tag:blogger.com,1999:blog-311557202024-03-27T02:38:05.678-04:00Lording the LandUnknownnoreply@blogger.comBlogger99125tag:blogger.com,1999:blog-31155720.post-41074390513782566682007-08-28T05:00:00.000-04:002007-08-28T05:03:49.734-04:00Wrapping it upLording the Land was a lot of fun for me, and I managed to blog for an entire year. During that time I got married, quit my job, moved overseas and started a new career. What a year!<br /><br />However, with my new career demanding more of my time (though I enjoy the work, so it's not bad), I find it harder and harder to write. Blogging becomes a chore rather than a fun activity. So I think it's time to stop and focus my efforts elsewhere. For all 30 or so readers who read on a relatively constant basis, thanks for listening to my rants and raves.<br /><br />Cheers,<br /><br />The LandlordUnknownnoreply@blogger.com119tag:blogger.com,1999:blog-31155720.post-75778950554819357162007-08-16T07:13:00.000-04:002007-08-16T09:44:55.080-04:00Jeff's Saga: The Conclusion?On this blog we've been tracking the tale of Jeff. For those of you just finidng this tale, here's a quick recap: Jeff decided that real estate can only go up, and bought 15 houses in 4 months to test this theory. Then, to further prove his courage, he began posting updates to a forum frequented by real estate investors. Despite getting some negative feedback, he continued to be extremely forthwright about his investments, his strategy, and his current status.<br /><br />Part one of Jeff's saga - <a href="http://lordingtheland.blogspot.com/2007/08/saga-of-jeff.html">Jeff begins his real estate investment careeer</a><br />Part two of Jeff's saga - <a href="http://lordingtheland.blogspot.com/2007/08/jeff-see-storm-clouds.html">Jeff gets a little worried</a><br /><br />Continuing with the good humor and extreme honesty that were becoming his trademarks, in August of 2006, Jeff posted his first expense sheet. This sheet detailed the properties he owned, what he paid for them, what they were costing him each month, and how much he thought he was making on them so far. This was a goodwhile after the last post that we responded to (from Janurary of 2006, but Jeff wasn't very vocal in between).<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >August 1st, 2006</span><br /><br /><span style="font-family:times new roman;"><span style="color: rgb(255, 255, 204);">O.K., now I am naked before you. Please be gentle, it is my first time...</span><br /></span> <table class="MsoNormalTable" style="margin-left: -45pt; border-collapse: collapse;" border="1" cellpadding="0" cellspacing="0"> <tbody><tr style="height: 41.4pt;"> <td style="padding: 0cm; width: 119.3pt; height: 41.4pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 29.25pt; height: 41.4pt; font-family: times new roman;" width="39"> <p class="MsoNormal">Close date<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 41.4pt; font-family: times new roman;" width="42"> <p class="MsoNormal">Price<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 41.4pt; font-family: times new roman;" width="60"> <p class="MsoNormal">Monthly Cost<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 41.4pt; font-family: times new roman;" width="60"> <p class="MsoNormal">Rent<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 41.4pt; font-family: times new roman;" width="55"> <p class="MsoNormal">Profit<o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 41.4pt; font-family: times new roman;" width="52"> <p class="MsoNormal">Tax Gain<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 41.4pt; font-family: times new roman;" width="49"> <p class="MsoNormal">Loan<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 41.4pt; font-family: times new roman;" width="48"> <p class="MsoNormal">Rate 1st<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 41.4pt; font-family: times new roman;" width="48"> <p class="MsoNormal">Rate 2nd<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 41.4pt; font-family: times new roman;" width="60"> <p class="MsoNormal">Blended<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 41.4pt; font-family: times new roman;" width="84"> <p class="MsoNormal">Freddie Mac Appreciation<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">3853 Tierra Zafiro Dr</st1:address></st1:street>.<o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">3/22<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$118k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,101<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$990<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt;font-family:times new roman;" width="55"> <p class="MsoNormal" style="text-align: right;" align="right"><span style="color: rgb(255, 0, 0);">-$111</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$124<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">30y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">7.11<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">7.11<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">16%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">8205 Reilly Court SW</st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">3/30<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$160k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,155<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,250<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt;font-family:times new roman;" width="55"> <p class="MsoNormal" style="text-align: right;" align="right"><span style="color: rgb(51, 255, 51);">$95</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$157<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">5y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">6.20<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">6.20<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">18%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">8034 S. Knowley Rd.</st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">4/25<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$212k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,597<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,050<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt;font-family:times new roman;" width="55"> <p class="MsoNormal" style="text-align: right;" align="right"><span style="color: rgb(255, 0, 0);">-$547</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$199<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">3y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">6.88<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">10.00<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">7.50<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">16%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">19 S. Ridge Pointe Dr</st1:address></st1:street>.<o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">5/16<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$169k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,201<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,350<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt;font-family:times new roman;" width="55"> <p class="MsoNormal" style="text-align: right;" align="right"><span style="color: rgb(51, 255, 51);">$149</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$161<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">5y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">5.75<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">8.88<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">6.24<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">8%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">6005 Lourdes Road</st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">7/19<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$160k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,193<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$990<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt;font-family:times new roman;" width="55"> <p class="MsoNormal" style="text-align: right;" align="right"><span style="color: rgb(255, 0, 0);">-$203</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$148<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">30y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">6.86<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">6.86<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">16%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">4120 Queens Drive</st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">7/27<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$144k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,048<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,095<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt;font-family:times new roman;" width="55"> <p class="MsoNormal" style="text-align: right;" align="right"><span style="color: rgb(51, 255, 51);">$47</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$150<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">5y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">6.13<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">8.75<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">6.54<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">8%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">809 Bonnie Court</st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">8/19<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$164k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,120<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$990<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt; font-family: times new roman; color: rgb(255, 0, 0);" width="55"> <p class="MsoNormal" style="text-align: right;" align="right">-$130<o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$150<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">30y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">6.00<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">7.63<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">6.18<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">16%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">1119 Makian Pl. NW</st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">9/28<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$170k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,322<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$945<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt; font-family: times new roman; color: rgb(255, 0, 0);" width="55"> <p class="MsoNormal" style="text-align: right;" align="right">-$377<o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$162<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">30y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">7.20<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">7.20<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">18%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">6731 Summit Drive</st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">10/27<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$178k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,403<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,095<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt; font-family: times new roman; color: rgb(255, 0, 0);" width="55"> <p class="MsoNormal" style="text-align: right;" align="right">-$308<o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$180<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">30y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">5.63<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">9.75<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">6.28<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">23%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on">7227 Teypana Rd. NW</st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">11/15<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$170k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,289<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$900<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt; font-family: times new roman; color: rgb(255, 0, 0);" width="55"> <p class="MsoNormal" style="text-align: right;" align="right">-$389<o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$169<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">30y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">7.20<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">7.20<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">18%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal">6966 W. Saw <st1:place st="on"><st1:city st="on">Timber</st1:city> <st1:state st="on">Wa</st1:state></st1:place><span style="display: none;">y</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal">12/28<o:p></o:p></p> </td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal" style="text-align: right;" align="right">$214k<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,416<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$1,480<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt;font-family:times new roman;" width="55"> <p class="MsoNormal" style="text-align: right;" align="right"><span style="color: rgb(51, 255, 51);">$64</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$222<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36.65pt; height: 13.2pt; font-family: times new roman;" width="49"> <p class="MsoNormal" style="text-align: center;" align="center">30y<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">7.00<o:p></o:p></p> </td> <td style="padding: 0cm; width: 36pt; height: 13.2pt; font-family: times new roman;" width="48"> <p class="MsoNormal" style="text-align: center;" align="center">11.00<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: center;" align="center">7.44<o:p></o:p></p> </td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">16%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 119.3pt; height: 13.2pt; font-family: times new roman;" width="159"> <p class="MsoNormal"> <o:p></o:p></p><br /></td> <td style="padding: 0cm; width: 29.25pt; height: 13.2pt; font-family: times new roman;" width="39"> <p class="MsoNormal"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 31.45pt; height: 13.2pt; font-family: times new roman;" width="42"> <p class="MsoNormal"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$13,845<o:p></o:p></p> </td> <td style="padding: 0cm; width: 45pt; height: 13.2pt; font-family: times new roman;" width="60"> <p class="MsoNormal" style="text-align: right;" align="right">$12,135<o:p></o:p></p> </td> <td style="padding: 0cm; width: 41.35pt; height: 13.2pt;font-family:times new roman;" width="55"> <p class="MsoNormal" style="text-align: right;" align="right"><span style="color: rgb(255, 0, 0);">-$1,710</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 39pt; height: 13.2pt; font-family: times new roman;" width="52"> <p class="MsoNormal" style="text-align: right;" align="right">$1,822<o:p></o:p></p> </td> <td colspan="4" style="padding: 0cm; width: 153.65pt; height: 13.2pt; font-family: times new roman;" width="205"> <p class="MsoNormal"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; width: 63pt; height: 13.2pt; font-family: times new roman;" width="84"> <p class="MsoNormal" style="text-align: center;" align="center">16%<o:p></o:p></p> </td> </tr> </tbody></table><br /><p style="margin: 0cm 0cm 0.0001pt;">The sheet is very telling. Jeff has mortgage payments of almost $14,000 a month! No wonder he alluded to having difficulties sleeping. Even though his rents help offset most of that, he's still getting killed. One or two bad tenants along with a vacancy would destroy him. He's playing a risky game, but at least so far it appears that he is winning. His appreciation is holding up strong netting him somewhere around a 9% return (remember, the properties are growing at 16% a year, but he's paying 7% of that value back to the lenders). But that 7% growth is on about $1.6 million of property.<br /><br />A month later Jeff gives us the skinny on where his almighty appreciation sits when it takes into account the minimum appraisal amounts. Remember that appraisals don't nessecarily reflect actual value.<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >September 20th, 2006</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >There have been a few changes in how I am "tracking" my progress. First, I am no longer going to use the "midpoint" of the eAppraisal I get off of http://www.ditech.com/calculators/appraisal/form.do . Instead I am going to use the minimum value (I have reason to believe some of the values may be "overestimated"--more on this later).</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >The second change is that I am going to return to including the Cape Coral houses as I will be closing on two of them in the next week. This will make a total of 14 houses. [</span><span style="font-style: italic; color: rgb(255, 255, 204);font-family:times new roman;" >edit: highlighted in yellow</span><span style="color: rgb(255, 255, 204);font-family:times new roman;" >]</span><br /><br /><table class="MsoNormalTable" style="width: 220pt; border-collapse: collapse;" border="0" cellpadding="0" cellspacing="0" width="293"> <tbody><tr style="height: 40.8pt;"> <td style="padding: 0cm; width: 97pt; height: 40.8pt;" width="129"> <p class="MsoNormal"><span style=";font-family:Arial;font-size:10;" >Address</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 29pt; height: 40.8pt;" width="39"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >Est. Min* Value</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 26pt; height: 40.8pt;" width="35"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >Min* gain</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 34pt; height: 40.8pt;" width="45"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >Total Min* Equity</span><o:p></o:p></p> </td> <td style="padding: 0cm; width: 34pt; height: 40.8pt;" width="45"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >Est. LTV</span><o:p></o:p></p> </td> </tr> <tr style="height: 11.4pt;"> <td style="padding: 0cm; height: 11.4pt;"> <p class="MsoNormal"><span style="font-size:11;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; height: 11.4pt;"> <p class="MsoNormal"><span style="font-size:11;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; height: 11.4pt;"> <p class="MsoNormal"><span style="font-size:11;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; height: 11.4pt;"> <p class="MsoNormal"><span style="font-size:11;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; height: 11.4pt;"> <p class="MsoNormal"><span style="font-size:11;"><o:p> </o:p></span></p><br /></td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >Tierra Zafiro Dr</span></st1:address></st1:street><span style=";font-family:Arial;font-size:10;" >.</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$151</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$33</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$40</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >74%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >Reilly Court</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$197</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$37</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$48</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >76%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >S. Knowley Rd.</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$304</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$92</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$92</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >70%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >S. Ridge Pointe Dr</span></st1:address></st1:street><span style=";font-family:Arial;font-size:10;" >.</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$182</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$13</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$22</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >88%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >Lourdes Road</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$195</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$35</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$45</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >77%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >Queens Drive</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$131</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:red;" >-$13</span><span style="color:red;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:red;" >-$5</span><span style="color:red;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >104%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >Bonnie Court</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$216</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$52</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$70</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >68%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >Makian Pl. NW</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$190</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$20</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$29</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >85%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >Summit Drive</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$195</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$17</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$27</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >86%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >Teypana Rd. NW</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$215</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$45</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$54</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >75%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;" >W. Saw Timber Way</span></st1:address></st1:street><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$303</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$66</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$89</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >71%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><span style=";font-family:Arial;font-size:10;" >NE 8th Terrace</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$315</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$65</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$65</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >79%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;color:yellow;" >NW 13th Street</span></st1:address></st1:street><span style="color:yellow;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:yellow;" >$310</span><span style="color:yellow;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$60</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$70</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >77%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><st1:street st="on"><st1:address st="on"><span style=";font-family:Arial;font-size:10;color:yellow;" >NW 16th Place</span></st1:address></st1:street><span style="color:yellow;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:yellow;" >$310</span><span style="color:yellow;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$60</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;color:lime;" >$60</span><span style="color:lime;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >81%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right">Average<o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><o:p> </o:p></p><br /></td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$42</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$50</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >79%</span><o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" > Total</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$3.2m</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$582</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Arial;font-size:10;" >$706</span><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt;"> <p class="MsoNormal"><o:p> </o:p></p><br /></td> </tr> </tbody></table><br /><br /><p style="margin: 0cm 0cm 0.0001pt;"><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Due to some cost over-runs by the builder (can you trust any builders?), plus 4-8 months over on the construction loan limits (I have to pay the interest!), plus some hidden costs on the modification to term loans, the final 3 houses will cost me 10k to 20k to close. If true, this will entirely wipe out my primary cash reserves. </span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Now the bad news...for you [critics]...even using this new conservative approach to valuing my homes (using the minimum value), I still come up with an estimate of an increase of $42k per house--or a total increase of $582k. Another way to look at it, I have turned my original $198k of equity (in my primary residence) into $706k of equity in 14 other houses. This is about a 350% return (albeit "on paper") in roughly 20 months of investing.</span><br /><br />Let's start with the good news. Jeffs is looking like he's on track to break a million really soon. He has $706,000 locked up in equity already (according to his estimates), and only one house isn't growing. That's fantastic and very encouraging.<br /><br />However the bad news is rather glossed over. Jeff is dangerously low in funds right now. This is a significatn disaster because we already know that he's in the negative every month. If that happens, he's going to need to figure out a way to tap into his equity somehow to cover his payments. The best possible plan might be to cash out some of thiose houses and use the money to make payments on the rest. Still, if he can weather the storm of costs, his number still look encouraging.<br /><br />However, I worry about his understanding of taxes. As we noticed last month, he seems to have an overly optomistic view of how much he can "make" back in taxes. Simply put, you can't get back more in taxes than you pay. Sure losses can carry over from year to year, but in a cash-flow situation that's not much help to you. A short while later he posts again on the subject of taxes:<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >September 21st, 2006</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >The last three Cape Coral houses I haven't closed on--but I suspect when rented they will be significantly negative ($500?) before taxes. Of course, after taxes they could actually be making me 5k a month or more depending on how or if I can use the Go-Zone write-offs...so they are either terrible on cashflow (before taxes) or absolutely amazingly great on cashflow (after taxes). You pick!</span><br /><br />In the very-likely possibility that you have no idea what GO-Zone is, it stands for Gulf Opportunity Zone. It's <a href="http://www.angeloueconomics.com/GoZone.html">a package of tax reliefs and business incentives</a> that was designed to boost the economy of the area of the Gulf Coast that was ravaged by Katrina (and other hurricanes).<br /><br />I'm assuming that the $5k a month that Jeff is referring to is tied to 2 incentives. first the 50% bonus depreciation, which would allow him to depreciate the cost of his home by 50% in the first year of ownership. That means that he gets to take deductions of about $190k for his two Florida homes in the first year. The second was a Tax Loss Carryback. Essentially it allows businesses in the zone to claim deductions against taxes already paid. So you can actually claim a refund for <span style="font-weight: bold;">last year's taxes</span>. But this only qualifies through businesses, and I don't think Jeff can use it against his personal income from previous years.<br /><br />You'll notice from the website that I mentioned though, that no Florida counties are listed as being in the GO-Zone. Google it yourself and you'll see that the only site that appear with "Florida Go-Zone" are real estate sale sites, not government information. I strongly urge that you see a lawyer before thinking about investing in an area with complicated incentives. Salespeople will promise you the moon, only to "forget" those promises after the sale is made.<br /><br />Still, go back and look through his history. Taking the GO-Zone out of it, he was thrilled about Cape Coral before, and his numbers show more than 30% annual appreciation in that area. So why does he keep bad mouthing that area?<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >January 1st, 2007</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >I am having difficulty renting two properties. One in ABQ (slow time of the year) and one in Cape Coral (too much competition or bad PM, I can't decide). These two houses alone are costing me ~3k a month. Ouch!</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >...</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Change in perspective or approach? I can say that I adamantly wish I hadn't bought any houses in Cape Coral! If only I would of known that they were going to be the worst performing. Except for them, I would say that I am batting a thousand. All my other houses have gone up remarkably and cost me very little each month. </span><br /><br />Apparently Jeff is learning that NAR numbers don't tell you everything. In addition he's begun to learn that houses aren't like stocks. Where you can buy a stock, it goes up or down, and then you sell it (it really is as simple as that!) owning property can be a very complicated process. Especially when you are buying pre-construction. In February, Jeff finally let's us know why he's not been happy with 36% appreciation in Cape Coral:<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >February 15th, 2007</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >I am not batting 1000. I didn't really expect to, but admitting it anyway was hard.<br /><br />My three houses in Cape Coral are going to end up being HUGE mistakes...they have lost thousands of dollars in equity and are losing $1000 a month while I rent them. While all mistakes are mine, in my defense I was clearly the victim of some pretty unscrupulous "businessmen." The builder took over two years to build my house (ONE isn't even done YET!). Now normally that wouldn't be a problem on pre-construction, but according to the contract I signed as an absolute beginner I have to pay the construction interest while they sit on their butts. Dang. Also, these houses actually went UP 50k each in the first few months I owned them (if I coulda sold), but over the last year have lost greater than 50k. If the builder would of built on time, I could of made 100k or more. Also, the lender said I wouldn't have to re-qualify my construction to perm loan, but since the builder went over the 12 month period, I DID have to re-qualify and couldn't...so that cost me ANOTHER 10k (times 3). And so on...basically I am going to lose a LOT of money these negative cashflow houses...</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >And I would of bailed on these houses--took my loses--if I hadn't been given assurances by several professionals that I could get Go-zone depreciation bonuses on these houses. Turns out that is unlikely (not absolutely sure STILL), so sticking with them was an even bigger mistake.</span><br /><br />So Jeff signed a contract that bought him the rights to the home, but where the construction company has no incentive to finish on time (Jeff is paying the interest on the construction loan). So without the incetive of payments hanging over their head, the construction company has discovered that (unsurprisingly) their initial projections are off and they'll be behind schedule. For more on this topic, read <a href="http://lordingtheland.blogspot.com/2006/08/dealing-with-other-people.html">my post on Moral Hazards</a>. The lessons is that you need to make sure that the people you are doing business with have a strong incentive to fulfill their role and do it well.<br /><br />And remember how he thought it was extremely unlikely that +45% appreciation could swing into -5% appreciation? Well, his homes have grown by $50k and fallen by the same amount. His inability to sustain such large losses and maintina such a large portfolio is giving him problems with financing. And he took the word of far too many "professionals" (on whether he'd need to re-finance, if he could qualify for GO-Zone, etc.). Here's a handy hint, the more professionals you have to consult, the more you place your well-being in their hands.<br /><br />Jeff lets us know how bad things have gotten a short while later:<br /><br /><span style="font-family:courier new;"><span style="color: rgb(255, 255, 204);">February 27th, 2007</span><span style="font-family:times new roman;"><br /><span style="color: rgb(255, 255, 204);">>> Just curious if you have changed your investment philosophy since</span><br /><span style="color: rgb(255, 255, 204);">>> the 2005 post, now you are negative 3-5K + per month?</span><br /><span style="color: rgb(255, 255, 204);">>> How many months can you hold on with your 14 investment properties</span><br /><span style="color: rgb(255, 255, 204);">>> with such a large negative cash flow?</span><br /><br /><span style="color: rgb(255, 255, 204);">I am embarrassed/disappointed to report that I am well into my "back up" reserves. They will hold me for another year or so depending on vacancies. A sale of one of my SLC houses will hold me for another year or so...</span><br /><br /></span></span>Remember that Jeff's "backup reserves" is his $200k HELOC on his home. So he is now cash-poor, and going deeper into debt every month trying to cover his houses. This HELOC is going to be payable monthly, adding to his negative cashflow. Remember, a HELOC is fine if you have positive cashflow but need an infusion of cash (for a new roof, for example), but using a HELOC to offset negative cash flow is a recipe for disater, you are simply magnifying your cashflow problem.<br /><br />On the positive side, Jeff is keeping a postive mindset, because he's not sunk yet:<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >February 27th, 2007</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >You guys (and others!) seem far too gleeful about my losses on the Cape Coral homes. Try and keep in mind that I bought 14 homes that year, Cape Coral is only 3 homes. My other 11 homes have an average equity position of over 25k for a total equity position on those homes of 370k. And I no longer have to pay any Federal income tax...</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Am I sad about the Cape Coral homes? Yes.</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Am I sorry I took the plunge and did something crazy? No way. I will cry all the way to the bank.</span><br /><br />That's good news, but there is some alarm in there as well. His estimated equity position of $370k is about half of what he estimated 5 months ago. That's a stunnnig drop, and there's still no guarentee that he will be able to sell at his estimated prices (it is entirely possible that he could sell for higher than his estimated prices, although given the mood of the market in 2007 is seems less likely).<br /><br />Shortly after this post he comes clean on how he felt he was taken advantage of by the other parties involved (brokers, builders, PMs, etc.):<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >March 11th, 2007</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >[...]they told me:</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >1. This property will be built in less than 12 months</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >2. There will be no cost to refinance the loan, the cost of construction to perm is already built into the cost of the original loan</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >3. There will be no out-of-pocket holding costs, these also are built in the original loan</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >4. This property will rent for roughly $300 a month negative cashflow (I never believed this of course)</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Basically, they promised that I would close on this loan in less than 12 months, and that I would have to bring no money to closing.</span><span style="color: rgb(255, 255, 204);font-family:times new roman;" > Instead, because the builder went over the 12 months (it has been 25 months on one house that has about three more to go). I am paying about $1700 a month holding costs on a house under construction, and I will have to pay about 8k-10k for a refinance on this loan. Times three houses.</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Ouch.</span><span style="color: rgb(255, 255, 204);font-family:times new roman;" > Sadly, if the builder DID build as he promised, because of the nature of the market, I could of sold these puppies for a slight gain at that time. But because he is a year OVER his promised time, the market has lost 50k or so in that time and I am left holding three losing assets...</span><br /><br />The first thing that I want to point out is that Jeff's stated philosophy is to never sell. In fact, at the end of 2005 he came up with this answer as to his philosophy "<span style="color: rgb(255, 255, 153);">Holding good... selling bad</span>". So I'm not convinced that he would have sold those home for a profit if the builders had completed on time. I don't feel horrible about the delays either because builders and contractors are known for delaying. It appears that the 12 month period was "promised" but not put into contract. Jeff, never believe any salesman's promise unless he'll put it in writing. It's a good lesson for us all.<br /><br />I have slightly more sympathy about his loan situation, but not much. I come from the old-school of thought that says "If you are an investor, then you should known what the hell you are investing in". I'd feel horrible if Jeff were just a normal Joe who wanted a home to raise his family in and was getting killed by payments he didn't understand. But an investor who doesn't understand the terms of his loan? That's inexcusable to me.<br /><br />Unfortunately, it's killing Jeff too. A month later he comes back and shares this with us:<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >April 25th, 2007</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Well...as many of you know I own three terrible houses in Cape Coral Florida. Through a series of misjudgments and being taken advantage of (and lied to), I am losing ~$1000 on month on each of these houses when they are rented. I am just sick about them and often cannot sleep--like now.</span><span style="color: rgb(255, 255, 204);font-family:times new roman;" ></span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >I have been hitting my personal residence HELOC for the negatives, but can only take that so far. I would just like to "walk away" from these homes but of course I am too embarrassed to do that (so far) and I suspect it is not an option anyway...</span><span style="color: rgb(255, 255, 204);font-family:times new roman;" > What are my options? These houses appraised at ~315k (closed in last year) but might only sell for 230k right now. I owe 264k.</span><br /><span style="font-family:times new roman;"></span><br />Jeff is beginning to learn his lesson on why buying 15 properties with No Money Down can be a gamble, and the type that hurts you. He's also learning that an apprasal really doesn't mean anything. And while he wants to claim that he was taken advantage of, I'd say that unless they broke laws, his ignorance is his own fault. Getting into a loan that he didn't understand and paying interest on the builder's loan is just silly, but he let himself get into it. As a real estate professional, I can't buy his argument.<br /><br />Later on he comes forward with information that a class action suit is forming against the builders in Cape Coral. I was going to brush over this, but it raises an interesting point:<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >April 25th, 2007</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >There is a class action suit with 100 more investors (in addition to the already existing 100 suits) being brought against those responsible for the illegal acts. To join this suit cost $2500. The lawyers don't promise anything, but claim they have a very strong case based in a large part on the illegal contracts. They say it is possible to have the original contracts "set aside." That is, the builder will get the house back...and I will get my money back as if nothing ever happened.</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >Is joining this class action suit (and coughing up $2500 more dollars--per house) a no-brainer? Or is this class action idea simply throwing more good money after bad.</span><br /><br />I'm not a lawyer, but this looks a bit fishy to me. Typically in a class-action suit, the lawyer will get involved for a piece of the reward. They typically don't ask for money up front (or at least not much). In this case, the lawyer running the class action suit has already raised over a quarter of a million dollars for this case (100 homes at $2,500 a piece). That's a hefty war chest over a builders lawsuit.<br /><br />Does that mean that this isn't legit? Of course not, I don't know much about this type of legal action. However, before I joined a suit like this I would go to an independant lawyer and pay him a consultation fee to have him look the suit over. If he thought it was legit and would be productive then I'd consider it. But mostly I'd be looking for information that this would be a un-winnable case or that I'd be very unlikely to get anything out of the builders (in which case that only person who goes home happy is the $250,000-richer lawyer).<br /><br />Jeff also lets us know that his other properties might not be as picture-perfect as he had originally thought:<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >April 26th, 2007</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >I am moving forward on my eviction in West Jordan [Utah]. When the nice tenant is out, can I just pay a flat fee for a MLS listing and then offer 3% to the buyers agent? Is that what is happening in the market right now (do you know)? Or how should I try and sell this house from a distance?</span><br /><br />Unfortunately, the last thing that we hear from Jeff is a very upsetting farewell:<br /><br /><span style="color: rgb(255, 255, 204);font-family:courier new;" >April 30th, 2007</span><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >>> Where are you Jeff?</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >I have been ill...</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >I can't sleep, I can't eat, when I do eat it comes up. This morning I started the day with a shower and threw up in the shower...</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >I am barely functioning, I try to read everyone's posts...</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >To those of you that insist that these houses were a mistake, you were right.</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >To those of you offering constructive advice and support, thank you.</span><br /><br /><span style="color: rgb(255, 255, 204);font-family:times new roman;" >I try to read everything but the words are just swimming, I'll try again later...</span><br /><br />It was one hell of a ride. And given Jeff's good nature and honesty on this site, I can't help but feel horrible for him. His situation is his fault, he basically took out a huge loan and put it all on black. But I can't begin to imagine the despair he must feel now. The wreckage from these homes will loom over his life for years. Even the properties that are worth more than he originally paid for them might not sell for many months. His personal residence is heavily leveraged with a $200k HELOC that's mostly maxed out.<br /><br />The worst part is that events like this can tear a family apart. Jeff made is perfectly clear that the real estate investing was his idea, his "job". His wife clearly didn't approve, but trusted him to take the risks that he did. Jeff took their future, gambled it, and lost. Even in an open and communicating relationship, that sort of event can destroy trust, and potentially the relationship.<br /><br />I wish the best for Jeff, I realy do. I hope that he can sell all of his properties and make enough back to cover his loans and losses. I hope that he can get his life back on track, and I hope his marriage survives this.<br /><br />But I think his tale can be a great caution to us all. Go back and re-read the story. It's 90% elation and excitement and growth, followed by 10% crushing defeat. And that's all it takes. When you are playing with that much leveraged money, one small event can cripple you and bring you to your knees.<br /><br />If you are serious about real estate, don't be Jeff. Start small. Study, read and learn about what you are getting into. Read the fricking loan documents. Take your time. And move forward at a pace that your finances can survive. I can't retell the same story over and over again enough. Do not over-leverage yourself. Please.<br /><br />If I see any more updates from Jeff, I'll post them, but I doubt he'll return.Unknownnoreply@blogger.com13tag:blogger.com,1999:blog-31155720.post-24029729673024776142007-08-14T06:50:00.000-04:002007-08-14T07:02:24.828-04:00Social Outrage<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://en.wikipedia.org/wiki/Image:Soho_-_map_1.png"><img style="margin: 0px auto 10px; display: block; text-align: center; width: 465px;" src="http://upload.wikimedia.org/wikipedia/commons/f/f7/Soho_-_map_1.png" alt="" border="0" /></a><br /><br />On Saturday afternoon I was returning from a day of shopping with my wife and we took a detour home through <a href="http://en.wikipedia.org/wiki/Soho">Soho</a>. Soho in London is a place with a seedy past, but today is a bright and vibrant center of London's West End. We practically had to shove our way throught crowded streets just to get closer to home. <span style="font-weight: bold;">That's when we heard the scream</span>.<br /><br />At first my wife thought it was a movie production. Moving closer we saw a crowd staying far back from some hooligan and what appeared to be his girlfriend. We quickly realized that this was no harmless shoot, and that the woman really wanted to get away from the man, and he wasn't going to let her. She was sobbing "Please just leave me alone", and he was forcefully not allowing her to leave.<br /><br />People were staying away from this, some watching with horror and other hurriedly walking the other direction, and I can understand why. The guy was about 6'1", 250lbs, and was sporting a short, bright-red mohawk. He looked like a guy who'd be comfortable in a bar-brawl, and in this sort of situation no one likes to be the first one to apporach. But my parents raised me well and I couldn't walk away from that sort of problem. So I walked up to the (<span style="font-style: italic;">not-a-</span>) gentleman and said, calmly, from about 4 feet away "Sir, if she wants to go, you should really just let her go".<br /><br />This is not the first time that I've intervened in this sort of situation, and typically at this point the guy will realize that he has an audience, mumble something, and walk away. Not our jackass, he looked at me with blood in his eyes, lunged at me and grabbed me by the front of my shirt. Screaming obscenities that would make a sailor blush, he threatened to "knock [me] the **** out", amongst other things.<br /><br />I'm proud to say that I stayed relatively calm and simply told him politely that he needed to relax. At which he raised his other fist up to my face and repeated his threats. But by threatening me with his fists, he had to let go of the woman, and she started to walk away. He let me go and chased after her.<br /><br />At this point it's worth pointing out that still no one has come to help either me or the woman. My wife is standing on the sidelines yelling at nearby men "That's my husband, please help!", and they would stare at her as if she were speaking Swahili.<br /><br />To make a long story short, I again intervened, and when the guy let go of the girl to threaten me again she took off with a purpose. A minute later, the guy gave up threatening me to leave as well. I survived relatively unscathed.<br /><br />I wonder if members of the crowd later went home and recounted the tale to their friends and family, ending it with a lament that the world is going to hell. I wonder if they even begin to realize that<span style="font-weight: bold;"> <span style="color: rgb(255, 0, 0);">they are the problem</span>! THEY</span> are the reason that people like our hooligan can exist.<br /><br />Jackasses like our mohawked-friend deserve to burn in hell, but they exist. It's simply a fact. What's really devastating is the sheer number of people who were unwilling to help. A woman was being abused right before their eyes, and they sat and watched. No one called the police. No one showed the slightest bit of outrage. They watched. They<span style="font-weight: bold;"> <span style="color: rgb(255, 0, 0);">enabled</span></span> that abuser.<br /><br />I love London. I really do. But on saturday I was, for the first time, truly ashamed to consider myself a Londoner. Today, when I walked to work, I found myself wondering if the people I walked by were decent human beings, or spineless cowards. And I hated myself for wondering that.<br /><br />Maybe I was wrong. Maybe I shouldn't have interfered. Maybe I should have sold popcorn to the speculators instead. Some people will tell you that you shouldn't get involved in that sort of situation. I say, <span style="font-weight: bold; color: rgb(255, 0, 0);">if that woman was your daughter and she was being abused in public, you'd hope that there'd be at least one person like me in the crowd</span>.<br /><br />God I'm furious.<br /><br />Parents, please teach your children to do the right thing. And that means having the courage to do it yourself.Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-31155720.post-45649296065948836872007-08-14T05:53:00.001-04:002007-08-14T06:50:52.277-04:00FillerIt's been crazy and again I will delay the continuing saga of Jeff while I make excuses. Debt Kid is a guy who speculated wildly and unresponsibly. He got his act together and now he's trying to pick up the financial wreckage. He recently has begun looking for an apartment (since his home just sold in a short-sale), and is realizing how tough it is when your credit score begins with a 4.<br /><br /><a href="http://www.debtkid.com/an-open-letter-to-seattles-landlords">He wrote</a> (post is re-ordered my own purposes):<br /><blockquote style="color: rgb(255, 255, 153);">"You seem so happy to see me when I meet you to look at a place. I’m well-manicured, fit, friendly…the perfect tenant. You even get excited when I say, “Sure, I’d love to take the place”. But then you rely on the 3rd party company to make your decision. It’s as if meeting me didn’t matter at all.<br />[...]<br /><br />It’s really too bad. I’ve had an office lease for 2+ years. My business is booming, and my personal debt will be gone (read: bankruptcy filing) very soon. And yet you still can’t look at me as a whole person.<br /><br />All you see is my past. <span style="font-style: italic;">Foreclosure. Bankruptcy. Late Payments</span>.<br /><br />None of those words explain me now, or where I am headed, but that is how you define me."</blockquote>Here is <a href="http://www.debtkid.com/an-open-letter-to-seattles-landlords#comment-1843">the comment I wrote</a> to him defending landlords:<br /><blockquote style="color: rgb(255, 255, 153);">"I know that you are frustrated. I know that you’ve gone through a lot and it’s been emotionally and physically draining on you. I’ve been following your story and I feel for you, I really do.<br /><br />But speaking as a landlord, it’s unfair to cast us all in a bad light. Your credit score is pretty important to us and I’ll tell you why. We don’t know you. Yes, you show up to meet us well-dressed and spoken, but so does the alcohic who’s been fired three times in the last two years and is likely to be out of income again soon. And the geeky guy in a wrinkled shirt with long hair who mumbles just happens to be a computer programmer who earns a fair salary every year and pays his bills on time.<br /><br />You see, renting out property isn’t a charity to us. It’s a living. When we get a bad tenant it can easily destroy a year’s worth of profits. First we have to wait for non-payment. Then we have to evict, which can take months (depending on the tenant’s sob-story). Then we usually have to pay for costly repairs because a person facing eviction doesn’t tend to care for a property. And during all of this time, we still have to make mortgage payments, because our credit scores are important to us too.<br /><br />A professional landlord could be potentially be financially ruined by only one or two bad tenants. And history shows us that people with low credit are far more likely to be bad tenants than people with good credit. It’s not much and it’s certainly not true in all cases, but we don’t have anything else to judge by.<br /><br />I know you’d be a great tenant. And I feel horrible for your plight. But if you take away a landlord’s use of credit scores, what’s left to help us make a good decision? What you really need to do in your situation is either get someone to co-sign on a lease for you, or find some people who are looking for a roommate."</blockquote><br /><br /><p style="margin: 0cm 0cm 0.0001pt;">And I really do feel for him. But let's be fair. His credit score is horrible because he made some very un-wise financial desicions that have, in the very recent past, led to him not being able to pay his debts. Yet he wants a landlord to trust that he will pay his rent on time based on what? The fact that he grooms himself?<br /><br />The fact is that while he rebuilds his credit, he has options. If I were him, I'd go on craigslist and look for someone people who were looking for a roommate. Yes, as a white, middle-class, business owning, former home owner, it may be a bit of a hit on his pride to share his living space with 2 or 3 other people. But it's simply the consequence of his desicions. And it's cheaper.<br /><br />And yes, I agree that the poor and homeless face a serious up-hill struggle in finding living, but as I mentioned before, landlording is not a charity. I give lots of money to various causes, but my business is simply a business. Please don't place the burden of social inequalities on the individual property owner. That's a problem for our tax dollars to solve, not some independant landlord trying to get by.</p><br />All that said, I continue to be a big cheerleader of Debt Kid and his struggles to right the wrongs his gambling caused. And if he lived in Virginia, I've rent a place to him, but that's because I've read his blog and feel like I can judge his character to some level. Without the blog, he'd just be another guy who didn't pay what he promised...Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-31155720.post-82708513257490590032007-08-09T13:08:00.000-04:002007-08-10T05:28:53.197-04:00Jeff see storm clouds...Work is still hectic, so this portion of the story may not be as well-edited as the one before, or the ones to come, but still it's here. As promised.<br /><br /><a href="http://lordingtheland.blogspot.com/2007/08/saga-of-jeff.html">When we last left Jeff</a>, he had purchased (or put under contract) 15 houses in just a few months. These houses ranged all over the country, from Florida to Arizona. At the end of our segment he had just posted the new NAR numbers for the areas that he had invested in. After 6 months of investing, it sure sounded like everything went spectacularly. One of his areas, Cape Coral, FL, appeared to have gone up 45% over the last 12 months! It was so spectacular that he wrote this during the next few days:<br /><br /><p style="margin: 0cm 0cm 0.0001pt;"> </p><p style="margin: 0cm 0cm 0.0001pt; color: rgb(255, 255, 153);"><span style="font-family:courier new;">August 18th, 2005</span></p><p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);">>> 45% in <st1:state st="on"><st1:place st="on">Florida</st1:place></st1:state>, you have got to be kidding!! Nice call on that one Jeff.</p> <p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);">>> I give all the credit for identifying <st1:city st="on"><st1:place st="on">Cape Coral</st1:place></st1:city> to Adiel Gorel. I had hardly<br /></p><p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);">>> even heard of <st1:city st="on"><st1:place st="on">Cape Coral</st1:place></st1:city> when he (or was it Dani, his assistant) told me about it.</p><br /><p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);">The great thing is that I bought THREE houses there (a lot for me!). Their total value is around 750k. So if they continue to go up at 45% a year (doubtful, but an interesting thought), I could make over 300k in one year! All this on about a ~9k investment. Am I missing something? This seems too good to possibly be true! </p> <p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);"> </p> <p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);">If this works out as I am imagining, I am definitely quitting my job. Oh, wait! I can't quit my job, I am unemployed...</p> <p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);"> </p> <p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);">Speaking of Adiel, I can't help but think of him telling me about his EIGHTY houses in <st1:city st="on"><st1:place st="on">Phoenix</st1:place></st1:city>. He estimated their total value at about 16 million. It almost makes me lightheaded to think about it, but since <st1:city st="on"><st1:place st="on">Phoenix</st1:place></st1:city> went up almost 50% last year, he made ~8 million in one year (in one town, he owns in many towns...).</p><br />Wow, are things going beautifully for him or what? We've also learned that he's not working anymore, but with the way real estate is going up, who needs a job! Right?<br /><br /><p style="margin: 0cm 0cm 0.0002pt;">We don't really hear much from Jeff for a few months, but he comes back in November with more updated numbers.<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >November 15th, 2005<br /><br /></span> <table class="MsoNormalTable" style="width: 257pt; border-collapse: collapse; color: rgb(255, 255, 153);" border="0" cellpadding="0" cellspacing="0" width="343"> <tbody><tr style="height: 13.2pt;"> <td style="padding: 0cm; width: 209pt; height: 13.2pt; font-family: times new roman;" width="279"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on">Albuquerque</st1:city>, <st1:state st="on">NM</st1:state></st1:place><o:p></o:p></p> </td> <td style="padding: 0cm; width: 48pt; height: 13.2pt; font-family: times new roman;" width="64"> <p class="MsoNormal">18.2%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal"><st1:place st="on"><st1:placetype st="on">Cape</st1:placetype> <st1:placename st="on">Coral-Fort</st1:placename></st1:place> Myers, FL<o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal">42.5%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on">El Paso</st1:city>, <st1:state st="on">TX</st1:state></st1:place><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal">19.5%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on">Oklahoma City</st1:city>, <st1:state st="on">OK</st1:state></st1:place><o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal">10.9%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal">Pensacola-Ferry Pass-Brent, FL <o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal">31.2%<o:p></o:p></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on">Salt Lake City</st1:city>, <st1:state st="on">UT</st1:state></st1:place> <o:p></o:p></p> </td> <td style="padding: 0cm; height: 13.2pt; font-family: times new roman;"> <p class="MsoNormal">12.5%<o:p></o:p></p> </td> </tr> </tbody></table><br /><span style="font-weight: bold; color: rgb(255, 255, 153);font-family:times new roman;" >The continuing saga...</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >My "worst" investment is no longer SLC (appreciation-wise)--OKC is now lowest at 11%. Of course, I am MAKING $100-$200 a month on fully rented houses in OKC, while my SLC house remains empty on the market at ~$1000 for a 220k house (no takers?).</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Holding costs (i.e. vacancies) were WAY higher than I budgeted for (often 5k a month), and I have significantly cut into my cash reserves.</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Other than that, I feel that my "cut and paste" strategy has served me well. To the degree that my houses are typical of the areas they are in, and hence these NAR numbers are representative, I could be making a weighted average of a 23% return on ~2.8 million in RE (if current numbers hold). Somehow, I just don't think I will be that lucky--it just seems too good to be true--however, I don't see why I shouldn't make half that...</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >In fact, if I don't lose these houses to foreclosure due to vacancies...I could eventually make a significant bundle.</span><span style="color: rgb(255, 255, 153);font-family:times new roman;" ></span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Albuquerque is the next Phoenix! El Paso is the next Tuscon!</span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">And the first crack appears in the fascade. Holding costs have continued to get higher and he's not prepared for it. In my last post I mentioned that you can very rarely rent out a 100% financed home high enough to cover payments, and you should always allow for at least 5% vacancies. Jeff told us in the last post that he intended to put away $50k in cash to cover holding costs and emergencies, but those funds are somewhat depleted.<br /><br />An important lesson in real estate is that if a house is vacant, you still have to pay the mortgage. Since Jeff is nowhere near most of these houses, he's relying on property management companies to find him tenants, and while they don't make money if no one is renting, they don't lose money either. So there's nothing he can really do to speed up the tenant locating process, besides deluge the PM's with calls all day.<br /><br />However, at the appreciation rates he's experiencing, he could always just sell a couple of houses to cover payments and then keep the rest, right? Everything is going really well. Later the same day he gives a little deeper look into where he sits financially on a cashflow basis:<br /><br /><span style="font-family:times new roman;"></span><span style="font-family:times new roman;"></span><span style="color: rgb(255, 255, 153);font-family:courier new;" >November 15th, 2007<br /><br /></span><span style="color: rgb(255, 255, 153);font-family:times new roman;" >In El Paso, I had several months of vacancies...I finally rented the third one for about $200? below market (and only a 6 month lease). But in Pensacola (Milton) I rented right away at about $150 below market.</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >A week ago, I had 4 vacant properties...ow! But just in the last week I rented two of those, so now I am down only about 3k a month...still ow. </span><span style="color: rgb(255, 255, 153);font-family:times new roman;" >I hate vacancies...</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >As described above, I have contracts on 15 houses, but I have technically only closed on 9. I signed the papers on another one in ABQ tonight though, so should "own" 10 by the week's end. Of course, when this one closes I will be back up to 3 vacant, and will be losing about 4k a month. Such is life (MY life anyway). I should have budgeted for more vacancies...good thing my wife stopped me from buying more when she did or I would REALLY be in trouble! </span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >I hope all is well with you...may your days be happy and your vacancies low.</span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">I agree with you Jeff, I hate vacancies. but they are a known risk in real estate investing. Every landlord has them. But things are taking a turn for the worse, aren't they? Back in August he told us that he was positive $250 a month after closing on 5 houses. Now he's closed on 4 more and he's fallen to negative $3,000 a month.<br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">I also noticed that he mentioned that his wife"<span style="color: rgb(255, 255, 153);">stopped [him] from buying more</span>". Everyone's marriage is their own business, but remember in the last post when I mentioned that he was a little too eager to buy homes?<br /><br />Later in the month he gives us even more in-depth data on his current situation (as with most other posts, reformatted for better clarity):<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >November 21st, 2005<br /></span><span style="color: rgb(255, 255, 153);font-family:times new roman;" >I must admit that my confidence in my numbers is shaken. However, here my numbers are nevertheless. Technically, I have only closed on 9 houses, one is vacant. Including the vacant house, I am losing $2,396 a month (before taxes).<br /><br />[...] it is impossible to give an accurate prediction of just how much money I will be “losing” next year…it all depends on vacancies (to a large extent at least). So let’s look at a “best case” scenario where all my houses are rented (which they will be, eventually).<br /><br />When I close on my 15th house, and it rents along with the others, I will be “losing” $3,656 a month or $43,872 a year (before taxes). Now this DOES sound like a lot of money, in fact, it will entirely wipe out my cash reserves in ONE year. But it is a BEFORE taxes estimate. My very conservative estimate of what I will be saving in taxes (depreciation plus loses) is $37,764. So, to the extent that my houses are completely rented, and to the extent that my estimate of taxes is accurate, I will only be “losing” $6,108 a year (a value that my cash reserves can cover for several years). (I am hopeful that, by “compartmentalizing” my houses and using accelerated depreciation schedules a la Albert Aiello, I can get this $6,108 down to around zero, but I am not counting on this.)</span><span style="font-family:times new roman;"></span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">Now we start to pierce the veil, look beyond Jeff's shell and into his numbers. Let's start with his cashflow. Before he seemed confident that he'd stay positive before considering taxes, now it appears that taxes will be his salvation. But not so fast.<br /><br />Let's assume that, for the sake of math, all of Jeff's losses are deductable. They aren't in real life, because some of those expenses go to paying off principal on his homes, which is non-deductable. He wants to claim a loss of $43,872 plus his depreciation. Now if he is considered a real estate investor, then he's limited to claiming $25,000 a year in losses. the other losses aren't gone they are simply rolled forward to next year (and so on until you sell the property).<br /><br />However, since Jeff has no other job, <a href="http://realtytimes.com/rtcpages/20070110_surefireway.htm">he can qualify to become a real estate professional</a> (in the eyes of the IRS) by putting at least 750 hours a year into his real estate. From that he can get unlimited paper losses to offset other income. Of course, that's the next kicker, he has to offset other income in order to have tax savings.<br /><br />He hopes to get a tax savings of $37,764. Using some back-of-the-envelope calculations, <a href="http://www.irs.gov/formspubs/article/0,,id=133517,00.html">his household income will need to be at least $153,800</a> before he'll be paying enough taxes to claim that entire refund. Considering his personal income is negative, his wife will have to be pulling in over $150,000 to make these loses materialize into cash. (<span style="font-weight: bold; font-style: italic;">NOTE: </span><span style="font-style: italic;">Actually she'd need to be earning more, since I was using the single tax brackets numbers, not the married</span>)<br /><br />In addition, to get a return as large as he is claiming to want, he'd need to offset all of her income. That means claiming $7,328 per house in depreciation on top of his losses. That depreciation number is actually quite reasonable, but the income expectation is high (also bearing in mind that it's not easy to qualify as a real estate professional if you are holding down another job).<br /><br />So what he's hoping for is probably a bit unreasonable, though he does corerctly point out later that if his losses push his income below zero, those losses aren't lost but are rolled into the next year. And as the month rolls on, Jeff gives a us a deeper look at his long term goals<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >November 22nd, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >My "plan" is to buy these 15, and then each time a house reaches a LTV of ~65%, I will cash out re-fi back to 80%. All re-fied funds will then go to the purchase of MORE homes, never selling the old ones. Eventually I expect to own 50 (or 100? 200?) homes, doubling every ~5 years (or less? depending on appreciation--65% LTV comes pretty quickly at 45% appreciation a year!). So 30 homes total in 5 years, 60 in 10 years, 120 in 15 years, and so on...until I get to the point of "enough."</span><br /><br />In case you are unaware, LTV means Loan-to-value. For example, if your house is worth $100,000 and you have a loan for $87,000, then your LTV is 87%. Typically if your LTV is over 80% on a single loan, you will be charged PMI (<a href="http://homebuying.about.com/cs/financingahome/a/pmi_2.htm">Private Mortgage Insurance</a>).<br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">I have to admit that most of this plan makes sense. Let the homes build up in equity, then tap some of that out to purchase more homes. So why am I still worried? Because that plan is not the same plan that he's on now. Jeff owns his own home (he mentions it in other posts), and probably could have re-fied to 80% LTV and bought a single home, or maybe two, and began there. Instead he wanted to jump-start his investing by borrowing 100% on 15 homes. So while his long-term plan seemed to be solid, his short term plan was nothing more than a gamble.<br /><br />Jeff begins to realize this as more and more people point this out:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >November 22nd, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" ></span><span style="color: rgb(255, 255, 153);font-family:times new roman;" >>> What if prices start going down 5% a year in Ft. Myers, Pensacola and Albuquerque? </span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >That would be bad...</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Do you think that such a thing is possible in the absence of some economic or natural (worse than a hurricane!) disaster? For appreciation to go from 45% to 30% is expected, from 45% to 15% disappointing...but from 45% to NEGATIVE 5%--I really don't see that as a reasonable possibility for Florida. Even Las Vegas, after it "popped" and went down significantly--it is still appreciating at 10%. 10% is still a GREAT return! If I average 10% on my investments I will SKIP all the way to the bank...</span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">Someone points out a possibility of his properties declining and Jeff realizes that such a thing would be disasterous. But he swiftly changes gears and mentions how such a thing would be impossible, quoting his Cape Coral figures. But what he's claiming doesn't quite make sense. Going from 45% to -5% seems far more likely than going from 45% to 30%.<br /><br />You see, in basic economics you learn that when something is hot (and 45% appreciation is definately hot!), it's unlikely to slow down. Because of the psychology involved, it's far more likely to speed up until it "pops", and sharply reverses itself. But Jeff further explains:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >November 22nd, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >I have good reason to believe appreciation rates in Cape Coral will remain high including:</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" > a. projected employment highest in nation</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" > b. Foreign investor demand high</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" > c. CC is 20 minutes from Naples, also appreciating at >40% but ALREADY 100k more than CC</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" > d. Projected population increases high</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" > e. Commercial interests high (Home Depot, Publix, etc.)</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" > f. Baby boomers have to retire somewhere and they want a tan</span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">Looking at it from a personal point of view, I can tell you that I'd ignore the foreign investors (investors are investors and while foreign ones, probably European, are more likely to get <a href="http://en.wikipedia.org/wiki/Musical_chairs">caught standing up when the music stops</a>, they'll want out just like everyone else). I'm also skeptical about the baby boomers claim. That claim has been made for a very long time, but retirement is changing. People are working later into their lives and sticking closer to family. Still the population numbers, employment numbers and commercial interest are all fairly significant positive indicators.<br /><br />But worst of all, I think at this point Jeff is starting to lose some faith in himself. His loss of confidence came through when someone pointed out out that what goes up, must come down:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >November 23rd, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >>> Robert Campbell instructs us that appreciation always eventually reverts back </span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >>> to the mean. Unfortunately, when prices have gone way over average, they have </span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >>> to go below average for a time in order for the mean to re-establish itself again. </span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Rates do not have to revert back to the mean...all one has to do is wave one's hands and repeat the following...</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >"things are different this time..."</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >"things are different this time..."</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >(don't forget the hand waving...its very important)</span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">The astute amongst you will realize that things don't always have to revert to the mean at a micro level. For example, I'm fairly certain that Redmond, Washington grew signifacntly in value when Microsoft relocated there and is unlikely to depreciate anytime soon. At a micro level there can be any number of reasons why a local market could soar and not crash back down. Some of those are reasons that Jeff pointed out above (such as population growth and commercial interest). But at this point you have to wonder if Jeff really knows anything about these markets besides the numbers that NAR released.<br /><br />Understanding a local market is not a simple thing, and requires a lot of attention. There is so much information to process and you must stay on top of new developments. There is a reason that professional traders on Wall Street specialize in specific industries or groups of companies. It's hard enough to stay on top of just a few companies, much less stay on top of the entire US economy.<br /><br />Jeff then gets a series of warnings from other people about the riskiness of his strategy, culminating when a poster named JJ, pleads with him to be cautious:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >November 26th, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >>> Jeff - I am not stating that your investment style will not work, I am just suggesting<br />>> that caution needs to be taken with this type of strategy.</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Caution...I am in total agreement with your very good point here. Of course, the wisest investor will consider the price of all risks when he invests, including the risk of too much caution. Caution can be risky! Caution can be expensive! </span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Avoid the risk of too much caution!</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Everyone think back over the last 5 years...don't you wish you would of bought MORE houses?</span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">Yes, and 5 years ago you would have been wise to throw caution to the wind. Of course if you bought Amazon stock in December of 1999 at $100 a share because you wished you had bought more 5 months ago when it was trading at $44 a share, you would have lost money in the resulting crash and still would be 20% below your purchase price (excluding the interest from buying on margin).</p><p style="margin: 0cm 0cm 0.0002pt;"><br /></p><p style="margin: 0cm 0cm 0.0002pt;">But at this point it appears as though the fatigue of investing is wearing on Jeff (even when you don't manage the properties yourself, real estate can be a very draining investment), but at the beginning of January, he again updates the numbers that NAR has reported:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >Janurary 1st, 2006</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >For those that are interested, NAR puts the cities I invested in at:</span><br /><br /><table class="MsoNormalTable" style="width: 449pt; border-collapse: collapse;" border="0" cellpadding="0" cellspacing="0" width="599"> <tbody><tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="228"> <p class="MsoNormal"><span style="color:black;">Metropolitan Area<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">2004<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">2005 p<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">2005.III r<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">2005.IV p<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">%Chya<o:p></o:p></span></p> </td> </tr> <tr style="height: 13.8pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.8pt;" width="228"> <p class="MsoNormal"><span style="color:black;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.8pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.8pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.8pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.8pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;"><o:p> </o:p></span></p><br /></td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.8pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;"><o:p> </o:p></span></p><br /></td> </tr> <tr style="height: 13.2pt;"> <td style="border-style: solid none none; padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="228"> <p class="MsoNormal"><st1:country-region st="on"><st1:place st="on"><span style="color:black;">U.S.</span></st1:place></st1:country-region><span style="color:black;"><o:p></o:p></span></p> </td> <td style="border-style: solid none none; padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">184.1<o:p></o:p></span></p> </td> <td style="border-style: solid none none; padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">207.3<o:p></o:p></span></p> </td> <td style="border-style: solid none none; padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">215.9<o:p></o:p></span></p> </td> <td style="border-style: solid none none; padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">213.0<o:p></o:p></span></p> </td> <td style="border-style: solid none none; padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">13.6%<o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="228"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style="color:black;">Albuquerque</span></st1:city><span style="color:black;">, <st1:state st="on">NM</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">145.4<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">169.2<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">170.8<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">174.1<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">11.7%<o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="228"> <p class="MsoNormal"><st1:place st="on"><st1:placetype st="on"><span style="color:black;">Cape</span></st1:placetype><span style="color:black;"> <st1:placename st="on">Coral-Fort</st1:placename></span></st1:place><span style="color:black;"> Myers, FL<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">187.2<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">269.2<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">277.6<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">293.1<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">48.0%<o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="228"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style="color:black;">El Paso</span></st1:city><span style="color:black;">, <st1:state st="on">TX</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">94.7<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">111.8<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">113.6<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">118.4<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">23.2%<o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="228"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style="color:black;">Oklahoma City</span></st1:city><span style="color:black;">, <st1:state st="on">OK</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">112.4<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">117.2<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">121.0<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">121.7<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">10.9%<o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="228"> <p class="MsoNormal"><span style="color:black;">Pensacola-Ferry Pass-Brent, FL<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">131.1<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">159.4<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">175.5<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">168.2<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">20.5%<o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 171pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="228"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style="color:black;">Salt Lake City</span></st1:city><span style="color:black;">, <st1:state st="on">UT</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">158.0<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">173.9<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">181.4<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">182.3<o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 55.6pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="74"> <p class="MsoNormal" style="text-align: center;" align="center"><span style="color:black;">14.2%<o:p></o:p></span></p> </td> </tr> </tbody></table><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >For all of my properties, this works out to a weighted average of 24% using NAR numbers (which are now becoming more and more relevant as I pass the anniversary of my first contract signings). If only my actual houses are anywhere near the NAR numbers...</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >OFHEO was a little more conservative in their numbers (aren't they always?). They put the cities I invested in at:</span><br /><br /><table class="MsoNormalTable" style="width: 257pt; border-collapse: collapse;" border="0" cellpadding="0" cellspacing="0" width="343"> <tbody><tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 209pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="279"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >Albuquerque</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">NM</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 48pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="64"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >16.58%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><st1:place st="on"><st1:placetype st="on"><span style=";font-size:10;color:black;" >Cape</span></st1:placetype><span style=";font-size:10;color:black;" > <st1:placename st="on">Coral-Fort</st1:placename></span></st1:place><span style=";font-size:10;color:black;" > Myers, FL</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >36.19%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >El Paso</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">TX</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >11.23%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >Oklahoma City</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">OK</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >7.56%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >Pensacola-Ferry Pass-Brent, FL </span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >26.60%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >Salt Lake City</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">UT</st1:state></span></st1:place><span style=";font-size:10;color:black;" > </span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >13.78%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >St. George</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">UT</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >35.27%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> </tbody></table><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >or a weighted average of 22%. Once again, if only my actual houses do half this well...</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >As for RE investing as a whole...I got into this hoping to catch the last year (2?) of the cycle...it looks like I have a pretty good chance of doing that. But inventories are going up nationwide (way up in some areas), and prices may already be seeing some drop. I think by investing in the Midwest areas that I did, I maximized the my chances of catching the very last of the nationwide up-cycle--I may see another year or two in the Midwest (cross my fingers). For example, SLC inventories are going down. Funny thing is, prices have not shot way up yet (how to explain that?). Maybe SLC needs something more than restricted supply to get up to 20%-30%, or maybe the buyers in that area are SO used to 4% gains that they psychologically will never pay for a 30% gain in one year?</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Cape Coral is my one worry...Inventory is up around 150% in just the last few months!</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" > (</span><a style="font-family: times new roman; color: rgb(255, 255, 153);" href="http://www.news-press.com/apps/pbcs.dll/section?Category=BUSINESS">Lee existing-home sales, prices drop in January</a><span style="color: rgb(255, 255, 153);font-family:times new roman;" >)</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" > (</span><a style="font-family: times new roman; color: rgb(255, 255, 153);" href="http://www.news-press.com/apps/pbcs.dll/article?AID=/20060205/NEWS01/602050449/1076/RE">Slowly, prices begin to drop as unsold homes sit longer</a><span style="color: rgb(255, 255, 153);font-family:times new roman;" >)</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Anyone else have Cape Coral homes? Other Florida homes?</span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;"><span style="font-family:georgia;">So as we leave our hero, he's beginning to feel the pressure of such a large undertaking. And as his understanding of real estate grow, and the true weight of carrying costs becomes apparent, he begins to fear what even a minor market correction could do to him. Note at the end that his best investment, on paper, would seem to be Cape Coral, which has appreciated somewhere between 36% and 48%. Yet increasing inventory is still enough scare him.</span></p><p style="margin: 0cm 0cm 0.0002pt;"><br /></p><p style="margin: 0cm 0cm 0.0002pt;"><span style="font-family:georgia;">It's been a long journey thus far, but try to visualise these homes as yours. You owe somewhere in the neeighborhood of $2.8 million on the homes and some aren't even built yet. Some months you've had to pay out as much as $5,000 to cover mortgage costs and you spend way too much of your time chasing down property managers, asking about collected rents and chasing them on finding tenants for your homes.</span></p><p style="margin: 0cm 0cm 0.0002pt;"><br /></p><p style="margin: 0cm 0cm 0.0002pt;"><span style="font-family:georgia;">Hopefully 2006 will be good to Jeff and put him in a position to relax a bit more.<br /></span></p>Unknownnoreply@blogger.com6tag:blogger.com,1999:blog-31155720.post-77831453145127947952007-08-09T05:40:00.001-04:002007-08-09T05:43:18.605-04:00You'll have to wait until tomorrowI'm terribly sorry, but the saga of Jeff will have to wait for tommorrow. I'm completely swamped at work, and haven't been getting home until very late lately. And today I've been hit with calls from several major clients and might pull another late night..<br /><br />(Which kinda stinks because I promised my wife I'd go home early today so we could go to an event at the Covent Garden Market. I might have to head back to work after that's over with).<br /><br />Still Part 2 of Jeff's story is more than half done, so I should be able to get it out tomorrow morning.<br /><br />Thanks for your patience.<br /><br />The LandlordUnknownnoreply@blogger.com24tag:blogger.com,1999:blog-31155720.post-60373748435703635102007-08-06T06:14:00.001-04:002007-08-07T05:17:28.356-04:00The saga of JeffMeet Jeff.<br /><br />Jeff is a night manager at Taco Bell. Married and wanting more out of life. He hears about the magic money in real estate and buys in, hook, line and sinker. He goes crazy and buys 14 houses in three months. What happens next?<br /><br />Unlike many "people" I tell stories about on this site, Jeff is not a hypothetical person. He really exists. Early 2005, he appeared on a discussion board frequented by real estate investors. What made Jeff so interesting is that not only did he appear to be an ethusiastic and genuinely nice guy (although a bit naieve), but he also was extremely open about his investment strategy and his purchases. He continued to post updates on this board until around April 2007, giving us an opportunity to see the progress of a guru-follower in action.<br /><br />Jeff's guru of choice is a man named Adiel Gore. For quick look at the guy's "credentials" simply watch the quick film below.<br /><br /><embed style="width: 400px; height: 326px;" id="VideoPlayback" type="application/x-shockwave-flash" src="http://video.google.com/googleplayer.swf?docId=2765841251995337391&hl=en" flashvars=""></embed><br /><br /><p style="margin: 0cm 0cm 0.0002pt;">I could spend an entire post talking about how ridiculously over-simplified this man's view of real estate is, but I'll just point out a few problems. To pay off that mortgage early (without using your own money) you will have to be earning considerably more in rent than your mortgage costs, a very difficult proposition with No Money Down single family homes. You also must include allowances for repairs and other costs. Not to mention I despise his ending, where he says "want more money? Just buy TWO houses!" I've ranted enough about <a href="http://lordingtheland.blogspot.com/2006/10/danger-of-overextending-yourself.html">irresponsible leaverage</a>.<br /><br />So Jeff, after reading and listening decides to put all of his chips in. He signs 14 contracts in 14 weeks (most of these aren't actually finished houses). His main metric of measurement is <a href="http://money.cnn.com/pf/features/lists/nar_1q05/index.html#table">NAR's official list of appreciation rates</a>. Let's take a look at his journey through real estate investing, using his own words (<span style="font-style: italic;">Some formatting has changed to increase readability</span>):<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >May 12th, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Using last quarter's NAR info, I invested in the following cities (the numbers beside each are number of houses and last quarter's appreciation rates). (A special thanks to Suzanne Goulet, who helped me with many of these.)</span><br /><br /><table class="MsoNormalTable" style="border: medium none ; border-collapse: collapse; margin-left: 6.75pt; margin-right: 6.75pt; width: 413px; height: 160px;" align="left" border="1" cellpadding="0" cellspacing="0"> <tbody><tr style="height: 18pt;"> <td style="border: 1pt solid windowtext; padding: 0cm 5.4pt; width: 86.4pt; height: 18pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><b style="">Location<o:p></o:p></b></p> </td> <td style="border-style: solid solid solid none; padding: 0cm 5.4pt; width: 81pt; height: 18pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt;"><b style=""># of Homes<o:p></o:p></b></p> </td> <td style="border-style: solid solid solid none; border-color: windowtext windowtext windowtext -moz-use-text-color; border-width: 1pt 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 18pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt;"><b style="">YoY Increase<o:p></o:p></b></p> </td> </tr> <tr style="height: 17.25pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><st1:city st="on"><st1:place st="on">El Paso</st1:place></st1:city><o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">2<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">1.5%<o:p></o:p></p> </td> </tr> <tr style="height: 17.25pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;">Albuquerue<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">3<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">14.8%<o:p></o:p></p> </td> </tr> <tr style="height: 8.25pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 8.25pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;">SLC<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 8.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">2<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 8.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">6.5%<o:p></o:p></p> </td> </tr> <tr style="height: 12pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><st1:city st="on"><st1:place st="on">Oklahoma City</st1:place></st1:city><o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">2<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">10.8%<o:p></o:p></p> </td> </tr> <tr style="height: 12pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><st1:place st="on"><st1:placetype st="on">Fort</st1:placetype> <st1:placename st="on">Meyers</st1:placename></st1:place><o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">4<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">26.5%<o:p></o:p></p> </td> </tr> <tr style="height: 13.5pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 13.5pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><st1:city st="on"><st1:place st="on">Pensacola</st1:place></st1:city><o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 13.5pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">1<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 13.5pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">19.2%<o:p></o:p></p> </td> </tr> </tbody></table><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><p style="margin: 0cm 0cm 0.0002pt;">and 1 other house in Saint George (not on chart!).</p></span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br />Now the NEW NAR numbers show that there has been little change (with one exception!).</span><br /><br /><table class="MsoNormalTable" style="border: medium none ; border-collapse: collapse; margin-left: 6.75pt; margin-right: 6.75pt; width: 416px; height: 160px;" align="left" border="1" cellpadding="0" cellspacing="0"> <tbody><tr style="height: 18pt;"> <td style="border: 1pt solid windowtext; padding: 0cm 5.4pt; width: 86.4pt; height: 18pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><b style="">Location<o:p></o:p></b></p> </td> <td style="border-style: solid solid solid none; border-color: windowtext windowtext windowtext -moz-use-text-color; border-width: 1pt 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 18pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt;"><b style=""># <span style=""> </span>of Homes<o:p></o:p></b></p> </td> <td style="border-style: solid solid solid none; border-color: windowtext windowtext windowtext -moz-use-text-color; border-width: 1pt 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 18pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt;"><b style="">YoY Increase<o:p></o:p></b></p> </td> </tr> <tr style="height: 17.25pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><st1:city st="on"><st1:place st="on">El Paso</st1:place></st1:city><o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">2<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">15.0%<o:p></o:p></p> </td> </tr> <tr style="height: 17.25pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;">Albuquerue<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">3<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 17.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">11.1%<o:p></o:p></p> </td> </tr> <tr style="height: 8.25pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 8.25pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;">SLC<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 8.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">2<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 8.25pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">6.1%<o:p></o:p></p> </td> </tr> <tr style="height: 12pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><st1:city st="on"><st1:place st="on">Oklahoma City</st1:place></st1:city><o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">2<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">9.3%<o:p></o:p></p> </td> </tr> <tr style="height: 12pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><st1:place st="on"><st1:placetype st="on">Fort</st1:placetype> <st1:placename st="on">Meyers</st1:placename></st1:place><o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">4<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 12pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">25.6%<o:p></o:p></p> </td> </tr> <tr style="height: 13.5pt;"> <td style="border-style: none solid solid; border-color: -moz-use-text-color windowtext windowtext; border-width: medium 1pt 1pt; padding: 0cm 5.4pt; width: 86.4pt; height: 13.5pt; color: rgb(255, 255, 153);" valign="top" width="115"> <p style="margin: 0cm 0cm 0.0001pt;"><st1:city st="on"><st1:place st="on">Pensacola</st1:place></st1:city><o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 13.5pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">1<o:p></o:p></p> </td> <td style="border-style: none solid solid none; border-color: -moz-use-text-color windowtext windowtext -moz-use-text-color; border-width: medium 1pt 1pt medium; padding: 0cm 5.4pt; width: 81pt; height: 13.5pt; color: rgb(255, 255, 153);" valign="top" width="108"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center">18.5%<o:p></o:p></p> </td> </tr> </tbody></table><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br /><br /><br /><br /><br /><br /><br /><br /><p style="margin: 0cm 0cm 0.0001pt;">Look at El Paso!? Now I know these numbers can move around a lot and not be meaningful, but c'mon 1.5% to 15% in 3 months! That's either a typo or an incredible change.</p></span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><p style="margin: 0cm 0cm 0.0002pt;">El Paso is the new Phoenix! Everyone rush there now before it is too late! (Actually, never mind, wait until I buy one more...)</p></span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">So far so good, it sounds like his investments are taking off. But look carefully between the lines and you can already see a number of alarming signs. He's basing his investment strategy off of a very general set of statistics that are produced by a biased industry tradegroup, and he's a little to eager to buy more homes. Also take a look at where his houses are, he owns property on opposite coasts, which may be difficult to maintain. How well do you think he understands the local markets?<br /><br />A short while after posting such exhaustive information, he gladly answered all questions on the state of his portfolio, including this post on the 13th of May, 2005 which ominously foreshadowed his future:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >May 13th, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" ><p style="margin: 0cm 0cm 0.0002pt;">I would LOVE to tell you about how my investments are doing. Sadly, in order to do that I would have to KNOW how my investments are doing. This is next to impossible given the fact that I have only been investing for roughly 3 months and I am a "buy and hold" strategy guy. I have just done the "buying" part and haven't yet done the "holding" part--not by a long shot. In fact, I have only closed on three homes. Many of my homes won't be built until the summer/fall, and at least 5 won't be built for a year.</p></span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">His number are promising, but that's all that they are right now, numbers on a spreadsheet. It's difficult to get comps, since we're talking about undeveloped neighborhoods. But the problem is potentially a bit more treacherous:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >May 13th, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" ><p style="margin: 0cm 0cm 0.0002pt;">In fact, if I just see a 10% return on average over the next few years my 2.7 million portfolio will return (on paper) 270k a year. Such is the power of leverage. Of course, if "the bubble" bursts and we all see a 10% DECLINE, then I will be LOSING (on paper) 270k a year. This is why I have trouble sleeping at night (did I mention that all these homes were bought with 100% borrowed money? ...even more stress).</p></span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" >But so far I see no bubble, and my goal of a 10% return seems reasonable given the appreciation rates above ( 15.0%, 11.1%, 6.1%, 9.3%, 25.6%, 18.5%--SLC appears to be my "worst" investment right now at 6.1%). That is why I liked this article so much, I look forward to re-checking in 3 months.</span><br /><br /></p><p style="margin: 0cm 0cm 0.0002pt;">Jeff is hoping to continue to see his home appreciate at a rate of 10% a year. That sounds like it may be a bit unreasonable, after all if homes appreciated at that rate historically, an average home worth $44,600 in 1950 (the median home price in 1950), would be worth <span style="font-weight: bold;">over $10.2 million today</span>. At those rates no one would be able to buy homes anymore (which of course would cause a crash in home prices... anyone see how this works yet?). There is a very good reason that real estate trends closely mirror inflation over the long term.<br /><br />Interestingly enough, Jeff has a "hold" strategy, but there's no discussion about how he intends to pay the mortgages on 14 properties that are 100% financed. As I've discussed before, it's very difficult to charge a high enough rent to cover 100% financing. If you can buy a house with no money down at the same price as renting it, why wouldn't you buy? There is most likely going to be a gap, not to mention the property managers taking a 7% cut of rents, but no mention of how he's going to cover that much of his carrying costs.<br /><br />In August, Jeff admits that he still has very little idea of the real prices of his homes. All he knows is the NAR released numbers. A fellow poster named Taddyangle asked him if he was using comps to get a better understanding of his homes in particular instead of just looking at broad market indicies. Jeff responded:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >August 3rd, 2005</span><br /></p><p style="margin: 0cm 0cm 0.0002pt; font-family: times new roman; color: rgb(255, 255, 153);">Taddy,</p> <p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);">As usual, I like your ideas. Recent sales are a good measure, especially if it is the same model by the same builder...I admit that I DO have some data points to use here, but not enough to feel confident about what appreciation is. After I have more data, I will feel more confident. For the most part, the recent sales suggest that appreciation IS positive and is IN the range reported by the NAR. But it is too early for me to give definitive answers...with ONE exception. </p> <p style="margin: 0cm 0cm 0.0002pt; font-family: times new roman; color: rgb(255, 255, 153);"> </p> <p style="margin: 0cm 0cm 0.0001pt; color: rgb(255, 255, 153);"><span style="font-family:times new roman;">I can say with almost absolute confidence that the appreciation reported by the NAR for </span><st1:city style="font-family: times new roman;" st="on"><st1:place st="on">Cape Coral</st1:place></st1:city><span style="font-family:times new roman;"> is TOO LOW. The houses that I bought there are now selling for 30k more, same model/floorplan. This is about 10k a month. </span> </p><br /><p style="margin: 0cm 0cm 0.0002pt;">After investing for around 6 months, things seem to be looking up for Jeff. On paper his houses are making money, and one of his latest markets, Cape Coral, seems to be booming. These houses in Cape Coral, by the way, aren't actually built yet. And there is no knowing whether these homes have been picked up by investors or by people actually wanting to live there. But still, $10k a month seems to be incredible. Jeff could be going from night manager to millionaire by the end of the year!<br /><br />In fact Cape Coral homes seem to be doing so well that only a few days later he says:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >August 6th, 2005</span><br /></p><p style="margin: 0cm 0cm 0.0001pt; font-family: times new roman; color: rgb(255, 255, 153);"></p><p style="margin: 0cm 0cm 0.0002pt; font-family: times new roman; color: rgb(255, 255, 153);">[...] I expect to be ~$300-$500 [cash flow negative] on [the Cape Coral homes] each month. I am willing to do this though, as each will probably be going up 10k a month on average (my guess). On paper, is seems as if they can sit empty and still be good investments (like <st1:city st="on"><st1:place st="on">Phoenix</st1:place></st1:city> a few months ago?).</p><br /><p style="margin: 0cm 0cm 0.0002pt;">That same day, he also answers a question from samzell, wondering about where he'll sit when he's a landlord and needs tenants. Jeff gives us a very open look into where he sits from a financial point of view:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >August 6th, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" ><p style="margin: 0cm 0cm 0.0002pt;">These numbers are not "real world" in the sense that I am not accounting for a "repair fund" or a "vacancy fund." </p></span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" >These number ARE "real world" in this sense, however. I HAVE calculated cashflow numbers on my first 5 closed properties (posted elsewhere), and they are VERY encouraging. On my first 5 closed properties, which are fully rented, I am making $250 a month before taxes, $961 a month after taxes (estimated), and >50k a year assuming a 5% appreciation, and nearly 100k a year assuming a 10% appreciation (on paper, of course). These are NOT made up numbers--these are actual numbers on actual properties and actual loans (albeit fully rented--as they are).</span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" >[...] In SLC, my actual monthly total expenses on my 212k house is about $1500. My L/O lessee pays me about $1600. This actual 100% financing scenario seems much better than your "example."</span><br /><br />This answers our earlier question about floating the properties. Jeff has managed to charge enough in rent (actually through using lease options) that he can stay positive.<br /><br />So Jeff is earning a bit over $50 a property, but has no fund for vacancies or repairs. John T. Reed estimates that <a href="http://johntreed.com/positive.html">about 45% of your rental income</a> will end up going to pay management costs, repairs, vacancies, taxes and everything else. So to discover if you are truely in a positive cash flow, multiply your annual rent by 55% and compare to your mortgage costs. In this case, we can estimate his mortgage costs to be in the neighborhood of about $1250. Using the above formula we can see that, sustainably, he's earning about $880 in cashflow, so he's most likely negative about $400 a month per property in a long-term view.<br /><br />But Jeff does have a fallback option. In the same post he comes clean on the riskiness of his "plan", and how he will cope with short-term problems:<br /><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >August 6th, 2005</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >>> I find it interesting that people buy "sight unseen".<br /></span><span style="color: rgb(255, 255, 153);font-family:times new roman;" >If you mean by "interesting" seemingly insane and unjustified...I agree with you. Still, my hopes are high that my "buy and pray" strategy will pay off...</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >>> Also, have folks that are doing a lot of out-of-state buying & holding</span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br />>> thought about what happens if say 5 of their houses go vacant for at the</span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br />>> same time for a few months? In the scenario above that is $9,250 per month!!!</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >With 15 houses closed or under contract, I have thought about such a scenario a great deal. Still, I don't think such a thing likely to happen--with one year contracts and a 10% vacancy, it simply will NOT happen. But cash reserves ARE important...I am planning on keeping 50k immediately available--with a Heloc of 200k. This should MORE than cover any "vacancy" losses...enabling me to "ride out" any market downturn or other problem...I encourage others to keep a similar cash reserve...</span><br /><br /></p><p style="margin: 0cm 0cm 0.0001pt;font-family:georgia;">It's encouraging that Jeff has $50k cash on hand (or at least he's "planning" on it? It's unclear). It's also good to know that he can get his hands on more money if there is a short-term disaster. However borrowing money to float your business is very risky. If your business is losing money, then borrowing can only make things worse, UNLESS you have a plan to turn things around. That HELOC that Jeff has available will have to be repaid on a monthly basis if he need to tap it, and I'm not sure that a $250 a month surplus will be enough to cover it.</p><br /><p face="georgia" style="margin: 0cm 0cm 0.0001pt;">On the other hand, it's a bit alarming when an investor says "<span style="color: rgb(255, 255, 153);">it simply will NOT happen</span>".<br /></p><br /><p style="margin: 0cm 0cm 0.0001pt; font-family: georgia;">So Jeff has entered the scene with a bold strategy and a unique openness about his financial situation. Some tough quetions have been asked, and Jeff has been considering his risk. However, let us leave for now with an update on his original post, where he now re-evaluates his properties 3 months later with the new NAR numbers:</p><br /><span style="color: rgb(255, 255, 153);font-family:courier new;" >August 15th, 2005</span><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >>> ...my goal of a 10% return seems reasonable given the appreciation</span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br />>> rates above ( 15.0%, 11.1%, 6.1%, 9.3%, 25.6%, 18.5%--SLC appears to</span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br />>> be my "worst" investment right now at 6.1%). That is why I liked this</span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br />>> article so much, </span><b style="font-family: times new roman; color: rgb(255, 255, 153);">I look forward to re-checking in 3 months.</b> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br /><br />Well, 3 months is up...and here are the new numbers. </span><br /><br /><table class="MsoNormalTable" style="width: 490pt; border-collapse: collapse;" border="0" cellpadding="0" cellspacing="0" width="653"> <tbody><tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 135pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="180"> <p style="margin: 0cm 0cm 0.0001pt; text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >Metropolitan Area</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.4pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >2002</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >2003</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >2004</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >2004:II</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >2004:III</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >2004:IV</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >2005:I</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >2005:II</span><span style="color:black;"><o:p></o:p></span></b></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><b style=""><span style=";font-size:10;color:black;" >%Change</span><span style="color:black;"><o:p></o:p></span></b></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 135pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="180"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >Albuquerque</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">NM</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.4pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >133.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >138.4</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >145.4</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >145.4</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >144.5</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >155.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >149.7</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >171.7</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >18.1%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 135pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="180"> <p class="MsoNormal"><st1:place st="on"><st1:placetype st="on"><span style=";font-size:10;color:black;" >Cape</span></st1:placetype><span style=";font-size:10;color:black;" > <st1:placename st="on">Coral-Fort</st1:placename></span></st1:place><span style=";font-size:10;color:black;" > Myers, FL</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.4pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >133.3</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >151.9</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >187.2</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >183.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >194.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >198.0</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >226.0</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >266.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >45.2%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 135pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="180"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >El Paso</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">TX</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.4pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >88.9</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >92.9</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >94.7</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >96.0</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >95.1</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >96.1</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >104.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >108.9</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >13.4%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 135pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="180"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >Oklahoma City</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">OK</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.4pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >100.1</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >103.0</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >112.4</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >107.0</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >125.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >109.7</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >110.3</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >115.7</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >8.1%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 135pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="180"> <p class="MsoNormal"><span style=";font-size:10;color:black;" >Pensacola-Ferry Pass-Brent, FL</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.4pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >112.2</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >116.4</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >131.1</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >132.7</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >133.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >139.6</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >143.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >163.6</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >23.3%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> <tr style="height: 13.2pt;"> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 135pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="180"> <p class="MsoNormal"><st1:place st="on"><st1:city st="on"><span style=";font-size:10;color:black;" >Salt Lake City</span></st1:city><span style=";font-size:10;color:black;" >, <st1:state st="on">UT</st1:state></span></st1:place><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.4pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >148.8</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >148.0</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >158.0</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >161.5</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >161.3</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >159.7</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >157.0</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >169.9</span><span style="color:black;"><o:p></o:p></span></p> </td> <td style="padding: 0cm; background: rgb(255, 255, 153) none repeat scroll 0% 50%; width: 39.45pt; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; height: 13.2pt;" width="53"> <p class="MsoNormal" style="text-align: center;" align="center"><span style=";font-size:10;color:black;" >5.2%</span><span style="color:black;"><o:p></o:p></span></p> </td> </tr> </tbody></table><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >I can't help but notice quite a few interesting (to me) facts...</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >Albuquerque is now at 18%!. ZOWEY! Albuquerque is the new Phoenix!</span><br /><br /><span style="color: rgb(255, 255, 153);font-family:times new roman;" >El Paso appreciation is continuing in the double digits! I was VERY suspicious that last quarter's increase from 1.5% to 15% was a fluke (or typo?), but now it seems as if that level of appreciation could be sustainable. El Paso is the new Tucson!</span> <span style="color: rgb(255, 255, 153);font-family:times new roman;" ><br /><br />Cape Coral appreciation is insane--I mean, 45% in one year!? I KNEW that 25% was too low. Now I KNOW I should have bought more there...oh well, it's too late now (or IS it...?)</span><br /><br /><p style="margin: 0cm 0cm 0.0001pt; font-family: georgia;">My earlier skepticism about his expectations of 10% annual appreciation seem to have been incorrect, as Jeff's properties are going through the roof (at least according to NAR).<br /></p><p style="margin: 0cm 0cm 0.0001pt; font-family: georgia;"><br /></p><p style="margin: 0cm 0cm 0.0001pt; font-family: georgia;">It seems as though our hero Jeff is quickly on his way to a real estate fortune! Tune in Thursday to see how things go over the next few months! Will real estate continue to appreciate at unheard of rates? Will he sell his Cape Coral homes for millions?</p><br /><p style="margin: 0cm 0cm 0.0001pt; font-family: georgia;">Stay tuned...<br /></p><span style="font-family:georgia;"></span>Unknownnoreply@blogger.com24tag:blogger.com,1999:blog-31155720.post-8337810320008047162007-08-03T05:02:00.000-04:002007-08-03T05:16:01.077-04:00Whoops...I completely forgot to write up a nice post the other day. With my wife starting her new job and some craziness at work, I just completely forgot. So since I've already dropped the ball, I'll just make things worse by just linking to old posts instead of writing a new one:<br /><br /><a href="http://lordingtheland.blogspot.com/2006/08/dealing-with-other-people.html">Moral Hazards</a> - Why we don't trust other people with our best interests.<br /><br /><a href="http://lordingtheland.blogspot.com/2006/08/breaking-down-lease.html">What's in a Lease?</a> - A breakdown of the clauses that you'll need<br /><br /><a href="http://lordingtheland.blogspot.com/2006/08/doubters-inc-or-should-you-incorporate.html">Should I form an <span class="blsp-spelling-error" id="SPELLING_ERROR_0">LLC</span>?</a> - The advantages and disadvantages of Limited Liability Corps.<br /><br /><a href="http://lordingtheland.blogspot.com/2006/11/we-buy-houses.html">We Buy Houses</a> - Not my best writing, but a look at the business model behind those signs you see everywhere that scream "We buy your house fast! For ca$h!!!Unknownnoreply@blogger.com12tag:blogger.com,1999:blog-31155720.post-41237180190477609442007-07-31T06:59:00.000-04:002007-07-31T07:55:24.055-04:00Kicking out Bad Tenants - a Loophole?I received the following question after one of my earlier posts about dealing with tenants and lease-breaking:<br /><br /><span style="color: rgb(255, 255, 153);">This is off topic and I know it may vary from state to state but have you ever encountered a situation where you have a bad tenant who is late or owes you rent, you're trying to evict them, and they lock themselves out. By law, you are not legally allowed to lock your tenants out but are you obligated to open their doors too? I know that most if not all landlord usually charge a fee for having to come out and unlock a tenant's door for any reason and this also adds to </span><span style="color: rgb(255, 255, 153);" id="st" name="st" class="st">the</span><span style="color: rgb(255, 255, 153);"> fact that they already owe you rent and you're trying to evict them. So basically I want to know if you guys have been in a similar situation or know of anything like this and whether or not you can refuse to unlock </span><span style="color: rgb(255, 255, 153);" id="st" name="st" class="st">the</span><span style="color: rgb(255, 255, 153);"> door and have them pay a locksmith to come out and unlock it for themselves or do you have to unlock it for them? I mean legally you are not changing </span><span style="color: rgb(255, 255, 153);" id="st" name="st" class="st">the</span><span style="color: rgb(255, 255, 153);"> locks or locking them out yourself... </span><br /><br />The core issue at hand is the "<a href="http://realestate.findlaw.com/landlord/landlord-eviction/tenant-eviction-illegal-self-help.html">lock out</a>". It's illegal in almost every state to lock or freeze out a tenant, no matter whether they've complied with the terms of the lease or not. For example, if a tenant stops paying you rent, you are not allowed to change the locks to prevent the tenant from entering the property (<a href="http://www.texashousing.org/tt/rights/lockedout/statutes/statutes.html">Texas law</a> actually allows you to change the locks, but the landlord must make a set of keys available to the tenants at any time, regardless of whether rent is paid).<br /><br />Similarly, a landlord cannot cut off utilities (like heat, for example) to make the property essentially uninhabitable. I would assume that cutting off services such as cable TV or internet would be allowed by the court, though I do not know of any precedence. But electricity, water and gas are certainly protected.<br /><br />These laws vary by state, but most are quite similar. For example <a href="http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+55-248.26">Virginia's law § 55-248.26</a> states:<br /><br /><span style="color: rgb(255, 255, 153);"> If the landlord unlawfully removes or excludes the tenant from the premises or willfully diminishes services to the tenant by interrupting or causing the interruption of gas, water or other essential service to the tenant, the tenant may recover possession or terminate the rental agreement and, in either case, recover the actual damages sustained by him and a reasonable attorney's fee.</span><br /><br />The question raised by the commenter is, what happens if the tenant locks themselves out of the property? Are you required by law to provide a new key for entry? Is that essentially a loophole around the law?<br /><br />To be perfectly honest, I haven't found any decisive evidence on this situation. I've seen it repeatedly mentioned that in the case of an illegal lockout, a tenant is advised to alert the police and then <a href="http://www.larcc.org/pamphlets/housing/tr_lockouts.htm#can%20i%20regain%20entry%20by%20myself?">break into the property</a>, causing minimal damage. In addition, if I were arguing the tenant's case, I would argue that not providing copies of the keys constitutes "unlawfully excluding the tenant from the premises".<br /><br />I think the bottom line is that if a tenant is paying rent on time and the landlord refuses to replace a lost key, that tenant would certainly have grounds to sue. After all, they have no access to the property that they are paying for. And the law makes it relatively clear that non-paying tenants have the same rights as paying tenants (at least in Virginia) until the point of eviction.<br /><br />So my conclusion is that the eviction process is the only way to proceed in that situation. But I can't provide any conclusive evidence.Unknownnoreply@blogger.com26tag:blogger.com,1999:blog-31155720.post-60287189821587767332007-07-25T17:08:00.000-04:002007-07-26T03:22:45.438-04:00Indicator of Success #3<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiy7W5NTW0VC8yww4xVonZqsz9p6NsMWfNYC8ya2AFbDxW3UkNE1e-O9OnhrNtsm1O7IUVSBvztzgrLQTXrHXD5v9lzt8TYYjTT2WLLvaeXth3bUr_A6RzhyphenhyphenvHh0jNhBxAVTLHTBw/s1600-h/roulette-wheel.jpg"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiy7W5NTW0VC8yww4xVonZqsz9p6NsMWfNYC8ya2AFbDxW3UkNE1e-O9OnhrNtsm1O7IUVSBvztzgrLQTXrHXD5v9lzt8TYYjTT2WLLvaeXth3bUr_A6RzhyphenhyphenvHh0jNhBxAVTLHTBw/s400/roulette-wheel.jpg" alt="" id="BLOGGER_PHOTO_ID_5091255093639210146" border="0" /></a><br />I enjoy gambling. It's a bit of a confession, because I know that it's not a financially sound position. Even in the most player-friendly games, the house always wins. As a matter of fact, I think that I've only lost money at a casino once in my life, but I know that more a matter of luck than any measure of skill.<br /><br />But let's look a Hypothetical Bill. Hypothetical Bill has figured out a secret formula to win at roulette. Normally <a href="http://en.wikipedia.org/wiki/Roulette#Bet_odds_table_.28American_Roulette.29">the house has a 51.4% advantage</a>, but Hypo Bill has figured out a method of betting that gives him a 51% chance of winning. In other words, our of every 100 games, he can expect to win 51, which is more than half. Technically this is called <a href="http://en.wikipedia.org/wiki/Statistical_arbitrage">statistical arbitrage</a>, a system where you are guaranteed to win over the long term, despite potential losses in the short term.<br /><br />Hypo Bill walks into the casino with $1,000. He bets $200 on the first and wins $200. Emboldened by his success he bets $500 on the next hand and loses. Trying to make his money back, he bets another $500 and loses again. He's down to only $200. He bets it all and loses once more. Poor Hypo Bill is now broke.<br /><br />What happened? He was a sure thing to make money when he walked into the casino, so why is he begging for cab fare outside?<br /><br />He got greedy. The 4th indicator of success is the absence of a get-rich-quick mentality. There was nothing wrong with Bill's system, and he should have been making lots of money. But even when the odds are in your favor, it's still possible to lose. A winning strategy not only has to win more than it loses, but it has to survive those losses as well. If Bill had been betting $1 a hand he could have survived a very long losing streak. Of course it would have taken much longer to build a sweet bankroll.<br /><br />What's the equivalent of Bill's betting strategy in the real estate world? Well a lot of people make money in real estate, it's not exactly rocket science. But compare Biff and I, with our two properties (each with at least 10% equity), to a beginning investor who has just bought 5 houses with No Money Down.<br /><br />Let's say that the market stalls a bit and renters and buyers are hard to come by. Biff and I will feel the pain, as we have to dig into our pockets to cover our mortgages. The beginning investor, however, will be digging a hole so deep that he may never recover. Of course, the reverse is true and if the market is soaring then Biff and I won't make nearly as much profit as the newbie. But that's what makes the newbie a gambler and Biff and I investors. We're able to survive both the ups and the downs of the market, the newbie goes to bed every night praying that the market will climb.<br /><br />How can you identify if you have the get-rich-quick mentality from simply wanting to maximize your investment and get good returns? Stop for a second and think about your past. One aspect of get-rich-quick is a desire to jump on board any idea that sounds lucrative. Not to jump on <a href="http://iamfacingforeclosure.com/">Casey Serin</a> any more, but as the poster child of the "I deserve to be a millionaire without actually providing any value" generation, here's a subset of the "investments" he has looked into:<br /><span style="color: rgb(255, 255, 204);">-single family homes</span><br /><span style="color: rgb(255, 255, 204);">-gold</span><br /><span style="color: rgb(255, 255, 204);">-penny stocks</span><br /><span style="color: rgb(255, 255, 204);">-private equity (at supposedly a 5% return per month)</span><br /><span style="color: rgb(255, 255, 204);">-cold fusion</span><br /><span style="color: rgb(255, 255, 204);">-publishing</span><br /><span style="color: rgb(255, 255, 204);">-apartment ownership</span><br /><span style="color: rgb(255, 255, 204);">-brokering large investments (sports teams and casinos)</span><br /><span style="color: rgb(255, 255, 204);">-sure-fire roulette strategy (yes seriously. He probably meant </span><a style="color: rgb(255, 255, 204);" href="http://en.wikipedia.org/wiki/Martingale_%28betting_system%29">the Martingale system</a><span style="color: rgb(255, 255, 204);">, which doesn't work and is impossible to implement in modern casinos anyways.)</span><br /><br />What's been his return on all of these investments? He's lost around $300k on single family homes, about $3k on penny stocks, and hasn't actually seen any gain from his other ideas.<br /><br />Compare that to Biff and I, who've focused solely on single family homes (with some 401k's in funds as well) and have made around $30k-$35k each over 26 months, at <span style="color: rgb(51, 255, 51);">an ROI of about 147%</span> (about <span style="color: rgb(51, 255, 51);">70% annually</span>). $30k over 26 months isn't going to help us quit our day jobs, but consider our ROI. We've crushed the stock market over this period, and accomplished that without putting our futures at risk. If we had bought 10 times as many properties, we may have made 10 times as much, or we might have gone broke and shattered our credit along the way. As it is, Biff and I are in a solid position to float any of our properties that might struggle, while still being in a good position to slowly expand our holdings.<br /><br />So take a long look at yourself. If you aren't the type of person who is already maxing out their 401k, and putting money aside every month to invest for the future, then your motivations for pursuing riches in real estate are probably suspect.<br /><br />Few people become instant millionaires in real estate, and most of those who do, find themselves<a href="http://www.bakersfield.com/hourly_news/story/155905.html"> in deep trouble</a> shortly down the road.Unknownnoreply@blogger.com10tag:blogger.com,1999:blog-31155720.post-75483556216593361612007-07-23T17:00:00.000-04:002007-07-24T04:18:07.242-04:00Higher Education<object height="350" width="425"><param name="movie" value="http://www.youtube.com/v/C0K_LZDXp0I"><param name="wmode" value="transparent"><embed src="http://www.youtube.com/v/C0K_LZDXp0I" type="application/x-shockwave-flash" wmode="transparent" height="350" width="425"></embed></object><br /><br />There are many dangers in today's society. Take fire, for example. We are ready to deal with fire, we have a fine fire fighting force that can put one out quickly. But in today's new world we must be prepared for a new danger. <a href="http://www.richdad.com/">The Rich Dad righteous</a>.<br /><br />Now you may believe that the best way to deal with a follower of Kiyosaki is simply to duck and cover. But the best defense is knowledge.<br /><br />You can identify a fervent follower of that infamous dispenser of hurrah by their spiffy, though often pithy, catchphrases, such as:<br />- "I don't want to work for money, I want money to work for me."<br />- "If you invest OPM (other people's money) you can't lose!"<br />- "Colleges teach you to be a good employee."<br /><br />Listen to that last one again. <a href="http://www.johntreed.com/BSchecklist.html">John T. Reed</a> says that one common claim made by B.S. gurus is that they will tell you that education is worthless. It makes sense to them, because traditional education is their competition. They'd much rather you spend you $40k on two weeks of their seminars than 2 years of a good university.<br /><br />Astute readers may know that <a href="http://lordingtheland.blogspot.com/2006/09/does-education-system-produce-poor.html">I ranted about education</a> a while back. But to be sure, let me emphasize that my beef was that I felt that our educations in the US are incomplete. We teach a lot of useful, and even necessary, skills. But we omit many skills that are crucial to living a good life (personal finance being one of those topics). So why am I discussing education again? Simply because I'm currently seriously considering going back for a Masters degree.<br /><br />Kiyosaki has it all wrong. Colleges teach you skills. And while most people use those skills to become good employees, do you think that entrepreneurs don't need them at all? If you are serious about making real estate investing your career, consider that Virginia Tech (both Biff and I's alma mater) offers <a href="http://www.ahrm.vt.edu/housing/rpm.htm">a major in Residential Property Management</a>, which covers topics such as:<br /><br />- Real Estate Law<br />- Real Estate Appraisal<br />- Maintenance for Property Managers<br />- Managing Real Estate as an Investment<br />- Marketing Real Estate<br />- Consumer Rights<br />- Real Estate Finance<br /><br />That's by no means a comprehensive list of the courses included in this major. For a resident of Virginia, you can major in Residential Property Management <a href="http://www.bursar.vt.edu/tuition/">at a cost of $2,886 per semester</a> (plus fees for insurance and the like), or $23,088 for four years of top-grade education. Compare four years at a university to <a href="http://lordingtheland.blogspot.com/2007/06/nouveau-riches-school-for-suckers.html">our old friends at Nouveau Riche</a>, who want to charge you as much as $16,000 for 20 days of instruction.<br /><br />Not enough for you? What could the successfully real estate investor want to go back to grad school for? How about an MBA? Most MBA programs teach similar material, though the quality of instruction will vary. But take a look at the skills taught at the creme de la creme, <a href="http://www.hbs.edu/mba/academics/">Harvard Business School</a>:<br /><br />- Finance I<br />- Finance II<br />- Financial Reporting and Controls<br />- Leadership and Organizational Behavior<br />- Marketing<br />- Strategy<br />- The Entrepreneurial Manager<br />- Negotiation<br /><br />What real estate investor wouldn't benefit from that education? In fact, what entrepreneur wouldn't benefit?<br /><br />I'm not saying that you have to get an MBA from Harvard to succeed in real estate investing. But it's important to remember that as an investor you are going to face a lot of very tough situations. Which house to buy, understanding true cash flow and how to measure risk, how taxes work and how to maximize your return, how to keep correct books. To be honest, all of these topics are capable of being self-taught, <a href="http://en.wikipedia.org/wiki/Capitalization_rate">thanks</a> to <a href="http://en.wikipedia.org/wiki/Internal_rate_of_return">the wonders</a> of the <a href="http://en.wikipedia.org/wiki/Net_present_value">wiki pages</a>.<br /><br />But learning such complicated subjects takes time. That's one of the reasons that I strongly advocate moving slow in real estate, buying only when you've saved up a good down-payment, and making each property cash-flow positive before moving on to the next. The small mistake you make along the way won't be enough to sink you, and as you become more adept, you'll be able to handle more houses.<br /><br />If real estate is just a hobby for you, or a side-investment, than this approach will work fine. But if you feel that you want to enter the industry full-time, you need a jump-start on these subjects, and that's something that a 20-day boot camp isn't going to give you.<br /><br />Now it's confession time. I'm not going back to school to get an MBA or to study real estate. Landlording is, and always has been, a side-investment. I'm actually going to apply to <a href="http://www.lse.ac.uk/collections/graduateDestinations/">the London School of Economics and Political Science</a> to pursue a Masters in Finance. Right now I feel the best investment for me is in my W-2. And there's no shame in that.Unknownnoreply@blogger.com8tag:blogger.com,1999:blog-31155720.post-32155201014400769352007-07-19T11:41:00.000-04:002007-07-19T12:11:12.622-04:00It started as a link to another article...This article started as a simple link to another article. I just wanted to reflect on someone <span class="blsp-spelling-error" id="SPELLING_ERROR_0">else's</span> wisdom. But one tiny fallacious comment got under my skin, like a grain of sand in an oyster. And like our friend <span class="blsp-spelling-error" id="SPELLING_ERROR_1">molluscs</span>, that grain ate and ate at me until I was driven to dig deep into the background of the comment, building <a href="http://en.wikipedia.org/wiki/Pearl#Natural_pearls">a coat of nacre</a> to grant me much needed comfort.<br /><br />It all began when I was reading an interesting article on <span class="blsp-spelling-error" id="SPELLING_ERROR_2">MSN</span> on <a href="http://articles.moneycentral.msn.com/Investing/RealEstate/RealEstateInvestorsTenBigMistakes.aspx">the 10 biggest mistakes that novice real estate investors make</a>. Most of the advice is good (and you can probably guess that it was 99% common sense then) with mistakes like "not doing enough research" or "thinking you'll get rich quickly".<br /><br /><span style="font-style: italic;">As a quick aside, what is this <span class="blsp-spelling-error" id="SPELLING_ERROR_3">pre</span>-occupation with leading a "team"? Just because you pay a CPA to do your taxes doesn't make him a member of your team, you're paying for a service! It's like taking a taxi to a meeting and considering the taxi driver part of your team... I guess people obsess about it since it feeds the ego ("I have a team of more than 20 professionals!") </span><br /><a href="http://articles.moneycentral.msn.com/Investing/RealEstate/RealEstateInvestorsTenBigMistakes.aspx" target="_blank" onclick="return top.js.OpenExtLink(window,event,this)"></a><br /><br />As I was reading the <span class="blsp-spelling-error" id="SPELLING_ERROR_4">resevoir</span> of useful, though commonly known, data one comment stuck in my mind and became nigh impossible to dislodge from my brain.<br /><br /><span style="color: rgb(255, 255, 153);">"If you're working on one deal at a time, <span class="blsp-spelling-error" id="SPELLING_ERROR_5">Crowe</span> says, you're doing transactions, not running a business. You need a steady pipeline of prospective deals; sufficient volume will weed out the marginal deals and let the good ones rise to the top."</span><br /><br />This sounds <span class="blsp-spelling-corrected" id="SPELLING_ERROR_6">awfully</span> like guru-speak. John Reed argues that one of the signs of a guru is their need to offer new definitions to old terms (<a href="http://www.johntreed.com/BSchecklist.html">rule #32</a>). Stop and think carefully about what he said. "...doing transactions, not running a business". Isn't every business built upon doing transactions? For example, when a mechanic fixes your car, isn't that a transaction? You give him money, and he gives you expertise? Is the mechanic not running a business?<br /><br />Maybe he means that, by his new-<span class="blsp-spelling-error" id="SPELLING_ERROR_7">fangled</span> definitions, the mechanic isn't running a business, but if the shop is owned by someone else then that someone is. So by that definition we've determined that running a business means paying someone else to do your transactions for you... Confused yet? Because right now it sounds like Mr. <span class="blsp-spelling-error" id="SPELLING_ERROR_8">Crowe</span> thinks you ought to hire a bunch of real estate investors to handle the investing for you, otherwise you aren't running a business... (Mr. Reed's rule #7 for <a href="http://www.johntreed.com/BSchecklist.html">spotting a guru</a> is "Claims to do lots of deals")<br /><br />Who is Mr. <span class="blsp-spelling-error" id="SPELLING_ERROR_9">Crowe</span> anyway? Looking back earlier in the article we find that, according to the author, <span style="color: rgb(255, 255, 153);">"Doug <span class="blsp-spelling-error" id="SPELLING_ERROR_10">Crowe</span>, a Chicago real-estate investor and speaker...[is] the managing director of Springboard Academy, the nation's only real-estate academy for investors."</span> So he IS a guru, which explains a lot. Unfortunately the author's claim of his school being the only real-estate academy rings a bit false. <span class="blsp-spelling-error" id="SPELLING_ERROR_11">After all</span>, didn't <a href="http://lordingtheland.blogspot.com/2007/06/nouveau-riches-school-for-suckers.html">our friends at <span class="blsp-spelling-error" id="SPELLING_ERROR_12">Nouveau</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_13">Riche</span> claim similar things</a>? Looking at Springboard's website, we see that their claim is to be the only "semester-based" academy.<br /><br />Read <a href="http://www.springboardcorp.com/home.html">Springboard's website</a>. They claim to be a legitimate educational facility, but notice that their website reads far more like Carleton Sheets site than that of a honorable education institution. I invite you to follow their advice and "<span class="paragraph" style="text-align: justify;"><a href="http://www.springboardcorp.com/how.html">review [their] course curriculum</a>". Note the following things:</span><br /><br />1) They don't give a price.<a href="http://www.springboardcorp.com/how.html" target="_blank" onclick="return top.js.OpenExtLink(window,event,this)"></a><br /><br />Their website specifically says <span style="color: rgb(255, 255, 153);">"Tuition is discussed during the interview process."</span> How many business models don't offer you a price until you sit through a sales pitch? Here's a hint, only the ones that use high pressure sales tactics (like timeshares). Think carefully about this, let's say that I'm comfortable spending $1,000 on a course, but their cost is $15,000. If I "interview" with them, I'm just wasting their time and money, a waste that could have been avoided if I had simply known ahead of time what they charge. The only reason to withhold a price is because they think that they price will turn people away, but if they can talk to you they can pressure you to pay it anyways.<br /><br />But maybe their program is worth it? <span class="blsp-spelling-error" id="SPELLING_ERROR_14">After all</span>, some private schools charge that much for a semester's <span class="blsp-spelling-corrected" id="SPELLING_ERROR_15">tuition</span>. What are their classes like?<br /><br />2) They don't include a course curriculum.<br /><br />You know, like they promised? Their <span class="blsp-spelling-corrected" id="SPELLING_ERROR_16">curriculum</span> has absolutely no worthwhile data in it, just a bunch of feel-good crap.<br /><br />If you were <span class="blsp-spelling-corrected" id="SPELLING_ERROR_17">beginning</span> a honest school for real-estate and had to write a section called "How it works", what would it look like? Would you list out the various course offerings you had? Would you describe how first you educate a student on financial topics, including <span class="blsp-spelling-corrected" id="SPELLING_ERROR_18">cash flow</span> and projections, then lead that into a segment on legal documents (including leases), maybe take that into some landlord/tenant case law? Maybe you would describe how you have a basic curriculum that teaches you everything from basic accounting to being a good landlord, but then you offered specializations in bankruptcy law, construction or repairs or maybe even a specialization in specific state laws?<br /><br />One thing you would not do is write some tripe about how curiosity leads to frustration, which leads to action. I want to be an investor, not a <span class="blsp-spelling-error" id="SPELLING_ERROR_19">jedi</span>. <a href="http://thinkexist.com/quotes/yoda/">Much <span class="blsp-spelling-error" id="SPELLING_ERROR_20">bullcrap</span> in him, I sense</a>.<br /><br /><span><span style="color: rgb(255, 255, 153);"> "Springboard is the nation's only organization that combines all THREE of the necessary ingredients for your success. It doesn't matter where you are in the process, because it is a PROCESS and not a destination."</span><br /><br />Yes, because if you go to a traditional college where you can earn a degree, they most certainly do not serve the ingredients <span class="blsp-spelling-corrected" id="SPELLING_ERROR_21">necessary</span>:<br /><br /><span style="font-weight: bold;">Education</span> - They do not teach you new things<br /><span style="font-weight: bold;">Confidence</span> - They don't make you more confident<br /><span style="font-weight: bold;">Action</span> - They don't assist you in any practical application of what you've learned<br /><br />I wish I had learned these three pillars of education before I payed thousands of dollars for a real university to provide me with the tools I needed to succeed...<br /><br />Are you convinced yet? That this is utter <span class="blsp-spelling-error" id="SPELLING_ERROR_22">bullcrap</span>? If not, consider <a href="http://www.themoneymill.net/?p=34">this last bit of advice</a> that he gave to <span class="blsp-spelling-error" id="SPELLING_ERROR_23">Bankrate</span>: <a href="http://www.themoneymill.net/?p=34" target="_blank" onclick="return top.js.OpenExtLink(window,event,this)"></a><br /><br /></span><span style="color: rgb(255, 255, 153);">"The number is the number, and you don't go above that, he says. The best way to solve the problem is to have lots of activity and make offers on multiple properties. Then you don't care which one you get — as long as the numbers work out in your favor."</span><br /><br /><a href="http://lordingtheland.blogspot.com/2006/10/danger-of-overextending-yourself.html">We've been here before</a>. Anyone who tells you to throw out offers like <a href="http://www.sportsline.com/nfl/players/playerpage/493004">Eli Manning throws interceptions</a> is probably just trying to tell you want you want to hear. And that's just because he's eyeing your wallet.Unknownnoreply@blogger.com18tag:blogger.com,1999:blog-31155720.post-22552057789027644402007-07-16T17:53:00.000-04:002007-07-16T18:46:30.644-04:00Scammers, not gurus...<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.saabnet.com/tsn/class/scam/"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRRkrCZi4hVkGqz3kb5Yw1M3bZWUoogDwbY1xE0komg2xNxFkLhGssFu6wtum9iYvguP5qJaqjwimzZOsbOT0KWeg7SNcjVcM28t70oxYsOQarCzmKOGLhmofcsUPcO7RR6F0bZw/s400/mycounterfeitcheckXX.jpg" alt="" id="BLOGGER_PHOTO_ID_5087925964886995298" border="0" /></a><br />There is a relatively new scam going around (as in just the past couple of years) concerning cashiers checks. Essentially the scam is that someone will offer to pay you (for an item on eBay, or many other things) with a cashiers check, then they will send you a check that is much too large and ask you to send money to someone else (a shipper or something). The check is a fraud, however it's a good enough one that the banks won't catch it right away and will deposit the balance in your account. You then send the item and wire the money back to whoever the guy asked. A week or so later when the check is determined to have been a fraud, the bank will take the money back out of your account (with a penalty for "their troubles"), but your item and your wired cash are already gone for good.<br /><br />Biff and I were targets of this just about a year ago (several months before I began this blog). I thought it might be fun to walk you through the path of the scam, including the warning signs that made us cautious, even before we had heard of such a scam.<br /><br />It began when we posted a vacancy on a renting website. A few days later we received an inquiry from a gentleman who claimed to be a Dutch importer. He asked for some pictures (which is relatively normal) explaining that he would be moving to the United States for a couple of years on business.<br /><br /><span style="color: rgb(255, 0, 0);">WARNING #1: Biff and I have a very well documented application process that includes a credit check. Since this guy was from overseas a credit check would be nearly impossible, and I told Biff as much.</span><br /><br />We didn't want to discount the possibility of renting to him though, since we were having some trouble generating interest in the property. The vacancy was to begin in Janurary, which is a relatively slow period.<br /><br />He sent back this email:<br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">===== Original Message From </span><a style="font-family: courier new; color: rgb(255, 255, 153);" onclick="return top.js.OpenExtLink(window,event,this)" href="mailto:morgenssmth05@webbox.com">morgenssmth05@webbox.com</a><span style="font-family: courier new; color: rgb(255, 255, 153);"> =====</span><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Pls could you get back to me with your phone number,i would like to give you a call to explain things.There are some things in the application that i dont feel to comfortable about giving out, except in person.Thanks and looking forward to hearing from you</span><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Morgens</span><br /><br /><br /><span style="color: rgb(255, 0, 0);">WARNING #2 - Our application was pretty standard stuff. Addresses, identification info, references, etc. We haven't had anyone balk at our applications yet, he was the first.</span><br /><br />This itself was odd to us, since our application was relatively standard. But since the gentleman claimed to be from overseas, Biff agreed to the call. The call was routed through Canada (or so it indicated on Biff's caller ID), and the connection was horrible. Now for those of you who've never had the pleasure of calling overseas, a real phone line is hard to mess up. I've called my family from China and from England so far, and both of those connections were both quick and clear. So when Morgens call was so staticy that Biff could barely understand him.<br /><br /><span style="color: rgb(255, 0, 0);">WARNING #3 - Anyone who claims to do international business but can't make a clear phone call to the US has some serious issues.</span><br /><br />The one thing we got from the call though was that Morgens intended to make payment via a certified check. This seemed legit to us at the time because we weren't aware of the fraud. However, he was insisting on sending it to us right away, despite the fact that he hadn't completed an application yet and we hadn't agreed on accpeting him as a tenant.<br /><br /><span style="color: rgb(255, 0, 0);">WARNING #4 - He tried to essentially bypass the application process, tempting us with a big check.</span><br /><br />Biff, while cautious because a few red flags were flying, was willing to continue the application process. After all, we certainly didn't want to discriminate against someone because they weren't American. However we needed to assert extra caution before making any agreements. If he insisted upon sending the check, we'd just run the credit check after it arrived. We had never turned someone down because of a bad credit check (our rents tend to be in the higher range, discouraging those types of renters), so we had no reason to assume that he would be any different.<br /><br />Biff sent him back a reply:<br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Morgens,</span><br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Excellent talking with you. As requested, here is my mailing address to send the certified check: I know our phone connection was not all that good, but I'd like to make sure that we agree on what we discussed.</span><br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">a) You will send a certified check to my home address in the amount of $1990. This will cover your $800 security deposit (refundable at the end of your lease) and your first month's rent of $1190. You may prepay additional months if you like.</span><br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">b) You will e-mail me the electronic application I sent to you, filled with the information you feel comfortable providing</span><br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">c) You will send me via mail the missing information in the application (driver's license info, or whatever information you feel is necessary to verify your identity and credit history) along with your certified check.</span><br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Once this process is complete, if we accept your application, I will send you the lease agreement, which will include the term of your lease, your rights, your responsibilities, etc. I think we can certainly come to an agreement and can resolve these issues, despite the present difficulties of communicating overseas. Thank you for your patience and understanding.</span><br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Best Regards,</span><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">[Biff]</span><br /><br /><span style="font-family:arial;"></span><br />Our intent was to accept the check (but not cash it) and then do whatever research we could on this guy. At the very least we could have contacted his references in his home country and done some research on how to run a credit check in the Netherlands. I'm still not certain if you are capable of doing this, but since US credit checks are so easy to run from anywhere in the world, I had assumed that Europe would be equally easy.<br /><br />Now is this a little excessive to be trying to dig up stuff on a guy who isn't even in the country just to fill a vacancy? Probably. But Biff and I are both young and to be honest, it was still kind of a game to us. Half of the fun was in figuring out new things and we were embracing every challenge. The other reason we were pursuing this was that we had no other bites on that vacancy yet. Honestly, if someone local had filled out an application, we'd simply have sent our apologies to Morgens and dealt with the local. But at this point there were no other bites at all.<br /><br />Now Morgens think he has us hooked. He writes us back this e-mail:<br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">>===== Original Message From </span><a style="font-family: courier new; color: rgb(255, 255, 153);" onclick="return top.js.OpenExtLink(window,event,this)" href="mailto:morgenssmth05@webbox.com">morgenssmth05@webbox.com</a><span style="font-family: courier new; color: rgb(255, 255, 153);"> =====</span><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Thanks for your reply and also for assisting me. I have sent you a certified bank check in your name and to your address. I'll be paying for 2 months($1990) but will be sending a check worth $6490. You'll kindly cash the check and deduct your funds for the house and you will send the excess funds to my shipper . He is to ship my belongings down to the US and i have kept him on hold for too long. I am doing this so as to secure the house first before he transfers my belongings to the location,this is the only assistance i will be needing from you and will be most grateful.Pls if there is anything you don't understand pls get back at me as soon as possible. Thanks and hope to see you soon.</span><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Morgens Smith</span><br /><br />There's the trap. He intends to send us a very large check and then send the "excess" funds over to his "shipper". So the goal of the game is revealed and Biff and I start to figure out that something is definitely wrong with this guy. He's asking us to handle over $4000 of his money? Still unaware of the cashiers check fraud, we started to wonder about money laundering schemes.<br /><br />Note also that while we're requested that he send us a copy of his driver's license and other forms of ID with the check, Morgens is just talking about the check. He has no intention of sending us that information, and his goal is for us to be so excited by the large sum on the check that we forget about all of our documentation. This is why having a system that you follow works, it helps override the emotion of getting a check for the vacancy that you desperately want to fill.<br /><br />Right around this time we received a mass mailing from the website that we advertised on describing this scam in detail. We identified Morgens as a fraud immediately (we were very suspicious of him as it was), and pretty much discontinued contact with him. We did receive the certified check and informed the FBI, though don't expect anything to come from it. Most of these scammers work out of loosely regulated nations, such as Nigeria, where law enforcement can't track them down.<br /><br />Right after this episode with Morgens, Biff received two more e-mails, on the same day:<br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Laurence Johnson has inquired about your property on Military By Owner.</span><br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);"># Comments: I am interested in this place for rent I have seen the photos and they are great!!! About Me My name is Laurence Johnson, a British Archaeologist. I am currently embarking on a research in US. I have completed all official processes. The research would take about a year and so I am looking for a year's lease. As I am already aware there needs to be an application process and income verification. I will not be able to provide some of the needed information due to my status as an independent Scientist with funding from Financiers. To this end, I will be willing to make payment for the 12 months period which I am going to occupy the place for rent. This payment would be coming from my financier. I hope this solves things. Please send me the lease agreement for my review. Talk to you soon. Thanks. Laurence.</span><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">Tel:+44-703-194-0278.</span><br /><br />This highly questionable request (again note the request for us to send him the lease for review, assuming that we'd take him. His goal is to send us a check as soon as possible, bypassing any paperwork or identification if possible) was followed almost immediately with this one:<br /><br /><span style="font-family: courier new; color: rgb(255, 255, 153);">My name is Jeff Newman, a British Archaeologist. I am currently embarking on a research in US. I have completed all official processes. The research would take about a year and so I am looking for a year's lease. As I am already aware there needs to be an application process and income verification. I will not be able to provide some of the needed information due to my status as an independent Scientist with funding from Financiers. To this end, I will be willing to make payment for the 12 months period which I am going to occupy the place for rent. This payment would be coming from my financier. I hope this solves things. Please send me the lease agreement for my review. Talk to you soon. Thanks.</span><br /><br />At least the scammers aren't very organized. Score one for the good guys.<br /><br />The importance of this article (besides making you aware of a common scam), is to emphasize the necessity of a good process. Biff and I carefully thought out our tenant selection process, which helps us avoid falling for traps like this, even when we have a vacant property that we were feeling pressured to rent out quickly. Because of that, we were very suspicious of our international friend well before we knew how his scam worked.<br /><br />If you are looking to rent out property, make a very well-documented process. You have no idea how many landlords take in tenants that they otherwise wouldn't just because of some sob story or a financial pressure. Decisions made emotionally often make a situation worse, not better. Make your decisions now, document all the steps you will follow, so that you don't have to make them when you are under pressure.<br /><br />If you want to read some more about this scam, read <a href="http://www.saabnet.com/tsn/class/scam/">this one person's experience with Nigerian scammers</a> when he tried to sell his SAAB.<br /><br />Here are a few more links on the scam:<br /><br /><a href="http://www.occ.treas.gov/ftp/ADVISORY/2007-1.html">The US Government's warning</a><br /><a href="http://www.cashierscheckscam.com/">www.cashierscheckscam.com</a><br /><a href="http://banking.about.com/od/securityandsafety/a/cashierscheckfd.htm">About.com's page on the Nigerian Cashier's Check scam</a>Unknownnoreply@blogger.com9tag:blogger.com,1999:blog-31155720.post-7773920781270879492007-07-12T04:38:00.000-04:002007-07-12T05:19:04.140-04:00Indicator of Success #15I'm sure that the vast majority of you have been following the epic saga of <a href="http://www.caseypedia.com/wiki/Main_Page">Casey Serin</a>. Casey has demonstrated a genuine lack of business acumen, essentially failing every test of intellegence, resolve and leadership along the way. <br /><br />For those of you unawares, he had been blogging about his mistakes in real estate investing (which lost him millions) against the wills of his wife and was planning to self-publish a book with the help of a partner. When his wife finally had enough, she forced Casey to shut down the blog. His publisher encouraged him to come back, leading to a climax where he left the country, giving his wife only an hour's notice. Finally it seems that sense has returned to him, and <a href="http://iamfacingforeclosure.com/268/the-last-24-days-of-i-am-facing-foreclosure-com">he's decided to quit his blogging and his get-rich-quick dreams</a>, and settle down for his wife. Then he notes that after he had made the decision he sent <a href="http://iamfacingforeclosure.com/268/the-last-24-days-of-i-am-facing-foreclosure-com#comment-52051">the following letter</a> to his publisher:<br /><br /><!-- badword: Marty --><blockquote style="color: rgb(255, 255, 153);"> M**** , there is going to be no book and no blog. Sorry to do this. But if you are a good person (business aside) you will understand. If don’t stop now I WILL lose my wife. That is not a good trade off for me. This is final. Sorry I don’t want to talk on the phone at this time. Lets wait until tomorrow. This is a hard decision. Thanks for all your help but I am exiting. I DO NOT want the book to be published without me either. Again, I hope you understand. Also our agreement is calling me to do illegal things (putting my digital assets into entities while I am defaulting on all my lenders). I didn’t know it until I had a professional look at it. You probably didn’t know either. Either way, this whole thing is about to cost my my marriage and I must stop NOW. Sorry for the troubles.</blockquote><br />Which leads us to the latest indicator of success, the ability to build a consensus. Casey doesn't know why everyone gets mad at him, and then he sends out letter like these to people he considers "partners".<br /><br />Let me recount a quick story. I had a good friend who was in a stable relationship who ran into a bit of a crisis of faith and no longer felt that he should be sleeping with his Significant Other (SO). He actually felt extremely sure about it and told me that he intended to tell his SO in a few days when they next saw each other. Here's what I wrote to him:<br /><br /><blockquote style="color: rgb(255, 255, 153);">You are unilaterally making a desicion for the two of you. Yes, it's a decision that you are fully allowed to make, but you've already made up your mind on an issue that affects [your SO]. This will probably make him feel like you are dictating the terms of the relationship to [your SO].</blockquote><br />This wasn't about whether he needed to change his relationship or not, I won't go into that can of worms. What made his decision so poor was that his SO is a partner in the relationship. And partners don't dictate terms, superiors do. Partners discuss terms. So by dictating some terms of the relationship to his SO, he was essentially asserting himself as superior.<br /><br />Now that I've told that story, go back and read Casey's e-mail to his "partner" in publishing again. Doesn't it sound a little bit arrogant? He's simply saying "I've made a choice, and you have to abide by my wishes". Then he wraps it in an extra layer of guilt by saying <span style="color: rgb(255, 255, 153);">"if you are a good person you'll understand"</span>. This isn't the first time that Casey has done this. He has repeatedly, in the past, dictated terms to people he wanted to have as "partners", even his wife. Which is part of the reason that nearly everyone he dealt with eventually turned against him.<br /><br />What should Casey have done differently? When he realized that he had to kill the blog to save his marriage, his first phone call should have been to the only business partner that he currently has, the publisher. Since the publisher has invested time and effort into this project, he should have got him on the phone and said "M****, this project is destroying my marriage and that's something I can't allow. She wants to get out of the public eye, and I wanted to talk to you about this".<br /><br />The goal of this conversation is to have M**** (yes, we all know it's Marty) come around to saying "I understand that you need to take the blog down, but since I have already vested time in this deal, let's discuss what we can do to walk away." At this point, Casey can offer a few things, from monetary compensation (although he has supposedly already paid Marty $5,000) to a new contract that promises him a cut of any future book project that tells his story.<br /><br />But the difference between good leaders and bad leaders is that bad leaders give orders. They hand down directives. They dictate terms. Good leaders build a consensus, so everyone feels valuable, and no one feels like they had a fast one pulled on them.<br /><br />Biff and I have an exit clause built into our partnership agreement. At an time Biff can come to me and say "I want out", and the clock starts ticking (I have 3 months to pay him for his share of the business as determined by independant appraisers unless we're liquidating, in which case he gets paid when I do). Yet I would never expect that of him. If he really wanted out he'd come to me, discuss it and we'd start thinking of ways to either keep him in and address his concerns, or we'd look into how we would go about his exit in the best way for both of us.<br /><br />But that same principal applies to our tenants, and (thank God we haven't needed them yet) our contractors. Repeat after me:<br /><br /><span style="color: rgb(255, 255, 153);">"I don't want people to do what I tell them. I want people to do what we agreed together."</span>Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-31155720.post-40575917326344854322007-07-10T05:40:00.000-04:002007-07-10T05:51:16.517-04:00Flooding the MarketI don't have a lot of time today to write (still have guests in town and I'm actually quite exhausted), but I wanted to toss out a couple of related thoughts.<br /><br />1) Foreclosures are rising to un-heard of rates. People are defaulting and banks are getting stuck with over-priced housing.<br /><br />2) If the banks put the houses back on the market, they'll essentially flood the market with "desperate sellers". Sellers who are looking for the best quick price, not the best possible price.<br /><br />I've heard from friends in the industry that banks are sitting on houses that they don't want, because they fear that if they put all of their houses on the market right now, it'd completely destroy the housing industry. Entire towns could go through an extremely painful price correction (though no one mentions that those are the same towns that went through extreme price inflation to begin with).<br /><br />As always, it's worth mentioning that paper profits are not profits until you cash them in.<br /><br />Anyways, this currently leads me to two conclusions.<br /><br />1) The housing price drops that we are seeing (of 1% or so) should be worse than they are, but the banks are trying to prevent al all-out panic. It could be a good long while before prices start to climb (bank inventory will continue to leak out in small doses for years).<br /><br />2) The banks are going to take large hits for this. Holding houses costs them a lot of money, money that they can't use to generate other profits. Profits from investment banking will probably fall a bit over the next 5 years (unless there is another boom that they can reap "transaction fees" from, like the private equity boom).Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-31155720.post-62914654988574825252007-07-05T04:34:00.000-04:002007-07-05T05:24:38.167-04:00The struggles of finding a tenant.Biff and I have finally sorted out our tenant situation, but not with out pain or heart ache. Here's a quick timeline of what happened:<br /><br /><span style="font-weight: bold;">April 5th: </span>Biff contacts our tenants is Property A, and asks if they would like to extend their current lease, which ends on June 1st. They agree verbally<br /><br /><span style="font-weight: bold;">May 30th:</span> Tenants of Property A are supposed to return a written lease to us. Instead they contact Biff and inform him that they want to move out at the end of June. I write <a href="http://lordingtheland.blogspot.com/2007/05/when-tenant-leaves.html">a blog post on our situation</a>. Biff puts up an on-line ad for the property.<br /><br /><span style="font-weight: bold;">June 1st:</span> Biff places "For Rent" signs in the front yard.<br /><br /><span style="font-weight: bold;">June 8th<span style="font-weight: bold;">:</span></span> We find our prospective tenant, who we'll call Fanny. <br /><br /><span style="font-weight: bold;">June 11th:</span> We receive our <a href="http://lordingtheland.blogspot.com/2007/06/new-credit-report-laws.html">new and shoddy credit check report</a> on Fanny, and the results are promising. We decide to offer a lease to her.<br /><br /><span style="font-weight: bold;">June 14th: </span>Fanny decides to accept the lease. Doing so will switch her children's school systems and so she struggles a bit with the decision, but decides to accept. Biff mails her a lease and removes the "For Rent" signs.<br /><br /><span style="font-weight: bold;">June 19th:</span> Fanny tells Biff that she has signed the lease and will return it later in the week. She'll move in on July 1st.<br /><br /><span style="font-weight: bold;">June 23rd:</span> Biff buys the gift basket for the new tenant. Whenever we have a new tenant arrive, we leave a gift basket for them, filled with chocolates and a list of important numbers (like the local pizza delivery places). It helps starts the relationship on the right foot, and we can deduct the costs anyways.<br /><br /><span style="font-weight: bold;">June 26th:</span> Fanny tells Biff that she will not be able to accept the lease for several more months, citing personal reasons (Biff suspects divorce). Luckily Biff has saved the contact info of other people who had expressed interest before he took the ads down. Problematically, Biff will be visiting my wife and I in London in just over a week, so we're on a strict deadline.<br /><br /><span style="font-weight: bold;">June 28th:</span> Biff meet with two more prospective tenants. both make good impressions on him and both have good credit. We decide that whoever agrees to the terms first will get the offer.<br /><br /><span style="font-weight: bold;">June 29th:</span> One of the prospective tenants, we'll call her Beth, agrees to the terms and signs a one year lease, leaving Biff with a check for the security deposit of $800. Finally everything has settled down, and we think we're in good shape.<br /><br /><span style="font-weight: bold;"><span style="font-size:130%;">Lessons Learned</span><br /><span style="font-weight: bold;"><span style="font-weight: bold;"></span></span></span><br />We made several mistakes this time, but here's a list of some of the biggest ones:<br /><ol><li>I was visiting my in-laws at the time the Fanny deal broke down. Biff was unable to contact me for a couple of days. He remembered I was going out of town, but didn't have contact information for me. He finally got in touch with me by CC'ing my wife on an e-mail (she checks her mail far more frequently than I do).<br />In the future, before either of us travels we need to be more explicit. We need to provide contact info, and be specific about dates of travel so if we can't get in touch with each other we know if we have to make a decision for the company by ourselves.</li><li>We took down the ads before we had a signed lease in hand. Never again.</li><li>We didn't require Fanny to make a Good Faith Deposit. Our original plan involved asking for a deposit of $100 that you'd forfeit if you were offered the place but didn't take it. We'd be lenient on the policy (if we offered and you said no immediately we'd give it back), but it was designed specifically to avoid a Fanny situation (procrastination for a week or so, before finally declining).</li></ol>In the future there are a few simple rules that we need to remember when signing tenants:<br /><ul><li>Without a signed lease, we don't have a tenant. Period.</li><li>Without a deposit, the most well-meaning tenant can back out on a whim. Deposits makes people think about their actions.</li><li>A lease should be signed and returned no more than 48 hours after a tenant gets it. Including 24 hours for local mail each way, that means if a lease isn't returned in 4 days, start looking for a new tenant.<br /></li></ul>Unknownnoreply@blogger.com13tag:blogger.com,1999:blog-31155720.post-58578076135125499812007-06-28T20:06:00.000-04:002007-07-03T05:38:40.896-04:00Indicators of Success #6Some people get it. It seems like every project they touch turns to gold and they can simply do no wrong. Other people don't and sometimes it seems like the world is set dead against them. They couldn't get a lucky break with a four-leaf clover and an army of rabbits donating <a href="http://en.wikipedia.org/wiki/Rabbit%27s_foot">their little furry paws to the cause</a>. Why is this? Why do some people turn their real estate side ventures into multi-million dollar hobbies, while others put every last ounce of effort into their investments only to result in a sub-500 <a href="http://www.fico.org/">FICO</a>?<br /><br />The success of your venture in real estate is determined long before you sign your first tenant, long before you buy your first house, even long before you first read <a href="http://www.amazon.com/Rich-Dad-Poor-Money-That-Middle/dp/0446677450">Rich Dad, Poor Dad</a>. The difference between successful investors and amateurs is evident in every aspect of their lives. I'm going to write a series of articles about the various "indicators of success", but I don't plan on writing them sequentially. I'll just throw one together every once in a while (and not even in numbered order! Take that!)<br /><br />The sixth indicator of success isn't the most obvious. While you may think towards school grades, financial savvy or boldness, the first indicator of success is far more subtle. The first thing to consider when either when looking at investing in real estate is "Do I finish the things that I start?"<br /><br />Let's take two case studies, my wife and my sister. I love them both dearly, but they are very different people in just about every way.<br /><br />My wife is 25 years old. After graduating, with honors, from her undergrad university she moved to Northern Virginia to pursue her career in non-profits. She applied to grad school, <a href="http://www.gmu.edu/">George Mason</a>, and was turned down. Unfazed, she applied again and was admitted into their master's program for non-profit management. She spent the next three years working full-time for a national trade association while taking classes at night. When we decided to get married and move to London, she increased her class load while working 50 hours a week and planning our wedding. Now that we're in London she's finished her degree and gotten a new job fund raising for <a href="http://en.wikipedia.org/wiki/Down_syndrome">Down's Syndrome</a> Research. So far, she has met every major goal that she has set for herself.<br /><br />My sister is a very different story. Over the last ten years, she has pursued careers as a veterinarian, a personal trainer, a firefighter, an elephant trainer, a brail transcriber, and as a 911 operator. She hasn't, yet, actually held jobs in any of those fields. She ran, for a while, her own pet sitting business. Now in her mid 30's, she's looking into getting a Masters from an on-line university to pursue her latest interest, becoming an instructor for the blind. And no, not one of the jobs listed above is a joke or an exaggeration. Not even the elephant trainer.<br /><br />I love both of these women, and think they both have fantastic lives. But if I had to place money on one of them to become a successful investor, guess who I would go with? There's more than just a determination to meet your goals, there's also an intelligence in picking goals that you can meet. My wife, as wonderful as she is, would probably not been as successful if she had a goal to become the next Brittney Spears. Her talents, though many, simply do not lie in her ability to carry a tune.<br /><br />Let's take a look at two more real world examples. Casey Serin, the famed 24-year-old investor who's still struggling to figure out how to make a buck has, over the last 9 months, pursued <a href="http://www.caseypedia.com/wiki/SweetHost">web site hosting</a>, <a href="http://iamfacingforeclosure.com/">real estate</a>, <a href="http://iamfacingforeclosure.com/192/i-bought-13-million-shares-of-gspg">penny stocks</a>, <a href="http://www.caseypedia.com/wiki/Special:Search?search=commodities&go=Go">commodities</a>, and <a href="http://iamfacingforeclosure.com/203/its-official-foreclosure-book-coming">book deals</a>.<br /><br />Compare that to Warren Buffett. He is famous for following his strategy come hell or high water. He values companies that he understands, and stays away from the ones that he doesn't. He finishes what he starts:<br /><blockquote style="color: rgb(255, 255, 153);">"You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it."</blockquote>Obviously a tendency to finish what you begin isn't a tell-all indicator for success. But if you take a look around you and you see a stack of mail you never answered, that hole in the wall you always meant to patch but never did, the shirt you always intended to return... you probably have some personal growth to work on before you begin your real estate empire.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-31155720.post-47628086103574400372007-06-25T08:11:00.000-04:002007-06-25T08:14:16.171-04:00What is a Hedge Fund?Sometimes Blogger confuses me. I wrote a nice new post that I had been working on for a couple of weeks, but when I published it, Blogger decided that it belongs several days earlier. It doesn't make sense. Should posts be sorted by posting date instead of first-saved date?<br /><br />Alas, if you want to read about hedge funds, where they came from and why you aren't allowed to invest in one, please kindly <a href="http://lordingtheland.blogspot.com/2007/06/what-is-hedge-fund.html">follow this link...</a>Unknownnoreply@blogger.com6tag:blogger.com,1999:blog-31155720.post-55024600405701904412007-06-20T15:18:00.000-04:002007-06-20T23:45:19.964-04:00The Rich Dad Method of Losing Money<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://ponds.meetup.com/1/photos/?photoAlbumId=57583&photoId=243000"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSABQ2raSdK2NSiFZf7BFajdgSVhR3AfJN0wJWPnjZZuD6GEz11ua_gSEglQYLHkoYIcoP9PD4IJC0ekz6woGZM0fTjlY2j2oa5Fuzz4SL-Wqe3L2arzd0Ql6WEps6h_vwHki2FA/s200/goldfish.jpeg" alt="" id="BLOGGER_PHOTO_ID_5078245598392202098" border="0" /></a><br />I know, I keeping talking about so-called "gurus" and their terrible advice. Today I was fully prepared to discuss other topics of interest, including some general success methods and a little chat about the history of hedge funds. All of that was put aside when I read <a href="http://finance.yahoo.com/expert/article/richricher/36074">the latest Robert Kiyosaki article on Yahoo! Finance</a>.<br /><br />I was raised Republican. I voted Republican. I believed that I truly was Republican. I honestly thought that free markets work and that everyone should be left to their own decisions. But as I age I find myself swinging more and more to the Democrats. I'm realizing that many people are truly idiots. They should not be making their own decisions, because <a href="http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/MintingMoneyOffPoverty.aspx">they'll just end up hanging themselves</a>. We live in a nation where <a href="http://www.bluehippo.com/">a company that was founded to sell computers to the poor</a> at insane rates, has now expanded it's line-up to <a href="http://www.bluehippo.com/orderNow.asp?pckg=3">include plasma TVs</a>!<br /><br />Today I beginning to believe that many (if not most) people are idiots. So when I see something that's utter ridiculous in an article written by a self-proclaimed "<a href="http://www.richdad.com/about_richdad/richdad_team/robert_kiyosaki.asp">investor, entrepreneur and educator</a>", it dawns on me that there are people out there who won't realize the foolishness. Who will make life-changing decisions based on his fallacies. And I worry.<br /><br />Interestingly enough, Robert's article begins with a retraction. Of sorts. You see, the last article he wrote, about <a href="http://finance.yahoo.com/expert/article/richricher/30687">how horrible mutual funds are</a> (<span style="font-style: italic;">see my post, </span><a style="font-style: italic;" href="http://lordingtheland.blogspot.com/2007/05/4-lies-that-gurus-will-tell-you.html">4 Lies That Gurus Tell You</a>) wasn't really written by him. And you see, he wasn't really telling the truth either. Oh, he wasn't lying, he was simply joking. Of course <span style="font-weight: bold;">smart</span> readers would have recognized the joke. You're not a dumb reader, are you?<br /><br />Maybe he was joking, and I have no conclusive evidence that leads me to my own personal conclusions that his article was so incorrect, and received so much heat, that he had to distance himself from those opinions. So not only is it a joke, but it's a joke that someone else wrote...<br /><br />Then he begins a new article, and ends up committing a serious logical inconsistency that completely reverses his arguments. In other words, he actually proves himself wrong. Let's see if you can catch it:<br /><p></p><blockquote style="color: rgb(255, 255, 153);"><p>There are other lessons to be learned from the investing food chain. One is the power of debt in contrast to equity. Debt holds a higher position than equity, and bankers and bondholders are in debt positions. Preferred stocks, stocks, and mutual funds are in equity positions.<br /></p>The takeaway here is that most amateur investors try to get out of debt positions and into equity positions, where they invest with their own money or assets. Professional investors would rather be in a debt position -- investing with a banker's money, for instance -- simply because debt is less risky than equity.</blockquote>Let's break this down to spot where he loses his train of thought. He begins by explaining that debt holds a higher priority than equity, thus making it a safer investment. He's correct in this. When something goes wrong, the first people to cash out are the debt holders. There's an anecdote from <a href="http://www.amazon.com/Liars-Poker-Rising-Through-Wreckage/dp/0140143459">Liar's Poker</a> about an investor and a bond trader. The investor makes some comment about owning a company, and the bond holder corrects him by saying that, actually, he owns the company. The investor is puzzled and says that he controls the majority of the stock, so the company is his, right? And the bond trader says "Yes, but let's see how much is left after I call on the company's debts."<br /><br />Yes, I butchered the story (my copy of that book is an ocean away right now). But the point is clear, people who own debts are first in line to get paid. If a company like Enron goes down, the debtors are paid first and the stock holders get whatever, if anything, is left. So I have to agree with him in that first statement.<br /><br />But then Robert tries to use that statement to leapfrog into a claim that amateur investors invest their own money and that the pros borrow money to invest. Do you see the problem here?<br /><br />At first Robert is using the term "debt position" to refer to the person who owns debt. In the very next paragraph he neatly swaps the term "debt position" to mean someone who borrows a lot of money. He's talking out of both sides of his mouth at the same time.<br /><br />If you extrapolate from his first definition of "debt position" you would reach the logical conclusion that to minimize risk you should buy debt vehicles such as bonds, treasury bills and municipals. That is actually sound investment advice, and people who can't weather the volatility of stocks often are advised to buy bond funds.<br /><br />But he goes the opposite direction in the second paragraph and tells you to borrow money to invest, or in other words, invest on margin. How is that safe? If I invest the bank's money and I lose it all, how have I protected anything? You think the bank is going to say "Well, it <span style="font-weight: bold;">was our</span> money you invested... I guess I'll just let this go"?<br /><br />My goldfish can give you better business advice than this.<br /><br />AND I DON'T EVEN HAVE A GOLDFISH!!!!<br /><br />Leverage is to finance as a baby is to a marriage. A baby won't make your marriage any better or any worse, it'll just multiply the conditions that already exist. A child born into a good marriage will strengthen the bond, but a child born into a rocky marriage will simply deepen the divide. Money is the same way. Investing borrowed money into a good decision will multiply your returns, but investing borrowed cash into a money-pit is the quickest route to financial ruin.<br /><br />In addition he goes on about "recourse debt" and "non-recourse debt". He does a good job of explaining the difference between the two (mortgages, in case you were curious, are non-recourse). But then he lets on smugly that <span style="font-weight: bold;">he</span> only takes on non-recourse debt, as if it were some big secret that he's letting you in on. What he doesn't tell you is (if he's telling the truth, and not joking again) that he pays for that privilege. Banks are relatively smart, and they know the difference between the two types of debt as well. So if you want a non-recourse loan, which increases the risk that they might lose money, your interest rate goes up accordingly.<br /><br />What kills me are the legions of adoring fans out there taking his advice at face value. The man literally wrote an argument that contradicted itself in front of a national audience and his comments are filled with phrases like:<br /><blockquote><span style="color: rgb(255, 255, 153);">- This advice is PRICELESS!</span><br /><br /><span style="color: rgb(255, 255, 153);">- That's my idol, a controversial expert! I really learn a lot from you Kiyosaki, you are a real genius. God I hope I will have a mentor like you.</span> <span style="color: rgb(255, 255, 153);"><br /><br />- I love Robert Kiyosaki! He changed my life...I read One book of his, and now I own 3 houses a year later...this year I will buy 3 more.....oh and I quit my stupid job....so leave him alone!!!!!!!!!!</span> <span style="color: rgb(255, 255, 153);"><br /><br />- Robert, some people may never get it, but a few of us would, thank you!</span> </blockquote>With get-rich-quick minds like these, it's not hard to figure out why the rich keep getting richer. It's people like this who are driving me to become a Democrat. I honestly doubt their ability to take care of themselves. It because of these people that laws, such as those surrounding "accredited investors", exist. If you are unfamiliar with that term, I'll go into it in more depth on Tuesday (yes, I'm baiting you. But if you are really curious just Google the term).<br /><br />In the mean time, let me leave you with my favorite comment:<br /><blockquote><span style="color: rgb(255, 255, 153);">I LOVE SEEING ALL THE [people who rated Kiyosaki's article poorly]...IT JUST PROVES HOW MANY IGNORANT PEOPLE ARE OUT THERE, AND HOW THEY HAVE ABSOLUTELY NOTHING AND COMPLAIN ABOUT EVERYTHING, AND IT SUITS THEM RIGHT....YOU [people who disagree with Kiyosaki] WILL NEVER GET IT, OR EVER HAVE IT AND WILL BE BAGGING MY GROCERIES FOR YEARS!! ROBERTS COMMENTS, LESSONS, AND INFORMATION IS PRICELESS AND IT WORKS. THANKS ROBERT FOR YOUR ONGOING INFORMATION.</span><br /><br /></blockquote>Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-31155720.post-50967355191293222502007-06-19T12:27:00.000-04:002007-06-25T08:07:47.000-04:00What is a Hedge Fund?<a href="http://pressthebuttons.typepad.com/photos/uncategorized/smbss.jpg"><img style="FLOAT: right; MARGIN: 0px 0px 10px 10px; WIDTH: 200px; CURSOR: hand" alt="" src="http://pressthebuttons.typepad.com/photos/uncategorized/smbss.jpg" border="0" /></a><br />I'm currently on vacation at my new in-laws, so my posting will be little off this week. New posts will be up before the Tuesday/Thursday promise, but (as in this case) sometimes that might mean a day early.<br /><br />I fondly remember <a href="http://en.wikipedia.org/wiki/The_Super_Mario_Bros._Super_Show#The_Super_Mario_Bros._Super_Show.21">the Super Mario Bro's Show</a> while growing up. It was a hilarious show that began and ended with two guys dressed up as <a href="http://en.wikipedia.org/wiki/Mario">the world's most recognized italian plumbers</a>. In between they would show an animated sketch that usually starred Mario, Luigi and the other denizens of the Mushroom Kingdom. However once in a while they would replace the Mario cartoon with a cartoon based on The Legend of Zelda, a complete change of direction and arguably more exciting.<br /><br />In honor of that most notable show, I too like to stick mainly with my bread and butter, namely real estate, landlording and dishonest "gurus". But every once in a while I like to go off in a somewhat random direction and talk about other things. Today is one of those days and I want to discuss a little bit about hedge funds.<br /><br />Most people even remotely interested in money have heard of hedge funds. They are the investment vehicle of the rich, glamorous and exciting, they routinely bring about returns higher than 25%... right? Let's start with a little history lesson.<br /><br />Every investor knows about risk, but in the late 1940's an investor named <a href="http://en.wikipedia.org/wiki/Alfred_Winslow_Jones">Alfred Winslow Jones</a> came up with the idea of hedging certain risks in the stock market. When you "hedge" an investment, you essentially bet on both sides of an issue so that you don't lose or win regardless of the outcome.<br /><br />Let's say that I buy two investments. The first investment is tied to interest rates so if they climb, the investment loses value. The second investment is tied to interest rates so that if the rates climb, it gains value. Now, no matter what the interest rates do, I don't lose any money. I've hedged myself against the interest rates.<br /><br />But why would you do that? After all, if interest rates move you don't gain any money either! That's 100% true, but the interest rate isn't the only variable that affects my return, it's only one. The goal of hedging your investments is simply to limit the number of variables that can impact your portfolio.<br /><br />Let's say that you believe that Volkwagon is going to post huge gains this year. You want to buy their stocks but you are worried. What is the euro falls against the dollar? If Volkswagon gains 20%, but the euro falls 20%, you've just seen all your gains wiped out by a currency change. So you buy the Volkwagon stock, but then also short the euro (shorting is an investment where you essentially gain if the investment falls in value). If the euro stays strong and Volkswagon succeeds, you will make money from the stock and the euro breaks even. If the euro falls and Volkswagon succeeds, you'll make money from the short on euro, and the stock breaks even. Essentially the euro no longer matters in the equation, you'll only lose if the Volkswagon stock falls.<br /><br />That is hedging. Unfortunately for most mutal funds, hedging often involves shorting stocks and leveraging positions (taking loans to buy investments), something that mutual fund managers are not allowed to do by SEC regulations (or at least not do freely). So around the 1980's some enterprising finance whizzes came up with a way around it. They would invest outside of SEC regulations, but still within the law. And hedge funds were born.<br /><br />Hedge funds can only allow <a href="http://www.sec.gov/answers/accred.htm">accredited investors</a> to buy in. An accredited investor is someone who has a net worth of at least $1 million, or has earned at least $200,000 a year for the past two years. Why does the government do this? Why does it prevent poorer people from buying into the investments of the rich?<br /><br />Simply put, accredited investors are people who are allowed to invest money in schemes that are not regulated by the SEC. Because these schemes are unregulated, they can often be extremely risky, and contain all manners of undisclosed issues. The government coined the term accredited investor to represent someone who had enough money to be aware of the risks inherent in unregulated investing. In other words, the government is limiting the risks that poor people can make with their money (yet government still encourage lotteries... more than slightly hypocritical).<br /><br />Early on, hedge funds enjoyed tremendous gains (as is typical whenever a new successful niche is discovered). For many years hedge funds were able to generate huge returns by eliminating un-wanted risks and focusing their growth on variables that they could predict. However, as with all new successful markets, competition sprung up all around them. Profits became harder to find, but the investors still expected mammoth returns.<br /><br />Due to the lack of regulation by the SEC, the hedge funds began to leverage themselves more and more, and instead of eliminating risks they began to gamble. They would leverage huge amounts of money on "almost sure things". Of course, as I've written before, <a href="http://lordingtheland.blogspot.com/2006/10/danger-of-overextending-yourself.html">when playing with leverage, you only have to lose once to destroy yourself</a>.<br /><br />This happened to a company named <a href="http://en.wikipedia.org/wiki/Long_Term_Capital_Management">Long Term Capital Management</a> in 1998. For the first four years of it's existence, LTCM returned nearly 40% a year. At first everything was great because they had found a very profitabler niche in the market. But as their niche lost it's profitability, the firm found itself under pressure to continue with it's extrodinary gains. They took risker strategies and undertook an enormous amount of leverage. When the market turned sour in 1998, they lost $4.6 billion in less than 4 months and had to be bailed out by the US government (actually the bail-out was private, but organized by the government).<br /><br />So there you have it. A hedge fund is simply a vehicle (like a mutual fund) that is allowed to undergo risky strategies because it's somewhat on the outside of SEC regulations. Some hedge funds put togeher extrodinary returns, but just as many fail miserably. While hedge funds retain their name from the time when they actually hedged against risk, today they are simply specialized investment vehicles open only accredited investors.<br /><br /><br />The strategies that are available to hedge funds allow them to earn slightly higher returns than mutual funds, but that gain is apparently over-stated and comes with extremely high risk. Barclay's Bank (a major British Bank) did <a href="http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article735784.ece">some research into the "average" results </a>that were compiled by hedge funds indicies and found:<br /><br /><blockquote><span style="color:#ffff99;">Barclays outlined a series of methodological failings by index compilers,<br />including survivorship bias — the tendency to ignore funds as soon as they close<br />or fail. This alone added between 2 and 4 per cent a year to index performance<br />figures, according to academic studies, Barclays said.</span><br /></blockquote><br /><br />And there's good news for average joe's who wish they had the the complexity of hedge funds available. Due to leveraging and shorting becoming more and more common-place in the market today, the SEC is considering allowing regular mutual funds the freedom to place limited leveraged positions and shorts. So soon these techniques will be available, in fund form, to everyone.Unknownnoreply@blogger.com9tag:blogger.com,1999:blog-31155720.post-43473519509776766912007-06-13T17:06:00.000-04:002007-06-14T05:33:42.601-04:00Statistics and Damn Lies<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLiXE_BGxfqDaGkkRPcQuus_pPii8ePVUZYkhg3N1hnJsPCHBSPj75O7ywVyEYO900SslYS2Ekh8HRvZCufc1ENkMoKqNbUU-78iG0Zy686WWqyolEMYrc2yBQ4g0ozKH-LHqWJw/s1600-h/stats.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLiXE_BGxfqDaGkkRPcQuus_pPii8ePVUZYkhg3N1hnJsPCHBSPj75O7ywVyEYO900SslYS2Ekh8HRvZCufc1ENkMoKqNbUU-78iG0Zy686WWqyolEMYrc2yBQ4g0ozKH-LHqWJw/s320/stats.jpg" alt="" id="BLOGGER_PHOTO_ID_5075668751158588258" border="0" /></a><br /><br /><br />I'm sure that everyone has heard of the quote oft attributed to <a href="http://en.wikipedia.org/wiki/Mark_Twain">Samuel Clemens</a>, "There are three type of lies. <a href="http://en.wikipedia.org/wiki/Lies,_damned_lies,_and_statistics">Lies, damn lies, and statistics</a>." This quote was always on my lips as I suffered through my required statistics course in college. It was only when I had to help my fiance (now wife) with her graduate course in statistics that I found a new respect for the field. Nowadays I see the value that statistics can give us, but only when we make the judgments ourselves. Never trust a stat that someone else has quoted to you. Only the raw data itself is truly useful to you.<br /><br />So what does this have to do with real estate. Well, first of all stop listening to NAR's statistics. They mean nothing. But more importantly, I recently read <a href="http://www.iwillteachyoutoberich.com/blog/whats-the-difference-between-these-two-images">an old post at I Will Teach You To Be Rich that was highly educational</a>.<br /><br /><span style="font-weight: bold;">Here's the synopsis</span>. Ramit shows you two credit card offers from the same company. The economics of the offers are essentially the same, but the graphical designs are different. Different colors, different pictures, different layouts. One emphasizes "fixed [rate] until 201o", the other emphasizes "0% interest rate". From his post:<br /><blockquote style="color: rgb(255, 255, 153);">This is how real marketing is done–not by handwavy marketers saying “I think red is better!” but by actual, rigorous data analysis.</blockquote>And he's right. Real marketing is done in this way. When marketers tell you that red ink draws more attention, they aren't relying on some biological study from a university discussing how the physics of light focuses the eye on red (at least not usually). They are basing that belief on statistical analysis. They sent out 1,000 credit card offers in red ink and 1,000 credit card offers in green ink and the red ink led to a 23% higher application rate (all statistics are, of course, made up).<br /><br />How can we use this information? As real estate investors, we too, have to be marketers. We have to find people to occupy our properties. This could be done in many ways, we can advertise on one of thousands of websites, we can places signs in the community, we can go to a real estate company. But many of those options cost money, and which gives you the best return?<br /><br />Biff and I have decided to find out. From now on, whenever we advertise an opening in one of our units, we're going to pay attention. Using just a simple spreadsheet, we'll keep track of each person who responds to our ads, storing the date, the advertising that worked, and whether or not they finally applied for tenancy. That last part is important, as Biff currently estimates that we get about 85% of all of our calls due to the neighborhood signs, but most of our actual applicants come from people who find our web ads.<br /><br />We don't have that many properties and, if we're lucky, we won't have to find new tenants every year. But it's worth while to keep track of the statistics that we can. More information never hurt anyone. And if you've been paying for that <a href="http://www.apartments.com/">apartments.com</a> ad every year, but never gotten a bite from it? Maybe it's time to stop throwing your money in that direction and try something new!Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-31155720.post-8836947432478560292007-06-11T14:48:00.000-04:002007-06-12T05:51:39.120-04:00New Credit Report Laws<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjF4ARvdXnwRMFTZZhWt9bMkV0YpbfEztshsMUo8QEwxu79sBdg3oyou3JW3nGJ0hFhfAcXnG1mRdnHwtz705w-zEmW7LDbR00CwpWVVFdp0jZXJods_2_b0j_cUbJDl5Dz-6UO2w/s1600-h/credit-card-visa.jpg"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjF4ARvdXnwRMFTZZhWt9bMkV0YpbfEztshsMUo8QEwxu79sBdg3oyou3JW3nGJ0hFhfAcXnG1mRdnHwtz705w-zEmW7LDbR00CwpWVVFdp0jZXJods_2_b0j_cUbJDl5Dz-6UO2w/s400/credit-card-visa.jpg" alt="" id="BLOGGER_PHOTO_ID_5074897031434842962" border="0" /></a><br />Quick update on <a href="http://lordingtheland.blogspot.com/2007/05/when-tenant-leaves.html">the tenant situation</a>. We have found someone who appears to be a good applicant and are now in the process of processing their application. This person is actually a referral from our current tenants (who are breaking the lease), which is a testament to the value of not burning your bridges.<br /><br />Probably the most important step in the process is <a href="http://lordingtheland.blogspot.com/2006/07/anatomy-of-credit-report.html">running a credit check</a>. I've written about the value that you can get out of a credit check before, and most every landlord advice column talks about the credit check. So imagine my surprise when <a href="https://www.tenantverification.com/">I go on-line to run a credit check</a> and I discover that the laws have changed. Shockingly, not one other blog had brought this up yet, so it caught me a little bit by surprise.<br /><br />The change is in the Fair Credit Reporting Act(<a href="http://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00001681----000-.html">15 U.S.C. §§ 1681-1681(u)</a>). Essentially the three big reporting agencies (<a href="http://www.equifax.com/">Equifax</a>, <a href="http://www.experian.com/">Experian</a> and <a href="http://www.transunion.com/">Trans Union</a>) need more information before they dispense credit data. The change is supposed to deter identity theft, so it requires that businesses register themselves and submit to an on-site inspection. From my understanding this accomplishes two things:<br /><br />1) They can identify that the users in question are legitimate businesses with a legitimate need to access credit reports<br />2) They can certify that the credit reports, once obtained, will be safe from theft<br /><br /><span style="font-weight: bold;">So, if you have an immediate need to run a credit check (like we do), what options do you have?</span> Simply put, while you aren't allowed to access a full credit report, you can get <a href="https://www.tenantverification.com/public/TVS-Credit-Decision-Sample.pdf">a little bit of information on an individual through the typical credit report agencies</a>. Specifically you can know discover what "grade" a user's credit is. 800-850 is an 'A+', for example. You won't get their actual scores, nor will you get any of the credit history.<br /><br /><span style="font-weight: bold;">Longer term, what do you have to do in order to get true credit reports?</span> You will have to submit your place of work to an official third-party inspection. This inspection costs somewhere between $75 and $100 and must be renewed annually. When the inspectors arrive they will want to see:<br />- Proof of ownership of your rental properties (title)<br />- Proof of rental (rental agreements/applications)<br />- Proof of identity (license or passport)<br />- Proof of security. This means that they are looking that your credit reports are secure from your living area. I assume that if you had a properly locked office it would suffice. If you only handle electronic copies of reports, I would hope that proper password security would be satisfactory, but I don't know for sure.<br /><br />If you are a smaller landlord and only need to run 1 or 2 credit applications a year, then this essentially increases your costs to $115 per credit report ($100 for the inspection and $15 for the actual report). A simple decision has just become much more complicated. Biff and I are currently in the act of reviewing our needs and whether or not we'd like to pay for an annual inspection.<br /><br />I'm sure that Congress's heart was in the right place when they made this law and for all I know it'll cut identity theft down by 90%. But it's definitely causing headaches all over the country for small landlords that needed to run only a few credit checks a year, for legitimate business purposes.Unknownnoreply@blogger.com20tag:blogger.com,1999:blog-31155720.post-13842730537337758722007-06-06T17:44:00.000-04:002007-06-07T03:09:15.573-04:00Mortgages in BritainFirst a quick update on <a href="http://lordingtheland.blogspot.com/2007/05/when-tenant-leaves.html">our tenant search</a>. As of yesterday, we'd had around 10 inquiries into the house. The unit in question is a 3-bedroom townhouse, with the master bedroom on the ground floor. Two of our queries came from our website ad and 8 came from the sign posted in the front yard. No serious bites yet, but it's a promising early start.<br /><br />I ran a quick rental comparison the other day, using <a href="http://www.rentometer.com/">Rent-o-meter</a>, and while it's hardly a flawless tool, it did suggest that our rent was about average for the area. About 12 months ago, with a slightly lower rent, we were asking in the high side of rental rates, so rents in the area have climbed quite a bit in the last year.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjEGShow6qBW7RyXtTLe-76mdUqavVk-YWapKP6GtyFFDnBCxiT9uKxj2Qx0lcOi8jfiRpc2aubwYGyl0hc8c-4qYrUI6LCqvvZCSixIE_FPZtUC7fAbHcPe2nQVQIeEv3ENXlKA/s1600-h/britishmortgage.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjEGShow6qBW7RyXtTLe-76mdUqavVk-YWapKP6GtyFFDnBCxiT9uKxj2Qx0lcOi8jfiRpc2aubwYGyl0hc8c-4qYrUI6LCqvvZCSixIE_FPZtUC7fAbHcPe2nQVQIeEv3ENXlKA/s400/britishmortgage.jpg" alt="" id="BLOGGER_PHOTO_ID_5073079238066418498" border="0" /></a><br />I thought I'd take some time today to share a little bit about the state of housing in Britain. For starters, a 30-year fixed mortgage is rare over here. Almost everyone uses 25-year ARMs, and getting a fixed rate usually means extra fees up-front. Of course the rates are more competitive than most American ARMs, but a rate hike in the UK affects everyone.<br /><br />This ad, which I saw on <a href="http://www.tfl.gov.uk/modalpages/2625.aspx">the Tube</a>, is pretty standard when it comes to British mortgages. Notice that the maximum Loan-to-Value is 75%. That means if the house is appraised at $500,000 then you have to be able to put down $125,000 as a down payment. Compare that to most American mortgages where putting down 20% used to be the norm.<br /><br />As a general rule, <a href="http://www.bbc.co.uk/homes/property/moneyandlegal_mortgages.shtml">most British lenders are willing to lend you 3 times your salary</a> or 2.5 times your combined salaries (if you are buying with someone else, like a spouse). Recently prices have been climbing so high that lenders face a choice of either not making loans or loosening their standards. Some banks have <a href="http://news.bbc.co.uk/1/hi/business/6104522.stm">increased their lending limits up to 5 times your salary</a> or more. Compare that to the US where lenders will lend you 5, 10 times your salary, <a href="http://www.sacbee.com/845/story/195173.html">even up to 40 times your annual income</a>...<br /><br />Mortgage brokers are facing the same situations over here that they were in the US 2 years ago. Note <a href="http://jobs.ftadviser.com/job-detail.aspx?id=16207">a job offer for a mortgage broker</a> that offers a base salary of $36,000 to $44,000, but with expected total compensation of over $100,000. That's a lot of commissions (or just a few on very big loans).<br /><br />Lenders are loosening over here, people keep taking larger and larger loans. Banks are specifically advertising "buy-to-let" loans for would-be landlords... It's looks like a perfect storm is brewing which can only lead to the same result as the US. A partial collapse of over-priced markets (as in the US, there are areas of Britain that haven't tripled in price over the last 5 years. And, as in the US, those places tend to be less urban).<br /><br />Still, even "loose" lenders over here are just now hitting the same levels that most Americans are used to. The US actually has one of the best mortgage markets in the world when considering the consumer. So if you have a nice fixed loan, consider yourself lucky when the Feds next hike the rate. Not every country enjoys those.Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-31155720.post-48141207732337641142007-05-30T11:26:00.000-04:002007-06-04T06:45:24.094-04:00Should we give back the security deposit?I know, I know, the title is a bit evil-sounding. but I needed to get your attention somehow, right? We are dealing with the question of refunding the security deposit, but not in the way you are thinking.<br /><br />As I wrote in my last post, <a href="http://lordingtheland.blogspot.com/2007/05/when-tenant-leaves.html">one of our tenants is moving out earlier than we expected</a>. Their first year ends on June 1st, but they intend to stay until the end of June. This creates a conundrum for us on how to deal with a security deposit.<br /><br /><a href="http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+55-248.15C1">Section § 55-248.15:1</a> of Virginia law states that interest has to be paid on a security deposit "<span style="color: rgb(255, 255, 204);">...at an annual rate equal to one percentage point below the Federal Reserve Board discount rate as of January 1 of each year.</span>" Doing some research, <a href="http://www.frbdiscountwindow.org/historicalrates.cfm?hdrID=20&dtlID">we discover that the discount rate (referred to as the "primary rate") was 6.25% on January 1st, 2007</a>. On January 1st, 2006 the discount rate was 5.25%.<br /><br />So that means that we have to pay 4.25% interest on their deposit for 7 months, and 5.25% interest on their deposit for 6 months. So where's the dilemma, you ask?<br /><br />Virginia law happens to give us an "out" for the interest problem. <span style="color: rgb(255, 255, 204);">"...no interest shall be due and payable unless the security deposit has been held by the landlord for a period exceeding 13 months after the effective date of the rental agreement..."</span>. The dilemma presents itself. If we refund their security deposit before July 1st, then we do not have to pay any interest on it. However, since they intend to stay to the end of June, this essentially means refunding the deposit before they move out.<br /><br />We accepted a security deposit of $800, and doing some quick math we see that if we ended up paying interest, we'd owe them about $841.35 (depending on the day we pay them back). So the difference between our two options is just over $40 (about a month's worth of interest from our savings account).<br /><br />In this situation, we've decided that holding on to the deposit until we've had a chance to check out the property is worth $40. Even though we have no expectations of finding something wrong (they've offered to steam clean the carpets for us, free-of-charge), it's the safer choice. <br /><br />Even though $40 doesn't sound like much, good businessmen know that very dollar is important to us (which is why we track them all so closely). We're not stingy, and know that the money spent on air-conditioning repairs will pay itself back through happy tenants and better maintained equipment. But every dollar we spend should have a purpose, and every purpose should be carefully considered. Since this is the first time we've had to deal with this issue, it makes sense to discuss it in depth. In the future, we have precedence to build on.Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-31155720.post-46735663879200621512007-05-30T10:37:00.000-04:002007-05-31T03:28:54.683-04:00When a tenant leaves...<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://apps.nslp.org/creditanddebt/home_finance/whos_involved/whosinvolved_01.html"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7rGVzypCDKm4RATHv_rRXDIICXLPjh6X1-tlbbHD6OeKXSQMsiTkJz8sT7Vbxsx-Mzk5j0HoxZYtumsidD5d6PmfLGXXXpaMHFzTegCsK3dqxkBUps9283w15JtYCZ0MHAJ4bcg/s320/lease_01.gif" alt="" id="BLOGGER_PHOTO_ID_5070623072393710498" border="0" /></a><br /><br /><br /><br />One of my most-read posts is <a href="http://lordingtheland.blogspot.com/2006/11/breaking-lease.html">Breaking a Lease</a>. So I thought it would be appropriate to mention today that one of our tenants just decided to break theirs. As with every situation, the details vary, so before we talk about how we're going to resolve the issue, let's go through the specifics. first let's discuss the contractual obligations.<br /><br /><span style="font-weight: bold;">1) Their original lease ends on June 1st</span>.<span style="font-weight: bold;"> </span>So they haven't even yet began the second lease.<br /><br /><span style="font-weight: bold;">2) They agreed verbally to a new lease, but haven't signed one yet</span>. In April they agreed to a 1 year extension at a minor (less than 3%) rent increase. We sent them a copy of the lease to sign and return, but they hadn't done that as of yet.<br /><br /><span style="font-weight: bold;">3) They want to move out at the end of June.</span> They are moving into their new place at the end of June/beginning of July.<br /><br />Let's start by discussing the implications of the situation. First, we have no written contract, but there is a verbal one. The tenants agreed verbally to stay in the place another year, and <a href="http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+55-248.4">as the law in Virginia states, "Rental Agreements" can be oral</a>. Or, better put by a pamphlet provided by Arizona State University, <a href="http://legal.asua.arizona.edu/breakls.html">"A verbal contract is just as binding as a written one, but its terms may be more difficult to prove."</a><br /><br />So by that philosophy of thought, we have an oral binding agreement to lease to them for another year. So we look at the Early Termination clause within our lease:<br /><span style="color: rgb(255, 255, 204);font-family:Arial;font-size:100%;" ><b></b><blockquote><b>EARLY TERMINATION</b>. Tenant may choose to terminate the Agreement before the natural expiration of the Agreement. To exercise this option, Tenant must submit his intentions, in writing, to Landlord at least thirty (30) days before termination and must pay a penalty equal to a single monthly installment in addition to their final month’s rent. In paying this penalty, the Agreement will be terminated and the Landlord will not hold the Tenant accountable for any of the monthly installments remaining in the term of this Agreement.</blockquote></span>The termination clause clearly states that the tenants are responsible for notifying us at least 30 days before they leave (which means that they earliest they can terminate would be June 30th), and that in addition they have to provide 1 month's penalty.<br /><br />So what do we do?<br /><br />There are a couple of options here. The first is that we could simply agree with them to nullify the oral agreement, and they could complete their lease on June 1st and we could look for new tenants. But this isn't good for either party. They have nowhere to stay until their new place opens up, and we are on very short notice to find someone new.<br /><br />Secondly we could just enforce the new oral lease. They would be responsible for giving us a month's penalty in addition to paying for June. Personally I think our early termination clause is fair (only a single month's worth of penalty and 30 days notice), and it's the simplest answer. Of course, if they dispute it then we have to defend an oral contract.<br /><br />Lastly we can compromise on an agreement that both parties are willing to sign.<br /><br />The agreement that Biff came up with was that they pay for June, and then pay for July when they leave. In return we begin advertising the property immediately and try to gain a tenant. If we secure a tenant before July ends, we will refund them a pro-rated portion of their penalty. For example, if we have a new tenant move in in mid-July, then our current family will receive back 50% of their penalty.<br /><br />The benefit of this agreement is that both parties are satisfied and will leave happy. We only lose income if we can't find a tenant in the next two months), and they retain a fair chance at keeping a majority of their penalty.<br /><br /><span style="font-style: italic;">(As we speak the rental sign has been placed in the front yard of the property and Biff has placed an internet ad on the website that has been the most successful for us thus far. We'll work hard to return a majority of that penalty back to our former tenants.)</span><br /><br />As far as I can see, Biff and I are left with only one downside. It's widely acknowledged that summer is the best time to locate tenants (due to people moving while children are not in school, college graduates moving, etc.). And while I don't have any statistics that prove that assumption, I do believe it. So this agreement pushes our "locate new tenants" time to late and later in the summer.<br /><br />However, by both parties compromising on their terms to find a middle ground, we've actually created the oft-mentioned, rarely achieved win/win deal.<span style="font-style: italic;"><br /><br /></span>-In case you were curious, our tenants decided to move out because they, as military, were offered on-base housing more than a year earlier than expected. In addition they just found out that they are pregnant and will be needing some more space. They've been outstanding tenants for us, and we wish them the best with both their new home and the new addition to their family.<span style="font-style: italic;"><br /></span>Unknownnoreply@blogger.com30