Live Learn Invest

We all know that when demand > supply, prices go up.  That’s why real estate investors track the migration patterns of the population.  United Van Lines posted this report on the migration of the US population for last year.  Looking at the chart it seems like people are moving from the big cities to states with alot of open space and less congested cities. 

MOVING IN

Southeast states welcomed many new residents in 2006, with North Carolina coming in as the top destination (64.0% inbound). South Carolina (60.6%) continued its 13-year inbound tradition, while Alabama (57.5%) experienced its fourth year as a high-inbound location.

MOVING OUT

Michigan (66.0%) moved up a spot to tie for the top outbound state on this year’s list. Michigan saw a 2.1% increase over its 2005 numbers. New York (59.5%), which has been an outbound state since the survey was established; Indiana (58.2%), which has been high outbound since 1993; and Illinois (55.7%), which has been high outbound since the survey’s inception. Also continuing outbound traditions, New Jersey (60.9%, outbound since 1997), Pennsylvania (57.0%, high outbound for the past three years), and Ohio (55.8%, outbound since 1992) saw residents depart.

Read entire article here.

 

Today I called Countrywide, who holds the mortgage on one of my SLC townhomes.  The loan is an option ARM with a prepay penalty.  The prepay penalty period is over in 18 months.  I told them that I had a prepay penalty and would refinance with them if they would wave it.  The guy said that they do not wave prepay penalties from any loans.  He then said I could still possibly get a good deal.

 

Here was the great deal…  Currently, I owe $115k and am at 7.75% now.  My interest only payment is $750/mo. 

 

He said that he can get me a 30yr fixed for 6.25%.  However, I would still have to pay the prepay penalty and closing costs.  But, if I roll my prepay penalty ($6000) and all closing costs ($2500) into my new loan, I will end up with around the same payment of $750/month!  This payment would include principle and interest.  So I am actually saving money by paying down about $120 principle per month.  What a deal! 

 

It’s a tricky sales pitch. Car dealers use a similar tactic all the time.  It would probably work on people who only look at the monthly payment!

 

 

Last weekend some individuals from a financial investment company made a sales presentation to me and my friends.  They were selling real estate, more specifically, pre-construction real estate.  They came to my friend’s house and made a presentation.  Is the real estate market so bad in certain parts of the country that they now are making sales calls to sell property?

They were selling four pre-construction opportunities.  Three of them were in Florida and one was in Atlanta.   They consisted of single family homes, townhomes and highrise condos.  Here are the main points from the presentation:

• Pre-construction prices
• Very limited and only offered to a select few
• Once sold, the builder will increase prices
• Only $500 down at contract time till close
• 100% financing available
• $10,000 towards closing costs or cash back
• No HOA dues for 2 years
• No real estate taxes for 2 years
• Guaranteed renter at closing or you do not close
• Positive cashflow

Their pitch was all over the place.  I really wasn’t interested in any of the properties but I was confused at their messages.  For example, they said 100% financing and positive cashflow, so I asked if you got positive cashflow with 100% financing.  The answer was no.  They said you would have positive cashflow with 10% down.  But that was using a negative-amortization loan and because there were no HOA or real estate taxes for two years.

They mentioned $500 down at contract time until closing and then with 100% down means that you can get into the property at basically no-money down.  Then from what I gather, they were saying that you can get cashback at closing, which means you’ll actually get into the property and put cash in your pocket.   Somewhere down the road, I thought I heard a mention of using the cashback to help float the negative cashflow.  I thought it was suppose to be positive.

They threw out statistics, like Florida has appreciated ~20% in the past 4 years.  Of course we all know that that’s probably true.  But what did it do last year?  What is the market like now?  Obviously if it were appreciating 20% a year, these people wouldn’t be here making this presentation.

The guaranteed renter was interesting.  Basically the builder will put a renter in your property with a one year lease before you close.  If you’re property is not rented, you do not close until they find a tenant.  I wonder if they will actually put in a good tenant or just throw some crack head just to make you close.

Out of the four that were shown, I think one had some promise.  It was a single family home subdivision in Jacksonville, Florida.  The starting prices were in the $180’s.  They claimed that these homes would rent for $1,400 a month.  If that were true, these homes may actually breakeven with a regular loan.  My gut tells me that $1,400/mo rent is an over-estimate and that market rent is more like $1,000/mo.  The rest were massively negative cashflowing properties.

Real estate investing is a very competitive industry.  Good deals are snapped up in a few hours if they are available to the public.  Investors know a good deal when they see one.  They do not need a sales team telling them why it’s a good investment.  If anyone is having trouble selling their properties and has to rely on incentives or sales teams to sell their properties, it is not a good deal.  The fact that there is a need for a presentation should tell you something.

Last month I wrote about changing my IRA to a self-directed IRA.  The first thing I did was contact a couple self-directed IRA companies and ask for information.  Like any good company would do they have all sent me information.  However, there is one IRA company that has been consistently following up.  I’m not saying that its bad to do so, but I think if comes off as pushy especially since I haven’t returned any of his calls or emails.

My original post was on December 12th.  I immediately received an email from “John” the day after with a PDF attachment of all his company has to offer.  About two days later, I received another email asking if I received his first email.  Then a follow up phone call where he left a voice mail.  I get another email a few days later.  At this point I’m thinking… this guy is getting annoying.  He’s been emailing me once every few days since then and following up with phone calls.

Here are some of his emails (I know that I have deleted a couple at least):

#1 Dear Kenric,

Thank you for your inquiry with Guidant Financial Group, Inc. Have you been able to access our online Education Station? We produced an audio CD explaining our Aurigaâ„¢ truly self-directed IRA strategy. Regardles of whether or not you requested to have a CD mailed, you can listen to this CD in its entirety via the Education Station. Also, I thought I would send you some FAQs (frequently asked questions) about the Auriga, and a brief article about this strategy. Please review and feel free to call me toll-free at 1.888.xxx.xx55 with any questions. I look forward to speaking with you in the near future.

#2 Dear Kenric,

A few weeks ago you requested info about how Guidant can help you access your retirement funds to purchase non-standard assets like real estate, tax liens and even a business. We provided information to you about our services and the Aurigaâ„¢ truly self-directed IRA strategy. Are you still interested in using your retirement money to invest in non-traditional investments? I have included two audio links which discuss “The Future of the Stock Market” and “How to find a good self-directed IRA custodian”

#3 Dear Kenric,

You recently requested information from Guidant Financial Group about how your IRA can become “Truly Self-Directed”. If you requested an audio CD, it is likely in transit, so I wanted to make sure you knew the CD can be listed to in its entirety via our online Education Station

#4 Dear Kenric, (note exact same as email #2)

A few weeks ago you requested info about how Guidant can help you access your retirement funds to purchase non-standard assets like real estate, tax liens and even a business. We provided information to you about our services and the Aurigaâ„¢ truly self-directed IRA strategy. Are you still interested in using your retirement money to invest in non-traditional investments? I have included two audio links which discuss “The Future of the Stock Market” and “How to find a good self-directed IRA custodian” 

#5 Dear Kenric,

You made an inquiry with Guidant Financial Group, Inc. and we have corresponded via email over the last several weeks. Do you have any questions about our service or the Aurigaâ„¢ truly self-directed IRA strategy? Are you still interested in using your retirement funds for this type of investment? Please see the links below for information about this strategy

#6 Dear Kenric,

Are you still interested in diversifying your retirement outside of the stock market? This is truly an educational process and I am here for you to use as a resource. Please feel free to contact me at your convenience, as I would like to make sure you have the information you need to be able to make an informed decision as to whether this form of investing is for you. I can be reached toll-free at 1.888.xxx.xx55. I look forward to speaking with you!

Today he calls and I actually answered the phone.  I told him that I haven’t looked at the package yet or decided which company to go with.  He wasn’t pushy or anything but I was already annoyed by the volume of follow ups that I didn’t really even want to talk to him.  You can only pester someone so much until he doesn’t even care what your company does anymore.  I made my request on December 12th, today is January 10th, in 29 days he has sent me at least 6 emails and left me 3 voicemails and got through to me once today!  Am I wrong to be annoyed at him?

 

In George Ross’s book Trump Strategies for Real Estate, he has a chapter called Raising Money.  Briefly, he mentions the importance of relationships and networking which reminded me of when I was trying to get my first car loan 8 years ago.  I did not realize it back then, but looking back at my experience now, I lost a great opportunity to maintain a great banking relationship.

It was 1998 and I was 26 and determined to buy an 1991 Acura NSX.  I had good credit and a decent job but it was very difficult to find a loan for this car.  First, the car was over 5 years old.  Not many banks made car loans for cars that old.  Second, the car was $38,000!  Even if a bank did a 5 year old car loan, they wouldn’t loan that much money on a car.

To make things even more difficult, the NSX I wanted was located out of state.  It was in Overland Park, Kansas and I was in Chicago.  To buy the car, I needed to get a check from the bank, fly to Kansas and drive the car back.  The banks would not give me a check for $38,000 unless I brought the title to them.  How could I bring them the title if I couldn’t get the check?

One day I mentioned to my co-worker about my dilemma and he said that he was good friends with the president of a local bank in his neighborhood.  He was able to schedule a meeting for me to meet him about my car loan.  I went in and explained the my situation.  After talking for 5 minutes, he said “Ok, we can do that loan for you.  How much do you think you’ll need?”  I said, “Well, the guy is asking $38,000 but there’s room for negotiations.”  He agreed to give me a blank check with a not to exceed $38,000 limit.  I was shocked.  I asked about getting the title back to him and he said, “Just bring it back to me after you’ve driven back into town.”

Now this was amazing.  I had been jumping through hoops for two weeks and here I was getting approved on a $38,000 car loan based on my friend’s referral!  I’m sure my friend gave me a great referral, told him about my background, my job and pay range but still it was incredible to me because I had almost given up on getting a car loan.  

Sadly, I never used the $38,000 check because the NSX in Kansas was sold before I could fly out to see it.

Looking back at it now, I know I missed a golden opportunity to establish a great relationship with that bank.  When I bought my first home, It didn’t even cross my mind to go back to that bank president.

Thanksgiving was suppose to be the last day of working full time for me.  But things have changed alot at my job since then.  When I first took the job, the office had only 8 people.  It was a real small office and was sustained with one large project from a major carrier.  The company has secured many major new projects and has hired 17 new people and we have all moved into a larger office space.  They are probably going to be hiring 5 more people.

So now its a 30 person office which has had it’s growing pains.  When you’re in a small office, things are pretty simple, it’s like a small company.  One small printer and copy machine is fine.  The internet is pretty fast and there’s plenty of supplies.  Now that we’ve grown so fast we need more copiers, printers, faster servers, etc…  When we moved, I set up the printers, router and wireless internet.  That made me by default the resident IT guy. 

In addition to hardware growing pains, we have people growing pains too.  Managing 30 employees on many projects is much more involved than managing the small 8 person office.

My problem is that I’m finding it difficult to do just my job and not step on the toes of the project manager above me.  With the expansion of the office, the project manager really needs to step up and he’s not doing so.  So as a matter of pride for the office and doing my job, I feel like I have to step in to keep the wheels from falling off the bus.

When I took this job, all I was looking for was a relatively easy job that I already knew how to do.  My position is construction manager.  Project management is my strength and in my past career, I’ve always been the project manager that managed the construction manager.  I figured that working as a construction manager, I would have less responsibility and coast through the job.  I’ve been approached a few times to see if I’m interested in becoming the project manager.  I declined because it’s definitely a full time 40+ hour job.  But what’s difficult is knowing you can do the job very well, sitting back and watching it not being done as well and having it affect the project’s performance.

We had a meeting about all the work we have to do and divided it up.  After the meeting my co-worker says to me ”welcome back to full time.”  Tell me about it…  I’m not officially working full time, but now I have enough work to bill full time hours.  The good news though is that I still work from home!

So far, so good… Technically this is the second check, but the first check was only for 2 days of interest so it was around $20 and change.  Today I got my first full month’s interest check from the company that I’ve lent the LLC money to. 

Two months ago I raised $25,000 from individuals who wanted a better return on their money than a standard savings account.  I loaned the $25,000 to a company that pays a steady 11% interest rate for a period of one year.  The check to my LLC was $230, which isn’t bad.  Now I take some off the top for my management fee and then divide the remainder of the money into proper percentages and send it out to the individuals.

I’m thinking about using the Rich Dad philosophy of using cashflow to afford things and depositing $50,000 of my money with them, which cashflows $460/month and then buying a car with $450 payments.  In five years my car will be paid off, I’ll still have the $50,000.

Hmmmm, $460/mo can get me a decent $20,000-$25,000 used car…

 

Apparently a huge virus has been spreading throughout the blogging world.  This disease is known as blogus-tag-i-tus.  This virus is spread through blog links and I caught it a few weeks ago from No Limits Ladies. 

Once tagged with this virus you must state five things people don’t know about you on your blog.  Once that is done the virus can be easily passed to other blogs with a simple tag.

The simple cure to this virus is to simply ignore it.  But somehow many bloggers just can’t.  I’ve tried for two weeks, but the virus has spread.

So here are my five things:

1. I used to run a business selling live rock and corals out of my parent’s basement.
2. I don’t believe in medicine and hardly ever take any (DP cures all! see #4).
3. In college, I had pizza for dinner for 23 straight nights.
4. I’m addicted to Dr. Pepper and will wake up drink a can at 3am and go back to sleep easily.
5. I shovel shit for free.  I volunteer at the zoo. Ok, this isn’t a secret but I couldn’t think of anything else.

 

So I guess I have to tag a few people to get rid of this virus.  I’m going to tag, Cliff over at Changing my Direction, N. Gifford at Bring the Cashflow, and Landlady at I bought a duplex!

The December numbers are in and they are lower than November’s results.  Although my blog adsense revenue went up, my blog traffic dropped dramatically when I did the complete URL changeover in mid-December.  Up until then, you could access my blog through its current URL and its old URL (afterreadingrichdadpoordad).  At some point I had to kill the old URL and it caused about a 75% reduction in search engine traffic.  That was a bad move, but I had to do it sometime.

Ok, let’s get to the numbers: this month (last month)

• Revenue from this blog: $49 ($33)
• Revenue from other sites: $47 ($82)
• Revenue from Amazon sales: $14 ($28)

Total Revenue: $110 (143)

• Google Adwords expenses: $11 ($17)
• Hosting expenses: $5 ($5)

Total Profit: $94 (121)

My blog actually made more money this month than last month even though traffic dropped dramatically.  However, with less traffic My CTR increased so that contributed to the increase.

The revenue from my other sites dropped dramatically, although it started to pick up near the end of the month.  Basically, my sites run on Google Adwords and I neglected my account.  I did not notice that my cost per click price, which was fine a month ago, became too low for proper showings.  Once I upped the price a few cents, the traffic started coming again.  You’ll notice my Adwords expenses dropped.  That’s because nobody was seeing or clicking my ads so therefore I didn’t have to pay for anything.

The Amazon sales is a function of my other sites, so it also dropped dramatically.  However, I don’t expect it to increase either as the Trump book is getting old now.

I wrote that I ordered this book back on December 5th and I just finished reading it a few days ago.  I must say that this is the first real estate book in years that has taught me something new.  This book really has the “Trump” name only for exposure and marketing.  It is nothing like any of the other “Trump” books, which I do not like.  This book is really about George Ross, Trump’s attorney and deal negotiator.  In this book, there are many examples of how deals are done and how liked minded businessmen work out deals for the benefit of everyone.

The book’s table of contents are shown on the right. I found the two chapters about negotiation very insightful.

Principle 3 in the Chapter 3 is about pre-planning.  It hits on “Ziff’s Principle of Least Effort” which states that people will expend the least amount of effort neccessary to conclude any transaction.  Pre-planning for negotiations allows you to have answers and solutions ready when the opposite side presents an issue.

This is a simple example, but it fits perfectly with this principle.  My first realtor here in Phoenix was very prepared when we went out to look at properties.  She had a mortgage broker available instantly by cell phone.  We would go look at a property and if I was interested, she would call up the mortgage broker and tell him the asking price, rents, taxes, HOAs, PM fees, etc…  I was already pre-approved so he had an idea of my FICO, what I would put down and finances.  He would call back and get me my exact cashflow on this property at full price before we had left the property.

By doing this, I put in the least amount of effort while searching for properties.  All I had to do was see it, like it or hate it.  Imagine that before we’d even walk into a property, she’d say this would cashflow $223/mo at its current price.  Remember, those numbers are based on actuals, not estimates.  Of course I would double check them afterwards, but they were so accurate that after a while, I didn’t have to.

Principle 4 is to avoid a quick deal.  This was very interesting to me since I’m a numbers person.  I like to go straight to the point and talk numbers.  I don’t like lengthly negotiations.  George says that a quick negotiation will leave one party feeling bitter and/or one party will have forgotten something important. 

Here is an excerpt from the book:

“I put an ad in the paper for sell the same Porsche for $30,000, but this time you phone me and offer $20,000.  And I say, “No, the price is $27,000.” And you immediately reply with , “Okay, I’ll give you the $27,000.” Now the question is, am I happy? No! Because you went so fast from $20,000 to $27,000.  If I had stuck to my guns you probably would have gone a little higher and paid the $30,000.  I got what I wanted, and you got the Porsche for what you were willing to pay, yet neither of us are happy because we didn’t spend enough time going through the bargaining process.  In an successful negotiation, I have to convince you, the buyer, that you got it for the cheapest price.  And you have to convince me that I sold it for the highest price, so that I feel I got the most out of the transaction.”

Principal 5 is the Time Invested Principle.  Basically it states that as more time has been invested in a transaction the less likely he or she will give it up.close.   It’s pretty easy to walk away from buying a car if you just say I’ll pay $5,000 and the seller says, “No, I want $5,200.” But imagine that you’ve already taken it for a test drive, run a carfax on it, had a mechanic inspect it and bought a cashier’s check.  All you really going to walk away and invest the same time in another car for the difference of $200?