Sunday, December 31, 2006

Buying a car - new or old?

I'm not sure why there is ever a discussion on this topic. I've run through the calculations many times and there is never any way that a new car can be financially justified. One of the more important ways people get into financial trouble is buying depreciating assets. A car is the largest depreciating asset that most people buy. The worst financial decision is to buy a depreciating asset with credit.

Now some very smart people will try to convince you otherwise. A young man named Ramit who writes a blog called Iwillteachyoutoberich does just that. He tries to justify his decision with various reasons but in the end gives himself away when he talks about the "new car smell". This means in the end he made an emotional decision, not a financial decision. (The ironic thing is that "new car smell" is a mix of VOC's including benzene which can be harmful.) New cars depreciate quite rapidly - often 30% right off the lot. Add to that the interest nearly every purchaser pays and the cost of owning that car can double.

Now some people claim that they need a new car for business credibility. I don't buy that logic either. Confidence comes from within - not from external things. Now when I was young I too feel prey to the idea that I needed a shiny red RX-7 to impress the women. Fortunately, I've grown out of that phase although many middle aged men think they suddenly have to buy a new Vette for the same reason. My car strategy at the moment is to buy cars with good repair records that are 5-7 years old which I can pay all cash for. Typically my cars have close to 100,000 miles on them (cars today when maintained will easily go over 200,000 miles - everyone of my 12 cars has.) I keep them well maintained so they don't break down unexpectedly. My typical maintenance costs are less than $1500 a year including routine maintenance.

Let's assume you buy a new car for $25,000 with $3000 down and I buy a $3000 car cash. Now I don't carry collision or theft and carry a $1000 deductible - you'll have to carry collision and theft insurance. Here's a simple spreadsheet:

After 3 years the typical new car buyer is upside down in their car loan so there is no re-sale value per se. The new car buyer is out an extra $14K Vs my strategy.

I have grown tired of buying cars from dealerships. Even with the advent of kbb and other services, the dealers want to play a game of giving me far less than my car is worth and asking over kbb average retail values. Instead, the last 3 cars I have bought have all been on E-bay. I research the cars and history and only bid when I can get close to the wholesale value. So far this strategy has worked extremely well and I have no plans to change it. Even a sudden windfall would not tempt me.

UPDATE: an interesting link from AllFinancialMatters - The Real Reason You Are Broke

Saturday, December 30, 2006

Real Estate Coaching

I wrote a few days ago about a motivated seller who is facing foreclosure. I also posted about real estate courses. One course that did not impress me was Don DeRosa. However, when I purchased his package he gave me his cell phone number. I decided to call him about this deal and wasn't expecting much (my previous attempt at buying coaching did not yield much with Dave Whisnant). So I was quite surprised when Don answered the phone right away. He spent 45 minutes on the phone with me, created a spreadsheet and emailed it to me. He walked me through short sale procedures even though I have not purchased his Short Sale course. All in all, I was very happy with his responsiveness and helpfulness. I would have to recommend him if you can get his cell number.

Don confirmed my belief that this was an excellent candidate for a short sale. There are 3 mortgages on the property and the second is foreclosing. He did not think the third would do anything and would probably take a few pennies on the dollar. So I have been working with the banks and trying to follow his advice.

Meanwhile my wonderful wife returned from China this week and came with a check for $20K for the sale of her garage condo. So now I feel I can go back to hard money lenders and see if I can qualify for a line of credit. 2007 is starting out on an upbeat note and I am excited about reaching my goals.

Saturday, December 23, 2006

Real Estate Courses and Resources

I've spent over $2000 in the past two years on real estate courses. On the one hand I've used the information to make 2 profitable real estate investments. On the other hand I feel that these real estate guru's charge far too much for the quality and content of the courses they offer. One guru who agrees with that view is John T Reed who has read and evaluated many of the guru real estate courses. His view is that the prices the gurus charge is too high and the information should be sold in books under $100. He offers 21 such books at ~$40 each. So in fact his real estate course costs $840! I've bought a couple of his books and they are quite good, but narrow in scope, so you almost need to buy all of them to get a complete picture and spend as much as for other courses.

Some of the courses I have purchased and my opinion:
  • Ken Preuss - I purchased an e-book from Ken, so the price was fairly reasonable but there is no audio. The information was OK. He emphasizes lease-purchase and I learned a lot about that concept which I used for my rental property. The technique works well - I've got the best tenants I've ever had (ten years experience), I got $3500 from them to get in the house and they pay about $150 more than the going rental rate. Ken had the most up-to-date web resources of any of the courses I've bought. His course is so focused on lease-purchase that it leaves out a lot of other useful information, so not really complete.
  • Don DeRosa - I've purchased two courses from Don ($895 seminar special). The workbooks are useless in my opinion and the two courses have so much common information that I would never recommend purchasing them separately. The spreadsheet he provides is riddled with math errors and I had to write to ask for forms that were supposed to be provided but were not. I don't think that Don has put enough value in his courses to justify the price. If he combined all 3 of his courses (subject-to, private money, short sales) I might think otherwise, but as is this is the worst of the three. I'm supposed to have one year of consultation with him but I have not used that yet. Maybe that will justify the price. UPDATE: see my post on Don's Coaching.
  • Dave Whisnant - Dave is an attorney turned investor. His course is jam packed with information. He has excellent information on public records and covers every topic I have encountered from repairing your credit (quite good), to marketing (very good insights) and rehab (so-so). I was supposed to get on-line help. I used it once but his advice was not especially insightful. John Reed had some criticism of this course, but I found his comments kind of petty. If you were to purchase one course, I would recommend his (I get no commission and have not been in contact with him for 2 years). His course was less expensive and certainly as insightful as Reeds books.
On-line I use Real Estate Investment articles which are a little vague (these are guru's writing hoping to get you to buy their course. But there are enough different articles from different investors that you can get 90% of what you need from this web site.

Paying a lot for real estate courses is kind of a pet peeve of mine. On the one hand, I don't begrudge the gurus from trying to use capitalism from making more money. But, their marketing is so vague that you never know what you are getting until after you spent the money. I'm at the point now that I have lots of experience and knowledge. These guru's mostly focus on new investors.

One of my goals is to use a tool I've come to really like (the wiki) to create a "live" real estate investment course that can be improved by the investment community. I'm sure the guru's will not like this idea. I've tried to create a wiki template to do that RealEstateGuru. At the moment it is only a draft. If you have real estate experience and would like to contribute, please email me. I am only working at this as time allows at the moment, since I am still in the process of developing my business plan and goals.

Update: I recently met and listened to Pete Youngs and review his course here

Friday, December 22, 2006

Motivated seller and short sale potential

I've started a direct mail advertising campaign to find motivated sellers for my new real estate venture. Each week I get a list of lis pendens filed (people going into foreclosure). I also use First America real estate software to create mailing lists of absentee owners. In our county there are about 50 to 70 lis pendens filed per week. To date I've mailed out about 250 letters and received 3 phone calls (1.2% response rate which is supposed to be a typical range). Today I met with one of the callers. She gave me all her original documents, essentially freezing out any other possible investors. She just wants to get rid of the property and doesn't care about making any money.

This property is one which may be ideal for a short sale. The owner originally took out a first mortgage and HELOC from the same lender. The HELOC was a 5 year balloon due last June. The lender diddled around about refinancing the HELOC and is now foreclosing against it. Meanwhile three years ago the homeowner took out another mortgage against the property which is in a third position. The payments on the third are up to date, but the third is in a weak position. The total of the three mortgages is close to the actual value of the house. So the third mortgage, in order to save their equity will have to take over the first two loans at the auction or hope someone else does.

I'm hoping to negotiate with the third mortgage and see if they will accept a short sale, in other word, try to pay them 10 cents on the dollar owed them. At any rate, I am in the catbird seat on this deal. The seller has put her complete trust in me and the clock is ticking down on the third mortgagee.

The Fog of War

One of my goals with this blog was to write posts with some perspective. I have not written about the war yet. War is something that is extremely difficult to keep in perspective during its execution. Even hundreds of years later historians still debate the merits of strategies and events. I've read a couple of fascinating books this year about WW II and the Revolution. Malkins In Defense of Internment provides an alternate view of the thinking behind the internment of the Japanese in World War II that is not part of the conventional wisdom and Ketchums Victory at Yorktown is a mind blowing account of how far in despair we were during the Revolution. Few people today appreciate the extent of Washington's leadership in creating this country.

As a college student in the 1970's I was mildly anti-war. I cast my first vote for George McGovern - an anti-war candidate. As time has passed I have learned new facts about Vietnam that have changed my views of that war. Most significant was our victory during the Tet Offensive which was spun into a defeat by the biased reporting of Walter Cronkite.

So now we are in a war with a radical foe that is bent on attacking and conquering us. Many people think that if we simply pull out of Iraq the danger will pass. I wrote a post about Good and Evil that tried to highlight what I believe is a fundamental problem with Western thought - namely the belief that evil does not exist.

One of my favorite books used to be a collection of writings by the Sufi poet Rumi. It contains some tremendous spiritual insights. However, I believe today Muslim belief is dominated by Wahhabism that has taken Islam down a violent path.

While some believe that only a small percentage of Muslims believe in violent jihad (10% of 1.2 billion is still a lot of people), those that don't believe in violence are at the very least being intimidated into silence and acquiescence by the violent minority. And the problem is not only intransigent, it is generational as the young are being taught to hate.

So we are in the "fog of war" having swiftly conquered Afghanistan and Iraq only to be surprised by a high level of attacks due to a variety of fighters (disgruntled Sunnis, Al Qaeda, Iranian subterfuge, Shia vigilante groups). The President of Iran threatens the end of Israel nearly weekly and police in the west undermine plots constantly.

One perspective that I do have is that no mater our course in Iraq, this war will not end soon. I think at the present many in the West have become quite fearful of Islam. We dare not write the truth about fascist Islam or call it the evil that is now is.

So we may stagger along for many years or even decades living with the status-quo assuming some group does not set off a nuclear bomb in the interim. If freedom were able to take root in the Middle East (improbable but not impossible) we may avoid a great conflict. However, human history clearly shows that when evil is not confronted the worst of our fears come true. I pray that is not the case, but I too am caught in the fog of war and do not know the best course of action or the outcome. The enemy will surprise us and we will find out what kind of people we are again.

Thursday, December 21, 2006

Courage to become rich

I was reading an article titled The Courage to Live Consciously by Steve Pavlina and was reminded (again) of the root reason for my current financial state -living too much in my fears.

How would I live if I had no fear at all? Have you ever asked yourself that question? When I was involved with Amway I often asked myself this, but had long forgotten about the question or my answer. Recalling back to the days I used to travel long distances to show the Amway business plan to prospects, I often would be driving home late at night listening to self-improvement tapes and sometimes would catch a glimpse of this awesome lifestyle that I could lead should I succeed - great friends, financial security, wonderful family and spiritually connected. But by the next day, trying to do my job with only 4 hours sleep, I slipped back into negative thoughts about why I would not succeed (fatigue can kill dreams).

Now I'm not totally a wuss. In some areas of my life I have a lot of courage. I relish heights and have no fear of dropping off the side of a mountain, I've had 20' boa constrictors crawl over my back. I love speaking in front of large crowds (I've given speeches before 10,000 people) and I have never had a fear of investing money. I don't really have a fear of failure, but I do have a fear of success. And I have had a very real fear of being rejected by other people in one-on-one situations.

"Life shrinks or expands in proportion to one's courage".
Anais Nin

The word courage is derived from the Latin "cor" which means heart. Steve Pavlina seems to think that courage is more about mental decisions. However, for battlefield decisions the Marine that falls on a grenade is not making an intellectual decision, but a very real emotional one. He (Steve) thinks that our decisions are not "fight or flight" based because the real danger to most of us is mostly in our mind - not life or death decisions our ancestors (or today's soldiers) faced.

Steve lists lots of practical advice to overcoming your fears (making list of possible negative aspects of you decision, breaking them down and setting goals to overcome them, becoming more educated, etc.). Maybe this helps some people, but I have tried this logic with only limited success.

So how do I gain the courage to be rich? My only good analogy is when I am at the top of a very steep ski slope and can't see the trail past the edge of my skis. I simply push forward over the edge and trust in my ability, God and my instincts that I will make it down the slope. I am totally immersed in the moment, not worrying about falling, breaking a leg or anything negative.

I think that business success will take a similar route. When I was in Amway I was 99% committed to my success. I invested heavily in tools, seminars, travel. I would drive anywhere to show the plan to people, but I withheld myself in one critical area out of my comfort zone - I wouldn't drop off that cliff when I was in the presence of a stranger. I have a colleague I work with who I admire greatly for that quality. For him everyone is a friend whether a CEO or the girl at the drive-through window. In seconds this man establishes rapport with strangers, a trait I envy.

So is becoming rich just about courage? To a large degree it is and a very emotional decision. It is about putting yourself on the line, about immersing yourself 100% into what you are going to achieve and blowing up the bridges that would allow you to retreat. That retreat has for me been too easy ( I make a six figure income at a job). But my job will never allow me to get rich.

“Successful people expect the best, and they generally get it, because
expectations have a way of attracting to us their material equivalent,”
Tom Butler-Bowdon

When I started in real estate the first time 20 years ago, I didn't have a plan, wasn't organized and invested based on poor information. But I also failed to commit myself 100% to making it work, so I retreated to my job and let it bail me out. This time I am better organized, have good market data, have a planned exit strategy, know what I want to buy and am not letting emotion drive my purchase or selling decisions. But I still have the opportunity to give up - I've got 4 teenagers to care for with associated activities, a wife who wants my time and still have that 8 hours every day to exchange with my employer. I don't have time to do this ( I could reason).
I'm 53 and I have no hope of retiring before my late sixties based on my financial position. I had not planned to be in this position, but that's because I never did stick with a plan to do it. So its going to take relentless persistence to succeed. And ultimately, the courage to push myself over the edge.

Wednesday, December 20, 2006

Increasing liquid assets for real estate purchases

One of the banes of new business is being under capitalized. I thought that with my excellent credit score I could convince Brookview Financial to give me a line of credit, but no luck. Even though they claim to loan 100% of project costs and don't even require payments during the holding period, they want me to have more liquid assets before they will give me a credit line.

I've been sending out direct mail pieces to people going through foreclosure and have started to receive calls (about 1.2% response rate). No sales are imminent but now that Brookview has my application on hold, I have less confidence in my ability to close the sales. The sellers I am marketing to need quick closing and I was counting on hard money to have the wherewith all to do that.

At the last seminar I attended Don DeRosa talked about doing "subject to" purchases. His claim was that you could buy houses for "nothing down" by essentially taking over the mortgage of the person who is facing bankruptcy. But, this is not really true. You need cash to bring their payments current, you need to pay closing costs and sometimes need cash for the seller if they have any equity above their loan value.

So I am considering my options about how to increase my liquid assets:
  1. Capital One has offered to increase my installment loan from $14k to 30K. Interest rate will go up 2% and payments up $200/month plus a negative impact on my credit score
  2. Another bank says they will refinance my rental property for up to $40k cash out. I would have to pay off the Capital One loan but my net payments wouldn't increase. The cost to take out this loan is about $4k and it would take one month to get the funds.
  3. My wife has a garage to her condo in China she is trying to sell. Her ex has promised to buy it but he is not reliable, so I am not sure if I can count on it
  4. Try to re-focus my strategy to "wholesale flipping" of any properties I find.
  5. Start to focus more on getting private money

In my younger days I often tried the Casey Serin route, trying to get loans on top of loans and over-leveraging my self. I think that I will try patience this time and stay focused on my goals. Our need to get instant gratification often creates an urgency to act quickly and make bad decisions and settle for mediocre deals (just like the desperate teenager that settles for a mediocre boy/girl friend). When we were looking at houses this past winter my wife seemed to get impatient that we didn't buy for a long time. But in the end we got an excellent deal that continues to increase in value.

It's disappointing to be turned down but not the end of the world. So for now I will resist the urge to rush out and borrow more money and focus on items 3, 4 & 5.

Tuesday, December 19, 2006

Using scarcity consciousness for gain

I've been posting about prosperity Vs scarcity consciousness and here and here. Today a blog post popped up on my GoogleReader which seemed to prove the point by Derek Pierce.

He talks about using a "take-away" technique during negotiations. If the person he is trying to negotiate with starts to waffle he "takes back" something he had previously given. Here's his explanation"

"The takeaway method works like gangbusters. But, you may ask why?
Well, it's proven that we all are motivated by scarcity. In other words, if
there is a product or service that is freely available, then the desire for that
product or service is not that great. However, if there is a limit or some
deadline to that product or service, then it will increase your desire to have
the product or service. That's why you see so many deadlines with

When I was involved with Amway, this is one of the common techniques also taught. If a prospect wasn't sure that they wanted to join your business, you simply told them you were not sure if you could work with them, that your business was very successful and your time was limited you tried to give them something to lose.

In some respects, its sad that you can take advantage of people's scarcity consciousness with such ease, but my experience in Amway convinced me that it is far easier to work with their existing mentality than to change it. Sometimes I spent hours with people trying to convince them that they could have more money, make their dreams come true, help their family and nothing would register. But the fear of loss motivated them time and time again.

One of the wage roll employees that I work with is forever complaining about his situation in life - he honestly believes that he is no better off (he makes $25/hr) than his father who was also a factory worker. I think this is quite an irrational perspective. Just consider the following:

  • health care has advanced tremendously. Survival rates from heart attacks and cancer have increased dramatically. This employee recently had a heart attack. Perhaps in 1965 he might not have survived
  • automobiles today last longer, run more efficiently, require less maintenance and are safer than ever
  • electronics are prolific and cheap - you can buy an HDTV and receive hundreds of channels (and the cost will be a lower portion of your paycheck than it was in 1965). Cell phones, DVD players, ipods and computers didn't even exist back then
  • we spend a lower percentage of our income today on essentials like food and clothing than we did then leaving more disposable income for eating out (consider the proliferation of restaurants

Now I don't think I can ever convince this fellow employee that he is living a prosperous life. So are people hopeless? No, I think that most people have hope, but few have belief and even fewer believe that they can have real prosperity.

My Chinese wife

My wife will be returning to the US next week after having spent a month in China helping her mother recover from a stroke. She is a gem of a woman and a perfect wife and I am counting the days until her return.

Some people ask me why I married a Chinese woman. There are tremendous barriers just between the sexes, much less between two very different cultures without a common language. My wife speaks good basic English, but we have much difficulty communicating complex ideas. And sometimes the cultural viewpoints are so divergent that we cannot make sense of each others view points at all.

There are 1.3 billion Chinese living in the same geographic area as the US and the way they have learned to deal with that abundance of people is sometimes unique and strange to us. In China, you focus on yourself and family first. For example, getting on a bus means pushing your way past the elderly or pregnant or children, otherwise you never will get on. I think the Chinese (I'm generalizing here and don't mean to offend the many kindhearted strangers that have helped me) find the degree to which we our are "brothers keeper" a strange concept (My wife doesn't understand American generosity towards strangers.). On the other hand, the Chinese are fierce defenders of their immediate family. Their loyalty to family is something that is quite rare in the US.

My wife grew up during the Cultural Revolution. The stories she tells of her childhood are of extreme poverty that I can imagine as much worse than those in the US experienced even during the Depression era. She is also deeply affected by many events where outspoken critics of Mao were executed. Her parents lived their entire lives in a home with no indoor plumbing and no heat (at the same latitude as Buffalo, NY), until she purchased them a home 2 years ago.

After graduating from college she moved 1000 miles from home to the Northwest Tibetan plateau where she married, only to have her husband abandon her after her daughter was born. She sacrificed her own food to feed her baby, studied to earn an accounting certificate and eventually was able to find a job in the southern most Chinese province. For several years she was separated from her daughter who was raised by her mother in the northeast.

Like most Chinese, she is an ardent saver. She lived meagerly and saved her money. When her bank went bankrupt due to legal shenanigans, she found a job in the middle eastern part of the country at a large bank where she moved up the corporate ladder. At that time China started allowing people to buy "houses" (really what we call a condo), so she took her savings and a small mortgage (which she paid off in 5 years) to buy a nice home. Her parents came to live with her there for several years to help with childcare.

So what are the qualities that I have found so compelling in the woman?
  • respect - she respects men and me in a way that I had not experienced from an American woman. Our culture so devalues men now that the weak, disrespected male is the norm on TV. It's refreshing to be with a woman that thinks highly of men.
  • strength - her upbringing and life experience have made her one strong woman. Many people assume Chinese women are timid - this could not be further from the truth. Certainly those that are my wife's age have experienced too much to be intimidated by anyone or anything
  • love - when she is with me I am pampered in a way that is unimaginable to most Americans. I don't think this is uncommon in Chinese-American marriages. The more she does this, the more I am motivated to find ways to love her back - its been an un-ending upward spiral

Now I could go on, but suffice it to say I am one lucky man. My wife never had to read The Proper Care and Feeding of Husbands because she lives it.

If you would like more information on this topic visit

productivity tool

I found a product called EverNote yesterday that I have quickly adopted. I used to try to log my notes in Microsoft Journal, but my company doesn't support this app and I found it difficult to find old entries. I also had dozens of post it notes still on my desk with phone numbers or ideas or to do list.

EverNote seems to be able to capture just about everything I do and with the category feature it seems extremely easy to find information. My desk is now clear of post-its. Best of all it was free!

Monday, December 18, 2006

Is a Scarcity Consciousness Holy?

A retired gentlemen that clips coupons made a strongly worded criticism of a post I made the other day:

"It seems that you and a good majority of the world measure success by monetary value. Those that die with the most toys win"

He thought it more important to "help others" by serving food rather than working to generate wealth. Is he right? Are only poor people who "help others" assured of a blessing in the afterlife?

There have been several ministers that I have heard speak in the past 20 years or so who would disagree with that idea. - such as Norman Vincent Peale (The Power of Positive Thinking) and Robert Schuler (Move Ahead with Possibility Thinking). Another excellent book I have read that disputes that idea is Paul Zane Pilzers God Wants You to be Rich.

There are many Christians who point to the Biblical admonition

"It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the Kingdom of God"

and think it is holier to live a life without money. Few pay attention to the parable of the talents.
The most insightful part of this parable is the most severe condemnation that Jesus gives to the servant that did nothing with his talents:

"And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth."

Jesus also says something about those that create more money with what they are given

"For everyone who has will be given more, and he will have an abundance."

This passage tells me two things
  1. God's given you something and you better do something with what he gave you
  2. If you do something he will bless you with abundance
when I was involved with Amway in Network Marketing business I showed the business plan to hundred's of people. Many had been blessed with much in the way of gifts that would have made them very successful in Network Marketing. But, for one reason or another they declined the opportunity or started with great enthusiasm only to quit after a few days or weeks. I believe they were gripped by a scarcity mentality that didn't allow them to believe they could get rich.

Now my critic may have thought I was attacking him for clipping coupons. I was not, as I shop for good deals and don't believe there is anything wrong with being a good steward of your money. The point of my post was that people driven by scarcity mentality tend to focus on what they don't' have which leads to jealousy. Now, don't get me wrong - I am no saint (I'm sure I've broken every one of the Ten Commandments). Just as being too focused on getting money at the expense of others can lead to sin, so can being focused on scarcity.

We are all given different abilities to produce something in this world. Someone with disabilities certainly may think that they have fewer opportunities to others but there are countless examples of those who have overcome every form of disability to do something astounding in the world.

While most people think that the world is a zero-sum game, this is an illusion. As Pilzer correctly writes - "any increase in wealth of an individual, always results in an even greater increase in wealth for society".

God created the world with abundance, more than any of us can comprehend. God created each of us with abundant talents and has given us abundant opportunities to use those talents. Most of us have declined the opportunity (I plead guilty!), and we are left with a coupon clipping mentality. Now if you are putting the savings from your coupon clipping to good use for investments or business opportunities or charities, I'm sure you are using your money wisely.

I don't believe that those pursuing a life of poverty through scarcity consciousness have the corner on holiness, nor do I believe that those who pursue money just for the purpose of having more things are in the right either.

What I do believe is that God created a world that the more successful I am, the more wealth there is for everybody. By working and creating and sharing we make a better place for all.

My perspective is that God was the Creator and he created us in his image - so we were made to create. That is our role.

Sunday, December 17, 2006

New Age Vs Christian or Good and Evil

Since it is Sunday, I thought that I would philosophize on spiritual issues for a bit. I was raised in a Catholic Church but rebelled against it's teachings in my twenties. When I was in my thirties I was involved in the "New Age" movement which has a strong Eastern slant. I was especially taken with the Tao te Ching and still think it is quite a beautiful piece of work.

One of the most important things I learned from the Tao te Ching was the concept of spiritual paradox. Spiritual paradox is essentially about embracing opposites. Here's an insightful quote from the Tao:

"When people see some things as beautiful, other things become ugly. When
people see some things as good, other things become bad"

In the Taoist philosophy, as I understand it, it is our own understanding that creates opposites, The opposites in and of themselves do not exist. So, if I understand it correctly, evil does not really exist apart from our own understanding.

Now this concept has been seized upon by the New Age group and is what drives their politics, lifestyles and financial concepts. I was an integral part of this for a while and have a lot of respect for the philosophy. I've read much of Wayne Dyer, Deepak Chopra and many other advocates of this line of thinking.

However, I began reading a series of books in the 1990's by M. Scott Peck, MD who started with the Road Less Travelled and wrote a long series of books. In so doing, he documented his conversion from a Zen Buddhist to a Christian. His logic seemed impeccable to me and I could not dispute his arguments, so, I decided to re-investigate Christianity. Over a period of time I came to realize that the difficulty that I had with Christianity was due to my lack of understanding of paradox. Christianity is filled with many wonderful paradoxes:

  • Jesus is 100% God and 100% human
  • we are all sinners, but are completely forgiven by accepting Jesus
  • whoever wants to be first shall be last
  • we cannot have evil unless God created free will
  • God is all powerful but by giving us free will He is powerless

In the Christian world evil is not a fabrication of the mind - it is real. And I think that this is where Christians and New Ager's part ways. For example, the common New Age political means of solving all world problems is dialogue. If we only talk to the people that are trying to kill us, they are sure we can reason with them.

In my mind I have come to see that the New Age view of evil cannot be true. I do not claim there is nothing to this view. There is no doubt that by thinking of evil we can create it. If we read the demonic into everything with which we disagree (as some Christians do), then we do not promote love (which is what Christianity is really all about).

The New Age movement has spread the simplistic view that if we could just change our thinking, we would realize that there is no such thing as evil and it will just go away. But the reality is that there are people out there who take great pleasure in killing, maiming and torturing other human beings. Certainly videos like this demonstrate it graphically - these are not people that can be reasoned with - this is pure evil. And the problem with evil is that, if it is not confronted, it grows in power. Denying that it exists will not make it go away.

So now we stand at a great cross-roads in our civilization. A large segment of the world has lost all perspective about the concept of good and evil. No one will judge another actions as evil - we are taught to be tolerant of every one and everything they do.

Perhaps God has a final paradox for us to ponder. One last quote from Road Less Travelled -

"It was evil that raised Christ to the cross, so we could see him from

Saturday, December 16, 2006

Prosperity or Scarcity?

One of my favorite topics to think about is the concept of prosperity consciousness. It sometimes seems that most of the world is gripped in a scarcity mentality despite overwhelming evidence to the contrary. Sometimes people blame wars on religions or mad dictators but, in fact, it probably is most likely due to the prevalence of a scarcity mentality.

I wrote earlier about my favorite economic book Unlimited Wealth by Paul Zane Pilzer. It's not difficult reading as you might expect from an economist, but rather entertaining. Pilzer traces the root of the scarcity mentality to the basic premise on which economics has been based - economics is the study of the limited supply of the worlds resources. If that premise is correct then it makes sense to fight over raw materials (gold, oil, etc.)

But what if resources are not scarce? What if in fact we have reached a point in our history that we can control, through technology, the supply of resources. What if, like the ancient alchemists, we can literally turn base metals into gold. In fact, today we can in essence do just that for most of our needs and the rate of technological advance is so rapid that I don't believe we will ever run out of anything we need.

Pilzer reminds us of how in 1973 leading scientist predicted that we would run out of oil by the 1990's, yet by 1990 there was such a surplus of oil that prices were at a historic low. What happened to cause that? Technologies like fuel injectors doubled fuel economy in cars and essentially doubled oil supply. New technologies allowed us to recover more oil from existing wells and dig deeper wells to find more oil. In fact, technology advanced so fast as a result of new R&D (money invested by the profits of the 1980's high prices), that it surpassed our ability to consume the oil and keep the price up.

In college, I worked on a co-op job for a large copper & coal mining company in R&D. One of my projects was transforming coal into oil products. It wasn't too hard to do, but it's not cost effective yet. There are more BTU's of coal, tar sands, and oil sands in the ground than oil. Once companies can get a decent return on investment. I also worked on a software program which simulated mining precious metals from the ocean bottom. I remember being overwhelmed by how large a source of gold, copper, platinum, etc. existed on the ocean bottom. I don't believe we'll ever be able to use all of this material. This has given me a perspective that resources in fact are not scare, but quite abundant.

One of the most intriguing examples of modern alchemy is the conversion of the most common of elements, silica (think of sand) into computer chips. This is about as literal example as can be made of converting a base material to gold. Food is another example. In the 1968 Paul Erlich published the Population Bomb - predicting widespread famine in 10 years (the world's population was only 3.6 billion in 1968). Today with a world population over 6 billion we have to pay farmers not to farm and most countries export food (even China!). The company I work for is constantly creating genetically modified crops that are increasing farm yields exponentially. We will never run out of food!!

So what does this have to do with a prosperity consciousness? Well, when we live our lives out of scarcity we miss opportunities. I see so many blogger's writing about being frugal or clipping coupons or budgeting. I believe that people that live in this consciousness are constantly jealous of others accomplishments and this creates lots of conflict between those who make money and those who want to take money away from those who make money. It drives our politics and promotes disharmony throughout the world. I think the current war against us by the radical Islamist's is driven by this attitude. It's hard to focus on generating new income streams when you are focused on penny-pinching or taking someone elses money.

Here's more thoughts from Pilzer:

  • technology is the major determinate of wealth because it determines the nature and supply of physical resources
  • the advance of technology is determined mainly by our ability to process information
  • the backlog of unimplemented technological advances (technology gap) is the true predictor of economic growth

"The first law of business is no longer "find a need and fill it" but "imagine
a need and create it

My sister-in-law is a perfect example of someone who has imagined a need and is using the technology gap to exploit it. She started a business which caters to attorney's. Lawyers are technologically very outdated. They keep all their records on paper and pay thousands of dollars per month to store and manage all those papers. My sister-in-laws idea was simply to employ technology to manage this information for the attorney's using technology. And she is succeeding beyond any one's dreams (except maybe her own!).

I've always hated the scarcity mentality. I hate going to thrift stores, clipping coupons, trying to watch every penny I spend. I'm not jealous of those who succeed, but truly admire them for what they have accomplished and found inspiration to keep going when I haven't gotten wealthy yet.

I hope someday Pilzer wins a Nobel Prize for his thesis.

Friday, December 15, 2006

How to get rich

One question that many people ponder over throughout their lives is the question of how to get rich or least financially independent. The vast majority of us have been schooled in the time-honored wisdom that the best route is to go to a good college and get a good job. Then we spend our lives exploring the stock market or real estate or network marketing or a business or buying lottery tickets or suing someone if all else fails, without really understanding the basic concepts that will realize our dreams.

I'm going to give you the secret (I sound like a salesman here, but I'm not selling anything) and it is so simple, welll....duh!

There are two immutable's in getting rich:

  1. Leverage
  2. compounding (also known as interest or the time value of money)

If you understand these two concepts and use them positively, I can guarantee that you will be rich. Now most people spend their lives either not using these or using them in reverse. For example:

  • they work at a job (trade their hours for fixed dollars) and spend all that they make
  • they incur bad debt (reverse compounding)
  • they use leverage with extremely high risk/reward ratios (for example, lottery tickets)

Many of us have read stories of poor ministers or spinsters that die and have millions of dollars in their estate - these people lived on meager incomes but used compounding( the time value of money) in their favor to accumulate wealth. In WV I lived across the street from a 92 year old spinster who had several million dollars in AT&T stock. She had purchased some small amounts from her employer when she was working a summer job in high school and 70 years later - voila!

I want to distinguish between bad debt and good debt. My Chinese wife believes that all debt is bad, but I think it is correct to say that investment debt that has a reasonable risk/reward ratio is acceptable (think of your home). Debt incurred to buy that HDTV is bad debt (but damn do I want one :( Guess I'll have to achieve some financial goals first!)

So what is leverage? Basically it is when you use a tool to allow you to be more financially productive. There are many tools that you can use:

  • starting a business and hiring employees to get more work done (good risk/reward)
  • franchising your business (good risk/reward)
  • using the Internet to leverage your efforts (good risk/reward)
  • buying real estate with small down payment (good risk/reward)
  • investing in commodity futures (poor risk/reward)
  • using margin accounts to buy stocks (poor risk/reward)
  • investing in a college education (may be a poor risk if you choose the wrong major!)

What about ways to use the time value of money or compounding to your advantage:

  • saving 10-15% of your income -especially in a IRA or 401k (excellent risk/reward)
  • investing in stocks (could be good or poor risk depending on your diversification)
  • owning a completely paid for piece of real estate (good risk/reward)

I'm not so sure that college is the best use of investment dollars. With a typical education costing $40k/yr, the $160k invested at 9% for 35 years will yield $3,266,000.

So what should you do? Here's my list:

  • put some money into an emergency fund
  • pay off all bad debt - use a snowball formula
  • accumulate 3 to 6 months of expenses into very liquid savings
  • invest 15% of your earnings into a Roth IRA or 401k (especially if its is matched)
  • buy a house from a motivated seller - don't make an emotional purchase
  • start a business (our tax laws provide magnificent deductions for businesses not employees)
  • systematize your business (see E-Myth Revisted) so it doesn't run you
  • invest in real estate

And stop buying lottery tickets! That's my perspective.

Thursday, December 14, 2006

Straight Line Projections

As someone trained in engineering and statistics, one of my pet peeves is people making "straight line" projections. People tend to look at the trend line of past events and continue it into the future. (For the technically minded this is called "extrapolation" and is inherently flawed Vs "interpolation" which is technically sound.) I believe that the reason for this is that 95% of our population doesn't understand or appreciate the concept of statistical variability (and surprisingly many scientists fall into this due to their desire to be "right").

Some of the flawed analysis that comes out of this leads to all kind of hysteria and poor decisions. Some easy ones I can think of

  • 1970's projections of global ice age, massive famines, population explosion
  • 1970's projections that we would run out of oil by the 1990's
  • Current projections of global warming continuing indefinitely and running out of oil
  • 1980's hysteria that the Japanese would take over our economy
  • 1970's projections about air pollutions
  • Ongoing projections that we are running out of water
  • 1900's projections about the streets becoming 10 feet deep in horse shit

All of these projections are, of course, nonsense. The only real certainty is that there will be change in the future. Most people do not account for human kinds adaptability and resourcefulness. Take a look at this plot. Now most people and many scientists would say that after 100 points it sure points to a definite trend (maybe global warming!). In fact, this is strictly a randomly generated curve and after 1000 points it is slopped downward.

<span onclick=trendmodel2.gif">

Take another example - water. The brilliant Marilyn Vos Savant last Sunday said that we are "running out of water". I'll be damned - I was taught as an engineer that we couldn't create it or destroy it (Law of Conservation of Matter), so where is it going Marilyn?

In truth, what she probably means is that the "cheap" water is being used up or polluted. The solution to this is simple - clean it up! One process I've personally worked with, reverse osmosis, can be used to create clean drinking water from the ocean.

Can we run out of energy? Never, it's impossible as long as the sun burns (and might be possible once it goes out). We just have to find a way to creatively extract energy from existing or new sources. Will it cost more? Maybe short term, but look at gas prices. We are back to inflation adjusted prices well below the 1980's high - and they will go lower.

One of the best books I ever read was called Unlimited Wealthby Paul Zane Pilzer. His basic premise is that nearly all economic models are based on the scarcity principal (everything is a zero sum game).

If you ever want some perspective on the media and political hysteria that surrounds us, I highly recommend you read this book

Must useful blog

I wanted to put in a plug for the blog that has been one of the most useful I have found to date - LifeHacker. It has helped me get into RSS feeds, optimized my computer, helped me discover wikis, the power of google, and provided tons of practical advice as well. They probably don't expect that 53 yo men are their target audience, but it has been for me.
Now if I can only get a commission for referring people...

Mission Goals Strategy for Real Estate

I wrote about some of my real estate goals yesterday. Since then I have completed reading The E-Myth Revisited and have been inspired to create something grander. Maybe this is just my tendency to go to extremes working again or maybe I am finally getting it.
Gerber makes the case for developing your business as a "franchise" whether or not you plan to actually franchise it. The point is that once you put the elements in place, the business can run without you and you can actually achieve some financial independence.
He has seven parts of the strategy

1-Primary Aim
2-Strategic objective
3-Organizational strategy
4-Management Strategy
5-People strategy
6-Market strategy
7-Systems strategy

I've used my new favorite tool pbwiki to create our business mission, strategies and our business plan. I've also developed out 2007 goals . Both are listed in the sidebar. Take a look at those links or click on link under blogroll "Real Estate Franchise" or Real Estate Goals 2007".

Wednesday, December 13, 2006

Networth IQ

I found a website NetworthIQ that allows you to record and compare your networth to others by age, occupation, education, income, etc. You can see where I stand in this chart. I am about average for my income and education level but well below average for age. Looks like I have a lot of work to do. You can see my profile by clicking on the NetworthIQ button on the sidebar or click here. When I post my Dec 2006 results it will swing upward again.

My networth showed a decrease this year due to a payout from my 401k to my ex-wife. I had held my level of debt relatively steady for several years but it has mushroomed since my divorce. Part of that was legal debts but the two big changes have been due to purchases in real estate. After the divorce I lived in an apartment for a while but felt I was throwing away my money and since I didn't have head of household status or mortgage interest deductions my taxes were very high.

So I bought a couple of real estate courses and after months of searching found a house that had been for sale for 6 months. The original owner had transferred and sold his house to a relocation company. It was the middle of winter and they had not received any offers on the house. So I made an outrageously low offer and they countered. We ended up about $33k below the price the relo company had paid for it. The appraiser still thought it was worth the relo price, so the broker was able to get me a mortgage without paying mortgage insurance. I borrowed a 10% downpayment from my 401k and so got into the house with nothing down and instant equity position.

The large changes in debt this year was due to the purchase of a rental property which I discussed here. You can see that I am cash poor but have some paper worth. Probably not as much as a person my age should have. My immediate problem is 4 teenagers who want to go to college. Only one may be scholarship material so, you can see why I am motivated to do something besides my job.
Based on financial calculators, such as this one at dinkytown, I need to save 10% of my income in order to survive retirement. I can barely save 5% now and this leaves nothing to save towards a rainy day fund nor college tuition's. I have never lived in an area that benefited from real estate booms in the 80's and 00's, so before this year my net worth gain from owning real estate has been about $20k. I have never lived an extravagant lifestyle, owning old cars, old houses and old furniture. I've often used funds from my 401k to invest in business, real estate or adoptions, so it never grew to the level it should have.
Assuming I can continue to work at my present job until I am 66 and had no college expenses, I would be OK. But in an age of uncertainty, I cannot count on my company for another 13 years. Plus, no doubt I would accrue a lot of debt as my 4 children went through college that could delay my retirement further.
So, once again, I feel forced to go all out to build financial security outside my job

Tuesday, December 12, 2006

Goal Setting

I've been thinking a lot about goals for my real estate business recently. I've read that most people never set goals of any kind and fewer than 5 % of people actually write down their goals. I guess I have been one of the few that do this but not sure why I haven't achieved all my goals.

At the corporation where I work we have been forced to set goals (and document the results at year end) for many years. We use the S.M.A.R.T methodology.

SMART stand for:
# Specific
# Measureable
# Attainable
# Realistic
# Tangible

When I was involved in the Amway business, the successful people constantly discussed goal setting and writing goals down. They would even supply specific formulas to attain each type of goal. For example to make X$ you had to:

* Sponsor XX people
* Show the business plan to XXX people
* Contact XXXX people
* Meet XXXXX people

I would write down these extensive plans about how to achieve my goals. I could easily make call, show the plan and sponsor my fair share of people. But I could not meet people and never generated enough momentum to keep new people coming in faster than others dropped out. For me, meeting XXXXX people was an unrealistic goal because I did not believe that I could achieve it.

So after attending a real estate seminar I am again writing down some goals

For 2007 our goal is to purchase 4 single family homes with at least $20K profit potential and sell at least 2 of the properties I own.

To break that down into details:

1. Find sources of funding of at least $500K
* develop relationship with a loan broker
* get a source of hard money financing
* develop some sources of private money funding
2. Create a source of motivated sellers
* work with Realtors to find old listings, desperate sellers
* direct mail 50 letters per week to people filed in lis pendens (pre-foreclosures)
* direct mail 100 postcards to absentee owners per week
* put up bandit signs
* set up website (
* business cards
* install phone line
3. Make 3 purchase offers per month
* call all contacts from advertising
* look at 10 properties per month (use Realtors if not enough from ads)

I'm still in the process of reading The E-Myth Revisited and I decided that I needed some other goals. Gerber has us ask "How must my "business-as-a-product" work in order for it to successfully attract not only customers but also employees who want to work there?"

1. Create a business mission
2. Create systems to automate all of the above so that the business does not run me

I was reading a blog by StevePavlina today and read this statement

"I remember the moment when my financial situation began to turn around for the better. I can trace everything back to a specific shift in my mindset that happened in late 1998. Up until that point, my focus was largely on ego-driven goals, and no matter how hard I worked, my financial situation kept getting worse. Eventually I was so fed up that I abandoned that mindset and replaced it with a new one. I said to myself, “Living just for myself is getting me nowhere. I’m going to concentrate on making a contribution instead. If I go broke, then at least I’ll go broke doing something worthwhile.” "

I can remember when I was in Amway and the people that made it to the highest levels of success were on a mission. They were not in it just for the money anymore but seemed to have a higher purpose that allowed them to overcome their fears and move outside their comfort zone. I remember I had that sense for the first 3 months I was in the Amway business, but somehow started having a fear of success, fear of failure and no longer could see the people I was talking with as successful. In fact, I inwardly was very cynical of most people I talked with despite their braggadicio attitude. So it became more and more difficult for me to talk to anyone about the busines.

So part of my overriding concern for my real estate business is that I just not focus on the specific monetary goals, but develop a mission statement. I think, just like in Amway, I need to be able to convince the sellers that I am not just there to take advantage of them but have a greater purpose to help them solve their problems.

Not Luck at All

In the book Tales of Power by Don Juan he says "The basic difference between an ordinary man and a warrior is that a warrior takes everything as a challenge while an ordinary man takes everything as a blessing or a curse".

Ramit tackles this issue in a post on the Shrug Effect. His point is similar to Don Juan in that the average person is quick to dismiss the success of high profile people to the breaks they had in their life rather than be responsible for their own breaks. Spiritual people tend to count their blessings, secular people just look at their bad luck, but neither group tends to see everything as a challenge.

Now I can't dismiss the possibility of luck. Certainly it was bad luck to be on one of the planes hijacked on 9/11. But I'll wager that vast the majority of our life is governed by decisions we make from minute to minute. I've talked previously about luck and was hoping for some better luck in my new real estate ventures.

I think the cumulative effect of decisions we make from an early age often determine part of our personality, what kind of relationships we develop in life, our career choice and financial success. When I was in high school I would occasionally go to a school dance. But I wouldn't dance. It was too far outside my comfort zone to ask a girl to dance. There were other young boys that were less attractive than me, had worse personalities but didn't have the fear to take a chance. They learned from trial and error what the girls liked - often developing humor as a way to attract a girl.

Looking back to my college years I can see clearly that the people that succeed financially were not necessarily the ones with the best grades. It was often the ones who had the largest network of contacts. Was this my bad luck not to make hundreds of friends or a decision not to get outside my comfort zone and make friends. It was easy to study my engineering books and get good grades. That certainly got me a good job offer, but in my company it takes lots of people skills to climb to the highest levels.

The same certainly was true for my experience in Network Marketing with Amway. The people skills that I had failed to develop all my life through my fear of people stopped me from making it. And I still wasn't willing to get outside my comfort zone - even for the millions of dollars of potential income. As I mentioned in my post on SMART goals, I never believed and wouldn't try.

I've been busy creating a business plan and goals based on The E-Myth Revisited and feel much more confident that I will succeed - not because I'll have better luck, but because I have made the decision to treat each challenge as an opportunity to get better.

From A Separate Reality
"You should know now that a man of knowledge lives by acting, not by thinking about acting, nor by thinking about what he will think when he has finished acting. A man of knowledge choses a path with heart and follows it"

New Real estate purchase offer

I've been sending out direct mail advertising to people in foreclosure and absentee owners - my goal is about 200 letters a week. So far I've had one guy call me who owes about $6K more than his house is worth. Also had two calls from "outraged" mail recepients (now why do people get so worked up about mail that they would bother to call?). With an expected hit rate of 1-2% I suspect it will be a while before I get some good prospects.

Meanwhile I have applied with Brookview Financial for some hard money. I'm hoping that they approve me. The other loan source I had applied to Community Preservation Corp has not responded to my requests and doesn't seem likely too after 3 weeks.

So I've been going to open houses and looking in the MLS for bargains. I found one property that may have some potential. Elderly owner moved out, hasn't been updated since it was built in 1966, completely paid for. I looked over it carefully today and am making an offer putting 10% down and asking the owner to carry the first mortage with a five year balloon.

Of course, I have no cash on hand ($243) if the owner decides to accept. Hopefully, I can tap into the $60K of equity in the rental property I own

Medical Catch-22

I started to take prednisone for a medical condition last week. The information sheet indicated that steroids lower your immunity. So I thought it would be a good idea to get a flu shot this year. I never have gotten one before, but it seemed like a good idea. Well, the doctor refused to give me one! Seems that since steroids lower your immunity the doctors and pharmacy companies don't want to get sued if you have a reaction. So they would rather you catch the flu naturally and suffer a long time than risk a lawsuit. This is most absurd.

My wife has been taking prednisone for 15 years and never had trouble getting a flu shot in China. Of course, China doesn't have the lawyers and lawsuits we have. Her parents are convinced our medical system is so bad here that they don't want to risk a visit.

We are worried about losing to the terrorists - I think we have already lost to the lawyers.

Monday, December 11, 2006

The Entrepreunerial Mindset

I've been re-reading "The E-Myth Revisited" this week. The premise of the book is that in order to have a successful business you need to have a balance of 3 business skills - The Entrepreneur, The Manager & The Technician. Most people that start a small business are skilled in only one of these three (often the technician) and consequently their business fails.

Most of what Gerber says rings pretty true to me. However, for me, I probably have more of an entrepreneurial mindset than the other two. In my work I am involved in R&D and have lots of vision about future product concepts. Most of my career I have been way ahead of where management wants to be. I have many patents but no real world applications. I don't lack the other two skills completely as I have strong technician skills (getting the job done). I'm weakest at management of the task. I tried a management position for a couple of years and just hated it.

The outside business interests that I have tried have been completely unrelated to my engineering job and as such I have not been caught up in the technician dominant problem that Gerber thinks is the most common problem. In both real estate and network marketing I have had lots of vision and many creative ideas. I thought of multitudes of ways to change the network marketing business but when it came to execution, I just didn't do the work as I discussed previously. When I had purchased over 10 buildings in the 1980's I just could not manage the many problems the properties had and just got too bogged down to get anything done.

Gerber talks a lot about creating a system. In my mind that was one of the strengths of the Amway business (at least in Dexter Yeagers groups). There are lots of people with their own systems trying to teach Network Marketing. The same is true in real estate. Every time I go to a REI club meeting a new guru has a new way to market or purchase or sell. And of course each one wants $800 to buy the complete details of their course.

So the idea that has been fomenting in my mind is can I use a wiki to create a real estate guide that doesn't cost the average person thousands of dollars.

Are wikis the next big thing?

One of the web tools that has me intrigued is the wiki. Now most of us are familiar with Wikipedia which was built using a wiki but few people I have spoken with have actually used one. I have been trying to figure out how they work and how to go about building one. I have been reading a blog IwillTeachYouToBeRich and stumbled across an interview by the author who started a wiki website

I took a few minutes to read the introduction and started a wiki. It was not too technically intimidating, but I'm not sure if the average person can easily use it (how would I get my family to plan the family vacation using a wiki when some have difficulty with email?).

On the other hand, I can see how it could be very useful to create collaborative books. For example, suppose you wanted to put all the information about investing in the stock market in one place. Right now people sell lots of books about investing. Could the collective genius of the Internet create a better book using wikis? In fact, a similar effort is underway to collectively write a book on Best Management Practices. Over a million people have been asked to collaborate on the book by the top two business schools.

I've been mulling this idea over since I read about that effort on Management and wondered if I could do something with some other topics. Do you really need to invite millions to be successful? Is anyone aware of other successful wiki projects? Can a wiki make money?

Do Over's

Have you ever wanted a chance to re-live your life and make different decisions? I certainly have. I always seem to be just behind the curve in determining profitable course of action. In college, during one of my co-op assignments I spent 2 work periods doing computer programming. I enjoyed it but was studying Chemical Engineering at the time. I did not recognize the tremendous opportunity about to unfold in computers and computer science. As a Chemical Engineer I have had to work in economically depressed areas and missed the two major real estate booms. I talked previously about how I got on-board the 1980's real estate boom just 2 years before the market collapsed and didn't recognize the negative population shift in my community.

I switched all my 401k from a fixed income to stocks in late 1999 only to see the account lose 40% of its value 2 years later. I bought a lot of my company stock at its peak and it dropped and stayed at 50% of its former value for the past 6 years. I've missed the real estate boom of the last 7 years as well. There was no boom in the Buffalo area and I was too late (and maybe too timid) to invest in some area of the country that was booming.

In a war there is something called a OODA Loop. OODA stands for Observation, Orientation, Decision & Action. The idea is that you have to cycle through that loop faster than your enemies (or in business, the competition) in order to win.

Now many people are procrastinators and have difficult time either deciding or acting. Throughout my life I have never had a problem with either of these. I make decisions quickly and act decisively.

The first two parts of the cycle have to do with observing what is happening. I am thinking of major shifts in demographics or technology. The second part, orientation, has to do I think with getting inside the mind of the competition - what are other people doing, thinking, what's hot, what's not.

I think that I have been deficient in both these areas. To some extent I have been aware of the broad shift in population demographics, technology, interest rates, etc. but clueless about trends in consumer activity.

I remember seeing The Graduate. I took the career advice in 1971 from movie made in 1967 and got into "plastics" when now I wish I had gotten involved in computers. Looking back at the many decisions I have made, I don't think that they were wrong, just too late.
So many people may want "do overs" of decisions made in their life. I don't. I feel I am just too late to the party. I think that this is a correct analysis. My personality is quite introverted and though I read a lot, I don't interact with people much.

I'm just starting to invest in real estate as the market is cooling. Is this another example of bad timing? I have no illusions that any of my properties will appreciate because of market trends. My strategy is to hold no more than one year, so I don't get caught like I did in WV. I'm trying to make my money when I buy.

Blogging seems like one perfect venue for a person like me. But I'm not sure if I am too late for the OODA loop, although I don't think blogging has really gone mainstream yet. I've been reading blogs for at least 2 years but until just recently didn't see the income potential. The key part of this challenge is being oriented to what the marketplace wants. There remains the crux of the matter.

Will this be a decision I want to "do over", bad timing or can I take advantage of a new trend early enough? Can I find a need and fill it?

Sunday, December 10, 2006

Chinese Real Estate

I've mentioned that my wife is from mainland China. She is typical of the growing middle class there. She managed to buy a "house" (what we would call a condo) in the beautiful, rapidly growing "small" (my wife calls it small - only 6 million people live there!) city of Ningbo. She is a typical frugal Chinese - made a large downpayment, took out a small mortgage and paid it off in a few years. Chinese tend to be thrifty savers and always have lots of cash - often US$. Its not unusual for a Chinese to be carrying 50, 000 yuan or $US5K. Her home has appreciated rapidly and worth over 1M yuan now. She was also able to save enough money to buy a condo for her parents in their home town and paid cash for it - not something most Americans ever can think of doing.

We took a vacation to a city called Sanya in the southern most province of Hainan Island a couple of years ago. It was absolutely beautiful and we thought about buying some property there. We found an oceanfront condo on the 10th floor overlooking the ocean for the meager sum of ~$US100K. I have family that owns oceanfront in the US and am aware of the large cost of this type of property. I really wish we had been able to purchase that property in China at that time but the agent wanted the cash in 7 days and we didn't really know how to get it. I can imagine in 10 years the property may be worth 10x what it sold for.

I found an interesting report at Instapundit on the Chinese real estate market. Its rather lengthy but informative. The main issue in China is the lack of laws governing anything (you should see how people drive - anyway they want and no real police enforcement!). You also can not own land in China, so when you buy a property you get a 70 year lease on the land. Since this is a relatively new law, no one has reached the end of their lease yet and so there is uncertainty about what will happen.

From our standpoint the main problem with real estate in China is moving funds out of the country if you sell your property. China does not allow citizens to take much money when they leave the country (I think the limit is $US3000) and you can't take Chinese currency. So my wife just rents her home out for now and gives the money to her parents. Hopefully, China will open up more in the coming years and we can transfer money out of the country.

Unfortunately, a foreign citizen cannot go to China and just buy property. I have come across a community of US citizens that are married to Chinese nationals and many of them are investing in China through their spouses. I'm not sure if we will go that route or not at this time. We are focused on building our US real estate business at the moment.

virtual business from Amazon

Point, Click, Sell This is a pretty cutting edge idea. You could start your own Network Marketing Company and have Amazon do all the inventory, shipping, billing, etc, and use their computers to boot. It boggles my mind to think of the possibilities.

Via Instapundit

Extreme adoptions

Some people spend their money on nice furniture or fancy TV's. Some dine out every night or go to concerts, travel and vacations. I've spent a considerable sum of money on children. I'm not talking about the typical parental expenditures on clothing, toys, braces, school, etc. I'm talking about the cost of adopting (and losing) children.

Like most duel earning families, my ex-wife and I waited until I was 40 before thinking about starting a family. And like most people, as you get older it becomes more difficult to get pregnant. After a year of trying we discovered we both had infertility issues. We both had surgeries and a year later still had no children. So we decided to adopt.

Now in 1989 most people said it was very difficult to adopt an infant. Some said they waited 5 years to adopt a child. But due to our experiences in real estate and Amway, we thought that we could cast a broad net and find a child much quicker. So we were open to adopting multi-racial children and submitted applications to several agencies stating such. We also decided to advertise. We put "want ads" in several newspapers offering to be parents and hoping to find a young unwed mother. We also put out the word to every one we knew.

Sure enough within a few months we had found a teenager that had had a previous pregnancy that ended in abortion and was pregnant again. She felt so guilty about aborting the first child that she wanted to find a home for this child. So we made arrangements to take care of her finances and medical costs. While we were waiting we got a call from an agency which had a child that could be adopted immediately. He was multi-racial in an agency that catered at that time to mostly white clientele. So we immediately agreed. The child was 2 months old and living in foster care.

This adoption agency was a prestigious institution in the deep South (and extremely expensive ~$25K) and we were living in WV at the time. One month after the agency called, we were leaving to take the 2 day drive to pick our new son up. Ten minutes out of town our car broke down. We had it towed to the garage and took our Mazda pickup truck to drive the rest of the way. It was interesting to see the look on the Adoption Agency Directors face when she helped us take our son out to the truck. Two "hillbillies" travelling over 1000 miles in a pickup with a new child stuck on top of the stick shift! I have to admit it was a challenge trying to shift with his carseat on top of the stick.

One month after we picked him up our second son was born. My wife got to be at the hospital with the bio-mother. He was born about 500 miles away from us, so I did not get to go. (My ex had quit her job by this time to be a full time mother.) This was an interesting adoption since for about three years we had contact with the mother and she saw her son several times. Eventually, she moved on with her life and I have no idea where she lives now.

So we lived with 2 infants. One white, one brown. The most often asked question we got was Are they twins? When we answered that they were 3 months different in age people gave us the most puzzled looks. No one seemed able to figure out that we had two adopted children. We just told them it was an extremely long delivery :)

One year later we got a call from another person saying there was another teenage girl that was about to give birth and asked if we wanted the child. We immediately said yes and our first daughter became ours a month later. So we went from no children to 3 within the period of about a year. All 3 were in diapers at the same time for a small period. What a stinking mess that was to deal with! I don't think I slept much at night during this period but looking back I have nothing but great memories. Maybe you think that adopting 3 different infants within a year was extreme adoption but I am just beginning this tale.

Five years later my ex-wife was getting the bug again to have more children. She was always looking at books of sibling groups and had this idea that she could have 12 children! I was pretty content with the three we had. So I pushed her to try to get pregnant again. Technology had changed a lot already by then and In Vitro fertilization was just becoming practical. The downside was that my ex had to take drugs to force her ovaries to produce multiple eggs. She found this to be too painful and so we abandoned the idea of biological children.

About six months later we saw a picture of 4 Russian siblings that were up for adoption. They were being offered through the same agency through which we had adopted our first child. (They had been forced to broaden their mission from the all-white infant crowd due to market economics & scarcity of white infants.) The cost was going to be very high, but the agency was offering to split the children up. This rang up alarm bells in my ex's head. She was now on a mission to rescue these four children so that they would not be split up (later she would push for them to be split up - but I'll get to that).

We slipped into our "can-do" mode and leaped all the hurdles involved with international adoption. These were quite extensive including FBI checks, not to mention the constant fees. I started learning Russian (the kids didn't know any English), but my ex didn't seem to think that was important. These 4 children were not infants - they ranged in age from 5-10 years old I believe and were living in an orphanage.

The trip to Russia was quite incredible. We had to take $10K in cash (for bribes I assumed) as well as office supplies (for what I couldn't imagine). We were to stay with a family in Moscow for a few days while our contact arranged for our trip to the orphanage. Moscow was a surprise to us - it looked like the city I grew up in still. In other words, it looked like something from the 1950's - not a modern city at all.

After 3 days we got on a train to take a 500 mile trip to the north. It was a sleeper car and powered by coal. Thick, black soot constantly streamed by our window. The villages outside Moscow looked very poor - what I would describe as a third world country.

We made our way to the orphanage and picked up the kids. A day later we went to a Russian court and had the adoptions finalized. Now I understood why we needed office supplies. There were no computers, just old fashioned manual typewriters in all the offices. And the Court clerk sowed the documents together with needle and thread since she didn't have a stapler!

A day later we had the kids back in an apartment in the northern city. The Orphanage director came to visit us and told us the oldest girl had probably been molested and they often had to restrain her. They also told us about the children's alcoholic mother. My ex-wife started to become extremely anguished over these revelations. Since she couldn't communicate with the kids at all, she felt very isolated. We lost our water for a day (city had only one water pump and no spares) and the apartment got pretty stinky. We finally got back on the train for the 2 day trip back to Moscow. We would have to wait in Moscow for a week to get the Visa's for the children.

While in the apartment with the guest family (they had 5 children of their own, so it was pretty crowded), my ex decided to enforce some discipline. She got mad at the oldest boy and wouldn't let him eat his lunch until he apologized for some infraction. Three hours later the women of the house was threatening to call the police and report us for child abuse. My ex went into the bedroom and started crying. She didn't stop until we left Russia 4 days later.

I tried to stay in the bedroom with my ex to comfort her and the 4 children went wild in the apartment. I finally called our Agency contact and demanded that they move us. So they put the 6 of us up in a Youth Hostel - a single bedroom with 3 beds and no toilet. There were no restaurants nearby so I had to walk through these strange neighborhoods over a mile to find a McDonald's every day, fears of the Russian mafia in my head. My ex stayed in bed the whole time crying about how she had ruined her family.

It was finally the day to leave. The man at whose apartment we had originally stayed with was to drive us to the airport. When we got there we tried to get the kids out of the car and they refused to get out. So here we were dragging and pulling screaming children out of a car while a policeman watched us. I was scared to death. The kids were scared and my ex was in the middle of her nervous breakdown. While standing in line at the airport an American who spoke Russian assured the kids that they would be OK in America. Turns out that they had been told some horror stories about children going to America to be harvested for body parts.

The flight back was uneventful and I was hopeful that the worst had passed and things would be OK. But it was not to be. Once home my ex became convinced that there were serious defects in the Russian children. I'm not sure if she was plotting how to get rid of the kids from the beginning or not. She thought the kids might be suffering from Fetal Alcohol Syndrome but later decided they had Reactive Attachment Disorder. How she came to that conclusion, I don't know. She started isolating the Russian children from our first 3. Sometimes she split the four all in separate rooms and wouldn't let them communicate with each other. She became convinced that when they talked they were plotting against her. She screamed at them to speak only English (they knew none) and once even washed their mouths out with soap for speaking Russian.

I asked her to take the kids to a child psychologist. She went alone. When she came back she announced that the 4 Russian children were going or she was taking our first 3 children and leaving. No discussion. Our social worker recommended that someone take care of the Russian children for a weekend so we could get a break. I was heartbroken as I had bonded with the 4 children.

The family that offered to take the kids were two houses down from a new house we were about to purchase. We didn't know them well but they had adopted 17 children so we thought we could trust them. After the weekend we were scheduled to pick them up on Monday. I had the "walk through" of the new house the day before closing, so I thought I would call the neighbors once we had done the walk through. We saw the kids playing outside from our new house. So I called to say we would pick the children up. One of the teenagers answered the phone and said the Russian children had gone out for ice cream with her father. We thought that strange. Five minutes later I saw the neighbors car drive by our new house when suddenly one of my Russian children's faces popped up in the rear window. My God - they were kidnapping our children! I tried to chase them down but to no avail.

So I called 911 and the police came by. We went over to the neighbors house with the police and talked to the teenage daughter for about two minutes when their phone rang - it was for the police! (Looks like they had planned this well in advance.) Their attorney was on the phone telling the police that a Judge had given the neighbors temporary custody of the children. I have never been in such a state of shock in my life. I couldn't believe the series of events that had occurred between my ex-wife's ultimatum and now a sanctioned kidnapping of my children!

Despite my wife's misgivings I loved the Russian children. Since I spoke some Russian I new that their behaviour was mostly a function of fear of their new surrounding and maybe my ex's actions towards them. I had tried to assure them everyday that we loved them and this was their "forever" home.

But now we were being accused of child abuse again! We contacted an attorney who thought the charges and Court order were bogus. Two days later I went to Court thinking that this would be overturned. The local Child Protective Services was on our side. It turns out this other family had "kidnapped" some Russian children in Kentucky and taken them to WV. WV CPS forced them to return the Kentucky children. So this was not new behaviour. But they had a lawyer that was on the inside with the local Judge and the Judge to our shock awarded them permanent custody of our 4 Russian children. It was hard to believe this could happen in America.

Now my ex-wife refused to move to our new house since she didn't want to be anywhere near the Russian children. I felt concerned for the safety of the 4 children and was concerned that they might be abused by this other family (We learned through CPS that they had a history of taking blond, blue-eyed children from other people). CPS agreed with me, so I appealed the decision to the WV Supreme Court. My plan was to have our original adoption agency place the children in another home. After 3 months we won the case. However, the other family refused to turn over the Russian children. They contacted the local TV and newspapers and fed the media a sob story of how they had saved these children from abusive parents and were sooo happy. Every night I would turn on the 6 o'clock news and our names, as abusive parents, was the top story. We were breaking up their beautiful family -what terrible people we were. I did not speak to the media due to legal advise but I know I could not have won that battle.

Finally, the State Troopers were called and removed the children. They were placed from what I understand with a nice family in Texas that had no small children. We continued to be shown on the local news and my ex-wife left the state with our first 3 children, never to return to WV.

I eventually transferred to another state and my ex came to live with me for a while, but the strain on our marriage was too great. I don't think my ex recovered from the whole ordeal - she was chronically depressed for many years. We eventually divorced.

To this day I am still paying for this adoption nightmare. It cost us well over $100k for adoption fees to get the kids and legal fees to overturn the local Judges decision. Later it led to divorce which separated me from half my assets and my kids.

So what have I learned from all this? Like with my first real estate investments, its far too easy to bite off more than you can chew. Whether it was trying to manage 24 rental units in a bad market or 7 children with a dysfunctional wife, it was more than I could handle. Some people are very cautious in life, but that has not been my personality. It has cost me plenty both financially and emotionally.