this massive splurge of remortgage money has driven an unsustainable boom in consumer spending. This has created underlying inflationary pressures in the economy. With rising energy and commodity prices on top, inflation has become a worrying problem for the Fed. As a result, they’ve pushed interest rates steadily upwards, to try and take the heat off the economy.
Thirdly, remortgaging has kept wage inflation artificially low, papering over the economic cracks. After all, it’s a lot easier to borrow money off the bank than it is to convince your boss to pay you more.
The overall result is that the US economy has been completely out of control for far too long. Underlying inflation has been disguised by the balance of trade deficit and low wage rises. The US has been propping up its economy by issuing huge volumes of securities. These treasury bonds are nicknamed IOUs, and the market for them relies largely on the continuing support of foreign buyers – something that can no longer be guaranteed as the World moves away from holding the dollar as the main reserve currency. The resulting situation is not far away from the drunk in the pub who’s always scrounging beer and fags on the promise of repayment at some time in the future. Sooner or later, the pretence has to stop. The Fed had to rein in the economy by raising rates. This has acted to prop up the dollar (as you now get better returns on dollar deposits, making it a more attractive currency to hold). Also, rising rates tend to cool the housing market and the wider economy. But rates have been so low for so long that a very deep rot may have set in. Although inflation is still a concern, there’s a potential recession on the way, so it’s difficult to see how interest rates can be raised much further. This means that if the dollar starts to fall because of the historic balance of payments problem, the Fed’s got nowhere to run to. Things could get very messy indeed. The rapidly slowing housing market is a worrying sign that the whole economy will take a nasty knock. Whether this knock is a light slap in the face as a ‘friendly warning’ or a solid beating with a baseball bat is currently all to play for.
How You Can Benefit
Now we’ve got that out of the way, let’s get on with the serious business of actually making money in the US. This obviously requires a considerably amount of both caution and creativity to make the best of a challenging market.
Ayshe has four really interesting ways to invest in the US – and they’re unlikely to be what you’re expecting. I’ll give you a brief summary of how these strategies work, as you almost certainly won’t have heard them all yet.
- Firstly, there’s pre-foreclosure – This translates into the Queen’s English as ‘Stop Repossession’. This strategy works pretty much as it does in the UK, so I won’t go into too much detail. Suffice to say, you use various marketing methods to get in touch with motivated sellers who’ll be willing to sell their home to avoid repossession. You can of course rent these properties back to people who wish to stay in their home. You can make your money by selling or remortgaging the property. Don’t forget the wealth warning on this strategy – you’ll be holding your investment in a falling asset class. By all means follow this approach, but bear in mind that you have to build in a significant discount to cover possible price falls. I’m currently trying to work out how to invest in this using no-money-down techniques, but as a foreigner it’s hard.
- The second strategy covered is Tax Deed – This roughly translates as auction sale. In the US they apparently have a ridiculous tax system which allows the government to nick properties off the owners and flog them to cover unpaid property tax. Fair enough, you might argue: you pay your property tax, so why should some other ruffian get away without paying it? Perfectly reasonable point of view, I’d say. Now, here’s the twist: when the state sells the property, it cancels the mortgage. Yes, you read it right. The state just arbitrarily wipes out the mortgage. The end result of this is that everyone else ends up paying more for their mortgages as a result. It’s exactly this kind of thing that underlines why we should never have let them get away with declaring independence.
- The third strategy is Tax Lien – Some states collect their property tax by imposing charges on the property, and then selling the debt on the open market. The homeowner then has to pay the interest at whatever rate the investor has been promised by the County. This can apparently be as high as 50% in some states. I find it remarkable that such a high rate of interest is required to clear the market, but hey, I’m only a humble delegate! This is why you pay your money to go on courses. The long and short of this is that you can borrow money at a low rate and invest it at a high rate. This process is known as Stoozing (after a user on Motley Fool). There’s a wealth warning on this too: Make sure you factor in any potential falls in the dollar, which will reduce the value of your investment when you get paid back.
- Finally, the fourth strategy is RENs – Real Estate Notes – These are broadly speaking charges over property. Due to the US’s highly developed property markets, these derivative products are relatively common, whereas in the UK, you’d get burned as a witch for trying these tactics. The way they work is comparatively simple, but the way you can use them to make profit is not so easy to get your head round. To try and explain this, I will use an example of four people. Steve the seller, Bill the Buyer, Ian the Investor and you. Bill bought Steve’s house a while ago. At the time, he didn’t have enough money to do the deal, so he used a REN – basically a second mortgage on the property. This means that every month Bill pays some money to Steve for the interest on the REN. Steve’s acting like a bank for Bill. This suited Steve a few years ago, but now he’s sick of it and he wants his money out. The debt is 30 grand, but now Steve’s so desperate for cash that he’ll take 20 grand in his hand if he can get it. So you can buy this debt from Steve. Then you’ve got an interest bearing and secured IOU that can be traded, and you’ve got it for a third off the face value. Bingo! But maybe you don’t have the cash right now? Easy: you can sell the note on to Ian the investor at a profit. In this example, you can make a 5 grand margin by trading the note to Ian for 25 grand. But if you did the same trick on a mansion, you could turn 100k or more. And on a commercial unit, you could make a million. Now that’s what I call a business strategy – little or no money down, little or no risk and colossal profit opportunities!
Why Ayshe’s Course Is Different
The format of this course is quite novel and very high quality.
Most courses fall into the trap of being a bit ‘wham-bam-thank-you-ma’am’. It’s all very well paying £400 for a day’s training. You can cover a lot in a one day course, and it’s good value if the content is good. If you’re the kind of person who’s a real self-starter, and you’re happy to take responsibility for further learning, this will work OK for you. But in reality, the vast majority of people who take short-course training do very little to putting their knowledge into practice. Part of the reason for this is that the training, whilst often good, does not go far enough. It’s a bit like running a course on relationships and never covering anything past buying someone the first drink.
Ayshe’s course is very different. To start with you get a comprehensive 3-day seminar covering the basic techniques in a standard seminar format. Obviously, there’s a degree of redundancy in this process, as not all investment strategies will be relevant to all punters. What really sets this course apart is the follow-up programme. I’ve had the opportunity to review the subsequent ‘Meet the Experts’ weekend. Ayshe takes her delegates forward in their development by putting them in front of her own team of mortgage brokers, tax advisors, visa specialists, currency traders, etc. Bearing in mind this course is only 23 delegates, and many of the speakers fly in especially for the event, this is absolutely exceptional value for money.
Personally, I’m the kind of stubborn git who will get on with an investment strategy alone and do my own research into the team I use. However, for less confident investors and those who just want the opportunity to pick the brains of Ayshe’s team, this second session is invaluable. This is particularly true as many of the concepts are wholly novel, even to serious investors – so you may well need to be told twice.
The follow up programme is not limited to one weekend. Ayshe offers a mentorship programme as well. Like the ‘Meet the Experts’ weekend, this is an extra-cost item. Obviously, mentoring programmes are a common feature of other courses, but they’re by no means ubiquitous. Ayshe’s offering is based around the pre-foreclosure and Real Estate Notes modules from her course.
The mentoring includes a full programme of assistance with cutting these deals in the US. For people new to these strategies, this hand-holding may be very important to enabling their success. The mentorship programme includes lead generation and help with the vendor negotiations, as well as the usual teleconferencing and general support.
This suite of courses is genuinely outstanding – particularly as regards the strategy content, which is very innovative and will stretch even experienced property brains. I’ve never come across any course that matches this for the creativity of the strategies it advocates.
The support materials are also very good, with all the slides and plenty of reference material in a binder. If you’re one of the people who’ll actually act on the training you’ve been given, then these notes will be genuinely useful. Further, the ‘Meet the Experts’ weekend enables you to act more decisively by using all the contacts you’ve been given. The tone of the course is lively and friendly.
There’s plenty of time for networking and the multi-day format allows you to build strong relationships that will help you in the long term. There’s plenty of team building stuff, with music and dancing to keep you awake in the breaks.
The event is well staffed with plenty of helpers and the venue has been decked out with banners, balloons, etc. These trimmings aren’t superficial nonsense. If you’re lively, engaged and interested, you’ll feel you’re part of something. You’ll not only learn better, but you’ll also be far more likely to take action. It’s all very well to KNOW something, but if you FEEL it too then you’ll take action. So don’t write off a bit of Rah! – it can be a good thing – when it’s not used to sell you hyped up rubbish.
If you’re in any way interested in the subject matter, this course is a must see. Even for general knowledge and research, it’s highly recommended. As a final note, you’ll be interested to know that Ayshe offers a taster presentation. She also speaks regularly on the networking circuit.