Wednesday, February 28, 2007
Besides, if you really diversify into something beyond stocks, you can reduce your worries even more. I didn't even bother looking at my 401k. I increased my net worth more this month from real estate investments than any drop my stock portfolio would have taken.
Another article I found today by Roy Spencer called "Not that Simple: Global Warming what we don't know, highlights some of the many variables that are unknown or unaccounted for in these global warming models that predict with 90% certainty that we will be flooded by melting glaciers. Any scientist with any humility would admit that we know only a small percentage of the true variables that could create global warming and how they effect warming or cooling. And what percentage of these variable is mankind able to control? If it is 1% I would say they are being overoptimistic - my guess is that the effects of our actions is less than 0.1%.
And, finally, from a purely statistical standpoint, the amount of data we have to work with is too small for meaningful analysis. And Manns' data, from which much of this hoopla comes, is obviously fudged, since it excludes the Medieval warming.
All this confirms my hypothesis that global warming advocates are religious nuts. Or just hypocrites, like Gore. This is rich - Gore's not really even buying carbon offsets - He's buying stock in his own company who's profits go up the with Al's scaremonger tactics - LOL
Tuesday, February 27, 2007
Freddie Mac to avoid risky mortgages. This easy money is what is allowing us to buy properties using "short sale" techniques. But it is a double edged sword as it will make it more difficult for us to sell our properties.
- Property A - A brick home we bought for $80,000 through a Realtor. We used a HELOC from our current home to finance the down payment and repairs. We got a conventional mortgage for 80% of the purchase price. We spent $16k on repairs (the biggest problem was water in the basement and our big expense was installation of drain tile). We advertised this as a "Rent-to-own" property and got nearly 1000 calls on it and so were able to pick some excellent tenants. We have the property leased for a year. The tenants signed a lease-option agreement and gave us $2500 towards the option. We give them a $150 rent credit each month that their rent is paid on time (every month so far). We get a slight premium for the rent. The option price is $134,500. The tenants have actually improved the property quite a bit (they replaced the floor and fixtures in one of the bathrooms). The place looks great - so far, so good.
- Property B - A 1000 sq ft home in a poor section of the city we got for $5k using short sale methods we discussed previously. This property came through our direct mail campaign to someone in foreclosure. We used a HELOC from Property A to buy it. We just cleaned up the interior and plan to wholesale it (it needs lots of work to be habitable). I'm going to try a "flat fee" MLS listing service to sell this property.
- Property C - Another home from our foreclosure mailing. A nice house in a town just outside of city limits. A half mile to the north in Amherst similar homes are selling for $300k, to the west is a poor district of Buffalo with homes selling for 25% of what we paid. We bought the house for about $163k after reinstating the first mortgage and a short sale payoff of the second. The house was sold 18 months ago for $182k. We thought we could just paint the interior but after closer inspection, it looks like it needs some new windows as well as a new boiler. The house is in a nice neighborhood but I worry that it is too close to the poor area of Buffalo. There were very few comparables (it's a large house - 2700 sq ft) and well designed. I think once we finish it will look great, but will people pay to live here? Since we underestimated repair costs, we intend to do a lot of the work ourselves on this home. The underlying monthly payment on the mortgage that we bought "subject to" is over $1600 per month. Rents for houses in this area are not nearly that high, so a "rent-to-own" scenario might not work well like it did for Property A. On the other hand, if we try to sell it outright, if we guess wrong on price, it will drain cash from us quickly. Our exit strategy is yet to be determined.
- Property D - This is due to close March 20th. This home came to our attention from a woman we mailed a foreclosure letter to. This is another house she owned and wanted to sell - not in foreclosure. We will use our hard money line of credit to buy and pay for the rehab costs. This will be a complete rehab that we will use contractors for to do all the work. This is due to the use of a hard money lender to finance it. Since the lender will allow us to finance all the rehab costs, cash flow should not be much of a problem. We plan to sell it outright, probably using a flat fee listing service.
Are we going to fast? Time will tell. My first venture with real estate followed a fast acquisition path as well. However, we are better financed this time. In addition, I plan to unload all 4 of these properties this year, rather than my buy and hold strategy the first time.
Monday, February 26, 2007
We have tried to document everything we have done so far in a Operating Manual, so that basics are being done automatically (e.g. the direct mail campaign, the short sale packages we send to banks, etc.). But now we are entering a new phase and we need to learn new things. We learned a lot of stuff about rehabbing from Pete Youngs last week, the day after we closed the first two houses. So now I am in the process of setting up contractor accounts at plumbing stores, paint stores and other wholesale supply stores for material I anticipate we will need. Of course, these stores are only open during my normal work hours.
Last weekend I hired my 4 teenagers to clean up one of the houses we purchased (one way to get them away from the video games :) ). We hauled a ton of crap out of the house (4 large appliances, furniture, 30 bags of clothing and lots more - enough to make everyone sore). I nearly got fined for putting the trash out on the curb and had to learn about a special "pick and pay" service to haul the material away. The City doesn't take credit cards, so I have to run to City Hall and deliver a certified check during my work hours tomorrow.
The next challenge will be working with contractors. I have usually done most of the work myself. And though, quite handy, there are only so many hours in the day to work, run a side business and be a construction worker. Then there are my 4 teenagers and my wife who would like to see me. Fortunately, me wife is really into helping out, but doesn't have the knowledge to do much. The kids also have sports and other after school activities which require chauffeuring and I like to attend sports meets or plays they are in.
Besides time pressure, there is a lot of financial pressure. I need a good source of private funding to supplement what I am doing with foreclosures. I will buy the third house with hard money, but the first two were done with a conventional HELOC ,which will run dry if we don't sell our wholesale property quickly. I have to be watching my bank accounts daily to make sure I have funds to meet mortgage payments and money for rehab, as well as the dozens of unexpected expenses (like the "pick and pay" fee).
So time and money put enormous pressure on an entrepreneur. This past weekend I felt so stressed at times that every little set-back made me lose my cool. I'm sure that most entrepreneurs have gone through this, but not sure how they handle the pressure. In the past, exercise was my pressure-relief valve, but there is no time for that at the present. This puts and enormous amount of pressure on me.
I know from my past that everything takes more time and costs more than anticipated. Then there is the uncertainty of how much we will actually be able to sell our properties for. We have "data" to show what it should sell for, but are we right? Only more experience will allow me to be more confident. When you are under pressure, you second guess yourself.
I'm not sure if this post is coherent as my mind feels like mush today. Hopefully, it makes some sense and someone can identify with it.
I have already done things I hadn't done before. I'm sure I can grow into a new level. Maybe just a little inspiration will help http://www.212movie.com/
Saturday, February 24, 2007
Friday, February 23, 2007
- Property A - This was a woman who had moved out of her house to take care of her grandchildren after several tragic family incidents. There were 3 loans on the property totalling $65k. The property "as is" is probably worth slightly less than that but a "drive by" BPO (Brokers price option - an appraisal) by the second bank put the value of the house at $76k (The interior needs lots of updating to bring it up to that value). The second loan was a HELOC with a 5 year balloon. The second bank had not been willing to renew the balloon and consequently filed the first lis pendens. The owner stopped paying the first mortgage shortly thereafter but stilled continued to pay on the third. The first mortgagee has since filed a lis pendens. Ironically, the third was unaware the property was in foreclosure since the owner was current on her payments. This should have been the easiest short sale to do since the third must take over the first two mortgages or will lose everything. Yet, the the third has been adamant that they don't do short sales. I started working on this property back in mid-December and it is still unresolved. Update: Just spoke with the third and they think the property is worth $91 and won't negotiate. I feel badly for the woman who wanted to avoid foreclosure. An interesting side note about this property is that both the lawyers for the second bank and the third bank were trying to foreclose on the wrong property (she had conscientiously given them her new address and was rewarded with incompetence.)
- Property B - This was an unmarried couple that separated. The boyfriend lost his job and they just stopped paying both mortgages. There were two notes on this. The owner owed $40k on the second. I submitted a short sale package to the second mortgagee and called to confirm receipt the next day. The loan mitigator immediately accepted my offer of $2500 to payoff the $40k. I closed this property Tuesday. I bought the house "subject to" the first mortgage (in other words, I am continuing to pay on the first). My main concern is the high monthly mortgage payment I have to keep up until I can repair and sell the property may eat away the profit.
- Property C - This gentleman inherited a home from his father and borrowed $40k on a home that he claimed to live in (he used it as rental). The home was never worth more than $30k. The owner used the money to buy a nice SUV, big screen TV and didn't improve the home. There was only one note on this home. I offered the bank $10K and they want $27.5K. I declined to pursue this.
- Property D - An elderly women lived in this home for 15 years and got sick last fall. Somehow this woman had gotten the bank to loan her $66k first loan and a $6K HELOC on a home that was never worth more than $30K. She abandoned the home and moved in with a relative. The home was vandalized and heat was turned off (in Buffalo during the winter). I called the lawyer and he inadvertently told me the bank was going to walk away from the home. I submitted an offer to the bank for $1k and they countered at $7k and we settled at $5k. The property is worth at least $20k and maybe more. The interesting thing about this property is the two dozen liens that had been placed on it by other parties. The woman had a common name and it seems everyone wanted to put a lien on it. In the end, it didn't seem to matter to the Title company (the seller just signed an affidavit saying the other people were not her). We also closed on this property Tuesday and my plan is to wholesale it.
I think the main problem with Property A is that the woman had spent a lot of money fixing the exterior of the house and all the appraiser did was a "drive-by" BPO which inflated the real value. Maybe the bank at Property D did a better job appraising the house value, but there was nothing I did to convince them to sell at a low price, since they already had decided to abandon their position.
And why did so many of these banks lend so much money on houses that are clearly lower in value than what was owed? I use RealQuest to access public records and cannot see how they can be so mistaken in value. The NY Home Equity Theft Act will make it harder for me to continue to do foreclosures, since my lawyer thinks no one will issue Title Insurance now. But, 50% conversion on my efforts to date seems OK.
Thursday, February 22, 2007
I can say that the material I received has had excellent information on rehabbing and how to save money. It is certainly worth the $250 I paid for it and in truth, I could save many times the price of a $1000 course. I still feel that these guru's could sell more courses if they priced them correctly. No one has $1000 to cough up each month when a new guru comes to town to speak and sell their course.
Other courses I reviewed earlier can be found here.
I wonder how much these guru's make travelling around speaking to small investment groups. I don't think that Pete sold many copies of his course last month. He claims to speak 200 days per year which is a lot to be away from home. But I suppose if you sell 2 courses per speaking engagement times $1000 that's $400K per year which is mostly pure profit.
Wednesday, February 21, 2007
For us this is a big issue. My wife dislikes our present house (which I purchased before we were married) very much and spends hours each week looking for another house. We have looked for a new house in our school district for over 1.5 years (we can't really change schools due to personal situation). The homes are scarce and ones that fit our needs as well as appeal to us are very limited. We have found only 2 homes in the past year that fit our criteria (location, price,#of BR and baths) and one was priced $45k over the appraised value (we can't buy at a high price in the Buffalo market because there is very little appreciation and we would never recover that $45K). We finally found one last Sunday that seems to fit all our needs and is at the right price.
Our current house I purchased a well below market value but it needs some work to get the money out of it that would allow us to buy a higher priced house. Right now we are putting all of our cash into our real estate investments, so we have little time and cash to improve our current home. There is an excellent demand for homes in our area and I am sure I could lease our current home at a rent above our PITI payment. However, the bank will only consider 75% of the rent as income when looking at whether we could afford a new mortgage. And our cash flow will be quite negative for the next few months.
I can live anywhere quite frankly, but to my wife, her home is the most important thing.
So what do we do? Pass this house up and wait? Or finagle our finances? My heart says one thing and my head the other.
A new blog called Planet Gore also has some interesting information to ponder while you are panicking about Global Warming.
I especially like this discussion on "theory" Vs "evidence"
Theory vs. evidence [Jay Richards]
press release reporting research by scientists at Ohio State, headed by David Bromwich, is a telling study in the relationship between theory and evidence in the global warming debate. Ideally, evidence should be able to count for or against a theory. But when dealing with an intellectual orthodoxy like human-induced, catastrophic global warming, evidence is treated quite differently. The theory functions as an interpretive grid: confirming evidence gets through, dis confirming evidence is explained away. The report begins: "A new report on climate over the world's southernmost continent shows that temperatures during the late 20th century did not climb as had been predicted by many global climate models." This adds to the evidence that Dennis Avery and Fred Singer report in their new book Unstoppable Global Warming. In contrast, there is evidence of warming on the Antarctic Peninsula, which is farther north than most of Antarctica.
So there's evidence against warming over the largest part of the continent, and there's evidence for warming over the small, northerly part. The uninitiated might take this to mean that there is still an open debate on the subject of warming in
Antarctica. But instead of stating this obvious point, the press release labors to fit the data into the theory. The scientists speculate that the ozone hole and strong winds might make the evidence for global warming more complicated down south. In any case, the theory itself isn't in dispute: "Bromwich said
the disagreement between climate model predictions and the snowfall and temperature records doesn't necessarily mean that the models are wrong. "'It
isn't surprising that these models are not doing as well in these remote parts of the world. These are global models and shouldn't be expected to be equally exact for all locations,' he said."It's hard to have an honest debate about
a theory when contradictory evidence is treated not as contradicting the theory, but as justification to look harder for evidence for the theory.
Monday, February 19, 2007
The second house is a real gift. The bank is walking away from over $71k in mortgages for a mere $5k. We don't plan to do much about it except clean out the trash and sell it wholesale.
Wednesday we have a REI club meeting and Pete Young is speaking. I bought his course on Ebay and it is very good. I've got ads running for the wholesale property we are closing on Tuesday, so this weekend we need to get in there and clean it out.
Next week I am holding a seminar on Private Money investing. I'm hoping to get some people to lend me money. I also finally got approved for a second source of rehab money through Community Preservation. This is one I've been working on for 5 months. It pays to never give up sometimes.
The post on Dave Ramsey and comments was very interesting.
The Carnival of Personal Finance also has come great posts to read including How to Spend Your Money
I was interested in the post on How to Double Your Money in 5 Years. Maybe a review of How to Get Rich would help.
The Latte Factor is also very good and ties in with my post above in the Carnival of Debt Reductions
Friday, February 16, 2007
But of course, I should not be pointing out problems with data, after all, I am a heretic and could be burned alive for my transgressions soon.
Of course, if you want to use reason, here's a good discussion on "consensus" Vs fact.
Few people are ever taught much about the benefits of capitalism in school or understand how it works. Even fewer understand the concept of "creative destruction" - a term used by Joseph Schumpeter to describe exactly how capitalism thrives and is the best of economic systems.
Our economic system continues to outperform the rest of the world because of the radical innovation that our entrepreneurial culture produces. The onslaught of new ideas constantly displace old ideas and make industries that don't innovate obsolete - these new ideas are called disruptive technology. So there is always going to be a turnover of businesses and jobs. If you recognize the dynamics of this system you can be prepared, if not, you will get caught with your pants down when your business takes a hit. While this process is uncomfortable for some, it has produced unprecedented prosperity for us and the rest of the world.
So what do you do about this? I have a few suggestions:
- Make sure you have a rainy day savings fund
- Keep your skills up to date - know industry trends and be the best at what you are
- If your skill gets displaced by technology, don't be afraid to learn a new skill
- Diversify yourself by starting a side business - don't depend on just your job for income
- Be willing to change your lifestyle when you encounter a big change in circumstances. I did it and despite some inconvenience and embarrassment, it didn't kill me.
A lot of people want us to move to a more socialist model, like Europe's, which gives up prosperity for some "security". But, their security is an illusion. Unemployment is routinely above 10% and unemployed youths constantly create social upheaval - rioting, looting and killing - which is not very secure at all. Incomes stagnant and hope is lost.
Real capitalism has uncertainties, but it is a system for dreamers and doers. Embrace it and thrive.
Thursday, February 15, 2007
I had written about another house in foreclosure which had over a dozen phony liens placed on it. Normally, you would expect lawyers to be competent. All of these errors are created by law firms. I don't know if they hire incompetent help or the lawyers themselves are just incompetent. The irony is that the lawyers think so highly of themselves that they charge over $200 per hour for this poor service.
The point of the article is that cheap oil is not going away any time in our lives. The price will fluctuate based on changes in supply and demand causes by "risk premiums" commodity traders build into future expectations as well as economic growth rates. Don't be surprised if the price of oil either goes down to $10/ barrel or up to $100. Either scenario is likely and it has nothing to do with oil company greed.
If the situation in the Middle East calms down and the US continues to build alternate energy sources (like nuclear plants) I would expect oil prices to drop in half in the next couple of years.
Wednesday, February 14, 2007
"The world is very different now. For man holds in his mortal hands the power to abolish all forms of human poverty and all forms of human life. And yet the same revolutionary beliefs for which our forebears fought are still at issue around the globe—the belief that the rights of man come not from the generosity of the state, but from the hand of God.
We dare not forget today that we are the heirs of that first revolution. Let the word go forth from this time and place, to friend and foe alike, that the torch has been passed to a new generation of Americans—born in this century, tempered by war, disciplined by a hard and bitter peace, proud of our ancient heritage—and unwilling to witness or permit the slow undoing of those human rights to which this Nation has always been committed, and to which we are committed today at home and around the world.
Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty."
Today, this is what the Democratic Party gives us as they debate the war on terror:
I cast my first vote (regrettably) for George McGovern, a pacifist candidate. Today's Democratic Party is driven by the pacifists - even Hillary will have to submit to their ideology. Only Joe Lieberman seems to grasp the seriousness of our situation and is probably the last Kennedy Democrat.
Most western-style pacifism is a joke. Its proponents are self-serving, self-important sponges who cavalierly stand on the bruised backs of gun-toting patriots. They flaunt a peace they neither understand nor have paid for. Their blanched creeds are untested by ruthless evil and their virtue blinded by the western consumerist paradise. They have absolutely no moral high ground upon which to stand. Just as the comic above indicates, today's pacifists have ceded the moral high ground. They delude themselves into thinking that they are like King, Gandhi or Christ.
The pacifists today align themselves with dictators that slaughter their own people, (look at the composition of the UN Human Rights Council), and against freedom (how much freedom to women, Christians and gays have in Islamists societies?). The pacifists today are leeches taking advantage of the prosperity and freedom earned by the blood of soldiers who have fought and died to preserve it.
Where are the Democrats that will "pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty"?
Update: Looks like there are some Democrats out there who are still inspired the way I was. Read the Story of Lt Mark Jenning Daily
Now this "story" was concocted by environmentalists with an agenda to show that people that don't disturb the environment are "happier", so we should all live like them. I'm not sure of the validity of this "survey, but one thing that we can learn from these people is that living within your means can reduce your stress. However, I tend to think that the people of Vanuata are the exception rather than the example of what we as humans really are.
My own view is that we were made in the image of our Creator and hence we are driven to be "creators". This means we are constantly on the hunt to find some way to make our lives better. Imagine that 10 people lived on a island and the only source of food was fish. So each day we go out to sea with our fishing line and hook, catch what we need to eat for the day and sail home to eat. Our days are consumed by working to find food and eating it. This goes on until some creative person gets the idea to weave a net. The next day he catches enough fish to feed all 10 islanders. So, now the other 9 no longer need to fish. So what do the other 9 people do?(Would they all complain about the unfair competition of the person with the net and ask the government to pass a law forbidding use of nets?) Actually, some will figure out how to make clothing, others will learn how to plant vegetables, and one will make some drums to entertain the others. Pretty soon they will barter their goods/services so they can all live a higher standard of living. And so it has gone until our present day when we use money rather than barter. Each of us contributes to improving the standard of living for others and in exchange we receive money we can trade for goods and services we want.
The point of my story is really to illustrate the absurdity of the survey of "happy" people. People are happiest when they can pursue what they want and have the freedom to use the efforts of their work to attain the things that bring them the most joy. Now, for many people, buying things doesn't necessarily bring them joy because they don't know what they really want. But this is not because their environmental footprint is too high.
Liz Strauss wrote a very insightful post on spending money. The main point of the post is that we should spend our money when spending it will give a greater return than not spending it. Money is meant to be used. Stuffing it under your mattress may give you some satisfaction but it is not satisfying and may be morally wrong.
So use your money to invest or buy things that will return a greater value to you. Don't buy on impulse to satisfy some emotional need, but use your rational mind to give yourself the best return on your investment. You work to create your money and you need to make the optimum use of it.
Tuesday, February 13, 2007
But one habit that I have never been able to break is my addiction to chocolate. This has been a lifelong addiction and I am convinced it is hereditary. My brothers all share in it and their children eat chocolate from the moment they wake in the morning until bedtime - so it's not all my fault ;)
Chocolate addiction is probably one of the worst habits to have if you want to break it. Unlike booze, it actually tastes good; unlike tobacco, your breath and clothes don't reek; you don't have to make your nose into a toxic cesspool nor your arms into pincushions as you do with cocaine or heroin. But like any addict, I covet my stash. I've got secret hiding places located at home and work that keeps my chocolate away from my kids and my wife. I cannot pass by a piece of cake, donut or brownie without trying to find a way to eat it, even when it's not mine. I'm not addicted to sweets - I can have a table of other treats sitting in front of me and not take a bite if there is no chocolate there.
Now some people claim that chocolate will make you fat. These are the novices. When you become a real chocolate addict, you no longer indulge in the fatty milk chocolate candies that ruin your health. If it's not at least 65% cocoa, you're missing out on the mother lode of indulgences. I'm sitting at my desk munching on an 85% cocoa bar at the moment - nirvana!
To rationalize my habit I quote articles about the health benefits of eating chocolate. It's also an anti-depressant. Heck, if the Cleveland Clinic is recommending it, it must be good for you :)
So, I make no effort to break this habit. In fact, I tell everyone I know how chocolate is my secret to my good health. If you repeat anything long enough, even you believe it.
Monday, February 12, 2007
I read this letter written to someone at The Corner the other day:
"Hey Dufus, you forgot to mention that Americans are energy pigs compared to the rest of the world, 5% of the population & we consume 24% of the energy. Do we not have a moral obligation not to be so wasteful? Stop waiting for some magic bullet to save the next generation, get off you fat American NASCAR lovin, SUV drivin', oil suckin' ass and do something positive for the planet. Disrespectfully yours"
When I was in school we were taught something Tocqueville wrote called American Exceptionalism. At that time is was taken as a fact that as a culture we were morally superior to other cultures. The idea that we were morally equivalent to some dictatorship in the Middle East or to the Soviet Union was anathema to me. Now the 60's brought us Vietnam and the press (aka Walter Cronkite) lied to us about the Tet Offensive (a US victory portrayed as a loss) and John Kerry lied about atrocities committed by US soldiers in Vietnam. So anti-Americanism was born and has become a major political movement.
I could spend pages writing about all of the great ideas, inventions and wealth that America has created for the world to enjoy. Why not point out that while we are 5% of the population, and use 24% of the energy, we also produce 33% of the output? Or that we were responsible for developing 100% of the energy generation inventions that we share with the world. If everyone were as energy efficient as we are, the Arabs could go pound sand. Our scientists receive more Nobel Peace prizes than all other countries - why is that? Because we are contributing the most to advancement of knowledge. Read Pilzer's book on Unlimited Wealth to understand that when ever someone (or some country) creates wealth, all people become wealthier. Our industriousness has made the world a wealthier, healthier, and more peaceful place (more peaceful because countries that engage in free trade usually don't go to war, and we lead in this concept).
The poster on dailykos talks about atrocities committed some 200 years ago against indigenous peoples, about slavery (we fought a bloody war to end this practice), and about our imperialist war in Iraq (we were attacked in a pre-meditated act of war) or dropping a nuclear bomb (on a suicidal people willing to fight to the death and kill as many Americans as possible - sound familiar?).
Is America a perfect nation? Obviously not. However, should we bash the best because it is not perfect? I've travelled to many different countries. There are none that appeal to me at all as a place I'd rather live. Many point to Europe as a Utopia, but high unemployment, limited freedom to start your own business and a segregationist culture (if you are not born a Frenchman, you can never be French - anyone can be an American) would keep me away. And the numbers of people trying to come to America Vs those trying to leave validate my point of view.
When I was caught up in the anti-war days of the 60's I questioned America's goodness. But after examining the facts, I find Americans to be the most generous people on earth, the most industrious, the most creative and entrepreneurial. Our Constitution is still the model for any government to follow, I find none better. As far as the United Nations goes - any organization that would put Libya on the Human Rights commission is a joke and merits no consideration.
Are people that hate America patriotic? I don't see how that is possible. I'm proud to be an American and make no apologies for being from this country where ever I have travelled.
I had made some big mistakes investing in real estate at that time. In the end, I was deeply in debt and had a huge negative cash flow every month. I was borrowing more money every month just to make payments on my properties. I did not have a money to spend on Lattes or going out to restaurants or any entertainment for that matter. But I did live in a beautiful home that we had restored and we drove new cars.
So, what could I do to reduce my debt? I was in the trap of continuing to borrow to maintain my head above water. To the great dismay of my wife (who had put her savings and soul into renovating our home), we decided to sell our home, our new cars and move into one of our rental properties. Our monthly housing payment dropped by $800 per month and we got rid of our car payments by trading our new car for an older model that we could afford to own without financing.
The property we moved into was a 1850 single family home that had been converted into a triplex. It was filthy inside and there were more cockroaches living there then residents of NYC (It took us 3 years of weekly pest control treatments to kill them all). The floors were all crooked and the windows so porous that we had plastic covering over all of them. We lived for a year in the first floor of that house while gutting the second floor down to the studs. The house was always filthy with dust and roaches. We had 3 children under the age of 6 to contend with while doing this work. Later we moved upstairs and lived with no kitchen for a year while we redid the first floor. We cooked everything using a microwave and did dishes in the bathtub.
In the end we had a beautifully restored home. But more importantly, our finances had recovered. We never missed a payment, never had a house go into foreclosure nor declared bankruptcy. It wasn't easy and certainly to some extent very humbling. Our peers could not understand us leaving our 4000 sq ft home for this mess. But your peers won't pay your bills and you can't let them make your financial decisions.
This time of my life was a great character building experience. I think it was one of my better decisions. Sometimes to change your financial situation you have to change your paradigms.
Since then I have gone through ups and downs in my finances, but never found any situation unsolvable. Today, I have grown my Net Worth and am in the best shape financially I have ever been. And, I have never owned a new car since.
Sunday, February 11, 2007
- The time frame (sample size) is very small compared to the history of the planet and normal variation could easily explain any deviations in temperature we may or may not be experiencing. There is very limited data from deep sea temperature changes as well as atmospheric temperatures.
- Other causes are not being considered - such as noted in the above article, solar variations. variations in the earths wobble, etc.
- The Mann data (the infamous "hockey stick") has been "doctored" to exclude certain data
- It may be to our advantage to have the planet warmer - consider that people were healthier and lived longer during the Medieval Warming Period
- In statistics we can only be confident of a correlation when we have less than a 5% uncertainty. Even assuming that there is a 10% uncertainty, this is 100% greater than statistical certainty. So 90% certain is meaningless.
Friday, February 9, 2007
Most Americans understand little about capitalism and how it works. They have become deeply suspicious of corporate profits and think that big corporations are evil - polluting the skies, stealing from the poor and taking jobs from hard working Americans and giving them to slave labor in Asia.
But Corporations are rational entities and the goal of every manager is to use the dollars that he has been given by shareholders as wisely as possible. Just like in the Biblical story of the Parable of the Talents, each manager is intent on getting the best return for his lender. Sure, there are some unethical people in companies, but there are just as many or more that operate unethically on a personal level. Most Corporations have checks and balances to help people act ethically, so they may, in fact, be more ethical than the general population.
I think that there is a disconnect between what people say and do in their personal lives and how they think about corporations. In every transaction that we engage in throughout our personal lives we try to maximize our profits. You buy a house for $100,000 and sell it at market price 2 years later for $200,000 - do you protest and and rant about your "individual greed" or do you turn around and reinvest your profits into another house? And when you find a collectible at a garage sale for $10 and re-sell it on EBay for several hundred dollars are you "evil" because you got the price the market valued your item for? Then why do you rant when gas prices go up due to market forces?
So what is the difference between your behavior and that of the corporations? At least the Corporation will report their profits to the IRS - do you always do that? Exxon's profit margin was less than 10%. This is pretty small when you consider the risk involved in finding new sources of oil (often in unfriendly countries), and investing billions in refineries. As an investor, I think their return is too small and risk too high for me to invest in their company.
Money (capital) will always flow to the best returns. When you invest in the stock market are you looking to take the most risk for a low return or do you calculate how much risk you are willing to take Vs the return you will get? Companies follow the same logic. If we make it too difficult for a company to make a profit, the investors will put their money elsewhere. We can see that here, where no new refineries have been built in the US for over 20 years. Then we wonder why a hurricane, that shuts refineries down, can cause gas prices to go up.
Winston Churchill once said "Democracy is the worst form of government except for all others".
If no one else has said it, then someone should make the same comment about capitalism - it is the worst economic system, except for all others.
In fact, those who try to equate the two are themselves holocaust deniers because they totally dismiss the atrocity that Hitler unleashed on the Jewish people. I find people like Goodman to be no different than Ahmadinejad, another holocaust denier.
I wrote that the global warming people were cultists, but they go beyond that. They have elevated nature to the status of God and made humans (Jews) lower than animals. These people are far nuttier than those poor souls standing on the steet corner with their "Repent, the end is near" signs. Holocaust deniers are neither ignorant nor innocent (though extremely ignorant people may innocently accept their claims). They are falsifying history for evil purposes. I don't believe an educated person like Goodman is ignorant. Her intent is as evil as Ahmadinejad's.
It's small wonder that the left in this country is rooting for America to lose the war.
Thursday, February 8, 2007
The interesting aspect of this earlier start is that we live in an age of 24 hour news, Internet access, blogs and such mass communication that exactly the opposite trend should occur. After all, in 1800 there were no phones, wireless devices, or powered transportation to allow candidates to communicate to the public or even to travel quickly. Yet, somehow, the public got educated and I believe more of them were engaged in the debate then are today.
This trend is not unique to politics, as anyone who thinks about the trend in the start of the Christmas season is well aware. Used to be that the Christmas season didn't start until after Thanksgiving. I think Labor Day is now the day when the Christmas season unofficially starts. Soon it will be the 4th of July.
So why is this happening? The cynic in me would say "follow the money". Presidential aspirants must raise 10's of millions of dollars to advertise themselves and the first one to the trough is going to get the biggest portion of donations. Merchants want to get consumers to spend their Christmas dollars at their store first.
The more media that there is, the more it will cost to advertise, and hence the more money the campaigners will need. One would wonder if being President is worth it considering the cost. Unfortunately, for most qualified candidates, it's not. So we get second tier candidates. And people look at those running and think neither is really qualified, so they lose interest. Not to mention becoming numbed by the hundred's of commercials that they will see and hear in the next two years.
In the end only the deeply partisan people at both ends of the political spectrum are engaged, which in turn, leads us to forever avoid compromise and good solutions in government.
I'm not sure what to do about any of this, but as it's already February I better get started on my Christmas shopping.
This was another politicization of science, like global warming, that created lots of costs to replace CFC's. But, at least we eliminated the cause of ozone depletion. Oh, wait....China is still making CFC's.
I guess if we sign the Kyoto Treaty then we will have solved Global Warming and the religious environmentalists can go to there next cause. Um, but China is not included in Kyoto.
Never mind.........I forgot that the real threat to the world is the US and the wrath of the religious environmentalists has nothing to do with the environment.
Wednesday, February 7, 2007
There's a massive lending industry that has been created to ostensibly help you get out of debt. Lenders try to make you feel that if you "consolidate" your loans or use your home equity that you will finally be able to break the cycle of debt. This is excellent marketing but I doubt that it is very sound financial advice.
Spending more than you make is a very bad habit to be in - and make no mistake, it is a habit. And for anyone who has had a bad habit (I once smoked), you know that habits are extremely hard to change. Everyone that smokes, for example, is well aware that cigarettes are literally killing them, yet even when offered financial rewards to quit, most people will continue to smoke.
So, what makes you think that by consolidating your debt, that somehow you can break the habit of spending more than you make? This illusion that the lending industry has created that by consolidating debt actually encourages us to spend more, since we trick ourselves into thinking that we are better off. For many people this leads to an ever downward spiral towards bankruptcy or foreclosure. In my real estate business, I see the pain that this brings to peoples lives both in sellers and buyers. A house I recently sold as a "Rent to Own" attracted over 1000 calls in 4 weeks from a simple sign in the front yard. Nearly every one had been through some financial crisis that prevented them from buying a house through conventional methods.
The only real way to break a bad habit is through self-discipline. And this is true of debt habits.
- First, you must start living on a budget that is within your income. Many people tell themselves that they can't do that. Read this post on beliefs and think again.
- Second, you must use a disciplined method to pay off your debt. The snowball method seems to be the best way.
Once you've taught yourself to live within your means, then you can figure out how to increase your lifestyle. Don't do the later before the former. Some people chose to spend their lives constantly being frugal. I do not advocate that approach, I think you should concentrate on generating more revenue. Increase your value by getting more educated, starting a business or investing in real estate. But remember, first get your financial house in order by living within your means - no matter what your income.
Tuesday, February 6, 2007
I once was intrigued with Sufi Islam and read Rumi extensively. But since 9/11 I have turned my attention more to other topics in Islam such as Sharia law and Wahabism. Surveys of Muslims in Britain show a large portion desire to have Sharia as the main law of the land. Sharia includes such niceties as "honor killings" for women who commit adultery, while Wahabism is a very violent strain of Islam extolling jihad being taught to the very young and exported around the world (including the US) by Saudi Arabia. There are over 1 billion Muslims in the world today, no doubt many peaceful. But even if only 10% believe in the violent strain of Islam, that's a lot of people. And even more passively agree with the violent strain, enabling the cycle of hatred and violence to continue. And then there are those who are too frightened to say anything since the penalty for apostasy is death.
And then there is President Ahmadinejad of Iran who has plans to wipe Israel off the map once he gets his hands on nuclear weapons. Ahmadinejad was one of the leaders of the Iranian Hostage Crisis in the 70's when the current war with radical Islam really started.
In our politically correct culture, those who tell the truth are ridiculed, as was Reagan for calling the Soviet Union The Evil Empire. Bush took an equally courageous position in 2002 calling out the Axis of Evil - Iraq, Iran and North Korea. But in the past 5 years no one has dared revisit that truth, despite overwhelming evidence of its truth.
The reality is that we have been at war with radical Islam since 1979 and there is no end in sight. Negotiating with evil only shows weakness. With the Soviets, time has proven that Reagan had it right. The limp-spined politicians that we have in Washington only prolong this war and increase the potential for death unequalled in human history.
"There is no avoiding war; it can only be postponed to the advantage of others"
One of the Commandments that we are given is not to worship idols. Now most of us never think that we are engaged in idolatry since we don't have a golden calf that we bow before and worship. But idolatry extends way beyond that concept. It is really about putting other things first in your life before God.
I can think of many situations that this might be true for us humans:
- money and material things or financial security
- alcohol and drugs
- cultish associations (e.g. environmentalism, PETA, global warming, etc.)
- religious pursuit (i.e. worshipping the tenants of the religious belief above God - would God call you to murder innocents in a suicide bombing?)
During certain periods of my life I can plead guilty to pursuing more than one of these diversions above any admission that there was a deity. I think that it is a difficult thing for us human beings torn by our earthly desires to subjugate those desires to a higher being. Secular people try to worship their own deities (without admitting such) by taking up great "causes" such as global warming. But these are no different than the pursuit of a new car in terms of idolatry.
Our countries wealth has made it easy for us to be distracted by millions of things we "must have" (new homes, HDTV, Ipods, new cars), given us the free time to pursue extracurricular activities like sex, alcohol, drugs or take us causes. But at the end of the day do any of these pursuits make us fulfilled, happier or assured of what comes after death?
In many ways we are no different than those alcoholics in a 12 step program. We feel the tug of our particular weakness from moment to moment and we need to re-focus one day at a time on what is our greatest love.
Monday, February 5, 2007
With a Self-Directed IRA you are prohibited from investing in real estate that you live in or collectibles, but there are many ways to invest that can be quite profitable. My brother took an old 401k when he left his job and put it into a Self-Directed IRA and has been investing in ocean front property. Since one of the mega-trends in real estate is the growth in the value of ocean front, he has made a small fortune, all accumulating in a Roth IRA which he will not have to pay taxes on.
Another method of making money in this type of IRA is to become a bank. Everyone who has paid interest in a credit card or other loan and then looked at the measly interest rate in their savings account knows that banks can make a lot of money. Many real estate investors are looking for funds and are willing to pay a higher interest rate than normal - 10%, 12% or more.
I am in the process of looking for this type of lender. My program is to pay 10% interest with the loan secured by a Deed, Promissory Note, Title Insurance and Hazard Insurance. Loans will never exceed 75% of the after-repaired value of the house, so even should a lender have to foreclose, he or she should be able to recover their equity. Choosing an established investor should reduce that risk. This creates a relatively safe investment compared to stocks.
There are many companies that will convert your existing IRA or an old 401K into a self-directed IRA:
I've put my IRA into Equity Trust. I can't lend money to myself, but I can purchase real estate using the IRA. One property I plan to buy for $10K should sell for $20K within a month. Last year my IRA had a return of 1% in my stock portfolio.
Should you decide to do this, investigate it carefully and do your due diligence. A good place to find real estate investors is a local REI club which usually has meetings advertised in the real estate section of the paper every month.
Sunday, February 4, 2007
To date this is what I have secured:
$8000 in a self-directed IRA
$150,000 hard money line of credit
$40,000 HELOC on my lease-optioned property
I have rented a room at a hotel to pitch "private money" loans at the end of February. These are loans secured by real estate which I offer the lenders 10% interest rate. I have a Power Point presentation prepared and just need to advertise the event. If anyone is interested in learning more email me and I can send you information.
I read an article in today's paper about a company called prosper.com which is a peer-to-peer lending concept. The loans are unsecured. I have registered and will see what kind of interest rate loan I can get through them.
I have also been told by CPC that they will finally review my application Feb 15th.
Friday, February 2, 2007
My doctor wanted to do some more tests on me because I had lost some weight (I told him my wife had been away for a month, but that didn't phase him). So he had me take an expensive CAT scan and go to another appointment today. This was basically a CYA appointment so I wouldn't come back and sue him if I was really sick.
The appointment was scheduled at 12 for which I arrived promptly. Three hours later I got back to work after spending 60 seconds with the doctor. I complained about the long wait but his response was all the patients (meaning little old ladies) that took his time talking to him was the reason he was late. This was just a flimsy excuse for overbooking. I find this attitude so demeaning. The doctor's time is deemed to always be more valuable than the patients'.
My time is worth about $100 per hour. Including travel time this appointment cost me about $400. He wanted me to schedule another followup in May. Fat Chance. I will have to be at deaths door to go back!
At the American Thinker J.R Dunn begins an article titled A Necessary Apocalypse with this quote:
A man who ceases to believe in God does not believe in nothing; he believes in anything.
- G.K. Chesterton, Orthodoxy
Dunn's article is an excellent read, as is this one by Michael Crichton - Environmentalism as Religion. Both articles point out that those who are least likely to believe in a creator have somehow come up with their own version of creation. I think that this is a very insightful observation and have seen it up close at work.
I work in an R&D environment with many PhD's. I would say that a fair number are secular and have no belief in a God. One woman in particular I have lunch with every day is a bright chemist who, when discussing chemistry is logical, calm and brilliant in her analysis. However, when the subject of Global Warming comes up, she becomes unhinged. She cannot discuss any aspect logically or unemotionally at all. (Mind you, I do not argue with the woman but will just point out a flaw in her thinking.) After a minute or two she will jump up and leave the table unable to talk. Her actions are just like those one would expect from a cultist, not a scientist.
I am a trained Six Sigma Black Belt, which means I have studied statistics and data most of my 29 years as an Engineer. So, I am naturally skeptical when people try to squelch discussion about scientific theories and label other scientists who disagree as "deniers". This is not science, but religion. I have written a couple of posts about this subject Straight Line Thinking and New Ice Age. Maybe global warming could even be a good thing. Vote for Global Warming.
The irony of these secular zealots is that they do much more harm than good. The loss of life in Africa due to the ban on DDT is a crime of massive proportions in my opinion. Rachael Carson ought to be despised not worshipped. And then there are the myriad of celebrities jetting around in their private jets and limousines contributing more to the supposed "global warming crisis" in one trip than any one of us regular folks in a lifetime. CO2 Emissions of Private Jets. One unique attribute of leaders of cults is that they consider themselves above the uneducated masses.
I love debating scientific ideas and data with anyone. But environmental zealots have chosen to drink the kool-aid of their religion and disagreement with their beliefs is not up for debate. As a society we have much more urgent needs to solve world problems then worry about whether the temperature of the earth will rise 0.1 degree C during the next 50 years. Aids, Islamist fascism, mad dictators suppressing people throughout the entire continent of Africa and other problems far exceed the loss of a glacier (which will probably return in greater extremes in the future).
Some blame religion for most of the wars and deaths, but in fact, it is heresies like environmentalism, Marxism and Islamism that are responsible for most deaths. That is, the rejection of the true religion.
Or just have a laugh with Mark Steyn - Fickle Science
However, there are several problems with this property I still have to fix. First is the rotten NY Home Equity Theft Act I mentioned the other day. This has made Title companies skittish about insuring properties in foreclosure.
The second is that over a dozen creditors have attached liens against this house. It's appalling to me how easy it is for a creditor to attach a lien to your property. The woman that owns this house is elderly, never married, lived there all her life and has no middle initial. But she has a common first and last name. So creditors have attached liens with anyone with the same first and last name, despite some being married, many having (a multiple) of middle initials and some living in different cities. I don't know if I can even get Title insurance, so this will be a learning experience.