Lifelong Wealth Greetings from the desk of Jason Gong!

I hope everyone is surviving the unpredictability of Spring time in Oregon. Keep your umbrellas close, but sunglasses closer—it will be Summer before we know it!

Spring is always an optimistic time of year; filled with new life and hopeful expectations.

At Lifelong College Savings my goal is to optimize your investments in the current market. As always, if you have any questions regarding the information presented below or need assistance with any investment strategy, please contact me. I look forward to hearing from you!

Buy, Rent, or Sell a Home?

Inevitably, every year I am asked about buying, selling, and investing in real estate. Is real estate a good investment option now? Should I buy a new primary residence and/or rent out my current home? Is it a good time to sell some of my properties at today’s market values? The answer is: it depends! It depends on your individual situation, risk tolerance, overall goals, projected income and expenses. We offer property management services in Lake Oswego, USA, based on client needs. In the following article, I will give you some examples for when it makes sense. Moreover, I will review alternative real estate investment options that may meet your risk tolerance. Historically, real estate has been a great investment option to hedge against rising inflation. The 2007 economic downturn and its impact on residential values, however, caused great concern for clients holding real estate as part of their portfolio. Here are some current market conditions to consider:

  • Interest rates are still low for now. Yet, with rising oil and food prices and increasing national debt, it’s only a matter of time before interest rates rise again. Some analysts believe primary mortgage interest rates may climb to 5.5% or higher in 2011.
  • Credit continues to be difficult to obtain. Lenders are tightening lending guidelines and padding their reserves for potential merger and acquisition opportunities. Regulation continues to be pushed into legislation, which may add to barriers for lenders and costs to borrowers.
  • Home prices are starting to fall. As per a recent home price report from S&P Case Shiller, prices in the top twenty U.S. markets fell 3.1% in January and the slide is accelerating. They say prices are just 1.1 percent above the low of April 2009.

According to a recent CoreLogic report, 23.1% of all residential properties are upside down in their mortgage (worth less than the amount owed). Unfortunately, this number is projected to rise through spring of 2012 before leveling out.

So, does it still make sense to buy a property? Let’s look at the following scenario:

Client A is considering purchasing an investment property for rental purposes, but is nervous about the declining market. Does it make sense to buy a property now?

Home Price: $350k
Down Payment: 20%
Total loan amount: $280,000
Loan: 30 year fixed
Rate: 5.25%*
Monthly Payment (P & I): $1,546.00/month
*(note: rate fluctuates daily and is dependent on property type and borrower)

Over the course of the loan, the total potential loss due to the decline of property value ranges from $5,566.00 to $25,048 assuming a maximum 4.5% drop. Or, a rate increase of ½ percentage point results in a total loss of monthly payments up to $31,620 (over the course of the loan assuming all other conditions remained the same). Given the above scenario, there IS a viable argument for purchasing an investment property at today’s rates.

If client A waits until 2012 when property prices have declined 5% while interest rates climbed to 6.25%, the scenario would look like this:

Home Price (5% decline): 332,500
Down Payment: 20%
Total loan amount: $266,000
Product: 30 year fixed
Rate: 6.25%
Monthly Payment (P & I): $1,638.00/month

To summarize, in the first scenario property is purchased at the higher price with a lower interest rate resulting in a monthly mortgage payment of $1,546. In the second scenario, the same property purchased at a lower price but a higher rate results in monthly payments of $1,638. Clearly, the best option for this client is the first scenario saving $92/mo or $33,120 over 30 years.

Bottom line, there are opportunities in distressed situations. However, an individual needs to understand the plethora of factors and risks to make an informed decision about buying real estate. As Warren Buffet warns, “Don’t try to catch a falling knife until you have a handle on the risk.” We provide property management services in Oregon, United States and can easily determine if purchasing investment real estate makes sense for you, please call or email me at / (503) 747-6534. I look forward to hearing from you!

Lou’s Corner - Words of Inspiration

Friend. Mentor. Leader. Lou Radja. I’ve been fortunate to lean on Lou over the last year, which was difficult for most of us. His words of wisdom and gentle reminders are worth sharing. Enjoy!

Let’s adopt the “Extra Mile” philosophy!

It was Roger Staubach who once said “There are no traffic jams along the extra mile”. The good news is that just about all the things we desire for our lives (good health, wealth, great relationships, peace, promotions, love…) are waiting for us on that extra mile. The bad news is, yes you guessed it, most of us have not or refuse to adopt the “extra mile” way of life. We find it too hard, we don’t want to pay the price or worse, we don’t believe in the rewards awaiting us on the other side. Adopting the “extra mile” philosophy is about going above and beyond in all areas of our lives. Success is what you do after you do what’s expected of you! So let’s challenge one another this week to give more than 100% in everything we do. If it’s worth doing it at all, then it’s worth all our efforts and more. It’s by developing the habit of going the extra mile that we’ll create the life of abundance and fulfillment we all deserve. So let’s start a little earlier and stay a little later in whatever job or task we’re taking on. The extra mile will make you and I not only appreciated for the value we bring, but indispensable both in our personal and professional lives. It will help us excel in our line of work because we will always improve on previous tasks. See you on the extra mile!

Action Step

Like any new habits, it takes time, consistency and effort to make it part of you. The extra mile philosophy is no different. Demand more of yourself and raise the bar in all that you do. Show up early at work, do one more lap, leave a better tip after a meal, show the people you love more then they expect, send that unexpected gift of handwritten letter,…simply put, do more! 100 % is no longer the limit, make it 150, 200, 300 in all that you do, starting today.

Upcoming Events:

Topic: Silver, Gold, and Copper – Tactical Strategies
Location: Lake Oswego Grill, 7 Centerpointe Drive, Lake Oswego OR 97035
Time: May 21st, 2011, Saturday – 10am (lunch included)

Topic: Oil and Natural Gas – Noble Royalty
Location: El Gaucho
Time: June 7, 2011, Tuesday – 6:30pm – 8:30pm (dinner included)

To RSVP, call us at 503-747-6534, Spaces are limited.

Jason Gong is an investment advisor representative offering securities and advisory services through Cetera Advisors LLC, member FINRA, SIPC. Lifelong College Savings is not affiliated with Cetera. The views are those of Lifelong College Savings Group and should not be construed as investment advice nor that of Cetera Advisors LLC.