Creative Cash Flow Planning

Stocks tumbled as oil prices reached toward $75 a barrel and tech shares continued their swoon. The Dow Jones industrials lost 122 points, or 1.1%, to 11,013. Intel (INTC, news, msgs) fell about 3%, Microsoft (MSFT, news, msgs) shed nearly 1.7%, and Hewlett-Packard (HPQ, news, msgs) lost 2.7%. The Standard & Poor’s 500 index fell nearly 14 points or 1.1% to 1,259. But the Nasdaq Composite was just plain clobbered, falling 38.6 points, or 1.8%, to 2,090. So far this week, the Nasdaq is down nearly 1.9%, and it is at its lowest level in a month. The Nasdaq 100 index ($NDX.X) was harder hit today, off nearly 32 points, or 2.1%, to 1,501. Crude oil rose to $74.95, up 1.15% from yesterday. The $75 level is considered a psychological boundary where the price may begin to harm the global economy. There were no heroes among tech stocks, unlike yesterday when KLA-Tencor (KLAC, news, msgs) juiced the sector by saying its order book looked pretty strong. KLA-Tencor itself was down 3.6% today, after jumping more than 8% on Tuesday. The Semiconductor Holders (SMH, news, msgs) exchange-traded fund was down 2.7%. Among indexes that Market Dispatches tracks, only the MSCI U.S. REIT index ($RMZ.X) was higher — just 0.3%. A decline in boat sales hits boat manufacturers Shares of Brunswick Corp. (BC, news, msgs), fell 7.7% today after the maker of Sea Ray and Boston Whaler boats and outboard motors said that second-quarter retail demand had declined significantly. The company didn t say why. The report left a number of traders wondering if the sales decline was a signal of declining buying sentiment among high-end consumers. Competitor Marine Products. (MPX, news, msgs) was down 6.1%, and West Marine (WMAR, news, msgs), the big retailer of boat supplies, was down 2%. The weakness among these recreation-related stocks also was seen elsewhere in retailing. Stock Charts (Year) Brunswick Home Depot (HD, news, msgs) fell 2% and hit a two-year low at $33.67 after a Bear Stearns analyst cut his same-store sales growth estimate. Lowe’s (LOW, news, msgs) fell 3.8%. The Standard & Poor’s Retail index ($RLX.X) was off 2.5% on the day. Wal-Mart Stores (WMT, news, msgs) and Target (TGT, news, msgs) were both down more than 2% on the day. Oil prices jump on big inventory drop Crude oil inventories sank by 6 million barrels last week, the Energy Information Administration reported. Analysts surveyed by Dow Jones had predicted that inventories declined by just 1.4 million barrels. Gasoline stockpiles fell by 400,000 barrels, about in line with analysts’ expectations. Ironically, oil stocks were lower. Exxon Mobil (XOM, news, msgs) and Chevron (CVX, news, msgs) were both off about 1%. Energy prices — New York close Wed. Tues. Chg. Month chg. YTD chg. Crude oil (NYMEX) (per barrel) $74.95 $74.10 $0.8500 1.38% 22.79% Heating oil (per gallon) $2.0184 $2.0106 $0.0078 2.76% 16.81% Natural gas (per million BTU) $5.7820 $5.6330 $0.1490 -5.28% -48.49% Unleaded gasoline (per gallon) $2.2559 $2.1925 $0.0634 2.49% 31.92% EU hits Microsoft with a big fine Microsoft shares fell after European regulators slapped a $357.3 million fine on Dow component Microsoft for not complying with a 2004 antitrust ruling to give information to server software competitors.Stock Charts (Year) Microsoft The fine covers 187 days at 1.5 million euros per day. Microsoft also faces a 3-million-euro-per-day fine if it doesn’t provide the information by then end of this month. (Microsoft is the publisher of MSN Money.) Microsoft general counsel Brad Smith told CNBC s Squawk Box that the company plans to appeal the fine, saying it has worked very hard to provide information since the 2004 decision was issued. But the dispute was not about compliance, but clarity about just what the company was expected to do, Smith said. Genentech falls on Avastin disappointment Shares of biotech company Genentech (DNA, news, msgs) fell 3.66%, a day after the company reported a second-quarter profit of 56 cents per share, 12 cents per share ahead of the Reuters Estimates consensus. But sales of cancer drug Avastin were at $423 million — shy of the expected $441.84 million. Deutsche Bank downgraded Genentech to “hold” from “buy,” citing valuation and few near-term catalysts for a stock rise, Briefing.com reported. And Prudential cut Genentech to “neutral” from “overweight” on the smaller market opportunity for Avastin and weaker-than-expected top-line growth. Oil services firm Halliburton (HAL, news, msgs) fell 0.93% on the day after The Washington Post reported that the U.S. Army will end its multi-billion-dollar contract with the company and use multiple contractors. U.S. trade gap widens Higher oil prices widened the U.S. trade deficit in May, but not as much as Wall Street had predicted. The May trade gap widened to $63.8 billion from $63.3 billion in April, the Commerce Department reported. Economists predicted the deficit to grow to $65 billion. The amount paid for foreign oil rose to $27.9 billion in May from $$23.9 billion in April. Overall, imports rose 1.8% in May, while exports rose 2.4%. The U.S. trade deficit with China rose 4% in May to $17.7 billion. Short hits from the markets — 4 p.m. Wed. Tues. Chg. Month chg. YTD chg. Treasurys 13-week Treasury bill 4.93% 4.92% 0.10 1.34% 23.59% 5-year Treasury note yield 5.08% 5.07% 0.04 -0.43% 16.56% 10-year Treasury note yield 5.10% 5.10% 0.00 -0.74% 16.04% 30-year Treasury bond yield 5.13% 5.14% -0.06 -0.98% 12.93% Currencies U.S. Dollar Index 85.60 85.03 0.570 0.88% -5.89% British pound in dollars $1.83 $1.85 -0.006 -0.90% 6.81% Dollar in British pounds 0.55 0.54 0.003 0.91% -6.24% Euro in dollars $1.27 $1.28 -0.005 -0.67% 7.52% Dollar in euros 0.7869 0.7832 0.004 0.68% -7.00% Dollar in yen 115.50 114.26 1.240 0.96% -2.01% Commodities Gold $651.20 $643.10 $8.10 5.71% 25.50% Copper $3.67 $3.64 $0.0250 5.85% 69.56% Silver $11.56 $11.55 $0.00 6.66% 29.98% Crude oil (NYMEX) (per barrel) $74.95 $74.10 $0.85 1.38% 22.79%

Are you looking to purchase a real estate investment with no money down? Is
so, seller financing can help you accomplish that goal. Here’s how:

First, make sure the property that you are interested in is owned free and
clear. You don’t want any liens on the property popping up to create problems
with your plans.

Secondly, you’ll need to find a home seller who is willing to carry-back an
owner financed note on the property.

Let’s assume that you’ve located a nice, well-kept single family home in a
good neighborhood. The owner of the property is asking for $160,000 and wants at
least 10% down ($16,000). The property is owned free and clear, and the home
seller is willing to take-back an owner financed loan. But, the home seller is
adamant about the down-payment. He won’t sell without it.

Instead of simply walking away from the home, consider using seller financing
to create the down-payment for you.

How do you do that? There are actually many ways. We’re going to discuss one
way to do it here.

For this method to work, you’re going to need to create two separate owner
financed mortgage notes. (Trust deeds can be created in the same fashion if
necessary.)

The first mortgage will be in the amount of $100,000, amortized over 30 years
with a 10% interest rate. The monthly payment amount will be $877.

The second mortgage will be in the amount of $80,000, amortized over 30
years, with a balloon payment due in 15 years. The interest rate on this loan
also is 10%, the monthly payment is $702 and the balloon payment due in 15 years
will be $65,331.

The next step is selling the first mortgage note. Let’s assume that you
receive $80,000 as a lump sum in return for selling the entire amount of the
first mortgage. What that means to you is that you now have $80,000 available to
offer in lieu of a down payment. Though you are paying $20,000 more than the
asking price for the home, you benefit by buying the real estate without an
out-of-pocket downpayment. You will pay for the home over the next 30 years,
$1597 per month ($877 + $702) for the first 15 years, and then $877 per month
for the next 15 years. At the end of the first 15 year period, you will either
pay off the $65,331 balloon payment or refinance it with a banking institution.

How does the home seller benefit? First, instead of a down-payment of only
$16,000, he gets a down-payment of $80,000! That’s a whopping 50% down-payment
on the asking price for his home. Then, over the next 15 years, he receives a
payment from you of $702 every month plus a balloon payment of $65,331 in 15
years. That’s a total of $191,691 that Mr. Home Seller receives over the next 15
years, in addition to the $80,000 down-payment resulting from the sale of the
first mortgage. Not a bad deal at all!

In the scenario above, the home seller actually received the full asking
price of $160,000 for his home. You came out a winner because you purchased the
property with no out-of-pocket down payment. The seller came out a winner
because he not only received his full asking price, but received a much larger
down-payment than he was expecting. A win-win situation for both parties.

However, in many situations, you may be able to negotiate with the home
seller over the conditions of the sale. For instance, instead of offering the
full $80,000 in lieu of a down-payment, you may find that the home seller will
agree to receiving a $70,000 down-payment with a negotiated selling price of
only $150,000 for the property in consideration of the large down-payment. If
your seller agrees to this, what do you think will happen to the additional
$10,000 received at the selling of the first mortgage? That $10,000 is yours to
keep! That brings your total purchase price down to $170,000, still with no
out-of-pocket down payment.

Now, imagine that. You have just bought a single family home with no
down-payment, and put an additional $10,000 in your own pocket at the same time.
How do you think that would make you feel? What if you could get the home seller
to agree to accept a $60,000 down payment and a total selling price of $140,000?
How good are your negotiating skills? 

The above scenario is only one possibility. There are endless opportunities
and countless ways to structure a note which will benefit both the buyer and the
seller. First Class
Cash Flow Handlers can help you work out a solution to fit your own
individual needs.
Contact
them by e-mail or call them directly at (401)258-7158.