Complete Finance Guide Cross Securitisation Cross Collateralisation

For those of you reading who are unaware of the meaning of ‘cross-securitisation’, allow us to explain. Cross-securitisation or cross-collateralisation is when a lender uses collateral from one or more loans to secure another loan, this is a common technique used by new property investors. Using methods like this to secure loans is a very dangerous game and can mislead a lot of investors into thinking they are safe. Sadly, when problems arise it’s often too late for them to do anything.

This is the primary reason why it’s so hard to inform first time investors, that the way they structure their loans from the start will have will an impact later down the line. New investors would only need 5 minutes in a room with another property investor who has fallen victim to cross-securitisation to know the problems it will inevitability cause.

How does cross-securitisation work?

Let’s start off by providing an example of a typical cross-securitisation loan. Bob is an investor, he has just bought his first investment property and managed to get an investment loan that is backed by his home, and his new wonderful investment property. Bob’s new investment property cost $500,000 and his loan structure looks like this:

  • $250,000 home loan that has be secured against Bob’s family home
  • $500,000 loan that has been secured by Bob’s home and his new property
  • This is cross-securitisation. When a loan is secured by more than one property (in this case Bob’s home and investment property).
  • The problems utilising cross-securitisation

There are several problems that arise when investors opt to use cross-securitisation, such as:

Costs: Going down the cross-securitisation route can result in investors paying more for valuation and variations fees. So many investors opt to use portfolio based loans that allow them to separate sub-loans accounts with relative ease. The fall back is these loans are all grouped together and cross-securitised.

Let me paint you a picture, Bob has two investment properties and one family home, he now wants to increase the loan of one his sub-accounts. For this to happen, Bob’s lender must evaluate all of his properties as his loan is cross-secured. As a result, Bob has to pay more in fees. These costs could easily have been avoided if he secured each loan individually.

Lack of options :Using the cross-securitisation approach can potentially tie investors hands when better deals flood the market. Take the example of our friend Bob, his current loan is at a variable rate but recently several really attractive fixed-rate loans have cropped up in the market. As Bob’s loans are cross-secured, he only the following options:

  • To accept the fixed-rate loan that his current lender offers
  • Go ahead and refinance his loans to the lender offering the best fixed-rates
  • reorganise his current loan and then refinance a percentage of his investment loan to another lender

As you can see none of these options are favourable, because they all involve fees, a lot of paperwork, or force Bob to switch to a fixed-rate loan with his current lender, who may not be offering the best value.

Less power : Cross-securitisation also affects investors ability to negotiate, as if they want to change a part of their loan or go elsewhere, they have to pay fees. Common issues investors face are:

  • Fees for changing loan types
  • Offering more security than needed to secure the loan
  • Problems and paperwork involved when selling a property
  • Higher costs for valuations and variations

Badly structured loans often result in refinancing to a new lender, lenders know the costs and headache involved for you so have no incentive to reduce their rates to entice you to stay with them.

Benefits:

Cross-securitisation isn’t all doom and gloom otherwise nobody would choose this route. They are ideal for:

Investors who only want to own a single property

Investors want to lend large amounts ($2 million+) as they will be given as much as 1% discount on their interest rate.

Switching costs

The cardinal rule of cross-securitisation is to avoid this method of structured loans when fixed interest rates are involved. This is due to the costs associated with breaking a fixed-rate loan. Before jumping into a fixed-rate loan, investors should clearly understand what ‘break costs’ are and how much it will cost them if they decide to change their loan in the future. Break costs can go up to the tens of thousands of dollars, the amount varies on a number of factors and time remaining on their loan.

Let’s bring Bob back into the picture, his earlier loan of $500,000 is fixed for five years at 8%. During the second year of his loan the fixed-rate fees had dropped to 6%. With the equity Bob already has in his home, he thinks now is a great time to buy another investment property. Bob goes to his current lender to work out the details but is rejected due to his serviceability.

Bob goes elsewhere and finds several other lenders who will gladly lend him money who offer even lower rates. Bob is now presented with the following two options:

Refinance his current loan with a new lender and pay the break costs associated. In Bob’s example above, break fees will be around $40,000.

Wait until the agreement on his current fixed-rate loan is up, and then refinance to avoid the break costs.

As with before, the two options Bob has are less than desirable. He would never have been in this situation if the loans were not cross-secured, and could have kept his fixed-rate loan with his current lender while refinancing a percentage of his home loan with a new lender.

Offering too much collateral

Offering as little security as possible is best practice when securing any kind of loan, so in the event of a worst case scenario investors end up losing the minimum. In the case of Bob, he has offered his home and investment property as collateral which is quite common with cross-securitisation.

More often than not if the investor has enough equity invested in their home, that will be more than enough collateral to secure a loan.

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How To Survive A Recession

A recession is known by many names – sometimes it’s called a ‘weak economy’, a ’sluggish economy’ or an ‘economic downturn’. This article shows you how to survive during a recession.

Look for the Signs

First of all, many times a recession in the U.S. economy is only recognized and acknowledged by politicians and officials several months after it has ended. According to the Department of Labor and the Bureau of Economic Research, the average American recession lasts for ten months, and the two most recent economic recessions only lasted about eight months each.

During a recession, unemployment typically rises about 1½ percent over non-recession figures. You’ll see economic jitters in the stock market and falling prices in some (but not all) real estate markets. The talking heads on television will most certainly wring their hands and say that the sky is falling – (bad news is always good for the news business). On the other hand, investors in real estate and in stocks take advantage of falling prices to acquire good stocks and properties while the prices are temporarily lower. Bob Thornton, a respected Florida-based real estate investor says “Everything in the store eventually goes on sale sometime. It’s just real estate’s turn”.

Regroup and Reorganize

None the less, there are many specific steps you can take to not only ’survive’ a recession but also to ‘thrive’ during shaky economic times.

Let’s take a look at some specifics.

Reduce or Reallocate Expenses

I have a business friend who swears he can’t live without his $9 cup of fancy foo-foo coffee everyday on the way to work. That’s $2,160 a year. He could be use that money to reduce his credit card debt or it could go into his retirement account to be invested for his future. We take a lot of expenses for granted that are not really necessary. These are called ‘discretionary’ expenses that may not pay us back for the money invested.

Business owners should always look at dollars expended as being investments in the business. That is, make every dollar spent either in support of your business or in marketing it to your potential customers. Look at every dollar in terms of ‘what can it do to support, grow and expand the business.’

On both a personal and business level, there are a variety of checklists that can help you. One website – http://beingfrugal.net has a very checklist on surviving a recession in its 2008 archive of articles.

Spread Your Risk and Think Long-Term

If you’re a stock investor, look into well-balanced mutual funds with a 5-year or 10-year track record that reflects both bull and bear markets. That way you’re dollars are diversified across hundreds of stocks and overseen by professional managers whose compensation is tied to the fund’s performance.

If you’re a real estate investor, take advantage of the fact that sellers are competing for buyers – often selling properties just for the amount owed on them. Also look at different forms of real estate investing – including tax liens, trust deeds and other forms of ‘paper’.

Look at the long-term when considering investments and business moves. As a general rule of thumb, recessions tend not to last very long – usually from 9 to 18 months. They are counter-acted by moves in the Fed’s interest rate, by adjustment of loan qualifications, by government spending policy and by consumer spending at key times of the year. 80% of the recessions since 1948 have lasted less than a year with the recessions of 1990 and 2001 each last only 8 months.

Emergency Fund

If you don’t already have one, get an Emergency Fund going. Consider putting money into your emergency fund an expenditure of the first priority. Many financial planners say that an emergency fund should be built up over a period of time so that you have at least one or two months worth of normal expenses set aside in a safe, conservative account. Experienced planners say that three to six months is even better.

Your credit cards should not be your emergency fund. Using them only makes matter worse and digs you into an even bigger financial hole. Instead, look at every possible viable alternative before turning to credit cards to get you through any thin period.

After the recession is over and things are turning around, you should commit a steady and consistent percentage of your income to renewing and building up your emergency fund ‘for next time’.

Focus on Where You’re Going

Don’t lose sight of your goals. Yes, they may need to be readjusted for a time during a recession but remember that a recession is by its nature temporary. The end of the recession won’t be announced with trumpets blaring and sirens going off; however, things will eventually turn around so that better times have arrived. If you’re an investor, you’ll be tempted to cash out poorly performing investments. But be careful and look before you leap at the underlying basis for the investment. Is the underlying value of the investment something that stays with it even though the price varies up and down during different markets? If so, then unloading it during a temporary recession may cause you to lose money. On the other hand, if the inherent value is something that stays with the investment in both good markets and bad, then instead of unloading it when prices fall, you may want to use the opportunity to get more.

Take a Skills Inventory

Regardless of your age, you can ‘find a home’ if your skill set is worthy of an employer taking a risk on you. If you’re working for someone else (rather than yourself), do a skills inventory and beef up those that need to be improved. Your skill set is really what makes you attractive to a prospective employer.

If your professional resume is outdated, dust it off and update it. Put some feelers out among your friends and contacts, and don’t be afraid to reach out beyond the locality in which you now live. Also, make sure that you are perceived at work as a ‘valued employee’.

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Trading Woes On Small Cap Stocks How To Avoid Them

Spotting a Tiny top batch can be a severe charge for any a singular, even for a seasoned financier . Let alone, anticipating a singular that’s earnest sufficient so you concede yourself a additional risks compared with it.

While many bonds which you know, similar to Apple( NASDAQGS: AAPL) traffic during prices over hundreds of dollars, a tiny bonds which do not crop up in a incomparable exchanges have been labelled during a spin significantly next which . As tangible by a Bonds & Exchange Commission( SEC), inexpensive bonds which have been underneath$ 5 have been in all referred to as penny bonds . These have been bonds traffic upon a pinkish sheets or Over a Counter Bulletin Board( OTCBB) .

For many people rivet in shopping Tiny top bonds since of a captivate of incomparable tenure as well as a intensity for incomparable yields which comes with it . For easier illustrations, carrying$ 100 can means you usually 4 shares of a batch labelled during$ twenty-five any compared with 1000 shares for a batch valued during$ 0.10 a square . Even some-more, isn’t it easier to go from$ 0.75 to a$ 1 than$ 75 to go to$ 100?

Well-known as well as determined companies similar to International Commercial operation Machines Corp( IBM) or Coke have bonds which have been described as less-volatile . What which translates to is, whilst these blue thinly slice companies have arguable expansion patterns over a years, it takes longer for investors to comprehend a large lapse upon their investments . Upon a alternative palm, Tiny top bonds give high-risk players a event they need to comprehend incomparable earnings in reduction time . It is not unheard of for a Tiny top batch to pierce upwards 20% in a singular day.

Different things minister to a tall risk as well as mostly disastrous notice upon penny bonds . Investors who have been burnt as well as mislaid thousands of hard-earned income shopping these bonds dispute about low-level liquidity, marketplace strategy as well as even fraud as a categorical causes.

Why people would risk income over something they know really tiny about is over this essay, though that’s not to contend which shopping or traffic tiny top bonds is similar to throwing income out a window . Investors who have incited to tiny top batch traffic as well as became winners in it would discuss it you it’s about distributed risk as well as anticipating a right companies.

These handful companies have been those which mount in a early expansion stages though in time uncover fast expansion by rising clever brands or substantiating pass partnerships . It is simply not usually about plain-old fitness, though clever investigate as well as projection . Lady fitness favors a rebuilt, after all.

Now if as well as when you confirm to jump in to which high-risk, high-gain locus, it’s many appropriate to be rebuilt . Here have been a tiny things to do prior to shopping a penny stock:

  1. Find out all a inform you can about a batch you have been shopping . As well as here lies a singular of a intensity problems with Tiny top bonds nonesuch of association inform . Incomparable batch exchanges similar to NASDAQ as well as NYSE yield a open scores of inform, quotes as well as investigate which assistance umpire marketplace wake up . Tiny top bonds upon a alternative palm, traffic upon a pinkish sheets or Over a Counter Bulletin Board . Companies listed upon a OTCBB do not have inventory mandate as those upon a NASDAQ or NYSE as well as have been in all regarded as unsure markets . Companies listed upon a incomparable exchanges have a proven lane jot down of success corroborated by plain government which helps encourage investors.
  2. Check a company’s spin of liquidity . Ask yourself or your attorney, Is there a direct for a stock?, How prolonged does it take to find a customer ? Liquidity can be suspicion of as a spin of traffic wake up or many easier a series of people traffic or exchanging a sold batch . SEC warns of a low-level of liquidity as well as intermittently shopping concerned with penny bonds . A final thing you wish is to finish up with shares which cannot be sold.
  3. Watch out for scams or fake activities . Since removing inform upon Tiny top bonds is formidable, they have been mostly a aim of fake activities . A tiny microcap companies change your preference to buy a bonds by paid media TV, air wave, as well as email which will give padded press releases in preference of augmenting a company’s repute . You happily squeeze a batch, which by afterwards have spin some-more costly overdue to a hum around it usually to comprehend after a whilst which you’re left with bonds you can’t sell.

When you embrace auspicious headlines from paid promoters upon a batch, go forward with do your due attention initial . Your task should embody during slightest a credentials check upon a association a resources as well as operations . You should know just or during slightest be means to insist how it creates income as well as how it will make use of your investment . A great source of inform comes from a inform companies jot down with a SEC.

All OTCBB companies have obligations to jot down continual reports which enclose critical inform to investors about a commercial operation as well as monetary condition . Ask your investment confidant for a SEC reports or how to find them . If a association doesn’t jot down with a SEC, you can in spin ask for a Rule 15c2-11 jot down containing critical association information.

1. Be heedful of high-pressure sales strategies . Do not go in to an investment but correct review . Brokers who contend they have inside inform upon what’s to be a earnest investment have been red flags to watch out for .

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Ultimate List Of Abc Of Personal Finance Investing And Accounting

Between personal finance, investing, and accounting there are a lot of vocabulary, ratios, and technical terms. If this overwhelms you, then I have a special post for you today. Read on to see the ultimate ABC list for personal finance, investing, and accounting terms.

Quick Side Note:

Obviously, there is so much more than what is on this list, these are ones that I thought would be helpful to share! Also, if you like this post leave a comment and maybe I will do a part 2.

Before We Get Started:

Here are some other popular posts you may be interested in:

A is for Assets

If you are familiar with a company’s balance sheet you likely know the equation Assets = Liabilities + Stockholders’ Equity. But, what is an asset? An asset is something that will provide some sort of future economic benefit to a company. For example, land, inventory, building, cash, they can all be used in some way to generate sales, revenue, or other benefits in the future.

B is for Balance Sheet

As explained before the Balance is one of the 4 crucial financial statements that shows a company’s financial position at one point in time. The balance sheet can also be applied to your own life to understand what assets you have, minus any liabilities, leaving you with your approximate net worth. For example, if you own a $400,000 house and have $15,000 in the bank, but owe $200,000 in mortgage payments your net worth might be considered $215,000. Although, Robert Kiyosaki might argue differently about your house as an asset. Anyone who is familiar with Rich Dad Poor Dad knows what I am talking about!

C is for Current Ratio

One of the most common liquidity ratios when analyzing the financial position is the current ratio. It is calculated as Current Assets/Current Liabilities. Think about it, if you have $100 in short-term assets but owe $200 in short-term liabilities, you are unable to fulfill these payments without drawing down on more debt. This is why many investors want to see a current ratio of at least 1 or even higher for a better margin of safety.

D is for Debt

People are familiar with debt, but it comes in all different forms including student loans and credit cards. Debt provides leverage to companies because the interest expense is tax deductible and it only requires a fixed payment. For example, a $1,000,000 loan with a 5% interest rate requires an interest expense of $50,000 every year, but nothing more. Then, this $50,000 can be written off on the income statement before taxes, thus lowing taxable income and the amount of taxes paid. But, since it is a fixed obligation, even if the company has a rough year they need to figure out how to pay it.

E is for Equity

Equity is the alternative financing method to debt. When you invest in a stock, you are essentially buying equity or a small piece of the company. Equity is one of the popular financings for deals on shark tank. An entrepreneur comes in asking for $500,000 in exchange for 20% of their company. This is implying a valuation of $2,500,000 for the company since 100%/20% = 5 and 5 x $500,000 = $2,500,000. Yes, this is one of my favorite shows and if you want to learn more about it check out this post here:

F is for Forward PE

PE is a measure of Price/Earnings. If a stock is trading at $100 per share with EPS, earnings per share, of $5 this would be a PE of 20. Forward, PE is essentially the same calculation but with projected EPS. This is why sometimes on Yahoo Finance the regular PE won’t be available but the forward be is. This implies negative current EPS, but positive EPS in the future, which allows you to calculate the Forward PE.

G is for Gain

Gain is used for a lot of different reasons. If a company buys land and later sells it for more than the original cost this is called a gain, as long as it is not in the normal course of the business. In other words, if the company exists solely to buy and flip land, this would more than likely just be considered revenue. But, if a technology buys land for their office building but decides to relocate and sells the land for more, this would appear on the income statement as a gain. Gain is also what investors use to talk about their stocks market performance, usually in percentage or dollar terms.

H is for Hold

When reading analyst reports you will usually see variations of 3 different opinions, buy, sell, and hold. Buy and sell opinions are easy to understand and hold falls in the middle of the spectrum. It is a suggestion that if you do not currently own the stock, hold off on buying. But also, if you are a stockholder, it does not mean sell, just hold. Basically, do not initiate a transaction either way.

I is for Institutional Investor

People like you and me are considered retail investors, but companies with billions of dollars to invest are institutional investors. This can include hedge funds, financial service companies, higher education, companies investing pensions on behalf of their employees, mutual funds, and other similar investors.

J is for Junk Bonds

When it comes to bonds there are two classes of junk bonds and investment grade. The classification depends on their credit rating. The lower the rating, the higher the chance the bond will default and not make the payments. However, a lower rating means a higher potential yield, making these bonds much riskier. Typically below a BBB rating is considered junk bond territory.

K is for Kangaroos

This was actually one I was unfamiliar with and I had to do some research to find a K term. Supposedly, kangaroos are the slang name for Australian shares that are traded on the Australian Stock Exchange which is called All-Ordinaries Stock Exchange. I learned this from Investopedia so check out their article here.

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Benefits Of Selecting Appropriate Financial Planning Service

The first thing that we want to show you here is how to understand the term: Financial Planning. Financial planning is an ongoing process that will help you make relevant decisions about your money so that you can achieve different goals in your life. Most people think that it is specifically about ISA or pension, but it is more than that.

If you don’t know when to plan for your future, we recommend you to continue reading further. It involves putting appropriate wills that will protect your family, as well as thinking about how your family will manage without your income if you die prematurely. At the same time, it involves thinking about all financial plans together.

You can make it without using any service, but for more complex planning, you will need a financial planner.

If you want to create a financial plan, you have to follow these six steps:

First and most important, you have to establish goals in your life, short, medium and long-term ones. Check what liabilities and assets you own and write everything down. You should evaluate your current financial situation and answer the question of how close you are to achieving specific goals you wanted in the first place. Create a route map and plan for achieving financial goals. Use and implement this particular plan and make it become a reality. Monitor the usefulness and review the plan based on your current financial status and adjustment that happened along the way.

It is important to start creating goals for your future, especially when it comes to long-term ones. Of course, it is essential to prioritize them and to think about how much they will cost and what you’ll do with the money you have.

You can quickly start to plan your financial goals and start working towards achieving them. We opt you to have in mind that you also have to plan specific problems that could happen along the way and how you’ll overcome them.

Having a plan means getting things organized, so if you want to be in control of your finances, you have to make an appropriate method for the future.

Benefits of Selecting Financial Planners

When it comes to financial planners, you should have in mind that most of them are independent, which is why people are scared of them. It is essential to understand that most professional independent advisory firms have registered at Independent Registered Investment Advisors (RIAs), with the idea to solve your complex financial needs.

Since these financial planners are independent, they are not tied to specific investment products or funds. At the same time, they hold the highest standard of care, which is the requirement to the act in the best interests of all clients. You should know that they have registered with both Exchange and Securities Commission for state regulations.

Check here, to learn more on financial planning and its definition.

Most individual advisors run independent advisory firms, which is why they forge a close and personal relationship with clients. We all know that financial planning is one of the fastest growing areas within the financial service industry, and independent advisors have increased asses for 14% on an annual basis since 2008. People expect that it will grow in the next two years for another trillion dollars.

If you are an investor that has complex needs or someone who seeks out the personalized advice from the professional financial planner, you have to make sure to find a reputable financial advisor. Check the benefits that we have presented to you:

Utterly Individualized Guidance Based On Your Specific Financial Picture

It doesn’t matter if you need help for tax situation, retirement planning, managing assets, estate planning at multiple places, by choosing financial advisors you will have a freedom to choose a wide array of investment options. Finally, you can rest assured and completely customize planning per your convenience and enjoyment.

Personal, Attentive and Responsive Relationship With Clients

The idea is to find a financial planner that will provide you with advice that is closely aligned with your specific goals. Therefore, a financial planning service must build a firm understanding of what you wish to achieve as well as your current financial situation.

Visit this website: https://en.wikipedia.org/wiki/Financial_planning_(business) to get more info on structure of financial planning.

As the main result, most independent advisors tend to focus on building a significant relationship with clients. Planning also requires constant, ongoing and regular interaction. That is the main reason why most advisors are business owners, and they are accountable to clients and not their personnel and staff.

Transparent Fee Structure

Most financial advisors charge a fee based on a percentage of an asset that they manage. Therefore, their primary goal is to help you earn, which will increase their price too. The fee structure is transparent, simple and easy to understand.

Of course, some financial advisors work with fixed prices, which is why you should ask them about payments before you make a deal and choose the appropriate one.

Great Level of Expertise

Financial advisors are people who work with managing assets and helping investors deal with complex investments that will allow them to accumulate wealth. Of course, specific firms will provide you wide array of services that vary from firm to firm.

In most cases, they are financial quarterbacks that focus on your entire financial picture. Have in mind that some advisors use unique investment strategies, so while conducting an interview, you should ask them about everything you need to make up your mind.

On the other hand, some financial planners are specialists in specific investment areas. Others will provide you wide array of services such as borrowing, estate planning, complicated tax solutions, the sale of the business, intergenerational wealth transfer, trusts and many more.

Conclusion:

Financial planning is an essential addition to your future career because you will have a comprehensive idea of what you can do with the money you currently have. That way, you can rest assured and find a way to increase your wealth without taking too many chances.

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