Hard money lending

I dug around for this story on hard money lending after hearing about it on a Wall Street Journal podcast.

Some mortgage seekers spurned by banks and other traditional lenders are turning to high-cost loans known as "hard-money mortgages."

Once thought of as a last resort for strapped borrowers, these products -- also called "private-money mortgages" -- have different lending standards than traditional mortgages and carry substantially higher interest rates and fees. These days, however, they are attracting a larger, more-affluent group of consumers.

These loans were often used by real estate investors to get quick financing for an investment property, which was later refinanced with a traditional mortgage. The Real Estate section of the Blogs I Read section has links to a couple of blogs that give real world examples of both getting and making hard money loans. Hard money loans are being used for more purposes than these bridge loans in the face of the subprime collapse.

Getting more exotic investment exposure with ETFs

Johnathan Clements provides some ETFs in his latest story that will give more exotic (meaning non-U.S. stocks) investment exposure. The four asset classes are foreign real estate, internation small cap stocks, commodities, and foreign bonds. Investing in these isn't all puppy dogs and ice cream though. He ends the story with this advice:

Intrigued? Remember, we're talking here about volatile investments. My advice: Don't stash more than 10 percent of your total portfolio in any of the funds mentioned above. In fact, a 5 percent allocation is probably plenty.

Commercial real estate basics

Recently, I read an article on the basics of commercial real estate, and am passing it along.

Think of the children

Time has almost run out to do some year end tax planning to avoid the 'kiddie tax' for older children. The kiddie tax taxes childrens' unearned income over a threshold at the parents' tax rate. It was designed to discourage the wealthy or mass affluent from shifting investment income to their children to avoid taxes. Once the child's unearned income exceeds the threshold, it gets taxed at the parent's presumably higher tax rate. As an aside, to show how arcane our legislative process is, the change in the kiddie tax for 2008 was part of an Iraq spending bill.

The change to the kiddie tax is that the child's age limit is being raised to under 24 from under 18, although this only applies is the child is a student. If she's not a student, then the limit changes to 18 and under from under 18 (in other words, the limit is being raised by 1 year). The impetus for 2007 taxes will be to have any dependent children between 19 and 23 to recognize any unrealized gains in 2007 to avoid being taxed at a higher rate in 2008.

Let me throw out a hypothetical. Let's say there is a 20 year old student who is really good at stock trading and makes a decent amount of money trading stocks in 2008. Her capital gains in excess of the threshold will be taxed at her parents rate, regardless of the fact that her gains may not be enough to be in that marginal tax bracket. Seems unfair.

Investment advice from the masses

I'm addicted to Wikipedia. I can kill several hours reading through topics like Balkan history on the site. The idea behind wikis is simple, anyone can post and edit articles, and hopefully the best, most accurate and timely information is produced. Now, would I want to get my investment advice from a wiki (free WSJ Digg link)?

Wikinvest itself doesn't report on companies or markets, or even make recommendations about stocks. Its contributors do all of that, writing and editing reams of information about businesses and market trends, and posting earnings data and stock charts that include attempts to explain price moves.

Articles fall into several categories: company profiles, which try to be neutral; bullish and bearish outlooks about those companies; and concepts, which tend to focus on market trends.

[...]

The site bases its operation on the theory that a large group of people analyzing a particular situation will, in general, do better than any particular analyst or even a relatively small group of analysts. Contributors to Wikinvest can reveal as much as they want about themselves, or nothing at all.

[...]

A recent visit to the site found a total of nearly 400 contributors, who, according to descriptions of themselves that they post on Wikinvest, range from professional money managers and equity research analysts to college students and self-proclaimed beginning investors.

Looking at Wikinvest, I'll say that it's nicely laid out and easy to navigate. I like that it categorizes articles into companies and concepts, so you can get to articles on say, sub prime, very easily under the concept section. I would never use this site for primary research, but I could see reading it for ideas that I would then research independently. As the site's founders say:

Moreover, Mike Sha, Mr. Conrad's partner, says "most people would never place real money on what JohnInvestor23 says he's buying." Mr. Sha says the point of Wikinvest is to "provide the rationale for thinking about an investment you're going to make," not to provide the buy or sell advice itself.

Finally, the story does point out the potential abuse of Wikinvest in pump and dump schemes (which is a problem with any anonymous information available on the Internet).

Investing beyond emerging markets - the frontier markets

For those with the risk tolerance to handle them, frontier markets offer potential big returns (free WSJ Digg Link).

Long overlooked by all but the most intrepid investors, frontier markets are attracting increasing attention in spite of their small size and often patchy infrastructure. In terms of geography, they are a diverse bunch, ranging from quasideveloped markets in Eastern Europe, to oil exporters in the Persian Gulf, to countries in sub-Saharan Africa and beyond.

Bigger and better-known developing markets such as India and China are famous for their rapid economic growth, but a similar process is also unfolding in many out-of-the-way markets. The countries of sub-Saharan Africa, for instance, are projected to grow 6.8% in 2008, according to the International Monetary Fund, while Kazakhstan is set to expand by nearly 8%. Booming commodity prices, growing investment, and efforts to rein in debt have contributed to the rosier picture.

How an individual can get in

The article gives ways for individuals to get into these markets:

For individual investors, getting dedicated exposure to these markets is tough. T. Rowe Price Group Inc.'s three-month-old Africa & Middle East fund is open to small investors, as is a listed London-based frontier fund run by Progressive Developing Markets Ltd.

Harvard increasing aid for mass affluent

Harvard is increasing financial aid for middle class and upper middle class families (which the mass affluent segment would fall into) (free WSJ Digg link). From the article:

Under its new program, to take effect next fall, the Cambridge, Mass., school said undergraduates whose families earn up to $180,000 a year would be asked to pay 10% or less of their incomes annually for the cost of Harvard, which now totals $45,620.

[...]

Under the new policy, families making $120,000 to $180,000 will be asked to pay 10% of their incomes. A family earning $120,000 would pay about $12,000, compared with more than $19,000 under current student-aid policies. Families earning below $120,000 would pay a declining percentage of their incomes, down to zero at $60,000 and below.

There is no mention about what families making more than $180,000 will have to pay.

This is great news. The rising cost of education is a problem for many American families. It's good that Harvard is recognizing this. Families making less than $60,000 will not be expected to pay anything for a Harvard education for their children, which will hopefully open this door to some very smart but low income students. Loans are being eliminated from Harvard's financial aid package and being replaced with grants. It's also nice to see a school reduce the burden on the middle class. I don't think any family, lower income or upper middle income should have to mortgage their future to get its children a top notch education. Should they have to make sacrifices? Yes, absolutely. But they shouldn't have to burden themselves and their children with massive debt.

The link to the Harvard release can be found at the Harvard Gazette.

I also found this story about changes to financial aid that Duke University recently made. It gives a little bit of color on what other schools are doing:

Princeton University gained national attention in 2001 when it announced that it would eliminate all loans for students qualifying for need-based aid. Davidson, Amherst and Williams colleges have also eliminated loans.

Free access to WSJ through Digg

I know I'm late in discovering this, but you can now access an article on the WSJ online for free, through Digg. I'll try to update my old posts with this Digg access, and put it on all WSJ stories going forward.

All about wills

Bankrate has run a good introduction to wills, with answers to many common questions. Here's the most important one - who needs a will?

Experts advise that anyone with significant assets or minor children should have a will.

In the event that you're young, single and without children, think about whether you have significant assets that you want particular people to inherit upon your death. If you want to leave your extensive gold jewelry collection to your best friend instead of your parents, you'd need a will for that.