On Ramit v. Casey

Today Ramit posted a rather scathing account of his former friend Casey Serin’s real estate dealings. I have some comments on the post below:

“Wow this really made me mad. Casey had tried to sucker people into a scam real-estate deal less than a week before he admitted he was going through foreclosure.”

I agree with this point, Casey did not do well to disclose his current financial situation when attempting to gather new investors. This reeks of an attempt to use other people’s money to satisfy some of his debt. I guess he was desperate enough to try to take his friends down with him?

“I was fortunate enough to recognize his pitch as bullshit, but what if someone had gotten conned into it? Financial scams on unsuspecting people make me furious. So I read through his site. It turns out that he had bought multiple houses in different states (hoping to flip them quickly), lied on his applications to get his loans approved, and had grossly miscalculated how much it would cost to renovate and flip them. Bad move. His debt is now over $2 million.”

On this, I do not agree. What Casey is proposing in his first email is a simple scheme, not a scam. The legalities are unquestionably acceptable, however the moral implications are arguable. The scheme would involve approaching owners who are facing foreclosure and offering to buy them out of their debt obligations. The investors (Casey) would then assume the mortgage and pay the former owner somewhat less equity than they would gain in selling the house for full value. Say prospect 1 has a $150,000 home with $50,000 in equity. Buyer 1 would offer to stop the foreclosure and give Prospect1 $40,000 cash (or less… sometimes much less). Often the investor can refinance the mortgage to take most of the equity out of the house again. The house is then leased back to the former owner (because 90% of the time they don’t want to leave).

Now, secondly, Casey is not actually $2.2M in debt. Why? He bought 8 homes, so the houses have an average value of about $275,000. However, these houses have a liability of nearly 100% of the purchase price, but all of the homes are still worth probably close to 90% of the purchase price (in some cases perhaps more because he has done some renovations). So, figuring that the houses are worth 90% of their purchase price, he has $140,000 in unsecured credit card debt, Casey is actually in debt for the tune of $360,000… theoretically. A far cry from $2.2M no matter how you look at it.

At this amount of debt, I’m really not sure why Casey isn’t trying harder to unload these properties and minimize the impact. The credit card debt could likely be held for up to a year with minimal payments, now all he has to do is sell some of the houses ASAP, and try to find tennants for the rest……… is this happening?

Casey, Earth to Casey, what the hell are you doing to solve this problem?

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10 thoughts on “On Ramit v. Casey

  1. I’m not familar enough with this blog to know if you are actually investing right now or not. If you aren’t then it would be wise for you to take a basic accounting course. Your contention that he is debt only $346K is completely misguided. You are in debt for exactly how much you owe. Unless Casey is being dishonest about how much he owes his creditors, he would surely know what the balance on his debts are.

  2. Casey, I know you are trying to sell the properties. It just sounds like they are on the market, but it doesn’t sound like you’re taking an active role to dump the properties. I’m sure you could sell them for a price…

    Have the properties depreciated or appreciated since you purchased them?

    Are the properties listed for rent anywhere?

    Could you duplex any of them and rent to two families?

  3. Hollowman,

    Ass-u-me… It is better to ask the questions, are you investing, have you taken any accounting courses before making the assumption and plowing on.

    Yes, I have an engineering degree and have taken several accounting courses.

    Yes, I am investing currently and have three (3) homes.

    My mistake was in using the word debt to describe my calculation. In fact, I was calculating his approximate net worth considering that the homes are all assets balanced by the liabilities, and thus all will have a certain amount of equity.

    So, I agree, he is in debt to the tune of $2.2M, however, his net worth looks much better than this. If he were to sell all of his properties, his total debt would then be approximately $360,000 as calculated above… roughly since I’m going by the small amount of financial info on his website.

    Thanks for the comment, I just don’t think the insult was necessary.

  4. N.Gifford, I’m not sure what point you’re trying to make stating what Casey proposed was a legitimate “scheme” and not a “scam”.

    First, Ramit only uses the term “scam” after the second email (which contains information beyond the original plan). So there’s no explicit disagreement between Ramit’s blog and you.

    Yes, maybe what Casey *described* was a workable scheme involving people facing foreclosure (maybe the concept itself is even legal – I have no idea – IANAL) but what Casey was *actually going to do* (given the reality of his situation) is really the point and it seems clear to Ramit somethings fishy after the second email. Had Casey recruited enough investors, he says himself: “I wanted to use the money to bail out the properties… (and by properties, he means HIS OWN properties – or really the $15k-$20k payments he owes every month plus probably more contractor fix-up work – source). That’s clearly misrepresenting to investors where the money is going. (Although he does claim, after he’s decided not to proceed, that he was “… going to explain everything to a private lender once we meet.”)

  5. My only beef, which was probably poorly communicated was that Ramit says he “immediately knew this “offer” was BS.” However, I don’t understand how he could ‘know’ this after the first email… It is actually possible to make those kinds of returns, however, it does require a savvy investor and it is fairly clear from his blog that Casey doesn’t have enough experience in this area.

    For instance, with my 2 properties, I am making returns of 30+% depending on the down payment and rental terms. This will also change with vacancy rates, but in the one case it includes 25% down payment and all legal fees. This is the yearly ROI for simply renting the house out to students.

    Anyway, there’s no major beef. I think Ramit was just quick to jump to a conclusion about Casey’s idea. I agree that the idea is somewhat poorly developed, and I definitely agree that the second email makes the deal pretty shady.

    Thanks for commenting.

  6. If you believe I was insulting you then you have a very thin skin, and perhaps shouldn’t be blogging. However, if you are inviting me to be critical then you have succeeded.

    Firstly, I didn’t assume anything, I said I didn’t know if you were investing. That implies, quite clearly, that I’m not assuming that you were investing. Your point of having an engineering degree is moot, and your claim that you have taken ‘several’ courses in accounting is strange, unless you were going to be an accountant. In fact you don’t even require seven courses in accounting for entrance into the CA, GCA, or CMA designations. Moreover, both engineering and accounting require a great deal of succinctness. It is hard to fathom someone being versed in two such pedantic persuits at such levels mixing up two of the most basic terms i.e. debt with net worth.

    BTW I don’t have to assume anything, you are very transparent. From your ‘about’ page I can tell that your houses are either from Hamilton or London. Considering the expense of Hamilton, I’d say that London is the logical choice. You didn’t graduate from Western, did you?

  7. I did mention that the $360,000 worth of debt was “theoretical.” Thus being based on his ability to sell the houses for 90% of their purchase price at some future time. At said future time, his debt would be reduced to a much smaller value.
    “If you aren’t then it would be wise for you to take a basic accounting course.”
    This statement implies that I don’t have a ‘basic’ understanding of accounting. Hence my previous comment.

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