The Best Mix of Investments from two top performers

I wrote a post talking about having a balance of investments in both stocks and real estate. It turns out that the "big boys" use this exact strategy and get some of the best returns. Look at how Harvard and Yale invest their endowments. It turns out that they invest approximately 30% of this money in real assets like real estate. And what is their return? Over 10 years it is 15% and 17% annualized returns for the two schools.

Even though I was upset that I could not sell my real estate last year, property values here have not declined at all and in fact have risen over the past year. So while my 401k has taken a beating this year, my real estate equity has been stable.

A Landlord Once Again

At the start of last year I had set some goals to buy and flip some houses. I ended up buying 3 houses last year Vs a goal of 4. I had set a goal to sell 3 houses but was unable to even get any offers on the houses I own. I tried FSBO, professional Realtors, and auctions but got no where. So to save myself from bankruptcy, I have rented all of my properties. Right now I have 4 rental properties in my real estate portfolio.

I wrote about my previous experience as a landlord in WV here. It was a miserable experience. Tenants didn't pay their rent, the apartments were usually vacant and difficult to rent, I was awakened in the middle of the night to fight bats or crawl under houses to thaw out frozen water lines and I lost lots of money.

I bought a house 2 years ago and used a lease-purchase method to rent it out. It worked out pretty well. The tenants spent money to upgrade the property, never called me and I didn't have to spend a penny on repairs. They decided not to buy the property after the year and so I got to keep their option money and have re-lease-optioned the property quickly. I should have learned from that lesson, but I had the flipping thing in my head and so spent the greater part of last year losing money trying to sell 2 properties.

In the end I ended up renting out all of my properties using the rent-to-own signs I put on the front lawns. The signs got the tenants, not any other advertising. I got lots of calls and rented each property quickly and higher than market rates with a non-refundable option payment. So far it is working out well. One trash property that I bought is being rehabbed by the tenant. He's put $3K into it so far - re-plumbed the whole house, re-wired it and put in a new bath. I couldn't give this house away when I was trying to sell it and now it's in much better shape and worth a lot more, so if the tenant defaults I'll have house worth much more.

The cash flow on all but one of the properties is positive. I had tried to refinance that property but so far have not had much luck. However, it has an adjustable ARM and maybe with the interest rate cut the ARM will drop from it's current 9.7% interest rate. The only real negative to my current situation is that I have no cash on hand for emergencies or to buy more properties. If the economy tanks and one of my tenants loses a job, it could put a hurt on my finances. Hopefully, someone will exercise their option in the coming year. But for now I remain a landlord not by choice.

CountryWide mess hits home

I had decided in November to take my flip off the market and try a lease-purchase. Part of the strategy was to re-finance the loan on the property. (I had been paying the previous owners loan payments on an ARM loan and the interest rate had jumped up to 9.7%). When I applied for the mortgage in November the broker thought it was a slam dunk. But CountryWide dragged their feet on the loan for 2 months, constantly asking for this and that document. It was a death of a thousand cuts as they decided Friday that they didn't want to lend the money.

So now I am in a funk. This is a $500 a month penalty over what I thought I would be paying on the re-fi. I had the cash flow on all my properties worked out to squeak by and now it doesn't look promising. There's no place else to look for income at the moment and the only light I see in this tunnel is a train coming at me.

I'm a Millionaire!

Hah! Not really. If you click on my NetworthIQ you'll see that I have assets of over $1.2M now. On the downside, I have liabilities of nearly a million dollars. My net worth has moved slightly downward over the last 2 quarters as my stock portfolio has taken a hit over the second half of the year. My real estate ventures did not pan out as I had hoped either. On the plus side, real estate values in this area are not taking the big hit that they are in other parts of the country, so this is counterbalancing my stock market losses.

I've been trying to re-finance the property that I rehabbed last year (it has an ARM that's at 9.7% right now). However, the bank (CountryWide has been really dragging their feet on this loan. I'm hoping to get that done soon so I can pay off some of the increased debts I've accumulated in the last 6 months.

I'd say my big mistake this year was not trying to lease-purchase out my rehab. I thought that I could flip it and make a profit, but flipping is for people in markets that are growing. Buffalo is not such a market and that exit strategy doesn't work here.

I still haven't come up with a plan for 2008. I'm recovering from pneumonia which I have had for the past 2 months and have not had the energy to do much. Moving in December took the last ounce of energy I had and put me over the edge.