Below is an article from my friend Brandon…..again.  He writes such great stuff….that….for obvious reason….I like to post it!  Enjoy…until next time….rob

The Führer Principle

In grade school, I remember asking myself how could the German people elect someone as evil as Adolf Hitler. How could they allow such a monster to become supreme chancellor? Understanding how it happened is very important, mainly so it does not happened again. The significance of this newsletter will only make sense by looking through the lens of today’s events. Many of the main ingredients that led to the Nazi take over are present today. Recognizing the circumstances is the solution to history not repeating itself.

The beginning of the end for the Weimar Republic began with the Treaty of Versailles in 1919. For the German people, the treaty was humiliating. The treaty placed heavy restrictions on Germany much of which were embarrassing for the once proud nation. The German army was reduced to one hundred thousand solders and arms for citizens became non-existent.  The initial German economic fatalities due to the treaty were shocking. Germany’s territories vanished overnight. Germany lost approximately 13.5% of its total land mass, 13% of its industrial productivity, and more than 10% of its population. Additionally, the loss of important mining regions such as the Saar and Upper Silesia resulted in a loss of some 74% of iron ore and approximately 25% of its coal reserves. Historians and economists have long deliberated the real effects of the treaty but one thing is for certain it lead to “deprivations that shattered their faith in the democratic process and left them cynical and alienated.” –G.A. Craig

Germany’s economic situation never improved. To keep up with the stringent demands of the treaty, the Weimar Republic faced hyperinflation never seen before in history. The German Mark ratio to the U.S. dollar was 4 to 1 near the end of the WWI. It was 8 to 1 in 1919, 250 to 1 in 1921, and 2000 to 1 in 1923. The Weimar government, at various times, faced food shortages, massive unemployment, and an unprecedented economic depression. By 1932, some 6 million Germans were unemployed. Millions of them were homeless living on the streets relying on soup kitchens and charity organizations. “Men standing hopelessly on street corners of every industrial town in Germany; houses without food or warmth; young people without the chance of a job. All these things explain the bitterness which burned in the minds of millions of ordinary Germans.”

The escalation of political violence in Weimar Germany must certainly be factored in as a contributory reason for the country’s political volatility. Beginning with the emergence of the Freikorps, which later became the brutal SS, formed units immediately after the declaration of the Republic. The tendency toward violence became entrenched in Weimar politics after the 1919 assassinations of Karl Liebknecht and Rosa Luxemburg. Large protests and riots became an all too familiar sight for the citizens of Germany.

Among the widespread disarray and frustration, the basic notion of a government was being questioned. What type of government could lead and govern the will of the people? This ongoing debate became known as the Führer Principle. The Führer Principle is established on the acknowledgment that the true will of the people cannot be revealed through plebiscites but that the will of the people in its natural and virtuous state can only be articulated through the Führer. Therefore, a difference must be drawn between the theoretical will of the people in a parliamentary democracy, which simply echoes the discord of diverse social perspectives, and the true will of the people in the Führer-state. Hitler took the Führer Principle and redefined it as himself…he was the Führer. Redefining the Führer was nothing short of audacious. It was captivating and alluring to many who were famished for change.

Many of the governing members in the Reichstag (congress) struggled to tame and communicate effectively to the youth of Germany. The Reichstag members continually doubted the youth’s ability to recognize a just government. Keep in mind most of Germany’s youth grew up in this chaotic state. Their view towards the government was distorted to say the least. The Weimar Republic only lasted 14 years but before that Germany spent the last 5 years in battle. A huge cohort of individuals only knew suffering and turmoil. Disconnect between the defenders of the former Kaiser rule and much more progressive governments were mounting daily. During the short lived Weimar Republic, Communism, Socialism, and a whirl of leaders/dictators were fighting for control.

Hitler knew very well that the youth’s mind were especially susceptible. This is exactly why he began with them. In the beginning, his messages were engineered for the youth. He knew the youth would be prone to messages of change and optimism. Joseph Goebbels (Hitler’s Minister of Propaganda) used propaganda methods to manipulate the masses. It was this desolate desire for change that gave Hitler his power.

The straw that broke the camels back for the Weimar Republic was the American Great Depression. The stock market crash of 1929 sent shock waves across Europe. The crash knocked Germany into the gallows. It was Hitler’s time to move. On September 14th, 1930, the Reichstag elections were held. The results were shocking. The Nazis had entered the register as the ninth and smallest of Germany’s political parties. The German people voted. The Nazis controlled 107 seats after that election. In November 1932, Hitler was defeated in the presidential election to WWI veteran Paul von Hindenburg. He received 42% of the votes. Hitler decided to enter a coalition government as chancellor in January 1933. Upon the death of Hindenburg in August 1934, Hitler become successor by popular vote.

Today, we are suffering the ongoing effects of the worst recession since the Great Depression. We are facing a global economic contraction. Greece is on the verge of insolvency and the US is limping along. Worldwide riots and protests have plagued the streets invoking for revolution. Frustration levels are swelling. This is the formula for calamity. However, it begins with the youth. Vladimir Lenin famously referred to youth uprisings as “useful idiots”. With the exception of the American Revolution, most revolutions in history conclude with a radical party seizing opportunity out of the political madness. People such as Hitler, Mao, and Lenin took advantage of a chaotic situation. I do not foresee a Weimar revolution of this magnitude anytime in the near future. Nevertheless, if we are not careful and mindful of the situation it becomes an unquestionable possibility. Education and knowledge of the truth is the only thing that will prevent history from repeating itself.

Have a great weekend my friends!

Brandon Saylor
-Associate

The Bank Allowed What?

Wow…has is been a long time or what?  I have been so busy with a real estate class (six weeks) and purchased an apartment building within the same time frame.  Just plain crazy so a lot of things got neglected…especially this blog.  Looks like we have another apartment building in the works (thanks to KB Realty)….things are looking busy for the next few months…at least I hope!

Anyway….

There is one thing I never heard of when it comes to investing… A Bank Approved Wrap.  BUT this one thing is a HUGE deal.  I have done several wraps before…..but never a bank approved wrap.  Now…remember…a wrap is when you “wrap” an existing mortgage with a brand new mortgage.  Read more about wraps HERE.

So what is the big deal?  Well, usually on wraps, there is always a small risk that the loan can be called due to the fact that the asset has been sold yet the loan is still in place.  This is a small risk because banks usually do not exercise the “due on sale” clause call if the loan is in good standing.  In other words, the payments are still coming in on time.  But…there is always a chance.  In any case, when we first approached the seller, the seller did a “no no” and asked if the lender if it would be okay to wrap the note.  Surprisingly, the lender said “yes”…..at first I thought there was a mistake….and I just felt someone misunderstood something.  But….I was wrong.  So, in the last week of December, we closed on an apartment building with only about 6% into the deal (commissions and closing costs).  No joke!

I even talked to my lender friends….they all NEVER heard of of such a thing….especially in commercial.

The beauty of the deal was that it was 80% occupied and still cash flowing.  The issue with the property was mismanagement.  Bad management with out-of-town owners is a great formula for opportunity.

Now…I have to give credit where credit is due.  Preston from KB Realty found this deal and made it happen.  James, a.k.a. “J” our attorney, worked hard during Christmas to get things right.  Having solid relationships was the only way to get this done….but I digress.

There were problems with the deal….more specifically, timing.  The sellers wanted to close before December 31, 2009….which only gave less than 30 days to close.  Now…. trying to close in 30 days during the holidays is impossible….so I thought.  I told Preston “there was NO WAY we could do it.”  Due diligence, attorneys, inspectors, banks, title companies….are hard to round up to work on a project anytime of the year….especially during the holidays….Forget about it!  Well…Preston pushed and pushed and the rest is history.

My partners and I learned something…..we don’t know everything…but thinking we do can lose us opportunities.

Thanks to Preston…David….J….

On to the next project!

Hey...Dude...What mortgage are you getting?

The real estate investment arena is filled with its own language and often features terms from property law, banking concepts and feudal times. As a continued segment to help you navigate the real estate investment lingo, we will be periodically posting commonly used real estate investment terms and definitions provided by many sources including www.investorwords.com and www.creonline.com.

This posting will focus on types of mortgages. A mortgage is a financial and legal instrument that details a loan given to a borrower (mortgagor) to purchase real estate. In exchange for the loan, the lender (mortgagee) receives a lien on the property as collateral.

Assumable Mortgage
An assumable mortgage is a financial and legal instrument that can be transferred from the original borrower to another future buyer without changing the terms. The future buyer assumes all obligations for the debt and may be subject to background checks as well as assumption fees as the mortgage cannot be transferred without consent of the lender. Assumable mortgages by definition do not include a “due on sale clause.”

Chattel Mortgage
A chattel mortgage is a financial and legal instrument that details a loan given to a borrower to purchase real estate. However, instead of the lender receiving a lien on the property, a lien on other non-real estate assets is used for collateral.

Closed-End Mortgage
A closed-end mortgage is a financial and legal instrument that clearly specifies the underlying loan may not be paid before the end of the loan term. Closed-end mortgages also require the bond holder’s permission if the underlying collateral is repledged.

Commercial Mortgage
A commercial mortgage is a financial and legal instrument that provides a loan for real property used for business.

Commercial Mortgage Backed Security (CMBS)
A commercial mortgage backed security is a legal interest secured by commercial mortgages. A diverse amount of loans for various property types and sizes are pooled and sold to investors.

Conventional Mortgage
A conventional mortgage is a legal and financial instrument that has a fixed interest rate that does not change throughout the loan. Conventional mortgages are not insured or guaranteed by the government.

Depressed Mortgage
A depressed mortgage is a legal and financial instrument with a loan market value lower than par value.

Growing Equity Mortgage
A growing equity mortgage is a financial and legal instrument that has increased monthly payments but has a fixed interest rate.

High Ratio Mortgage
A high ratio mortgage is a legal and financial instrument with a loan amount greater than 80% of the mortgage property’s value.

Hybrid ARM
The hybrid ARM is a combination of a fixed rate mortgage and adjustable rate mortgage. This financial and legal instrument provides that interest rates on the mortgage are stipulated and unchanging for a fixed period of time. After that period has expired, the interest rate rises to market rates or to a rate cap detailed in the agreement.

Mortgage
A mortgage is a financial and legal instrument that details a loan given to a borrower (mortgagor) to purchase real estate. In exchange for the loan, the lender (mortgagee) receives a lien on the property as collateral.

Mortgage Derivative
A mortgage derivative is a legal security that provides investor income from principal and interest payments on an underlying pool of mortgages. Examples of mortgage derivatives include mortgage-backed securities and mortgage pass through securities.

Mortgage Pass-Through Security
A mortgage pass through is a legal security that features a pool of loans on residential properties. The principal and interest payments are passed through to the investors on a monthly basis. Examples of issuers include Freddie Mac and Ginnie Mae.

Reverse Annuity Mortgage
A reverse annuity mortgage is a loan secured by the equity a borrower has accumulated in the property, by which the borrower receives scheduled payments from the lender or annuity. Reverse Annuity Mortgages are often used to increase liquidity.