The Road Ahead: 2007 Installment

 I have some time off coming to me next-week, so I thought it would be interesting to write a bit about my goals for the coming year.

Now that my Masters degree is out of the way (since August), I’m finding I have a lot more time on my hands than when I had a full-time job and a thesis to write. So-far I’ve been using it to write this blog and read other blogs for interesting ideas on investing, personal finance, and real estate. However, next-year, I’d like to accelerate my hobby/side-business. The purpose of these posts is to help me get a sense of what is possible in the next 12-months.

I hope you’ll joing me for this 6-part series, which I think will have some interesting thoughts on investing, real estate, blogging and personal finance. Here’s an outline of what to expect:

1. Net Worth (Dec. 26, 2006):
The first post in my first blog series will deal with my net worth results from 2006, and detail my net worth goal for the end of 2007, as well as how I think I can get there.
– 2006 results
– Goal for 2007

2. Investment (Dec. 27, 2006):
– First I’ll summarize the property investments I have made thus-far
– Next, I’ll talk about capital improvements made in 2006
– Finally, what is planned for 2007 (improvements and investments)

3. Organization (Dec. 28, 2006):
– Financial steps to keep track of my income and expenses
– Tracking tenants
– Leases, using Web2.0 to get organized, etc.

4. Marketing (Dec. 29, 2006):
– New outlets and the general plan for 2007

5. Blogging (Dec. 30, 2006):
– Where is this blog going?
– What are my goals?

6. The Famous Corporation (Dec. 31, 2006):
– What’s the general idea?
– What is required?
– Structure, and outline of the potential steps in 2007.

Part of the writing project over at BiggerPockets.

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Learned Helplessness

Following in the footsteps of my previous posts on Risk and Barriers which were inspired by Ramit's post here , I thought I would talk a bit about that wonderful friend called learned helplessness. I thought our friend was worthy of a post after reading Casey Serin's post where he talks about all of the reasons why he doesn't want to rent his properties out to try to avoid foreclosure and make some of his mortgage payments. You can see he spends a lot more time talking about the potential down sides of renting out the houses, but not much time considering the benefits! My comment is burried in there somewhere.

Learned Helplessness is an affliction that affects all of us to a certain extent, at one time, or another, in our lives. However, in some cases, the condition mimics paralysis, imposing restrictions upon oneself that feel very real. Learned helplessness is difficult to diagnose.  It has been suggested that it is related to clinical depression, and no wonder, if I didn't think I could solve any of life's problems, I'd be depressed too!

So, why am I writing about this topic?  Well, it seems to me that many people find themselves feeling helpless at one time or another.  I am often confronted with people who put up barriers to any problem.  I can't do that because of these 20 mostly irrational reasons.  Or people who are constantly asking you to help them with the same problem even though you gave them documentation for reference that would tell them exactly how to do it if they would just take five seconds to read!

I think people like this can't help but have their every-day decisions, and especially their investment decisions clouded by negative thoughts and feelings.  It is very unfortunate.  I suggested that Casey Serin is suffering from a form of learned helplessness.  In a post , Casey was asking whether he should rent out one of the many homes he owns that are facing foreclosure.  However, after posing the question, he went on to describe many different reasons why the idea was not good, and none of the benefits of renting out the house.

How can this be overcome?  I suppose a thorough analysis of any problem should help you to decide on the correct course of action.  However, I think the best thing is to be aware of what they call negative self-talk.  When you put yourself down, or find yourself expressing the negative aspects of a problem, you're mind goes to sleep.  Some people do a great job of convincing themselves that they are dumb, or their ideas will never work, and thus… they don't do anything.

So…  get out there and try something.  Read Escape from Cubicle Nation for some inspiration. 

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Learned Helplessness

Following in the footsteps of my previous posts on Risk and Barriers which were inspired by Ramit's post here , I thought I would talk a bit about that wonderful friend called learned helplessness. I thought our friend was worthy of a post after reading Casey Serin's post where he talks about all of the reasons why he doesn't want to rent his properties out to try to avoid foreclosure and make some of his mortgage payments. You can see he spends a lot more time talking about the potential down sides of renting out the houses, but not much time considering the benefits! My comment is burried in there somewhere.

Learned Helplessness is an affliction that affects all of us to a certain extent, at one time, or another, in our lives. However, in some cases, the condition mimics paralysis, imposing restrictions upon oneself that feel very real. Learned helplessness is difficult to diagnose.  It has been suggested that it is related to clinical depression, and no wonder, if I didn't think I could solve any of life's problems, I'd be depressed too!

So, why am I writing about this topic?  Well, it seems to me that many people find themselves feeling helpless at one time or another.  I am often confronted with people who put up barriers to any problem.  I can't do that because of these 20 mostly irrational reasons.  Or people who are constantly asking you to help them with the same problem even though you gave them documentation for reference that would tell them exactly how to do it if they would just take five seconds to read!

I think people like this can't help but have their every-day decisions, and especially their investment decisions clouded by negative thoughts and feelings.  It is very unfortunate.  I suggested that Casey Serin is suffering from a form of learned helplessness.  In a post , Casey was asking whether he should rent out one of the many homes he owns that are facing foreclosure.  However, after posing the question, he went on to describe many different reasons why the idea was not good, and none of the benefits of renting out the house.

How can this be overcome?  I suppose a thorough analysis of any problem should help you to decide on the correct course of action.  However, I think the best thing is to be aware of what they call negative self-talk.  When you put yourself down, or find yourself expressing the negative aspects of a problem, you're mind goes to sleep.  Some people do a great job of convincing themselves that they are dumb, or their ideas will never work, and thus… they don't do anything.

So…  get out there and try something.  Read Escape from Cubicle Nation for some inspiration. 

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?

More on Mr. Foreclosure AKA Casey on GRS

This post is actually in response to the comments found at GRS. The community at GRS is simply amazing, almost every post has a knowledgeable discussion that is worth checking out!

Its all about perspective. The way Casey attempted to “get rich” was by knowingly breaking the law. Along the way, he made a lot of bad decisions, and took on way more than he could possibly handle on his own. To do 10 properties he would probably need a team of 20 people and some very good business contacts (contractors, agents, lawyer, accountant, etc.).

There are ways to get rich in the real estate business, but it requires careful planning and good timing. It is possible, for instance, to flip a property for a profit. However, it requires the right property, lucky timing, and careful research. You have to determine your target market, renovate the house to suit their needs, and keep in mind your projected selling price, cost of renovations, and therefore how much profit to expect.  To profit, this must be completed to a very strict, tight schedule.  Otherwise, the monthly upkeep costs get out of control and slowly destroy your potential profits.

If done correctly, a fair amount of capital can be generated. However, its not easy… I hope to attempt my first one in the next year, but it all depends on financing, finding the right property and making sure the market is still warm enough.  (Not to mention finding a partner and convincing my wife it’s a good idea).

Once you’ve earned that capital, let’s say $30,000, it is possible to then roll it over into other investments. Perhaps flip another, more expensive house, then invest in some commercial properties.

In my current situation, I’m renting 13 bedrooms already, so I have some significant passive income. Once the mortgages are paid off, I would be earning $5000/month.  Thus, I am already fairly close to being able to live off of my passive income.  If I had 5 or 6 properties paid off and generating the same ballpark income as my current properties, I would be able to live comfortably on passive income alone.  From here, this would require an additional investment of 25% downpayment + 5% closing costs * 3 properties = roughly $120,000.  Hopefully I can come up with some of this through a flip or two, and through attracting investors.

As in my previous post “The Market“, however, this all depends on the real estate market in your area. I live in a small town with more than 10% of the population being students. Furthermore, we have a vibrant downtown core where people are willing to spend more on rents. So, in my opinion, there are many opportunities for real estate investments.
Obviously I’ll need some luck and a lot of hard work, but I think it is possible to make a good living off of the real estate business without putting in full-time hours.

Risk

The latest post on ARRDPD is about risk.  Here’s my favourite quote:

Then again late night Saturday I was sitting at a No-Limit Texas Hold’em Poker tourney.  I had done fairly well to become chip leader with 9 players left.  I began to tighten up.  I had all these chips and I didn’t want to lose them.  An hour later I was the short stack.  Wow! How did that happen?  I was playing not to lose.

I commented about my grandfather and how he is extremely risk-averse, and would not invest in a franchise that would have doubled his normal ROI (he invests in zero-risk bonds, GICs and the like).
What’s your risk tolerance?  I’m a fairly wreckless person, I admit to driving too fast, drinking a bit too much, and my investments show it.  But, I’m only 26 and can afford a lot of risk at this point (financially).  My belief is that you can’t succeed in life without taking some risks.

 Risks (in no particular order):

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