Wednesday, February 13, 2008

Hunkering Down

The past few months have not been too active for me in the real estate business. I spent November and December fighting pneumonia and this past week had surgery related to complications I am suffering from ulcerative colitis that I've had for the past year. Unable to sell any of my "flips", I now have everything rented. I was hoping to have a positive cash flow but due to the mortgage crisis have not been able to refinance the big rehab I did. I still am paying over $2200 per month on it and taking in only $1750 (which is a damn good rent in this area). Interest rates are low but banks are wary about doing investment property loans at the moment and looking for full documented loans. Unfortunately, I can't show a profit on my rentals. I have been working on my 2007 taxes the past few weeks and am in shock as to the extent of my loses last year. Despite my high salary I won't be paying any income taxes. In fact, I expect to get back all of the withheld taxes plus $3000 in child tax credits when I file. Certainly this was the worse year of my financial life.

So I am hunkered down trying to ride out this financial disaster. Not spending anything on real estate that is absolutely necessary. I've taken down my web site and stopped doing direct mail. Everything is at a standstill. Hopefully, the tenants will pay their rents on time and my cash flow will allow me to sustain my lifestyle until one of the lease-purchases excercises their option.


Anonymous said...

02/13/08 Paul,glad you are okay.I missed your posts. With all due respect, your age bothers me with your real estate exposure. I know you can't do anything about age;any way of reeling in anything to lessen your load i.e. divesting instead of investing? What about a property management company to handle whines and collections? I am a couple of years older, closing in on 60, but I started divesting at 50, not taking on more, plus I was able to retire at 54 comfortably.
Re 1040 taxes, please tell me you are at least having a CPA review your work. It's money well spent. All the gurus and books out there cannot replace a good CPA. A consult will pay for itself. (I have no connection to CPAs, except that I have one, and couldn't have retired early and comfortably without their guidance.)
What happened to your wife staying home to manage properties. Did that work out? Are you both enjoying the new house? Not much mention of that. Moving is very stressful. I hope your MD discussed gut problems with you in relation to stress.

Paul said...

Thanks for your concern. Property management hasn't been much of an issue with these lease-purchase agreements. The tenants are taking care of repairs and mailing the checks on time to get their rent credits. I wish I could get rid of a couple of properties - that was my plan. But real estate conditions here make flipping difficult. Average time on the market is 7 months. Making $2300 payments on a property that is empty for 7 months is a killer.

I have 2 brothers that are CPA, so I get plenty of free advice. My career choice has put me in rotten real estate markets all my life. Maybe if I had saved 20% of my income from my employment all my life I would be retired now, but I couldn't stand my job for many years and "invested" hundreds of thousands trying to get financially free.

As for my gut and stress - no relation. It's from eating some tainted spinach a year and a half ago.

Anonymous said...

02/13/08 Paul, I really have other things to do, but I wanted to comment on your statement that you have brothers who are CPAs and advice is free.If they were free and available and you were honest with them, why did they let you get in this dilemma, for the second time? Did you get routine advice as you went along,or a type of post-mortem. Sometimes you get what you pay for.I am not trying to be rude, just pointing this out.

Paul said...

Both of my brothers routinely invest in real estate and have much of their wealth in real estate. I don't think that a CPA could have done anything to prevent my dilema. As far as CPA's go my brothers are top notch. Financial advisers I have gone too have talked about nothing other than stocks. Maybe that is the smart money, but having 3 millionaires in my family, none of whom invest in stocks at all, I've not seen this as the be all way to get rich.