I was reading an article on Yahoo Finance yesterday talking about how to get cash out of your home (basically talking about retirees).  Whether a retiree or not, I’ll show you a few additional details not commonly discussed, nor pointed out in the article.  Take a look.

#1.  Sell it…

Selling the house is a great way to get cash, but selling the house plays to the advantage of the realtor.  Actually the equity in the house may be more for realtor protection than the homeowners’.  Here’s what I mean.  First, some people don’t like to borrow money.  Fine.  Sell the house.  Second, and possibly more importantly, look at history.  Until the late 1990’s, Texas did not allow home equity lending.  The realtors lobbied against it.  Common myth says equity is for homeowner’s protection, but in reality, it protects the realtors market.  They need sales!

#2.  Rent it…

Renting property can take a house of brick and mortar with a ton of cash tied up into a business creating income.

#3.  Borrow it…

For homeowner’s who do not go with option #1 or #2, borrowing can be done.  However, home equity loans come in a couple of ways with vastly different approaches.  The first way is a HELOC (home equity line of credit).  A HELOC is simply an amount of money available against the house, but generally uses the house’s original value and does not need new appraisals, etc.  Simply put, homeowners are borrowing their own money.  The next way is a cash-out equity loan.  The cash-out is different than a HELOC, because it allows the current market value of the home to come into play.  Simply put, if the house has appreciated in value, owners can take the profits out of the house without selling the house.  (See why realtors don’t like the loans?)

4.  Reverse it…

Baby boomers are a big target market right now and a reverse mortgage is a hot topic.  One might be lured into the idea of getting money out without ever making a payment.  True, no payments required (with a couple of stipulations), but any money borrowed has to be repaid…by the heirs or estate for example.  If traditional thinking, meaning pay cash or get a loan and pay off the mortgage worked for past generations, why a reverse mortgage now?  Fact is it didn’t work for many people.  Therefore, if an owner needs money, or potentially will need money, why tie up an enormous amount of money into brick and mortar sitting idle for so many years?

The bottom line is how to get cash out of the home should by why put it there in the first place?

Owning a house may or may not be the American Dream we commonly hear and the answers can be broken down into areas.  Real estate decisions and financial decisions.  People spend quite a bit of time looking for a house, but what appears to be minutes in deciding about a loan or paying cash.  In reality, both are huge decision and they are separate, but equal and should be looked at independently of each other.

Read about it in Barking With The Big Dogs and see what is happening to your (and my) money every day.

Today I was reading an article at Yahoo Finance.  The title to their article was “Fed’s Lacker says must let ailing big firms fail“.  The idea of the article, as I see it, is to let the big firms fail so that financial institutions will stop taking risks knowing they will be bailed out.

Okay, so let’s look at risk.

Banks are not risk lenders, they are asset lenders meaning they want collateral to back the money they loan.

In reality, the government is the risk taker (putting tax payers on the hook) and can be seen with GSE’s.  GSE stands for Government Sponsored Entities.  Take FHA or the SBA.  These agencies will partially guarantee loans, allow for reduced requirements such as down payments, lower credit scores, reduced rates, etc. and actually encourage risky activities.

The SBA guarantees are to partially guarantee loans to banks so that borrowers have access to capital when they cannot seek funding elsewhere.  The SBA has been called the lender of last resort and is similar to an insurance policy for the bank.  I think the bank, by getting collateral and guarantees, is not acting risky, but smartly.

Let’s continue with risk.

Derivative.  What an ugly word in the financial section of the newspaper, written by  a writer and editor that doesn’t even know the Treasury is the one who prints money.

A derivative is simply a contract between two or more parties based upon an underlying asset.  It allows for leveraging.  Let me explain…

Take a stock option.  Let’s say you want to buy GM at $30 per share (trading at $32.33 right now).  You could buy a call option allowing you to purchase GM at $30 and pay a person $3.38 per for that right to do so.  If the price goes to $35 by June 18th for example, your cost is actually $33.38 and you would have made $1.62 per share.  If the stock price goes down, the most you would lose is $3.38 per share per contract, meaning 1 contract is 100 shares or $338.  If the price of the stock goes to $0 like GM did in the past, the option holder is out $338; whereas, the owner of the stock loses $3,233 for those 100 shares.  Therefore, derivatives are not always risky, but don’t take my advice…look at the Treasury….

I wrote an article about how the Treasury makes money and you can too.  Read about it here (it’s short and sweet).

Sure there are investment parts to the bank as well.  Banks buy and sell money and yes some action is risky and can be greedy.  In order to earn higher returns, more risks have to be taken.  (True for banks and business owners, etc.)  I’m not here to defend the bank, but a quick news clip or article doesn’t tell the story, and I’m not going to put 460 pages of Barking With The Big Dogs in this little article either.  Just don’t always buy the hype in a 30 second slot or the talk at the water fountain or break area.

To continue on with the Yahoo article, let them fail, in the Fed’s opinion as I see it.  Why?

Someone else will buy the assets and the government has a huge stake in the assets too.  You don’t think your loan is going away do you if you bank fails?

Take Citibank.  The government had warrants (options) to buy the company!  The sold the warrants and made money.  Of course I haven’t seen my check and wonder if I will have to pay income taxes on the gains.  The government may have sold any ownership they had in some banks, but they didn’t in GM.

Too big to fail hurts the average Joe, in my opinion, and some groups get very wealthy in the process.

Finally, take the Frank / Dodd finance reform bill; it can actually limit competition disguised as consumer protection and plays in to the hands of the big institutions or players.

It is interesting that the last line in the Yahoo article mentions the government should consider getting out of subsidizing.  Maybe that should include more than just housing.

The other day I was talking to an acquaintance of mine who decided to not use his money to start a business, but to buy a home. The home made more since to him since he couldn’t find sources for his materials and he (and his wife) are renting an apartment.

I told the client he owns his home no matter if he buys a house or rents because a home is the people and the house is brick and mortar.  (He was shocked when I stated I rent a house.)

With previous housing conversation started, I told my friend a house has no guarantees just as a business has no guarantees; which leads me to the following statement. ‘Which produces income? The house or the business?’ I went on to say a quote I heard several years back, ‘buy the company, rent the house.’

Income can buy the house, but a house doesn’t not produce income.

Don’t get me wrong, I am not against owning a house, rather I understand a house for what it is – shelter (basic to luxurious) and has income potential, but it must be rented or bought and sold. In the case of renting or “flipping”, a house is simply a product as any other in its basic concept.

More on this story later as it pertains to how he was getting some funding…check back, you’ll want to read it.

Barking With The Big Dogs is available on my website, Amazon.com (see Shop Now – it will take you there) and Amazon’s Kindle in just few days!

Get a copy today.

I was reading an e-mail regarding debt strategies for struggling businesses.  The question was part of a series.  Today’s topic describes the current situation for people wanting to stay in business, but cash flow is tough and the business is past due with creditors.

(The question is straight-forward and no other assumptions are implied.)  “What is your best option?”

Choices ranged from ignoring the creditor’s attempts to collect the money to telling them the truth about the situation and seeking cooperation.  Other possibilities included setting for a lump sum amount for pennies on the dollar to a payout over a couple of years time.  The final choice is to pay the full amount plus interest over a year, but ask for no payments for the first year.

As it turns out, the answer to the aforementioned question is the final option.  No payments for the first year and the rest paid out over the second year.  This option will be the most expensive, but makes financial since as described by the party producing the question.

My take from a struggling business would concur with the answer.  No payments protects immediate cash flow and limited resources while reducing some risk; and, the no payments choice allows the business the ability to continually try to make money over the course of time to stay in business and hopefully turn things around.

However, from a creditor’s viewpoint, I’m not going a full year without getting paid.  (Even though the question was around you or me as a struggling business and our options, look at the other side as if we are the ones dealing with struggling business as well.)  I want some type of monthly cash flow myself.  As a business, I’m not the bank.  Furthermore, working things out, but collecting some amount regularly might keep their doors open long enough to get my money back; or, at least I will settle for some monetary amount, but I won’t settle for a customer not being upfront.

If the business avoids my calls and doesn’t want to structure some type of agreement, one last thing I might do as a creditor if I do not get my money, I might just send them a 1099-Misc. and treat the amount they owe me as a GIFT!

Why would I send the business or person owing me money a 1099?  First, I’ve lost.  I’m out either the merchandise or my time for services and can’t recover the loss of profit or the cost.  Next, the 1099 is a revenue form filed with the IRS that shows income to the other party.  I might not get paid, but the party owing me the money will have to show the amount as income and pay the taxes (or adjusts their taxable income) to the IRS.  One or two of these 1099′s can earn the reputation that when doing business means honoring commitments by the customer, not just allowing people to walk away.  Go to the bank for financing.  Look at what happened to furniture stores, such as Lacks Furniture in Texas.  They got in trouble financing the furniture and are now out of business.

Getting back to the main answer though, the key is cash flow.

No payments increase cash flow, but what you do with the cash flow difference is very important too.  Speaking of the importance of cash flow, payments, etc. and although I’ve written Barking With The Big Dogs primarily around the house and a mortgage, the concepts apply to any business.  Many business examples will be demonstrated as well.  One such business is the bank itself and you can read the importance of payments and other business tactics and use them on a business or personal level.

I was looking over at the shelves by the door and saw a book I read nearly twenty years ago. When I graduated college, a friend suggested I pick up a book by Harvey MacKay. Although the book talks business, as with anything, some principles can be applied to a personal level. From what I remember, my friend said professors hated it, yet he loved it. The book, “Swim With The Sharks Without Being Eaten Alive” is a very good, practical book about business not generally taught in textbooks. In the last year, I picked up a copy of a revised, more recent copy. Every now and then, I’ll scan the Table of Contents and pick out a quick section. Most are a couple of pages, yet I find myself reading many sections because the book is very easy to read. Pick up a copy; the concepts and stories are definitely worth reading again and again. Paperback or Kindle.

See larger image Swim with the Sharks Without Being Eaten Alive: Outsell, Outmanage, Outmotivate, and Outnegotiate Your Competition (Paperback) By (author) Harvey Mackay List Price: $14.95 USD New From: $6.50 In Stock Used from: $0.01 In Stock Release date August 27, 1996.

The price for the GM IPO is set very high due to the demand for the stock. The money made from the IPO for issuing a bailout is a fair return for the taxpayers we are told. From other bailouts, such as in the banking industry, the government has made money for taxpayers as well.

However, will the taxpayers see a check in the mail? Probably not. With the government making so much money trading stocks, why is our debt continually rising?

If the government is making money buying and selling shares of companies; issuing and selling warrants (similar to options), then why are the people who make a living doing the very same actions as the Treasury does demonized for making money on Wall Street? In addition, more restrictions are placed on the activities of the citizens as well as increasing their taxes and fees; thus making it harder for people to make money. (Reason #1 why I’m not buying a GM.)

Wall Street, greedy businesses and executives are blamed for massive layoffs and unemployment; yet the new GM under government control, had big layoffs as well as closing dealerships.   These layoffs and closings have been seen as a positive though.

Isn’t Obama and company’s scenario regarding GM – get lean, efficient, etc. – ironic considering the massive spending, inefficiency of government  and its overall growth occurring in Washington today?

What about the people that lost everything when the government mandated bankruptcy occurred. Those shareholders’ stocks went to $0, yet are not getting nothing today. GM was out of bankruptcy in a month! (Reason #2 why I’m not buying a GM.)

With the new IPO of GM, the government will have less ownership, but still own over 1/3 of the company. Although less government ownership, the UAW (United Auto Workers union) was given over 17% of the company as part of the bailout in 2009; therefore, shareholders out – government and unions in. (Reason #3 why I’m not buying a GM.)

The big reason I do like GM and don’t want to totally bash the company is because from a business standpoint, GM is more lean and making changes, increasing exposure and looking exciting.

Furthermore, the real reason I like GM is the TV show Hawaii Five-O.

While watching the new TV hit show Hawaii Five-0, GM sponsorship through adverting is all over the TV.

I like watching McGarrett and Danno cruising in their Camaro or doing high speed chase scenes and will continue to watch the show, just not buying the cars any time soon. Maybe someday,but more more has to convince me otherwise.

Believe half of what you see and none of what you hear is an old expression. Even older than the internet itself, because if memory serves me correctly, Al Gore – the “father” of the internet was not around when Ben Franklin made the statement.

Then again, I found the statement on the internet and wasn’t there either, but I remember the quote as a kid and we didn’t have the internet. Therefore, the statement, or one similar has been around a long time.

What made me think of famous quote happened the other day after I was giving an interview on the radio. The host made the comment asking what, and if, we can really believe “stuff” on the internet is true; thus questioning the validity of the most stories circulated throughout the internet and passed on in e-mail forwards. According to Ben Franklin, we shouldn’t believe anything on the radio since the messages coming through airwaves are spoken, thus heard.

While listening to the radio the other day, I caught a few seconds of Crown Financial Ministries talking about mortgages. The host stated mortgage requirements are getting lax again believes everyone should use a 20% down payment when getting the loan. Why 20%? He didn’t elaborate. I assume he is just repeating everything he has heard as well, because the answer was not detailed, just a quick opinion. Stating the obvious is an easy sell, and yes, talk shows are selling a product – the agenda. (Read Monkey Business in my book Barking With The Big Dogs and I’ll explain in detail. In addition, I’ll explain what is key about a 20% down payment – not just repeat what is typically spoken.)

Moving from the radio to the internet and speaking of e-mails, I get the Bleacher Report delivered via e-mail. One day while talking to a colleague of mine, he stated he didn’t like the Bleacher Report because it was a bunch of bloggers. “Bloggers are biased” he said. Okay, so are newspapers; otherwise, why would the newspaper endorse a candidate such as Bill White (candidate for Governor of Texas) as the Abilene Reporter News and their other affiliates did? They are biased for Bill White, not equally for Rick Perry. Furthermore, showing bias, I had a comment not published that was in direct response to a previous post on their website. Moreover, newspapers are aggregators of information just like the Bleacher Report. (An aggregator is a collection of items.)

The Bleacher Report collects and distributes sports stories from The Austin Statesman, The Dallas Morning News, ESPN, etc., and yes has bloggers too. The Abilene Reporter news collects stories from the Associated Press (AP) and has bloggers as well on their online site too. They post videos from other sources just as many websites do. So, what’s the difference? Nothing, just the agenda.

When reading the paper, checking out the latest story on the internet or listening to the radio, what we read and his is not always the complete truth, but it’s not all a bunch of lies either, and maybe , consists simply of partial truths.

The main thing when getting information from the internet as opposed to other sources is not to buy the hype – just about everyone, everywhere repeats what is commonly known and has their opinions about what is seen, read or heard thus tilting the information to fit some kind of agenda which promotes (either directly or indirectly) some business, whether the businesses are private sector companies or public agencies.

As I wrote in Barking With The Big Dogs, the saying is true, “debt is a four letter word…it has four letters”. However, borrowing money is not always a bad thing to do, unless you preach debt is dumb.

Many times saying all debt is dumb is easy advice to give. For example, let me ask the question, “do you like to pay interest to someone else, or do you want to save and keep the dollars for yourself?” From a salesman’s perspective, the previous question was a leading question. The answer was already known. Everyone wants to keep money versus giving the funds to someone else. Therefore, telling people debt is stupid or dumb is easy advice to give (or sell). No other explanations are necessary.

Well, I’m not interested in stopping here, some explanation is required for true financial knowledge instead of simply rehashing the obvious mass amount of common knowledge already in existence.

Read the entire article below. It’s short, sweet and easy to read…

Is it smart to pay 10% interest on inventory?

Robert Kiyosaki, in his video, discusses business and other topics.