How Mortgages are funded

Wall Street has been roiling in turmoil due to the "crisis" in the sub-prime market. I ran across this article that describes how mortgage loans are funded and what the underlying problem is.

Seems there are 3 ways for a mortgage to get funded:

1. GSE's - these are government secured enterprises like Fannie Mae and Freddie Mac and Ginnie Mae. These loans are secured by the Federal government and are limited to $417k. Duplexes, tri-plexes and four-plexes have higher limits as does Alaska and Hawaii.
2. Portfolio lending- this is where banks lend money out of their deposits. These are typically ARMs' and have very specific underwriting criteria (i.e. they screen their borrowers very carefully)
3. Securitized mortgage pools - these are made up of a wide variety of loans and sold to Wall Street investors. These loans run the gamut from sub-prime to fixed to ARMs and are assessed for risk. This is where all of the problem area is at the moment. Investors are uncertain about the underlying equity of the real estate in these loan pools at the moment and so are not bidding on the loans. In the end it is what the Wall Street investors bid that determine interest rates of these loans.

So if you qualify under methods 1 or 2 above there is no crisis to speak of. It's when you need to get a loan from category 3 that there is a crisis. For people in expensive real estate markets this is the issue. For us in lower priced markets with good credit there is no problem getting loans. In fact, CountryWide (the largest lender with loads of problems trying to sell their category 3 loans) just approved me for a $200k, 5% down payment no doc loan. It took about 3 hours to approve.'

For many, this might be the best time to buy.

1998 not the hottest year

Global warming proponents have been preaching about how 1998 was the hottest year on record and the past 10 years include 5 of the hottest. Well...it turns out that is not true. 1934 was the hottest year and most of the years during the dust bowl round out the top 5 hottest years.

According to the new data published by NASA, 1998 is no longer the
hottest year ever. 1934 is.

Four of the top 10 years of US CONUS high temperature deviations are now from the 1930s: 1934, 1931, 1938 and 1939, while only 3 of the top 10 are from the last 10 years (1998, 2006, 1999). Several years (2000, 2002, 2003, 2004) fell well down the leaderboard, behind even 1900.
(World rankings of temperature are calculated separately.)

Of course, you won't be hearing about this during the leftest newscasts or in the NY Times any time soon. As a scientist I have been suspicious of the basic data collection that was used to gather the data. Turns out much of the measurement stations are not quite up to standards. Good measurements are the basis of good science and there are lots of examples where we have not started gathering good data to determine if global warming is real or not. Much of the world is relying on urban temperature measurement points that have substantial biases from urban heat.

More here. I didn't realize Mann was not a statistician, though I am not at all surprised based on my analysis of his work.

Real Estate Taxes in NY

I just read this post at pfblog regarding whether he can afford a $1M house in Seattle. He thinks that the Taxes and insurance for his million dollar home will be add $600 a month to his PITI payment.

Meanwhile I sit with a property in Cheektowaga NY with a property assessed at $163k and am paying $8k a year in taxes. Small wonder that it is difficult to sell.

Whatever dumb move you make financially, don't move to NY.

What I've learned after buying houses for 28 years

After graduating from college I rented for a year and since then have been buying single family homes with a spattering of duplexes, triplexes and one 6 unit building. My success rate has not been spectacular, more mediocre at best. In my mind my real estate ventures are heavily linked to my career choice. I majored in chemical engineering and was so enamored with working with one particular chemical company that I have intrinsically linked my real estate purchases to locations where my company provides work. And nearly all of those locations are away from growing metropolitan areas. I've also had the ability to watch my brothers (I have 6) locate to growing areas and prosper tremendously in their real estate purchases. So here is what I have learned:

1. Location is everything. If you are not living in a growing metropolitan area the chances of making a lot of money in real estate diminish exponentially. I lived in Parkersburg WV for 20 years and population declined by 25%. What happened to real estate demand? Certainly not the same as my brothers who live - near Boston, near DC, near Philly, near NYC and Charlotte. Values of properties in WV tanked for years and then was flat. I could buy property for $0.50 on the dollar but then couldn't sell it for half of what I'd paid. I'm living outside of Buffalo now and although some suburbs are growing slowly the population of this area is and has been in a steady decline. Admittedly, some suburbs have seen some 4-6% appreciation during my 9 years here as whites have fled the city, but Buffalo and it's closest suburbs are shrinking. I've never lived in one of America's fastest growing Suburbs.
2. Timing is crucial. There have been 2 major real estate booms during my life. In the early 80's interest rates dropped from 16% to ~7% and for most of the country real estate took off. But like the past 6 years, the boom was uneven throughout the country because location is everything. I watched my brother living near NYC rehab houses and make $100k in profit. I tried the same thing in WV and lost $100k. The key to timing in my mind is watching interest rates. During the past 6 years they trended downward towards the lowest on record and real estate boomed. When interest rates are rising real estate will not do well, when there is a long term downward trend, there are large opportunities for even the dumbest investor to make piles of cash.
3. Buying from desperate people is one way to off-set the above 2 trends. Many people make money in poor markets and against the trends. The main skill that they possess is the ability and patience to only buy from people who are facing foreclosure (this doesn't mean they are behind in payments, just that some circumstance in their lives will push them there eventually). This could be people going through divorce, job loss or transfer, heirs of property, medical problems, etc. Locating these people requires lots of patience and a willingness to alienate lots of Realtors and sellers by making low ball offers. Most people buy houses based on emotion and don't have the self-discipline to wait for the right deal. I have purchased 17 properties in my life and I can say that the majority (12) were purchased based on an emotional decision rather than the numbers.

A lot of home owners have made a lot of money buying in the right location and during the right time. I watch Flip This House and Flip That House and notice that they don't do shows in Buffalo, but only in growing areas. See this Forbes article on Best Places to Flip a Home. There is a reason for this - that's where people can make money and don't have to be too smart about how much their budget or timing.

I still am a strong advocate of using real estate as a strong component of building wealth. I just need to buy smarter to offset the location and timing factors. I won't be one of these people on TV flipping a house for $100k profit after going over budget by twice, but I believe I can make small profits that will get me closer to my goals of financial security.

Change in Real Estate Selling Strategy

Well, I've given up on FSBO and flat fee listing services. I'm switching both my properties to full service agents this week I haven't gotten a single call in 3 months for my Buffalo property and not a single agent has brought a client to my Cheektowaga property. I've found a young ambitious agent to sell the later property. I'm hoping that she will have contacts with relocating people as well as get some agents into the house. I'm not sure why the Cheektowaga property hasn't sold yet (except for the $8k tax burden). As one woman said today during the open house "it's to die for".

Maybe in a hot market these other services will work, but in the two areas I have properties population is declining and real estate is not hot.

Credit Card Number Stolen Again

Got a call from my Master Card debit card company yesterday asking about charges I might have made. Seems like my number was pilfered somehow though I still have the card in my possession. This is the second time a number has been stolen from me.

A few years back I was driving through PA and bought gas. While waiting for the attendant to process the card (before the days of DIY at the pump, he motioned for me to come inside the station. The Discover Card agent was on the line and asked about purchased I had made. Seems someone was buying lots of high priced stuff in Chicago for me! Fortunately, Discover cancelled the card immediately and nothing ever showed up on my bill.

This time MC called me and asked if I had purchased anything from a Tent and Awning company for $1.39. (interestingly, I had ordered some camping equipment from another company). However, Tent and Awning was not someone I had dealt with. It turns out that this outfit puts through small, innocuous charges to see if the account is valid and once they confirm that, they make big charges. I might have looked at that $1.39 and never paid attention to it if it showed up on my statement. So, kudos to MC for picking this up.

This must be one heck of an ongoing battle between those creative types trying to steal others money and the CC companies trying to detect new schemes. Unfortunately, its costs us all money.

Real Estate Dilemma

Our real estate purchases have been stagnant since February when we purchased 2 houses on the same day. We spent the better part of 3 months rehabbing one of the houses while trying to flip the other wholesale. Neither house has sold and the nicer home is draining about $2000 a month cash from us.

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....)

Harry Potter - The Spiritual Story

I've been traveling on business this week and have had the opportunity to devour the latest Harry Potter book The Deathly Hallows. I have been fortunate that my children were the right age to be interested in this book ( my oldest is Harry's age). I started reading the first book to them at bed time (it seems so long ago) and it's one of my fondest memories as a parent. My oldest (who struggles the most academically) has read each book several times.

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.

Influencing Apraisals or appraising is a joke

I wrote earlier about how it might work to my advantage that I accompany appraisers when they do a BPO on a foreclosure. I thought I might be able to point out the flaws of a house and help keep the appraised price down. Well, I did it last week. Some commenter's warned that I might get in the appraisers face and it might work against me.

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.

Foreclosure Time Frames

Here's an interesting article that discusses the length of time it typically takes for a bank to foreclose on a property. I happen to live in New York which takes 12-19 months for a bank to foreclose. Add to that the time it takes to re-sell the property (especially here in the Buffalo market) and I think this would give me an advantage to getting more foreclosures. The New York Home Equity Theft Law probably doesn't hurt either. Knowing this, I may be able to get more leverage when negotiating short sales with banks.

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.

Home Buying Strategies

There's a good post at DebtFree about buying a home. I've used purchasing at pre-foreclosure, submitting low-ball offers on houses that have been on the market for a long time, buying "as is" as my main strategies. I also look for other "don't wanters' - estates, divorces, vacant homes, etc. HUD homes have never appealed to me. Usually they are full of problems (mold) and over priced.

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.

Secondary Mortgage Market

I've often read stories that banks sell their mortgages on the secondary market but not appreciated the magnitude of this. Recently I have been dealing with a seller in foreclosure and been trying to do a short sale with his loans. He had two loans on the property and when I first talked to him he told me he didn't know who the banks were.

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.

Be Carefull about 0% Balance Transfers

I got an offer from Capital One a couple of months ago to make some one year 0% interest transfers to my Cap 1 card. I had some expiring 0% balances from a Lowes card and a 9.9% balance on an AmEx, so I decided to take advantage of the offer.

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!

Why Not Borrow Against 401k?

I have never read of any financial planner that advocated borrowing against your 401k. In fact, 100% of everything that I read says to never do this. I do not understand this at all and wonder why.

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

Zero Population Growth - The Scarcity Crowd

I read an excellent paper with lots of data and charts showing the effect of the tremendous population growth of the past century titled Too Many People? (pdf). It's an interesting look at how the scarcity crowd (e.g Al Gore and Earth in the Balance, Paul Ehrlich and Population Bomb, Club of Rome, etc.) are way off base in their constant predictions of gloom and doom.

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.

Short Sales - Banks and Sellers

I've had about 10 short sale opportunities this year and decided to do a look back at the results (name is street name). None of these sellers had any equity in their homes (although the Tiffany owner thought he did until I got the payoff from his bank):

• 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.

FDR and Scarcity Consciousness

It's impossible to have much perspective when living through events. Many people once called Ronald Reagan the worst president ever (and now call Bush the same) while 30 years after he left office Reagan is hailed as one of the top 5 Presidents.

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.

Environmentalists - The Fraud Squad

Sometimes laughter is the only appropriate emotion to show when a group of people acts like frauds, fools and hypocrites. That is my reaction to the outrageous event called "Live Earth" this past weekend spearheaded by none other than the nuttiest of politicians - Al Gore and his entourage of elitist entertainers who believe us little people need to "do as we are told -never mind what I do".

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.

Most Powerful Period of Global Economic Growth in History

This article states that the period from 2003 to 2008 is greatest economy of all times.

"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".

Second Quarter Net Worth Update

I've updated my net worth on NetworthIQ which is shown in the sidebar. Looking at it, it is very discouraging (especially after watching all the Flip That House shows claiming these first time flippers making 6 figure profits, while my wife and I busted our butts rehabbing a house all quarter). My net worth for the quarter increased by only $1k despite one of the best quarters I have ever had in my 401k.

Some of the reasons:

1. My cash is depleting rapidly as I have a negative cash flow of $3k per month holding costs
2. 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.
   
3. 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.
4. My auto value decreased since I put a few dents in it with my trailer
   

10 Politically Incorrect Truths about Human Nature

Psychology Today offers an article titled 10 Politically Incorrect Truths about Human Nature. It offers lots of insight into why men prefer blonds, politicians have affairs with young women, suicide bombers are Muslim, men are more creative when they are young and why you need to buy that red sports car when you are over 40. A fun read.

Getting Good Advice

I ran across this article on my Scientific American RSS feed - Getting Good Advice. I thought most of it was right on, although the bias in these types of magazines is always against business and towards big government. The advice is geared to getting medical advise but can be applied to finances, global warming or journalism in general (the biggest source of nonsense)

Some pointers:

• 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"

The Original Liberalism Vs Islamism

When I was young I was a JFK "liberal". That is, I believed in the concepts of liberalism. Most "liberals" today do not know or understand what liberalism really was and today's liberals are really Marxists, or at the least, hard core socialists. Melanie Phillips writes an erudite article about classic liberalism and what radical Islam is trying to do to destroy it.

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.

Sell This House - Realistic?

I've been concentrating on staging my Cheektowaga house lately and while searching for the TV show "Flip that house" I found the show "Sell This House" an hour earlier on A&E. Interestingly, the house that was covered last Saturday was located in Orchard Park, NY - the town next to the one I live in. Orchard Park is one of the 2 nicest suburbs in the Buffalo area and unless a house is overpriced, homes there will sell about as fast as anywhere in Western New York. The house on the show hadn't sold in 18 months on the market, so (obviously) it had to do with "home staging" - the topic of the show. But, the show glossed over the main reason for the house not selling with little mention.

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.

Flip That House review

Many of the people that have viewed my Cheektowaga property have made some comment about the TV show "Flip That House". I had never seen the program before, primarily because I had never had more than basic cable service before (and really didn't have time to watch TV). Recently, I had upgraded and now can see A&E and I got a DVR, so I recorded the program Saturday and watched it before bed last night.

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.

The other part of the show that I disliked was that there was no closure. Did he really sell the house at his estimate of $385k??? We'll never know so the information to me was totally worthless.

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.

Chinese game our immigration system and one child policy

My wife reads lots of stories on China and I found one quite interesting in light of the current debate on immigration. It seems that as China's middle and upper class grows, these people have found a way around China's "one child" policy. Since entrepreneurship is way up in China, most successful Chinese start their own businesses. So, it is pretty easy to get a business visa to the US for most middle class citizens. Men are setting up their pregnant wives in business and they are coming to the US, giving birth and returning to China. Since the child was born in the USA it is an American citizen and not subject to Chinese laws. Of course, if the Chinese couple later decides they want to return to live in the US they have an instant loophole - their children are Americans!

Quite an ingenious use of our citizenship and immigration laws.

Can I make money in Real Estate in Buffalo?

I own 4.5 single family houses in the Erie County/Buffalo area at the moment. An article in today's Buffalo News describes the downward slide of population in most areas of the County. Buffalo and Cheektowaga (where 2 of the houses I own are located) have dropped 5.7% in population since 2000. Lancaster, which has grown 3.7%, is where I own my other investment properties. The other 2 locations where I own my home and share a home with my ex, are not listed.

The mantra of Realtors is "location, location, location" and I have had bad experiences buying and holding in bad locations before (i.e West Virginia where population of the city dropped 20% over the 19 years I lived there. My learning from that was to never buy and hold in an area of declining population.

I thought that if I "flipped" property quickly that I might get around that problem here. I've got one property as a "fixer-upper" at a really cheap price, while the second, in a nice neighborhood, has been renovated and is in "like-new" condition. So, in essence, I am conducting an experiment as to what kind of house will sell in a "bad" location.

At this point the houses in Lancaster and the town I live in seem to be have increased in value enough for me to profit by selling them (the one in Lancaster is lease-optioned at a $25k profit). The one in Cheektowaga could make a profit if I can sell it quickly, but I don't see that happening. The fixer-upper may stay on the market for months more (already 4 months with no one even looking these days).

I've had many calls from prospective sellers in the declining areas of greater Buffalo, but have not answered their calls. I know that many people make lots of money buying real estate in Buffalo. Out of town buyers see Buffalo as a great market, but I still am not convinced.

Update: another doom and gloom article in the Buffalo News about the number of vacant houses here - 39,000.

Another Short Sale falls through

I had been working on a short sale in the nice town of Amherst for several months but alas the auction is to be held tomorrow. The owner owed $179k on the house which the bank had appraised at $194k when they doled out the loan. During the short sale process the BPO (brokers price opinion) came in at $154K. The investor for the loan was willing to take $142k. Based on my analysis I thought that the house might be worth $186k after repairs. Due to the limits of my hard money lender I am limited to borrowing $130k, so I was reluctant to meet the investors price. My analysis was that the house needed $15k in repairs. I eventually offered $135k but was refused as of 3 pm today. The bank loss mitigation officer seemed determined to get the auction postponed 30 days but the investor would have nothing of it.

This is the second house I have lost by less than $7k. Both houses only had a first mortgage which makes negotiation harder. I'm sure the Amherst house will fetch more than $142k at the auction. In fact, if my kids lived in that school district I would move into the house myself, since I think it is a good buy for a homeowner. But, for an investor, the carrying costs make it unprofitable to hold for the 6 months it would take to repair and sell. My analysis spreadsheet showed costs for closing, holding and selling of $20k. Add $150k for acquisition and repairs and I am up to $170k. If my $185k selling price is wrong, my profit disappears. So someone will get a good deal tomorrow.

One mistake I am making with these short sales is not being with the appraiser when he does the BPO. This appraiser missed all kinds of problems (roof replacement, ceiling damage, exterior paint, etc.) and only noted a bad kitchen floor. I think had I been there, I could have gotten a lower BPO. But that is the dilemma of having a full time job and trying to do real estate on the side - I just can't get away for every little thing. Maybe next time I will reconsider and make it a higher priority.

China or US - Which is a freer Nation?

At Church last Sunday, a member spoke about his recent trip to China to distribute wheelchairs and mentioned his intimidation at going into a "Communist" country. His implication was that he didn't feel very free while in China.

My wife and I have had many discussions about the relative freedoms that we experience in our respective countries. She has more experience in the US than I have in China, but I have a pretty good flavor of what it's like in China.

Now, there are some basic differences in our laws due to our "Bill of Rights" which the Chinese do not have, but many of our so called "rights" have been eroded and I believe we have moved much closer to a totalitarian country while China has moved to increase individual freedoms.

Here's a quote that summarizes my observations:

"But today's China is, in some respects, less socialistic than much of Western Europe, with a moth-eaten social safety net and a wild free-market economy. Students in almost any urban Chinese school can look out their classroom windows and see just about everything but socialism being constructed: high-rise office buildings, shopping malls, movie theaters, luxury apartment buildings, fast-food restaurants, hotels, factories — the whole capitalist panorama."

There are many aspects of Chinese life that seem more libertarian than our society:

• There is no guaranteed social security - no work - no retirement benefits
• Health care is cheap and fast. No weeks or months waiting to see a doctor. I dread the move to European health care here
• Although you cannot own land yet, you have much less interference from the government. My wife is still angry with a local Zoning Board denying our petition to build a house on our property and the eminent domain ruling from the Supreme Court take away a lot of our property rights
• Starting a business in China seems much less troublesome than putting up with Environmental impact statements and other regulations here
• I never have seen a traffic law enforced in China and they don't ban talking on your cell phone
• The Chinese are not banning me from eating trans-fats nor regulating where I can smoke (I don't smoke but dislike the regulations)
• Our tax code so mystified my accountant-trained wife as to be unimaginable. This code is truly one of the most suppressive regulations in the world

Now China does regulate speech more than us (my wife had not ever heard of Tiananmen Square). But our society is moving to take away our free speech as well. McCain-Feingold was an attempt to stop criticism of Congress, the debate over the Fairness Doctrine is an attempt to silence talk radio and the worst is the creeping culture of political correctness. I have a subordinate that was fired for posting an article from the newspaper that simple reported election results on gay marriage amendments. If it's not PC, you better not discuss it at work.

When I first met my wife I was quite critical of the Chinese government, but now I am convinced that we are in a glass house of our own as far as liberty goes.

I wrote recently about the adoption of Environmental Religion by the elite and the need for religious belief. Most intellectuals in the West today would argue that religion will soon disappear as did Nietzsche. Looking at what is happening in Europe one could believe that Christianity will soon disappear. That is what makes this article about the potential cause and effect between religious beliefs and family size so fascinating.

Anyone who has taken statistics has been exposed to the story of the correlation of the stork population and the human population of Copenhagen after WWII. The myth of storks bringing baby's grew out of this misinterpretation of data. In fact, the increase in human population provided new places for storks to nest which increased their population.

Likewise, in the article noted above on religious belief and family size, Eberstadt argues that the decline in family size is the cause of decreased religious belief. I find this a very compelling argument. As a single person I had no interest in religion, but as I adopted children I re-examined my beliefs in this area and can correlate my religious belief as a consequence of having children.

Although the article is lengthy, I recommend a thorough read. Certainly we see the strongest religious beliefs in populations with large families. Why the US still has large religious beliefs compared to Europe also seems to make a lot of sense when viewed as the author suggests.

The implications for this are also fascinating. Will those without religious belief breed themselves out of existence? The replacement value to maintain population is 2.1 births per family. Europeans are well below 1.4 and Russia is even lower. The US is maintaining the 2.1 ratio but not in the Northeast or big cities, so the rural Midwest and South are probably much higher. While churches in cities or Europe may sit empty, mega-churches seem to be growing by leaps and bounds.

As a scientist, I accept Darwin's theory of evolution, but not the extrapolation that many people make from it. Just because we can prove that animals or plants evolve does not explain first cause. I cannot accept that consciousness sprung spontaneously from DNA and no one has explained the Big Bang. However, if the innate drive of our species is to survive, those that have children are passing on DNA that encourages religious belief. So, in the end religion will not only survive but become an essential part of that survival.

Something real to worry about

I used to read Rumi who practised Sufi Islam - a very peaceful sect of Islam. The works of Rumi are quite spiritual in my opinion and if the world practised this religion we would live in an idyllic world. An article yesterday by Tony Blankley reviews a book by a Muslim scholar who has gone around the world interviewing Muslims about their attitudes. The book he wrote "Journey into Islam" is extremely depressing due to the shift in attitude by a majority of Muslims towards an aggressive, hostile belief system.

Various surveys have indicated anywhere from 25-35% of male Muslims under the age of 30 are proponents of suicide bombing (the low number is in the US). Our President is deluded if he really thinks that today's Islam is a "religion of peace". It is nothing of the sort. The left is deluded because they think that Muslims can be reasoned with. Militant fanatics cannot be reasoned with any more than Hitler could be.

If the Muslim world was an isolated desert we could probably ignore it. However, it sits on most of the worlds oil. Environmentalists have hamstrung us by limiting drilling in the US, opposing nuclear and coal plants as well as oil refineries.

So is a economic disaster or global war inevitable? Nothing is inevitable, but it worries me a lot more than any 1 degree rise in global temperatures.

New Ice Age Coming!

The above is from a post about the coming Global Cooling coming after 2020. Whether this is true or not is speculation as much as global warming is. The point is the the science of climate change is still young and undeveloped. As I wrote earlier - we have been through this before! Reacting hysterically to a 0.8 degree temperature rise is fanaticism at its purist.

China is No1 - So is the US still the evil one?

China just passed the US in CO2 emissions and is building coal plants at the rate of one per week. At the same time The US is the only country complying with the spirit of the Kyoto Treaty actually reducing emissions despite our growing economy. Meanwhile the great blowhards in Europe continue to increase their emissions while criticizing the US for not signing Kyoto.

Will this cause the environmental crowd to turn their attention to China? After all, China is only one-sixth of the worlds population but emits 25% of the CO2. Don't bet on it. To them the US is the Great Satan because we are a capitalist country.

Scott Adams has the Inconvenient Truth - the Greens need to make the sacrifice. The rest of us can let market forces change the world.

Success in one area does not mean success everywhere

I read this article about Bill Gates remarks to Harvard graduates and was stunned by the mans ignorance of economics. But, I really shouldn't be. Just because people are successful in one area of their lives does not mean they know anything about other aspects of life.

I work with PhD's all day long and at first I gave their opinions high weight because of their expertise in one field. But after a few years I came to learn that though they may be brilliant Chemists or Physicists, that doesn't mean they know anything in unrelated fields. In fact, I am convinced that the more specialized a person is in one field of knowledge, often the less they seem to know in other fields. Bill Gates may have been brilliant in building a business, but only recently learned that he better get his company involved in politics and lobby's if they are going to be successful. His ideas to save the world sound great to a Marxist, but someone has to make the money first - you just can't print the stuff.

People can become millionaires but have trouble their whole lives controlling their weight (Oprah and Rush Limbaugh). Many of us can keep our weight under control but screw up our finances. Very successful athletes routinely blow millions that they earn and many die poor. How many CEO's do you hear about that can't stay married?

Most of the population gives too much credence to people with no credibility in the field they are speaking of just because they are successful in other fields. Movie stars routinely get accorded great respect for their views on global warming, yet most are barely intelligent in matters of science (ditto to Al Gore).

So, the lesson to learn is that you should not feel like a failure if you are not successful in every aspect of your life. And second, don't give too much credence to the opinions of people if they have no direct experience in the field they are proselytising on.

Update: After I wrote this post I read a post by Steve Pavlina How Your Mind Really Works. I was struck by what he said about how to become dumber. This fits my view exactly that people that specialize seem to be stupid in so many other areas. The routine of being focused on one area seems to decrease intelligence. A very insightful post by Steve.

Smart Couples Finish Rich

I'm spending the week in a training course out of town and so had some time to do some reading. A couple of months ago a blogger had listed Smart Couples Finish Rich as one of his top 10 books, so I spent my flight reading it. Overall, I would recommend this book and wish I had read and followed such a book 35 years ago. I hope I can impart the attitude of saving while young on my children. The power of compounding has to be one of the greatest discoveries of finance.

My spouse and I are in very different places financially. She grew up in China during the Cultural Revolution and knows poverty that I cannot even begin to imagine. Her focus on security is primary in every thing she does and debt drives her crazy. She started reading this book before I left and couldn't put it down. I'm sure she'll have a list of things for me to do once I get back to improve our finances, which is great.

I don't think Smart Couples Finish Rich is the best finance book I've read but it does have some good points that everyone ought to be aware of:

• starting to save when you are very young
• maxing out your 401k
• paying yourself first (the 401k contribution is the key here)
• making a written financial plan
• doing something towards your goals now
• having adequate life and disability insurance
• having your financial records organized
• having a dream that both you and your spouse work toward

When I was involved in Amway (now Quixtar), the leaders talked incessantly about having a dream. It's something I have always believed in. Many people won't voice their dreams for fear that they will be laughed at. However, I don't believe that you can be motivated long term just to reduce debt or have $1M at retirement. You've got to have something exciting that draws you as well.

There are some parts of the book that are weak, but it's worth going to the library and getting a copy.

Flipping Vs Speculating

I read a post from the Carnival of Real Estate Investing asking is Flipping Speculating?

Dough Roller makes a couple of good points that I agree with

• people that flip based on assumed rising prices are speculators, whether they do it by Day Trading Stocks or ala Casey Serin
• Speculators are looking for quick easy profits

He makes another point that I don't agree with in regards to leverage. If you use leverage you are speculating. I think most businesses use leverage to a large degree, so I don't think that this is true. Of course, I use leverage to a great degree as do most real estate investors. This is the norm in real estate - not many pay cash for an apartment or house as they would to buy stocks.

One of the commenter's (engineer) makes an excellent point about investing but fails to recognize how it applies to real estate. His comment is that investing involves buying equipment to improve the ability to produce. When an investor buys a house and rehabs it, he is doing exactly that. For example, putting on a new roof, new windows, a new furnace, painting and decorating all improve the income potential from that piece of property. So Engineer makes the point exactly that an person that buys a house and rehabs it is a true investor and not a speculator.

So the real question comes down to the time frame the property is held. If I hold the house for 20 years am I a real investor Vs selling the house in 6 months or a year? Rehabbing is by no means "easy profits" (we put in a helluva lot of work to rehab our Cheektowaga house). What about the house that I lease-optioned for a year? Was that an investment or speculation?

My definition of an investor is:

• Purchasing an undervalued asset and improving it so that it can generate more income

By my definition, people that buy stocks or mutual funds are not investors at all!!

I think that Dough Roller nailed what a speculator is.

Is religious belief evidence of evolution?

A great quote via TheCorner:

I studied anthropology in college, and one of the things I learned was that certain human social structures always reappear. They can't be eliminated from society. One of those structures is religion. Today it is said we live in a secular society in which many people—-the best people, the most enlightened people—-do not believe in any religion. But I think that you cannot eliminate religion from the psyche of mankind. If you suppress it in one form, it merely re-emerges in another form. You can not believe in God, but you still have to believe in something that gives meaning to your life, and shapes your sense of the world. Such a belief is religious.

Today, one of the most powerful religions in the Western World is environmentalism. Environmentalism seems to be the religion of choice for urban atheists. Why do I say it's a religion? Well, just look at the beliefs. If you look carefully, you see that environmentalism is in fact a perfect 21st century remapping of traditional Judeo-Christian beliefs and myths.

There's an initial Eden, a paradise, a state of grace and unity with nature, there's a fall from grace into a state of pollution as a result of eating from the tree of knowledge, and as a result of our actions there is a \judgment day coming for us all. We are all energy sinners, doomed to die, unless we seek salvation, which is now called sustainability. Sustainability is salvation in the church of the environment. Just as organic food is its communion, that pesticide-free wafer that the right people with the right
beliefs, imbibe. Eden, the fall of man, the loss of grace, the coming doomsday—-these are deeply held mythic structures. They are profoundly conservative beliefs. They may even be hard-wired in the brain, for all I know.

I certainly don't want to talk anybody out of them, as I don't want to talk anybody out of a belief that Jesus Christ is the son of God who rose from the dead. But the reason I don't want to talk anybody out of these beliefs is that I know that I can't talk anybody out of them. These are not facts that can be argued. These are issues of faith. And so it is, sadly, with environmentalism....

— Michael Crichton

One of the most interesting things to think about in regards to the "elite" is the issue of evolution and religion. The "elite" are breeding themselves out of existence while the religious are populating the world. If evolutionary forces are at work this would argue that religious belief is a core to survival of the species and discount the beliefs of those who deem themselves of superior intelligence.

Lawyers Molding Society

I think we have fallen off a precipice - graduating too many law students and too few scientists. Lawyers now control all of the modern debates in our society while scientists remain quiet and their influence discounted.

And debate is exactly the right word to describe how our society is handling problems. The use of data and science is no longer part of the equation. Global warming is the primary example here, where the greatest propaganda war of our time has subdued the (lack of ) scientific facts to back up the hysteria. Politicians (i.e. lawyers) speak in terms of "consensus" - not facts. Communication is based entirely on emotional appeals rather then looking at data.

Businesses don't make decisions about how to bring to market products that will save lives or make our quality of life better. Instead, Boardrooms decisions are controlled by fear of lawsuits. As a business owner myself, I spend hundreds of dollars buying liability insurance, establishing Trusts and LLC's to hide my assets from scavenger lawyers. The damage the lawyers did to Dow-Corning in regards to false data regarding silicone breast implants is one glaring example of the damage lawyers do to society.

And lawyers create dumb laws because they focus on winning debates rather than using science and data to create good laws based on facts. The current "energy" bill that just came out of committee is full of idiotic regulations. Some, like the ethanol incentives, will actually harm the environment, hurt the poor (higher food prices) and make us less prosperous. The banning of DDT has led to the death of millions from malaria - but, hey, what do they care about Africans, when they can get cash from the environmentalists?

Even our war against the Islamofascists is being squelched by lawyers who advise the CIA and military about how to fight the war. So we fight a war of timidity to avoid scandal rather than fight to win.

People (lawyers) that think that they are right because they know how to debate are filled with righteous smugness that disgusts me. But our society is reaping what it sows. Science is not taught well or emphasized as a way to success in our country. But become a lawyer and you can be like John Edwards and live in the rich America. Who would want to struggle as a scientist when you can do that?

One Leader with Courage

Here's an article from the President of the Czech Republic - Vaclav Klaus - talking about the real threat to our way of life. Hint: it's not global warming

Stop Your foreclosure!

I have been "working" with one client to buy his home for about 2 months now. He has been dragging his feet every time I try to meet with him or get information from him. He stopped paying his mortgage March 1, 2006 - 15 months ago! How is it that he is still living in his house after such a long time? A foreclosure auction, even in NY, takes less time than this usually.

There's a huge industry of lawyers and other swindlers that have sprung up to help people "stop foreclosure". For a fee these people will do something that delays the inevitable. My client paid a law firm $1800 to stop his foreclosure and they did. The first foreclosure was stopped. Of course, when my client did not pay up the back interest and fees, the bank filed another lis pendens (lawsuit) to foreclose again. Initially my client probably had about $20k in equity in his house. Now a year later he owes far more than the house is worth. On the one hand he got something - he is still living in his house and he has been doing it "rent free" for a 15 months. Of course, it was not really free. He would have been better of financially selling the house, taking the cash and renting a cheaper place.

When I first spoke with him he was intent on getting some of "his equity". Despite being well educated he didn't seem to understand that his equity was disappearing every month that he hadn't paid the banks. When I finally told him what he owed he finally got serious about selling and avoiding the foreclosure. Now we have to hope that the 2 banks will take discounts on what is owed them, otherwise the house will go to auction and he will have 7 years of bad credit to look foreword to.

So do these "stop foreclosure" experts work? I guess to some extent they do if your objective is to stay in your house. But if you have no intention of re-instating your mortgage, they just buy you a little time. Maybe that is what you need, but it is not a recipe for financial success. Of course, if the people in foreclosure knew anything about financial success, they would not be in foreclosure to begin with.

Staging a House - Does Race Matter?

We had a home stager visit our Cheektowaga house last night - TheHomeStylist. In general, she gave us some useful information on putting some minimal furniture into our empty house. Some chairs, a table and lamp in the living room, a couch in the family room, bed in the Master suite and table in the kitchen. She thought the house had 3 big problems - the entryway/stairway has large mirrors (see the pics), black carpet on the stairway and dark red carpet in the master BR. All of these were there when we bought the house and in good condition, so we did not replace them. At this point, I'm not sure we want to tackle these features - the mirrors would be a very large job (They are 2 stories high and the wall behind would need to be re-drywalled and painted).

One question she failed to answer is whether there is a difference between what African-Americans look for Vs Caucasian buyers. After holding several open houses, it is apparent that the target market for this house will be an upscale African-American couple with children. I have been in a lot of homes of blacks and feel that their decorating tastes are quite different than for whites. Does this mean that when they buy, certain colors will appeal to them different than a white buyer? I don't recall ever seeing anything written about this. All of the Home Stagers I have seen pictures are of white women.

My other problem is how to market to this target audience? News paper ads are totally useless. I'm not sure if this market segment uses the Internet MLS and signs are very limited geographically. Ultimately, a good Realtor may be the only answer.

Why can't men do anything?

There's been several articles written recently about the incompetence of men to fix anything. I wrote about becoming a Jack of all Trades here. I really didn't learn any of the skills from my father - in fact I have far exceeded the number of things that he has done. But he never had the fear to try something, even if he could not do it well. That has been the same attitude that I have embraced.

It seems now that most younger men don't want to even try - they just hire someone. Are they afraid of failing or imperfection? If so that is a poor reflection on them. On the other hand, I suppose that means that we are becoming a very wealthy nation.

Common Sense Capitalism

John Stossel is one of the few in the media that I like to read or listen to. He seems to have common sense that few reporters are able to access. Here's an article called the Double Thankyou which speaks to the truth of what Adam Smith talked about 3 century's ago. It puzzles me so that the left clings to the Marxist ideas of government controlled health care.

Global Warming Deniers at it again

Global Warming Deniers at it again

Flat Fee Vs Full Service Realty

I've got both of my houses listed for sale on the MLS through flat-fee listing services. The first (the fixer-upper) is listed through some outfit in NJ at a cost of $299. They do not do much, but their web site is easy to use and I can update information any time I please. I had about half a dozen calls from Realtors early on, but have not had a call on the place for over a month despite a price drop of $5k. I thought I had an offer through one agent from some women in NYC. But she proved to be a flake and never delivered the contract though we had agreed on a price.

I've listed my second property through a local flat-fee listing service which cost me $695. Their claim is that they are an upgrade to the cheaprer flat fee listers since an actual agent came to the house and took pictures. There's a lot of nice pictures on line and good write-up as well. They will advertise in the local paper as well, which @ $100 per week is a big expense. So far though I have not received a single call from a Realtor for that house.

My margins are pretty slim on the two houses and a 6% commission is going to take a big chunk of any profits I make. I've read some comments about Flat Fee Vs full service here and here. I'm really struggling with this. It would not surprise me if Realtors avoided these homes as people tend to want to punish what they see as competition. I'm sure Realtors deserve a good commission when they are working with clueless people, but I have bought and sold over 20 houses now and know more than many average Realtors. (I don't want to come off as cocky, but I am being forced to run a Short Sale offer through an experienced Realtor now and am finding that they are clueless in special circumstances like this.) So why should I pay $13,000 in commissions? A study in Madison seems to indicate FSBO sellers keep more profit but have longer holding times.

I think that by the end of the month I will switch to full service Realtors if I don't start seeing some action, but this sickens me to say the least.

Home Staging

Home staging seems to be the buzzword of the day for real estate. I heard 2 segments from local and national experts on talk radio this morning. One happens to be located only a couple of miles from me and attends my Church . TheHomeStylist.com is her website and she has a blog. She has co-authored a book - The Complete Idiots Guide to Staging Your Home. She also has a link to another home stager Terri Clark, who has written another book you can check at her website.

As you can see from the photos of our Cheektowaga home - its empty. Nice new paint, windows and flooring but nary a stitch of furniture. According to these staging experts an empty home is just as bad as a dirty, cluttered home. One of the first questions people ask when they have come to our open houses is "You've already moved out?", actually more of a statement hoping that we are desperate to sell. The Home Stagers state that a house sells in one-half the time if it is staged properly and for 6.9% higher price.

I contacted the woman with the business near me and she say that it is pretty pricey to rent furniture locally. She will consult with us for $100 and give some opinions about what to do. Considering how much we've already spent on the house, $100 is nothing, but if we need to spend $5000 to stage the home that is another storey.

Mid-year real estate slump

I haven't been too active the last couple of weeks in my real estate business, since work was completed on my Cheektowaga home. We have been holding open houses every Sunday and I did get the property listed on the MLS through a flat-fee listing service. I've had several calls from sellers wanting me to look at their properties but have not followed up.

So what is going on? Part of it may be burnout from working 7 days a week for 3 months rehabbing the Cheektowaga home. Part may be work related - I just was assigned a new Black Belt project in a process area I am unfamiliar with, that was supposed to take 40% of my time. Of course, the project is taking nearly double that amount of time and I am working at my job longer hours.

The other issue is cash flow. I am really hesitant to take on new properties at the moment because my cash could quickly be eaten up if the Cheektowaga house does not sell. It is costing me about $2k per month just in PITI to hold it and I do not have a lot of margin for price reduction. I was listening to the radio this morning and a staging expert stated that an empty house looked just as bad as a cluttered house, so I may have to spend money to put some furniture in the house.

Most of my calls from sellers right now are from less desireable Buffalo neighborhoods. Property in these areas has a 7 month average time on the market, so I rationalize that it is not worth my time to call these sellers back. I have a fixer upper for sale in Buffalo that is not getting any interest.

I had a home that was in a great suburb that looked like it would be worth buying even if the bank did not accept much of a short sale, but the seller has disappeared and I can't get the necessary paperwork signed to proceed.

One other property I worked on is about to go to auction next week. I nearly had a deal with the bank at ~ $50k when a real estate agent got the seller to put the house on the market for $84k. Of course, no one is interested in the property, and so the seller will get the judgement on their record. Ultimately, the bank will lose as well, so only the Realtor will benefit from this sale.

The last 2 Saturdays I have gone mountain biking and felt detached from real estate. I think that I need to come out of my mid-year slump and get to work again.