Thursday, June 28, 2007
Quite an ingenious use of our citizenship and immigration laws.
The mantra of Realtors is "location, location, location" and I have had bad experiences buying and holding in bad locations before (i.e West Virginia where population of the city dropped 20% over the 19 years I lived there. My learning from that was to never buy and hold in an area of declining population.
I thought that if I "flipped" property quickly that I might get around that problem here. I've got one property as a "fixer-upper" at a really cheap price, while the second, in a nice neighborhood, has been renovated and is in "like-new" condition. So, in essence, I am conducting an experiment as to what kind of house will sell in a "bad" location.
At this point the houses in Lancaster and the town I live in seem to be have increased in value enough for me to profit by selling them (the one in Lancaster is lease-optioned at a $25k profit). The one in Cheektowaga could make a profit if I can sell it quickly, but I don't see that happening. The fixer-upper may stay on the market for months more (already 4 months with no one even looking these days).
I've had many calls from prospective sellers in the declining areas of greater Buffalo, but have not answered their calls. I know that many people make lots of money buying real estate in Buffalo. Out of town buyers see Buffalo as a great market, but I still am not convinced.
Update: another doom and gloom article in the Buffalo News about the number of vacant houses here - 39,000.
Wednesday, June 27, 2007
This is the second house I have lost by less than $7k. Both houses only had a first mortgage which makes negotiation harder. I'm sure the Amherst house will fetch more than $142k at the auction. In fact, if my kids lived in that school district I would move into the house myself, since I think it is a good buy for a homeowner. But, for an investor, the carrying costs make it unprofitable to hold for the 6 months it would take to repair and sell. My analysis spreadsheet showed costs for closing, holding and selling of $20k. Add $150k for acquisition and repairs and I am up to $170k. If my $185k selling price is wrong, my profit disappears. So someone will get a good deal tomorrow.
One mistake I am making with these short sales is not being with the appraiser when he does the BPO. This appraiser missed all kinds of problems (roof replacement, ceiling damage, exterior paint, etc.) and only noted a bad kitchen floor. I think had I been there, I could have gotten a lower BPO. But that is the dilemma of having a full time job and trying to do real estate on the side - I just can't get away for every little thing. Maybe next time I will reconsider and make it a higher priority.
My wife and I have had many discussions about the relative freedoms that we experience in our respective countries. She has more experience in the US than I have in China, but I have a pretty good flavor of what it's like in China.
Now, there are some basic differences in our laws due to our "Bill of Rights" which the Chinese do not have, but many of our so called "rights" have been eroded and I believe we have moved much closer to a totalitarian country while China has moved to increase individual freedoms.
Here's a quote that summarizes my observations:
"But today's China is, in some respects, less socialistic than much of Western Europe, with a moth-eaten social safety net and a wild free-market economy. Students in almost any urban Chinese school can look out their classroom windows and see just about everything but socialism being constructed: high-rise office buildings, shopping malls, movie theaters, luxury apartment buildings, fast-food restaurants, hotels, factories — the whole capitalist panorama."
There are many aspects of Chinese life that seem more libertarian than our society:
- There is no guaranteed social security - no work - no retirement benefits
- Health care is cheap and fast. No weeks or months waiting to see a doctor. I dread the move to European health care here
- Although you cannot own land yet, you have much less interference from the government. My wife is still angry with a local Zoning Board denying our petition to build a house on our property and the eminent domain ruling from the Supreme Court take away a lot of our property rights
- Starting a business in China seems much less troublesome than putting up with Environmental impact statements and other regulations here
- I never have seen a traffic law enforced in China and they don't ban talking on your cell phone
- The Chinese are not banning me from eating trans-fats nor regulating where I can smoke (I don't smoke but dislike the regulations)
- Our tax code so mystified my accountant-trained wife as to be unimaginable. This code is truly one of the most suppressive regulations in the world
Now China does regulate speech more than us (my wife had not ever heard of Tiananmen Square). But our society is moving to take away our free speech as well. McCain-Feingold was an attempt to stop criticism of Congress, the debate over the Fairness Doctrine is an attempt to silence talk radio and the worst is the creeping culture of political correctness. I have a subordinate that was fired for posting an article from the newspaper that simple reported election results on gay marriage amendments. If it's not PC, you better not discuss it at work.
When I first met my wife I was quite critical of the Chinese government, but now I am convinced that we are in a glass house of our own as far as liberty goes.
Friday, June 22, 2007
Anyone who has taken statistics has been exposed to the story of the correlation of the stork population and the human population of Copenhagen after WWII. The myth of storks bringing baby's grew out of this misinterpretation of data. In fact, the increase in human population provided new places for storks to nest which increased their population.
Likewise, in the article noted above on religious belief and family size, Eberstadt argues that the decline in family size is the cause of decreased religious belief. I find this a very compelling argument. As a single person I had no interest in religion, but as I adopted children I re-examined my beliefs in this area and can correlate my religious belief as a consequence of having children.
Although the article is lengthy, I recommend a thorough read. Certainly we see the strongest religious beliefs in populations with large families. Why the US still has large religious beliefs compared to Europe also seems to make a lot of sense when viewed as the author suggests.
The implications for this are also fascinating. Will those without religious belief breed themselves out of existence? The replacement value to maintain population is 2.1 births per family. Europeans are well below 1.4 and Russia is even lower. The US is maintaining the 2.1 ratio but not in the Northeast or big cities, so the rural Midwest and South are probably much higher. While churches in cities or Europe may sit empty, mega-churches seem to be growing by leaps and bounds.
As a scientist, I accept Darwin's theory of evolution, but not the extrapolation that many people make from it. Just because we can prove that animals or plants evolve does not explain first cause. I cannot accept that consciousness sprung spontaneously from DNA and no one has explained the Big Bang. However, if the innate drive of our species is to survive, those that have children are passing on DNA that encourages religious belief. So, in the end religion will not only survive but become an essential part of that survival.
Thursday, June 21, 2007
Various surveys have indicated anywhere from 25-35% of male Muslims under the age of 30 are proponents of suicide bombing (the low number is in the US). Our President is deluded if he really thinks that today's Islam is a "religion of peace". It is nothing of the sort. The left is deluded because they think that Muslims can be reasoned with. Militant fanatics cannot be reasoned with any more than Hitler could be.
If the Muslim world was an isolated desert we could probably ignore it. However, it sits on most of the worlds oil. Environmentalists have hamstrung us by limiting drilling in the US, opposing nuclear and coal plants as well as oil refineries.
So is a economic disaster or global war inevitable? Nothing is inevitable, but it worries me a lot more than any 1 degree rise in global temperatures.
Wednesday, June 20, 2007
I work with PhD's all day long and at first I gave their opinions high weight because of their expertise in one field. But after a few years I came to learn that though they may be brilliant Chemists or Physicists, that doesn't mean they know anything in unrelated fields. In fact, I am convinced that the more specialized a person is in one field of knowledge, often the less they seem to know in other fields. Bill Gates may have been brilliant in building a business, but only recently learned that he better get his company involved in politics and lobby's if they are going to be successful. His ideas to save the world sound great to a Marxist, but someone has to make the money first - you just can't print the stuff.
People can become millionaires but have trouble their whole lives controlling their weight (Oprah and Rush Limbaugh). Many of us can keep our weight under control but screw up our finances. Very successful athletes routinely blow millions that they earn and many die poor. How many CEO's do you hear about that can't stay married?
Most of the population gives too much credence to people with no credibility in the field they are speaking of just because they are successful in other fields. Movie stars routinely get accorded great respect for their views on global warming, yet most are barely intelligent in matters of science (ditto to Al Gore).
So, the lesson to learn is that you should not feel like a failure if you are not successful in every aspect of your life. And second, don't give too much credence to the opinions of people if they have no direct experience in the field they are proselytising on.
Update: After I wrote this post I read a post by Steve Pavlina How Your Mind Really Works. I was struck by what he said about how to become dumber. This fits my view exactly that people that specialize seem to be stupid in so many other areas. The routine of being focused on one area seems to decrease intelligence. A very insightful post by Steve.
Monday, June 18, 2007
My spouse and I are in very different places financially. She grew up in China during the Cultural Revolution and knows poverty that I cannot even begin to imagine. Her focus on security is primary in every thing she does and debt drives her crazy. She started reading this book before I left and couldn't put it down. I'm sure she'll have a list of things for me to do once I get back to improve our finances, which is great.
I don't think Smart Couples Finish Rich is the best finance book I've read but it does have some good points that everyone ought to be aware of:
- starting to save when you are very young
- maxing out your 401k
- paying yourself first (the 401k contribution is the key here)
- making a written financial plan
- doing something towards your goals now
- having adequate life and disability insurance
- having your financial records organized
- having a dream that both you and your spouse work toward
When I was involved in Amway (now Quixtar), the leaders talked incessantly about having a dream. It's something I have always believed in. Many people won't voice their dreams for fear that they will be laughed at. However, I don't believe that you can be motivated long term just to reduce debt or have $1M at retirement. You've got to have something exciting that draws you as well.
There are some parts of the book that are weak, but it's worth going to the library and getting a copy.
Sunday, June 17, 2007
Dough Roller makes a couple of good points that I agree with
- people that flip based on assumed rising prices are speculators, whether they do it by Day Trading Stocks or ala Casey Serin
- Speculators are looking for quick easy profits
He makes another point that I don't agree with in regards to leverage. If you use leverage you are speculating. I think most businesses use leverage to a large degree, so I don't think that this is true. Of course, I use leverage to a great degree as do most real estate investors. This is the norm in real estate - not many pay cash for an apartment or house as they would to buy stocks.
One of the commenter's (engineer) makes an excellent point about investing but fails to recognize how it applies to real estate. His comment is that investing involves buying equipment to improve the ability to produce. When an investor buys a house and rehabs it, he is doing exactly that. For example, putting on a new roof, new windows, a new furnace, painting and decorating all improve the income potential from that piece of property. So Engineer makes the point exactly that an person that buys a house and rehabs it is a true investor and not a speculator.
So the real question comes down to the time frame the property is held. If I hold the house for 20 years am I a real investor Vs selling the house in 6 months or a year? Rehabbing is by no means "easy profits" (we put in a helluva lot of work to rehab our Cheektowaga house). What about the house that I lease-optioned for a year? Was that an investment or speculation?
My definition of an investor is:
- Purchasing an undervalued asset and improving it so that it can generate more income
By my definition, people that buy stocks or mutual funds are not investors at all!!
I think that Dough Roller nailed what a speculator is.
Friday, June 15, 2007
I studied anthropology in college, and one of the things I learned was that certain human social structures always reappear. They can't be eliminated from society. One of those structures is religion. Today it is said we live in a secular society in which many people—-the best people, the most enlightened people—-do not believe in any religion. But I think that you cannot eliminate religion from the psyche of mankind. If you suppress it in one form, it merely re-emerges in another form. You can not believe in God, but you still have to believe in something that gives meaning to your life, and shapes your sense of the world. Such a belief is religious.
Today, one of the most powerful religions in the Western World is environmentalism. Environmentalism seems to be the religion of choice for urban atheists. Why do I say it's a religion? Well, just look at the beliefs. If you look carefully, you see that environmentalism is in fact a perfect 21st century remapping of traditional Judeo-Christian beliefs and myths.
There's an initial Eden, a paradise, a state of grace and unity with nature, there's a fall from grace into a state of pollution as a result of eating from the tree of knowledge, and as a result of our actions there is a \judgment day coming for us all. We are all energy sinners, doomed to die, unless we seek salvation, which is now called sustainability. Sustainability is salvation in the church of the environment. Just as organic food is its communion, that pesticide-free wafer that the right people with the right
beliefs, imbibe. Eden, the fall of man, the loss of grace, the coming doomsday—-these are deeply held mythic structures. They are profoundly conservative beliefs. They may even be hard-wired in the brain, for all I know.
I certainly don't want to talk anybody out of them, as I don't want to talk anybody out of a belief that Jesus Christ is the son of God who rose from the dead. But the reason I don't want to talk anybody out of these beliefs is that I know that I can't talk anybody out of them. These are not facts that can be argued. These are issues of faith. And so it is, sadly, with environmentalism....
One of the most interesting things to think about in regards to the "elite" is the issue of evolution and religion. The "elite" are breeding themselves out of existence while the religious are populating the world. If evolutionary forces are at work this would argue that religious belief is a core to survival of the species and discount the beliefs of those who deem themselves of superior intelligence.
And debate is exactly the right word to describe how our society is handling problems. The use of data and science is no longer part of the equation. Global warming is the primary example here, where the greatest propaganda war of our time has subdued the (lack of ) scientific facts to back up the hysteria. Politicians (i.e. lawyers) speak in terms of "consensus" - not facts. Communication is based entirely on emotional appeals rather then looking at data.
Businesses don't make decisions about how to bring to market products that will save lives or make our quality of life better. Instead, Boardrooms decisions are controlled by fear of lawsuits. As a business owner myself, I spend hundreds of dollars buying liability insurance, establishing Trusts and LLC's to hide my assets from scavenger lawyers. The damage the lawyers did to Dow-Corning in regards to false data regarding silicone breast implants is one glaring example of the damage lawyers do to society.
And lawyers create dumb laws because they focus on winning debates rather than using science and data to create good laws based on facts. The current "energy" bill that just came out of committee is full of idiotic regulations. Some, like the ethanol incentives, will actually harm the environment, hurt the poor (higher food prices) and make us less prosperous. The banning of DDT has led to the death of millions from malaria - but, hey, what do they care about Africans, when they can get cash from the environmentalists?
Even our war against the Islamofascists is being squelched by lawyers who advise the CIA and military about how to fight the war. So we fight a war of timidity to avoid scandal rather than fight to win.
People (lawyers) that think that they are right because they know how to debate are filled with righteous smugness that disgusts me. But our society is reaping what it sows. Science is not taught well or emphasized as a way to success in our country. But become a lawyer and you can be like John Edwards and live in the rich America. Who would want to struggle as a scientist when you can do that?
Thursday, June 14, 2007
There's a huge industry of lawyers and other swindlers that have sprung up to help people "stop foreclosure". For a fee these people will do something that delays the inevitable. My client paid a law firm $1800 to stop his foreclosure and they did. The first foreclosure was stopped. Of course, when my client did not pay up the back interest and fees, the bank filed another lis pendens (lawsuit) to foreclose again. Initially my client probably had about $20k in equity in his house. Now a year later he owes far more than the house is worth. On the one hand he got something - he is still living in his house and he has been doing it "rent free" for a 15 months. Of course, it was not really free. He would have been better of financially selling the house, taking the cash and renting a cheaper place.
When I first spoke with him he was intent on getting some of "his equity". Despite being well educated he didn't seem to understand that his equity was disappearing every month that he hadn't paid the banks. When I finally told him what he owed he finally got serious about selling and avoiding the foreclosure. Now we have to hope that the 2 banks will take discounts on what is owed them, otherwise the house will go to auction and he will have 7 years of bad credit to look foreword to.
So do these "stop foreclosure" experts work? I guess to some extent they do if your objective is to stay in your house. But if you have no intention of re-instating your mortgage, they just buy you a little time. Maybe that is what you need, but it is not a recipe for financial success. Of course, if the people in foreclosure knew anything about financial success, they would not be in foreclosure to begin with.
Tuesday, June 12, 2007
One question she failed to answer is whether there is a difference between what African-Americans look for Vs Caucasian buyers. After holding several open houses, it is apparent that the target market for this house will be an upscale African-American couple with children. I have been in a lot of homes of blacks and feel that their decorating tastes are quite different than for whites. Does this mean that when they buy, certain colors will appeal to them different than a white buyer? I don't recall ever seeing anything written about this. All of the Home Stagers I have seen pictures are of white women.
My other problem is how to market to this target audience? News paper ads are totally useless. I'm not sure if this market segment uses the Internet MLS and signs are very limited geographically. Ultimately, a good Realtor may be the only answer.
Sunday, June 10, 2007
It seems now that most younger men don't want to even try - they just hire someone. Are they afraid of failing or imperfection? If so that is a poor reflection on them. On the other hand, I suppose that means that we are becoming a very wealthy nation.
Friday, June 8, 2007
I've listed my second property through a local flat-fee listing service which cost me $695. Their claim is that they are an upgrade to the cheaprer flat fee listers since an actual agent came to the house and took pictures. There's a lot of nice pictures on line and good write-up as well. They will advertise in the local paper as well, which @ $100 per week is a big expense. So far though I have not received a single call from a Realtor for that house.
My margins are pretty slim on the two houses and a 6% commission is going to take a big chunk of any profits I make. I've read some comments about Flat Fee Vs full service here and here. I'm really struggling with this. It would not surprise me if Realtors avoided these homes as people tend to want to punish what they see as competition. I'm sure Realtors deserve a good commission when they are working with clueless people, but I have bought and sold over 20 houses now and know more than many average Realtors. (I don't want to come off as cocky, but I am being forced to run a Short Sale offer through an experienced Realtor now and am finding that they are clueless in special circumstances like this.) So why should I pay $13,000 in commissions? A study in Madison seems to indicate FSBO sellers keep more profit but have longer holding times.
I think that by the end of the month I will switch to full service Realtors if I don't start seeing some action, but this sickens me to say the least.
Monday, June 4, 2007
As you can see from the photos of our Cheektowaga home - its empty. Nice new paint, windows and flooring but nary a stitch of furniture. According to these staging experts an empty home is just as bad as a dirty, cluttered home. One of the first questions people ask when they have come to our open houses is "You've already moved out?", actually more of a statement hoping that we are desperate to sell. The Home Stagers state that a house sells in one-half the time if it is staged properly and for 6.9% higher price.
I contacted the woman with the business near me and she say that it is pretty pricey to rent furniture locally. She will consult with us for $100 and give some opinions about what to do. Considering how much we've already spent on the house, $100 is nothing, but if we need to spend $5000 to stage the home that is another storey.
So what is going on? Part of it may be burnout from working 7 days a week for 3 months rehabbing the Cheektowaga home. Part may be work related - I just was assigned a new Black Belt project in a process area I am unfamiliar with, that was supposed to take 40% of my time. Of course, the project is taking nearly double that amount of time and I am working at my job longer hours.
The other issue is cash flow. I am really hesitant to take on new properties at the moment because my cash could quickly be eaten up if the Cheektowaga house does not sell. It is costing me about $2k per month just in PITI to hold it and I do not have a lot of margin for price reduction. I was listening to the radio this morning and a staging expert stated that an empty house looked just as bad as a cluttered house, so I may have to spend money to put some furniture in the house.
Most of my calls from sellers right now are from less desireable Buffalo neighborhoods. Property in these areas has a 7 month average time on the market, so I rationalize that it is not worth my time to call these sellers back. I have a fixer upper for sale in Buffalo that is not getting any interest.
I had a home that was in a great suburb that looked like it would be worth buying even if the bank did not accept much of a short sale, but the seller has disappeared and I can't get the necessary paperwork signed to proceed.
One other property I worked on is about to go to auction next week. I nearly had a deal with the bank at ~ $50k when a real estate agent got the seller to put the house on the market for $84k. Of course, no one is interested in the property, and so the seller will get the judgement on their record. Ultimately, the bank will lose as well, so only the Realtor will benefit from this sale.
The last 2 Saturdays I have gone mountain biking and felt detached from real estate. I think that I need to come out of my mid-year slump and get to work again.