Sunday, July 29, 2007
So we have not been too aggressive in trying to buy more houses. We have had a couple of opportunities but just missed making an agreement with the banks. One was in Amherst which is a pretty nice area, so I had some regret that we did not get a better appraisal.
Now it looks like we have an opportunity to get a really nice house in the town that I live in. I know the values very well here and it is a high demand area, unlike the area where we own the other 2 houses. There are a couple of challenges to buying this house. Our financing does not allow us to buy properties over $150k and this house is going to go for about $220k (We have had it appraised at $268k, so that is not a problem). The rehab money we have doesn't allow us to live in the house either. So I will need to get conventional financing. My plan would be to rent out our current house and move into the other house.
The dilemma is that the down payment will use up all of our cash and there will not give us any cushion to pay the mortgages on the houses we are trying to sell. So we will have to exist purely on lines of credit until one of the 3 houses we have for sale is closed. This is a risky strategy but this new opportunity is the best house I have had the chance to buy. So what do I do? Live on faith that one of the houses will sell or pass up an excellent opportunity?
Update question: Why is this different from people that purchase a new home before they sell their old home? (I actually am against this practice, but....)
Thursday, July 26, 2007
I myself have enjoyed the whole series immensely. My favorite movie is the Lord of the Rings series. Although I have not read any of the LOTR books the movies are incredibly well made, but more importantly carry a great message. The triumph of good over evil, the importance of character and is loaded with Christian themes. LOTR replaced my previous favorite movie - The Sound of Music - which carried similar themes.
I categorized this post under "religion" which will surprise my atheistic colleagues who have read the series. After reading the 4th book of the Harry Potter I became convinced that Rowling was secretly creating a series like LOTR and Chronicles of Narnia. However, the crowd I associated with at that time (home shooling families) largely condemned the book as Satanic. After reading Looking for God in Harry Potter I realized the depth of Rowling's Christian themes and it was quite easy to predict how the series would end.
Although the previous 6 books hinted at Christian themes, the Deathly Hallows is the most overtly Christian. Harry is a Christ-like figure who (literally) carries a bit of evil with him. Consider:
- the prophecy of his birth
- the "cross" pulled from the frozen pond (and the baptism there)
- the "blood" he gave
- the themes of good Vs evil and the ultimate triumph of good
- the series begins and ends with the giving of ones life for another - a greater good that no man can give (even Dobby gets into the spirit)
- the resurrection theme
- the temptations Harry faced (power over death itself) and doubts (lies told about his mentor)
- the disciples that stick with Harry despite the prospect of death and the desertion of one disciple (i.e. Peter/Ron) as death approached
- an Armageddon battle of Good Vs Evil
- multiple quotes from scripture
- the Hallows is a Trinity symbol
- Dumbledore is a "Father" figure
- The place Harry and Dumbledore meet is "Kings Cross" - this is also the place where Harry was "born again" in book 1
- Peter, James, John and Harrys mother accompanying him into the forest
- the power of Love over death (why good wins and Snape is a good guy)
There are many, many more. In addition, Rowling takes aims at other evils such as Nazism and it was interesting to note that Home Schooling was banned when Voldemort took over. Some people take issue with witch craft but that is really just an allegory for technology which our generation has allowed to take over our lives.
Rowling initially was afraid that if people were aware of her Christian faith, she would give away too much of what's coming in the series. "If I talk too freely about that," she told a Canadian reporter, "I think the intelligent reader — whether ten [years old] or sixty — will be able to guess what is coming
in the books."”
Rowling's brilliance has been in writing a book that allowed millions of young people to be exposed to the basic tenants of Christianity without shoving it down their throat. In an age when the media and liberal elite don't believe in evil this is a heartening accomplishment.
Tuesday, July 24, 2007
When the appraiser came last week I met him at the property and casually asked about how he was going to do comps and politely pointed out some flaws. As he left I told him I was not looking to re-finance and would like to see a lower price. He said simple that it was much easier to get a lower price and left it at that. I don't think I offended him at all or "got in his face".
I talked to the investor today and found out that the appraisal came in with a value of $104,000! I have estimated that this property was worth $250k after repair and offered $202k "as is". The appraisal cited replacing new cabinets for $30k(they were just installed 4 years ago) and $15k in electrical work (the basement lights don't work) as flaws. I don't know how he came up with but it didn't work to my favor (or his). The investor ordered another appraisal and they did a "drive-by" and came up with a value of $268k.
So the investor threw out the initial appraisal and will not pay them (can't say I blame them). Neither appraisal is correct in my estimate of what the house is really worth. The investor is going to put together a counter offer (I only offered him $2k for his $20k loan), but at least it may have put some doubt into his mind.
As for now the legal action has stopped on this house again (for the second time). The homeowner is determined to live there as long as possible without paying anything and is quite clever in delaying the auction.
Whether the commenter's were correct in telling me not to interfere is not really important here. The lesson is that appraising property is heavily influenced and so far from reality that it defies logic in many situations. Many blame the banks for the sub-prime mess, some blame the borrowers, but few have blamed the appraisers. Maybe it is time to focus on them.
Friday, July 20, 2007
Some states, like Alabama give owners only 30 days before they can lose their property. However, homeowners are given a long time to re-purchase the property with the buyer losing any money that was made in improvements. That would be a big loss for the investor. So I guess New York has at least one advantage over other states. On the other hand, lots of people in foreclosure here don't act on the foreclosure because they know that it takes so long.
Thursday, July 19, 2007
I was watching a show on HGTV called "My First House" and saw a Realtor give a client terribly bad advice. A young woman was buying her first home and the house had been on the market for a while with the owner already reducing price once. For some reason, the woman felt that she had to give the seller a "win-win" offer. So she offered the asking price. Unless you are in a hot market with multiple offers coming to sellers, I think that this advice is almost bordering in negligent if not malpractice. Maybe she was using the sellers agent which carries a huge conflict of interest.
Here's my rules of buying:
- never use a sellers agent
- never offer asking price
- always ask for concessions (closing costs, upgrades, etc.)
- never buy on emotions, buy on value
I always buy "as is" now so that I can reduce price, but for a first timer you probably want the option to get an inspection.
Tuesday, July 17, 2007
Initially I wrote this off to his disorganization and drinking but now I appreciate that he was telling me the truth. I have been talking to the banks in order to find out where to send a short sale package and I'll be darned if I can figure out who owns what loan. Each of the original loans has been sold multiple times. Sometimes the originator of the loan has sold and re-bought the same loan! So far I have found 3 changes on the first loan and 4 on the HELOC.
I'm not sure what the game is for these banks but it sure gets confusing since they change loan numbers each time the loan is sold. It's also costing these banks money since this seller has been in foreclosure since May of 2006 and there still is no auction date set on his house.
For all of the criticism that banks get for pushing loans on people that can't afford it (as if the banks were some all powerful oppressor), the truth is that banks (and big corporations in general) are not all that organized. The paranoid that attribute all sorts of evil intentions to big business overestimate the reality of how companies operate.
Monday, July 16, 2007
This past weekend I perusing my statement and noticed the interest rates on my Cap One card were the same for the entire balance. So I looked back at the last couple of statements and sure enough they had not applied the zero percent to the new balance transfers. I called Capital One and they told me there was a glitch in their system and they would take care of it. It sounded like a large glitch, not just for me.
So if you have transferred money to Capital One recently expecting to get a zero percent interest rate - better double check your statements!
Friday, July 13, 2007
I have borrowed against my 401k since this was allowed. In my 401k I have two options for investing. One is a fixed income fund that currently is paying ~5.75% interest. This is the closest option I have to a bond fund. The second option is some mutual fund or my company stock.
When I borrow against my 401k I am paying (currently) about 8% interest on the loan. Essentially, I have created a fixed income investment for my 401k that pays 8%. It seems to me that this is a better return than the fixed income fund that is my alternative choice. Since every financial planner is advocating that I have 30% of my 401k in a fixed income fund, why is the loan fund not a better deal than the fixed income fund offered by my company?
Now, you can argue about the merits of borrowing money, but if you need to borrow money anyway, why not pay yourself rather than a bank? It just makes more sense to me that the first place you should borrow is your own bank. And that is what my 401k is - a bank that makes investments.
The major risk is that you will change or lose your job before the loan is paid. For me that has not been an issue, but for young people who feel the need to switch jobs or people in unstable industries, I can see that point. The risk of having to repay the loan with a 10% penalty is steep.
For me this program has worked out great. I've borrowed to buy houses as well as other short term needs (usually for investing). I wouldn't think that borrowing to buy an HDTV is the thing to do here (but that is a completely different issue), but it is an option that can pay dividends.
So, am I missing something or does this make sense?
See part 2 here
Also see this webpage Using 401k Loans for Real Estate Purchase
Thursday, July 12, 2007
Some interesting information from the report:
- world population went from 1.6 billion to 6 billion during the 20th century
- population growth hasn't really come from increased births, but from massive reduction in death rates, especially infant mortality
- birth rates have dropped throughout the world (even third world countries have seen birth rates drop in half) during the last century
- GDP has risen throughout the world despite more people (or maybe because of more people)
- prices for food have dropped inversely with population growth (by 70% for basic grains) - exact opposite trend that Ehrlich and scarcity mongers predict (supply is up and hunger down as well)
- prices for scarce commodities has dropped 80% with population growth. If we are consuming so much more of these "scarce" resources, why is this? Price indicators are showing that these resources are becoming less scarce as we consume more.
- Population density is no predictor of standard of living
Here's the conclusion of the report:
"The tremendous and continuing spread of health and prosperity around the planet betokens a powerful and historically new dynamic that anti-natalists today only dimly apprehend. This is the shift on a global scale from the reliance on “natural resources” to the reliance on “human resources” as fuel for economic growth. The worldwide surge in health levels has not been an isolated phenomenon. To the contrary: it has been accompanied by, and is inextricably linked to, pervasive
and dramatic (albeit highly uneven) increases in nutrition levels, literacy levels, and levels of general educational attainment (figure 13, tables 3 and 4).
These interlocked trends speak to a profound and continuing worldwide augmentation of what some have called “human capital” and others term “human resources” – the human potential to generate a prosperity based upon knowledge, skills, organisation and other innately human capabilities.
In a physical sense, the natural resources of the planet are clearly finite and therefore limited. But the planet is now experiencing a monumental expansion of a different type of resource: human resources. Unlike natural resources, human resources are in practice always renewable and in theory entirely inexhaustible – indeed, it is not at all self-evident that there are any “natural” limits to the build-up of such potentially productive human-based capabilities.
It is in ignoring these very human resources that so many contemporary surveyors of the global prospect have so signally misjudged the demographic and environmental constraints upon development today – and equally misjudged the possibilities for tomorrow."This is a theme I have written about often. Paul Zane Pilzer wrote about it in Unlimited Wealth 20 years ago. The pie is growing all the time, the sky is not falling and the Gore's and Ehrlich's of the world are preaching their religious Apocalypse into face of overwhelming evidence to the contrary. For what purpose? Their Stalinist views that only government can save us from ourselves.
Tuesday, July 10, 2007
- Nicholson - three loans against this property. A perfect setup for a short sale. The third lien holder (owed $16k) would not do a discount. The first 2 were foreclosing and the third did not have a clue since the seller continued to pay them all throughout the foreclosure. The third bought the property and has it for sale. Exterior looked good on this property and BPO appraiser only did a drive-by. Interior was a wreck.
- Warwick - seller owed $40k, property worth less than $15k and but bank wouldn't accept less than $30k.
- Roslyn - two loans $67k and $5k from same bank. The bank just wanted to walk away from this, but when they found a buyer they decided they were going to get some money. Bought for $5k from bank. For sale for $19k with no offers after 5 months.
- Hunting - two loans $146k and $40k. Second bank took $2500 for their $40k and I paid first $15k in fees to reinstate the first. Rehabbed and for sale at $219k.
- Knox - One loan of $64k. Offered bank $47k but they would not take less than $52K. On market by bank at $74k with no interest per Realtor
- Monroe - one loan of $179k. BPO came in at $154 and bank was willing to take $142k. I offered $135k but bank wouldn't budge. Just went at auction. BPO showed house did not need repairs but appraiser missed lots of stuff. Maybe could have gotten BPO lower if I had been there. Negotiations went down literally the last hours before the auction.
- Randall#1 - One loan of $117k property worth less than $80k. Seller backed out after wife refused to sign papers
- Randall#2 (interestingly 2 foreclosures next door to each other). One loan of $150k. Property is worth about $125k. Seller stalled for 3 months claiming husband wouldn't let her do sale (despite her saying husband is not on deed??). She just received notice of court date and now wants to proceed.
- Tiffany - great house in my area. Two mortgages - ideal for a short sale. Seller has stalled for several months. Not sure if drinking or depression is to blame but he suffers from both. This is an interesting property because seller stopped paying mortgage March 2006!. He paid $1800 to stop foreclosure and the company did, but the bank re-filed this year. Seller was under the delusion that he had lots of equity in his house but he owes over $40k in back interest and fees so he is upside down.
- Stockbridge - one mortgage of $45k. Property is trash and worth less than $10k. Bank won't go below $45k.
It's been an interesting process to learn so far, but I haven't seen any logic in how banks decide when to accept an offer or not. Some loan mitigation personnel are much more helpful while others are very hard nosed. I've got the process down to a "T" and feel pretty good when negotiating with a bank. But to make a living at this would be pretty hard in this location based on my response and success rate.
Monday, July 9, 2007
That is why Amity Shlaes new book - "The Forgotten Man - A New History of the Great Depression" is quite fascinating. Many people are aware of how Hoover really set the economy in a tailspin by signing trying to isolate the US from world trade with the Smoot-Hawley Act. But few are aware of the bumbling that FDR did, which extended the Great Depression for nearly a decade.
Shlaes account of how FDR decided to set the price of gold is amusing (a lucky number). His constant need to create sub-groups of people that became dependant on the Federal Government had immediate and long lasting results (and defines the Democratic Party to this day).
Wendle Wilke - presidential candidate in 1940, called on Roosevelt to give up this philosophy of "distributed scarcity". Since 1930 this is what the Democratic Party has offered the country. The theory that there is only so much pie (whether this pie is money, food, or the environment) and we need to re-distribute it.
My own beliefs have to do with prosperity consciousness, which I've written about many times.
You can read all about the huge carbon footprint that this event had on the earth here. While these celebrities were jet-setting around the planet on their private planes (travelling 222,000 miles), creating mountains of waste at concert sites, plus TV audiences, they created seven times the carbon emissions in one day than an average person does in a year. And this is not a one time event for these entertainers. Madonna's carbon footprint is 10 times the average person and we all know about Gores lifestyle.
Here's a quote from one environmental author. See if you can see any hypocrisy here:
"Colby Cosh has some sport with "the guru of green business practices", Joel Makower, who writes:
My travels this week take me to Detroit and Chicago for meetings and speeches. By the time I return home to California on Wednesday night, I'll have taken — if my accounting is correct — 51 plane flights during the first half of 2007. I'm not bragging, mind you. Indeed, it's rather embarrassing (and more than a little exhausting).
As Mr Cosh observes:
51 plane flights in six months for an environmental author and lecturer—embarrassing? Yeah, that's one way of putting it. Another would be "I guess my entire career has really just been one long act of satire."
The green guru defends himself thus:Like many of my environmental professional brethren, air travel is far and away my biggest personal and professional footprint. And it's not likely to change any time soon. This reality notwithstanding, the airline industry seems poised to finally confront its environmental impacts — and mine.So his frequent-flyer miles
are an unchanging reality, and it's the airline industry that has to figure out a way to deal with it."
I love Mark Steyns comment to this:
"On a related note, several readers have asked how my campaign against sexual promiscuity is going. As you know, it's one of the great scourges of our society. Well, I'm still nailing anything that moves, and that's not likely to change any time soon. This reality notwithstanding, the rest of you really need to cut it out. "
"Live Earth managed to re-cycle one thing, at least – the old liberal mistake that says that citizens can’t do anything to help themselves (or their country, or their world) and their only hope involves changing government. In other words, to liberals (like all the well-intentioned bozos who participated in Live Earth) change only matters when it’s government initiated and government mandated. In truth, bottom-up changes in private, individual behavior (which are eminently possible on this issue) brings far greater impact than any top-down bureaucratic demand."
The environmental movement is not about saving the earth - it's all about politics.
Saturday, July 7, 2007
"Moreover, if we and the consensus are correct, then the period 2003-2008 will have been one of the most powerful periods of economic growth globally since accurate data has been collectable for much of the world."
As I have posted in the Greatest Economy Ever and Roaring 20's are Back, this is not a short term phenomena but a long term trend. Paul Zane Pilzer should get a Nobel Prize for his Economic Theory.
So, if you are having a rough time now - don't blame the economy or Bush. As Larry Winget would say "Get off your Butt".
Thursday, July 5, 2007
Some of the reasons:
- My cash is depleting rapidly as I have a negative cash flow of $3k per month holding costs
- I didn't assume any increase in value of my homes. I based this on the current uncertainty in the real estate market due to changes in interest rates and increased foreclosures.
- I increased the value of my flip by only the amount that I actually spent. Many articles about home improvement talk about how certain improvements return less than 100% of the cost of the improvement. Although I am hoping that we increased value by more than the cost (especially since we did most of the work ourselves), until I have a contract in hand, I don't have any real profit.
- My auto value decreased since I put a few dents in it with my trailer
- Listen to people that have expertise in the field they are discussing. Al Gore and Hollywood stars have no expertise in statistics or global climate change to make them worth a listen to.
- Neutrality - people that receive government grants are just as susceptible to bias as people that receive grants from companies - be wary of both.
- Affiliations - what organizations do these "experts" join or donate money to? What percentage of news reporters are donating to Democratic politicians? That is an affiliation that shows bias.
As the bumper stickers from the 60's used to say - "Question Authority"
Tuesday, July 3, 2007
Islamists have no room for a liberal society and are intent on imposing Sharia law onus. Meanwhile, our PC liberal elites are so bent on imposing multi-culturalism on our society that they ignore the reality of good and evil to worship the god of tolerance.
This elite class of people feel that the problem of radical Islam is new and will go away if we just reason with these people. But history shows differently. One hundred years ago Winston Churchill wrote these words in the original edition of "The River War":
How dreadful are the curses which Mohammedanism lays on its votaries! Besides the fanatical frenzy, which is as dangerous in a man as hydrophobia in a dog, there is this fearful fatalistic apathy. The effects are apparent in many countries. Improvident habits, slovenly systems of agriculture, sluggish methods of commerce, and insecurity of property exist wherever the followers of the Prophet rule or live. A degraded sensualism deprives this life of its grace and refinement; the next of its dignity and sanctity.
The fact that in Mohammedan law every woman must belong to some man as his absolute property-either as a child, a wife, or a concubine-must delay the final extinction of slavery until the faith of Islam has ceased to be a great power among men. Individual Moslems may show splendid qualities. Thousands become the brave and loyal soldiers of the Queen: all know how to die. But the influence of the religion paralyzes the social development of those who follow it. No stronger retrograde force exists in the world. Far from being moribund, Mohammedanism is a militant and proseltyzing faith. It has already spread throughout Central Africa, raising fearless warriors at every step; and were it not that Christianity is sheltered in the strong arms of science-the science against which it had vainly struggled-the civilization of modern Europe might fall, as fell the civilization of ancient Rome.
Two hundred years ago Jefferson fought the Barbary Wars against the same Islamists. Here's what he heard from the Ambassador to Tripoli:
"Let us not call this view reductionist. Jefferson would perhaps have been just as eager to send a squadron to put down any Christian piracy that was restraining commerce. But one cannot get around what Jefferson heard when he went with John Adams to wait upon Tripoli’s ambassador to London in March 1785. When they inquired by what right the Barbary states preyed upon American shipping, enslaving both crews and passengers, America’s two foremost envoys were informed that “it was written in the Koran, that all Nations who should not have acknowledged their authority were sinners, that it was their right and duty to make war upon whoever they could find and to make Slaves of all they could take as prisoners, and that every Mussulman who should be slain in battle was sure to go to Paradise.” (It is worth noting that the United States played no part in the Crusades, or in the Catholic reconquista of Andalusia.) "
Those calling for us to withdraw from Iraq are woefully mislead about this religion and the consequences of a withdrawal. The irony is that it is the same people that think themselves superior thinkers that are willing to sacrifice our liberal society to terror and Sharia Law. Nothing has changed as to Islam's intent since its founding and certainly not in the past two hundred years. We are in a war that will not end no matter the battle field and Iraq is just one of many fronts in the war.
If you doubt my words, read those of a former jihadist.
The show did provide some interesting insights into home staging. De-cluttering the sun room and the living room certainly helped. The main bedroom also needed to be rid of the flower theme as well, but the color they chose (lavender) seemed too bold from what I understand about staging. Otherwise, the painting and decorating they did seemed about right.
However, that being said the program glossed over the reason this house hasn't sold - the second floor is an apartment! The house looks like a single family home located in an area of nice single family homes. The type of people that live in OP are not interested in buying homes are looking for single family residential homes - not having a tenant live above them. This limits the potential buyers to a very small market segment. I've watched many of these homes and they do not sell in the better suburbs here. This type of arrangement is better suited to city dwellers. I think the best money that the homeowners could have spent was to convert the second floor to a large master suite.
As with "Flip This House" the show did not tell you the outcome of their makeover, but I doubt it helped much. I don't think a major flaw can be overcome by a coat of paint.
Sunday, July 1, 2007
To me the show did not jibe with the reality that I have been confronted with while trying to flip a house. For starters, the flip was in San Antonio TX which is a far cry from Buffalo NY - the area is growing in population! [I have never lived in an area with population growth :( ] So the idea that I could buy a house and make $95K was so unrealistic to begin with.
I have yet to find a house where I could afford to purchase and hire the job out completely as well. Contractors in NY have such high costs that they charge much more than the national averages for jobs (as estimated by RS Means), so I am forced to do a lot of the work myself. This adds time to holding costs since I cannot work full time and complete a rehab in 21 days.
The other problems I saw with some of the estimates:
- Purchase price was shown at $260k but no acquisition costs! It usually costs me several thousand dollars to get a property. The one I paid $5k cash for still cost me $3000 to close - it must be awfully cheap to close a property in Texas!
- Holding costs - the investor had $260k purchase price and $45k rehab costs but the show never did mention holding costs. Maybe it sold in 10 days and he only had one month of holding costs. Here it takes 2 months to close a property and average time on the market is 3 months - that's $12.5k in holding costs in interest alone (assuming 10% interest), not to mention taxes, insurance, utilities, etc.
- Selling costs - it looks like this guy does FSBO through his company but I think that may only work in hot markets. No mention is made of commissions or closing costs.
On the plus side, the show did put in a great plug for a certain counter top product which I do R&D work on.
Update: I've since watched several episodes of this show and my initial impressions have not changed. Every flip is in a prospering area of high real estate growth rates which makes it easier to flip at a profit, the "flippers" all seem to go over time and monetary budgets, which would cause them to lose money in a market like Buffalo. Selling costs are ignored and no indication of the ultimate outcome is given. Basically, this show is crap for a serious investor.