Many have used the Option Adjustable Rate Mortgage for consumer home purchases and some are in deep do-do for never understanding exactly what the downside held for them. Many wealthy people have used the Option ARM in combination with financial planning, as they knew exactly what to do with the payment difference between the fully indexed payment and the option payment. They put it to work to more than offset any negative amortization and have benefited. A well-known lender proponent of this vehicle structures the deal with an 80% or lower LTV (Loan To Value) and offers a biweekly payment schedule. This allows the borrower to pay the loan off in 21 to 22 years by making one extra payment per year thereby shortening the term and saving 8 to 9 years of payments. This can make for tremendous savings while working within the program guidelines. The problems started when the Option ARM became morphed by new players in the game by allowing Piggy-Back Second mortgages behind the potentially negative ARM thereby putting more pressure on the borrower to keep up with the adjustments during the current mortgage upswing. Typically the monthly payment has a 7.5% built in escalator per year for the first five years with an additional limitation of the amount of negative amortization (original mortgage amount goes up) 115% of the original loan amount. During an accelerating real estate market the appreciation has kept ahead of the negative amortization. For example: If a borrower had an original 80% LTV loan of $450,000.00 and the difference between the fully indexed rate (fixed margin percentage and the variable index used) and the minimum payment amount was say 6% less and neighborhood prices per appreciating say 11% per year fine. Even with say 3.5% inflation a borrower would be ahead of the game in this scenario. Keep in mind, the 11% appreciation is taking place on the total value where the negative amortization is effecting the mortgage amount only. As long as this scenario carried forward for say five years the borrower could be still be ok. However, when the market turns suddenly, the borrower could be upside down (owe more than the property is worth) in short order.

The best evidence of the sudden turn of events is in monitoring the foreclosure rates of ARMS versus Fixed rate mortgages. In many areas, there are steep rises in these programs. To complicate things, hybrid OPTION ARMS have found there way into ALT A market with borrowers demonstrating less than stellar credit, employment, assets, etc. or a combination of all the aforementioned. With this combination and perhaps a Piggy Back Second Mortgage making for an initial 95% to 100% Combined Loan To Value the handwriting has been on the wall for major problems when a downturn occurred in property values. There will be foreclosures, short sales (lenders settling for less than what is owed) and much agony experienced by borrowers, but eventually it will work itself out. Regulators are already touting closer regulation of Option ARM and other mortgage hybrid products that may pose a danger to the consumer.

So do we through the baby out with the bath water, or is there a way to make this program work?

Let’s then look at a four-unit residential investor property acquisition using an OPTION ARM mortgage vehicle. This is a scenario and discussion of buying property in a softer market as is found in many areas of the country. If the goal in any investments is to make something in the range of 10% plus or minus in other investments then how would this four unit stack up. First of all if you are a professional property manager, great. If not, spend a lot of time to locate and interview a licensed professional property manager perhaps with a Certified Property Manager Realtor designation. Proper management is a must. A street smart Realtor who is not afraid to make lots of low offers is another. Like stocks, a margin account can get you about 50% leverage. Likewise real estate has that and more. Our goal then would be to buy an undervalued property with seller help on costs. The property will be structurally sound with a good roof but may be tired looking and dated with tenants paying less rent than the market. After negotiating a stellar price and term deal the financing will need to allow us CASH FLOW while we tune up the exterior and interior including updated baths and kitchens, carpet and new decorating. The existing tenants will be given the opportunity to stay and pay the higher rents or move and bring in new rental customers who can appreciate the amenities of the new digs. The key to this deal is the OPTION ARM mortgage, which will allow for a low starter payment while the property is being rehabbed. When rents stabilize-full payments can be made at the indexed rate. This will be on a 75% Loan To Value basis to make the numbers work. On a $500,000 property a mortgage of $375,000 at a start rate of say 2.75% or a payment of $1,530.90/month. Rents would be $4,400 per month with a vacancy factor. Taxes are $5,200 or $433.33/month and hazard insurance is $291.66/month. The units have separate meters for water, electric and gas. The owner pays the garbage and lawn maintenance and snow removal. The property was the dog on the block so there is excellent appreciation opportunities over time. Rents will move up annually. In this instance, the property has a Net Operating Income of $33,000 before debt service giving a Cap Rate of $33,000/$515,000(including costs) = 6.4%. With the 2.75% payment rate on the Option ARM the cash flow would be $33,000-$19,000=$14,000 in Cash Flow. The initial investment is $125,000 down + $8,000 cost + $35,000 fix up totaling $168,000. So with $14,000 in cash flow the return on equity is $14,000/$168,000 = 8.33%. Now with the interest and depreciation factored in of some $13,636 plus an interest deduction of $26,250 totals (fully loaded) = $39,886 giving a tax loss of $39,886-$33,000=$6,886 but with a before tax cash flow of $14,000. The Federal Tax savings would be some $2,065 for a 30% tax bracket. The total return on equity would $2,065 + $14,000=$16,065/$168,000= 9.56% in After Tax Return. To compare to fully taxed investments we would then allow for the 30% tax bracket or 9.56%/. 70 = 13.66% before tax rate for investment comparison purposes.

Option ARMs can make sense for a discounted value property at a value below market that will appreciate with upgrades and improvements to make for a more desirable rental space. In this niche with 80% LTV or lower using this program can make a lot of sense. A borrower does not HAVE to go negative; it just cuts down on the positive cash flow. The Option ARM gives lots of flexibility to an investor where cash flow is king. It’s not for everyone. The property has to be acquired at the right price and there must be the potential for a greater value with improvements and higher rents. If that is not the case, pass; bring on the next property. Make lots of offers and bargain for your terms. The blush on this rose (current market) will be returning sooner than not. Market opportunities do not last in this dynamically changing climate. Option ARMS can be used as a useful cash flow tool. Compared to other investments, the depreciation and interest deductions are huge for sheltering investment dollars with the opportunity for appreciation and increasing rents to keep up with rising operational costs. Take a closer look. This can work for good or bad credit. Give it a shot and complete your due diligence.

Dale Rogers

www.brokencredit.com

Electric Vehicles | Street Legal Electric Vehicles | Street Legal Electric Cars

The demand for personal automobile, especially cars is increasing day by day following the availability of car finance and rising income of the people in India. In this situation, the most innovative idea of a car that runs, not on the conventional fuel like petrol and diesel, but on electricity is more than welcomed.

An ideal electric car for India is a basic, simple and reliable vehicle designed specially for local conditions using cutting edge technology and which is modular to incorporate and absorb newer technologies. The electric cars with a top speed of 40-60 kmph and a range of 50-80 km generally cover the city mobility requirements in India.

Here’s a quick look into the world of electric cars in India.

Reva

Maini Reva is India’s first electric car launched in 2001. A highly economical and environment friendly vehicle, Reva is an affordable car with the lowest running and maintenance cost. The hassles of servicing, getting the components checked and repairs will be things of the past with the Reva. There is no engine, clutch, radiator, exhaust system or carburetor. Thus the maintenance is easy and inexpensive. Reva’s Energy Management system (EMS) diagnoses and rectifies the problem of over discharging and helps in better maintenance. Further, Reva has safety features like steel space frame, side impact beams, dent-proof ABS body panels, a low voltage system, and a dual-braking system. Reva is available in REVAi Standard, REVAi AC and REVAi Classe models. The non air-conditioned base variant delivers 80 km on a full charge, while the other two air-conditioned variants will give about 60 km. Cute and super compact Reva which comfortably seat two adults and two kids offered in six colours.

Tesla Roadster

The Tesla Roadster is a high performance all-electric sports car manufactured by the electric car firm Tesla Motors and is the first car produced by the company. Tesla is the only production automaker already selling highway-capable EVs in North America or Europe. With 0-60 mph in 3.9 seconds, the Roadster outperforms almost all sports cars in its class yet is six times as energy efficient as gas guzzlers and delivers 244 miles per charge. It has 92% average efficiency and 85% at peak power.

The Tesla Roadster was developed with design assistance from Lotus Cars, who supplied the basic chassis development technology from the Lotus Elise. Launched on 19 July 2006, series production of the Tesla Roadster began on 17 March 2008. Tesla has delivered nearly 300 Roadsters, and nearly 1,000 more customers are on the wait list. Tesla Motors is now taking orders for the Model S, an all electric family sedan that carries seven people and travels 300 miles per charge. The Model S, which carries its charger onboard, can be recharged from any 120V, 240V or 480V outlet, with the latter taking only 45 minutes.

ZENN

ZENN (Zero Emission, No Noise) is a two-seat battery electric vehicle manufactured by ZENN Motor Company designed to qualify as a Neighborhood Electric Vehicle. It has a range of up to 40 miles (64 km) and does not exceed 25 mph (40 km/h). The ZENN is a three-door hatchback with a standard 110-Volt outlet plug-in, completely rechargeable in approximately 8 hours from empty. A storage space of 30 cubic feet is available.

ZAP electric cars

The California-based ZAP (Zero Air Pollution) manufactures and sells Alias, Xebra Sedan, Xebra Solar Panel, Xebra Truck, ZAPTRUCK XL and ZAPVAN SHUTTLE electric cars. ZAPVAN Shuttle is the first 100% electric passenger van, exclusively from ZAP. Designed for utility and large capacity, this 5-passenger vehicle quickly converts to an all-cargo configuration as well and features larger slider doors on both sides.

Chevrolet Volt

GM’s Chevrolet is planning to bring out Volt, which will use a lithium-ion battery with a gasoline-powered, range-extending engine that drives a genrator to provide electric power. The Volt, expected to be launched in 2010, promises to go deliver beyond 40 miles and will be one of the most aerodynamic vehicles in GM history.

Fisker’s Karma

The California-based Fisker Automotive’s Karma uses Q-DRIVE plug-in hybrid technology, developed exclusively for Fisker Automotive by Quantum Technologies. A fully-charged Karma burns no fuel for the first 50 miles. After venture further, the gasoline engine turns a generator to charge the lithium ion battery. Once the 50-mile electric range has been exceeded, the car operates as a normal hybrid vehicle. This balance of electric and gas range makes it entirely possible that Karma drivers who charge their car overnight and commute less than 50 miles a day will achieve an average fuel economy of 100 mpg (2.4L/100km) per year.

TH!NK City

TH!NK City is a modern urban car with zero local emissions and an energy efficiency three times that of a traditional combustion engine car. A Norwegian model, TH!NK City is an innovative, sophisticated, high-tech compact electric vehicle that can travel up to 112 miles on a single charge. The car is designed, engineered and produced to have the lowest possible carbon footprint with recyclable plastic body panels and a fully recyclable interior. U.S. production is expected to start in 2010, with the first-year volume of 2,500 units being available to pilot and demonstration fleet projects.

Electric Vehicles | Street Legal Electric Vehicles | Street Legal Electric Cars

High reliability, CTE compatibility, and light weight, along with strength, and stiffness are key factors in the design of coolers for power modules in Hybrid Electric Vehicles (HEV) applications. CPS AlSiC coolers meet this challenge with optimum thermal performance and consistent reliability throughout the application life cycle.

Liquid cooling is the most effective way to dissipate heat (1 – 2KW) in HEV power module applications. CPS AlSiC coolers cost effectively offer the pin fin geometries that are required for effective liquid cooling. In addition, CPS AlSiC coolers provide an isotropic thermal expansion that is compatible with device/electronic substrate to reduce mechanically induced stresses during power thermal cycling for improved electronics and module reliability. The AlSiC device compatible thermal expansion (8 ppm/°C) simplifies IGBT assembly compared to Cu pin fin coolers (17 ppm/°C) thermal expansion, eliminating the need for stress compensation layers that increase thermal resistance, assembly complexity and module cost.

AlSiC is a lightweight material (1/3 that of Cu), which makes it an ideal cooler material for the weight-sensitive hybrid electric (HEV), electric vehicle (EV) application and in kinetic energy recovery systems (KERS). AlSiC also has higher strength and stiffness than Cu, which, combined with its lightweight nature, makes AlSiC coolers more tolerant of shock and vibration.

The CPS AlSiC fabrication process efficiently produces both the composite material and fabricates the product geometry in one process step. CPS can work with customers to provide designs that are fabricated to shape requiring no finished machining for very cost effective cooler production.

About CPS Technologies Corporation

CPS Technologies Corporation is the worldwide leader in the design and high-volume production of metal matrix composites. CPS uses a net-shape fabrication process, including patented QuickSet™ injection molding and QuickCast™ infiltration. AlSiC components are used in applications in the wireless communications infrastructure, high-performance microprocessor, motor controller, and other microelectronic markets. CPS is a publicly traded company (symbol “CPSH”). CPS’ customers include TI, Motorola, HP, Infineon, Agilent and Amkor. For more information on CPS’ AlSiC components, contact Mark Occhionero marco@alsic.com at 1 (508) 222-0614 x 242 or Samuel Hopp shop@alsic.com at 1 (508) 222-0614 x 242 at or visit www.alsic.com.

Electric Vehicles | Street Legal Electric Vehicles | Street Legal Electric Cars