Decision Making for Personal Investment (eBook)

Waymond Rodgers is a C.P.A. and Chair Professor in the School of Business at the University of Hull, UK. He is also the El Paso Community Chair Professor at the University of Texas, El Paso, and at the Naval Postgraduate School in Monterey, California. Previously he was a Professor at the University of California, Riverside and Irvine, USA and has worked as an auditor with Ernst & Young and PriceWaterhouseCoopers, as well as a commercial loan officer with Union Bank. He has consulted with Bank of America, Citibank, Santander Bank, and Union Bank in the areas of commercial lending, corporate social responsibility and intellectual capital. His primary research areas are auditing, commercial lending decisions, decision modeling, ethics, trust issues, intellectual capital, and knowledge management. Timothy G. McFarlin is an Attorney at McFarlin LLP with expertise in a variety of practice areas including real estate law, debt reorganization, bankruptcy, business litigation, and consumer law and mortgage litigation. 

Decision Making for Personal Investment 3
Preface 5
Acknowledgments 7
Contents 8
List of Figures 9
List of Tables 10
1 Six Dominant Pathways for Personal and Real Estate Decisions 11
Summary 19
Reference 19
2 Understanding the Decision-Making Process for Personal Investments 20
Generally Accepted Investment Principles 21
Financial Goals and Investment Category 22
Decision Process Models 23
Summary 24
Note 24
3 Six Decision Pathways for Personal Investment Decision Making 25
Expedient Pathway 26
Maximizing Return 27
Minimizing Risk 28
Personal Necessity 28
The Ruling Guide Pathway 29
Maximizing Return 30
Minimizing Risk 31
Personal Necessity 32
The Analytical Pathway 33
Maximizing Return 34
Minimizing Risk 35
Personal Necessity 36
Revisionist Pathway 37
Maximizing Return 38
Minimizing Risk 39
Personal Necessity 40
The Value-Driven Pathway 41
Maximizing Return 42
Minimizing Risk 43
Personal Necessity 44
The Global Perspective Pathway 45
Maximizing Return 46
Minimizing Risk 47
Personal Necessity 48
Summary 49
Note 50
References 50
4 Residential Real Estate Market Investment Decisions and the Economic Downturn 51
Economic Downturn 52
Low Mortgage Interest Rates 52
Low Short-term Interest Rates 53
Relaxed Standards for Mortgage Loans 54
Irrational Exuberance 56
The Glass-Steagall Act 57
Historical Trends 57
Summary 58
References 59
5 How the Recent Economic Downturn Differs from Previous Downturns 60
Correction Deeper and More Sustained 60
More Homeowners Upside Down 61
Foreclosure 63
Foreclosures Drive Down Home Values Further 63
Incentive to Foreclose 63
Trajectory of Home Value Trend 64
Summary 64
References 64
6 The Real Estate Market Investment 66
From the Homeowner’s Perspective 66
Comparative Analysis of the Rent Option 67
Price-to-Rent Ratio 67
Trulia’s Rent vs. Buy Methodology 68
When Renting Might Be Better 69
Investment Component of Residential Real Estate 69
Cash Flow 69
Appreciation 69
Leverage 70
Summary 70
References 71
7 Irrational and Rational Homeowner Considerations 72
Irrational Real Estate Decisions Using the Expedient or Revisionist Pathway 73
Home Equity Loans 74
Cash-out Refinancing 75
Marginal Borrowers and Credit Expansion 76
Loan Modification 78
Rational Homeowner Considerations 80
Summary 84
References 85
8 Foreclosure and Options for Avoiding Foreclosure 86
Foreclosure 87
Options for Avoiding Foreclosure When Walking Away 87
Deed-in-lieu of Foreclosure 88
Short Sale 88
Pre-foreclosure Equity Sale 89
Buying a Home after Foreclosure or Foreclosure Option 90
Summary 91
Reference 91
9 Conclusion 92
Index 96