Secrets to my success/retirement

[Pete E]

... in response to Re: No secrets,but  lots of  ignorance  ..., posted by Brassa on Feb 23, 2005

OK,
I was commenting in general.I didn't look at it that much.What Neil is doing makes sense but there are alot of real estate type investment seminars that tell you what might be possible but extremely hard to do,with alot of people unable to do much with it at all.
And I didn't take time to read the link you refferenced.

Pete

[Pete E]

... in response to Secrets to my success/retirement, posted by Neil on Feb 23, 2005

Interesting.Yes trust deeds and second loans is one way to do it,particularly if you can borrow alot of money cheap.
I invested in Real estate alot but I see people where I was from,San Jose Ca.taking Robert Allen courses and thinking about 100 financing,which I used to do before you could just get it from a lender and buying income property.There you would have to put 70% dn to get break even cash flow.Its important these ideas be realistic or you are asking people to do the impossible,buy property in San Jose nothing down and have positive cash flow.Not there.
But my son refied his house in 1999 and bought 4 condos in San Jose.I helped hiom,found places,kicked back my commisionsto him.He got one place 15% under market because it reaked of smoke,the lady was dying of lung cancer and just wanted to sell now and live out her 2 months in peace.One of my investors just couldn't get by the stench of it.Not your creative investeor.So my son bought it.It basically cost him nothing,he got cash flow out of it,and they each went up $220,000.Time to move the money out of there.Rents went down,the cash flow is even on $900,000 worth of equity. A person buying one to rent would have to put the $220,000 each down just to get break even cash flow.I told him that would be insane,so its insane to keep them also.
He has an idea where to move it.We will see.He should have traded  it in to Sacramento in 2001 and Florida in 2003 and that equity could be $10,000,000.But hindsight is 20-20.In the mean time,his old man,me,just spends all his equity on the lifestyle he gave his Colombiana he no longer has.
He gets his ideas from me,his tight ways from his mother.
I am a hopeless spendthrift,can't get by on $3300 a month in Cali without raiding my savings.

Pete

[doombug]

... in response to Re: Secrets to my success/retirement, posted by Pete E on Feb 23, 2005

San Jose is an anomaly--I think someone even mentioned this before.  I've lived there, and it is among the most expensive housing markets in the country.  San Francisco's housing costs are higher, though salaries are greater in San Jose.  New arrivals to the city HAVE to be wealthy to afford a home there.  You are completely reliant on this market continuing to rise, and it's impossible.  I live in Sacramento, and see reminders of the exodus from the Bay area every day.

[Pete E]

... in response to Re: Re: Secrets to my success/retirement, posted by doombug on Feb 23, 2005

From some preliminary real estate searches of basic houses,small 3 br 2 bath types,it looks like they went from about $115,000 in 2001 to about $240,000 in 2003
in Sacramento.The price differences is real,I may have the dates off a little.
Andproperty basically doubled in Las Vegas in the last 2 years as I understand it.Now Pheonix in the dumps along time is hot.To late there in my opinion.
The San Francisco Bay area has been strong along time because of limited land,high building costs and high salaries.Others places more recently have caught on because of low interest rates,creative low interst rate adjustable loans  and easy loan qualifications.
Are we headed for a bust?I think so.BUT,think about it.If you buy income property its a good thing if new income property construction and new home sales are slowed by higher interest rates.Cuts down the new competition coming on the market and increases the number of renters.So prices could drop but rent go up,exactly the opposite of what happened in San Jose the last 4 years.
For the owner of income property the biggest risk is the local economy and jobs where your property is.Anddamage to your property.
Example,I won't say where untill my son checks it out and buys there.$200,000 for a 4 plex,each unit rents for $850.
25% down,P and I at 5.75 % ,payment on each building,4 units,$875.Other expenses maybe $725 a building.Possitive  Cash flow per building $1800.He can buy 4 4 plexes for each $220,000 equity condo in San Jose,trading basically break even cash flow for $7200 for each.Times 4 condos.
All this from borrowing money on a house and buying the 4 condos 6 years ago,the short term effect of which was to increase his income because they used to have cash flow,now its about even.
Too good to be true on the 4 plexes?Maybe.Whats the vacancy rate?How fast do the renters destroy them?Will they be worthless before too long?
I have seen some bad area property basically be worthless,the owners could not get enough income to keep them repaired the tennants were so bad.

Pete

[Brazilophile]

... in response to Secrets to my success/retirement, posted by Neil on Feb 23, 2005

I teach economics and what Neil has done / is doing is exactly what I teach in our course on financial institutions.  Neil is doing what Fannie Mae does; borrow money fom investors at low rates and lend it to borrowers at high rates.

My only recommendation is for Neil to diversify his portfolio of loans so that it is not dominated by high risk borrowers.  Interest rates are rising which will raise his borrowing costs.  Neil will have to raise the rates he charges to borrowers to maintain his profit spread.  But his borrowers are the ones least able to absorb an increase in payments and therefore are the first ones to default if their borrowing costs increase even moderately.

My question to you Neil is whether you have looked into doing the same thing in LA.  Are there profitable opportunities to fund mortgages in Colombia, Venezuela, etc. ?

[Neil]

... in response to Re: Secrets to my success/retirement, posted by Brazilophile on Feb 23, 2005

I also recommend the Millionaire Next Door.

In Colombia I am unable to open a bank account.  Anyone know how?  I went to BancSantander, Citibank and others.

I tried to buy an apartment in Cartagena, but the administrator wants a bank account.

Probably best, because Cartagena is fun now but will not be in a few years.

I am sure there are opportunities in SA to invest, with better returns, but first, open a bank account so the person you trust with your investment can deposit the money each month.  Then you take it out with your debit card in the US.

Default is OK with me, because there are default penalties of 3% of the principle balance, late fees, and interest rate increases to the highest rate allowed by law upon default.  Watch your loan to value ratio going into the loan and keep it about 65% to 70%.  Look at every property yourself and don't rely on some out of town appraier.  Banks will lend 80% and have a harder time if default occurs.  I benefit from default and have never lost yet.

[Pete E]

... in response to Re: Secrets to my success/retirement, posted by Brazilophile on Feb 23, 2005

You could probably get 30% down here.But your never losing money would probably be history.And currency valuestrsaditionally would have worked against you but would have worked great recently.
AND high risk borrowers is the reason he is getting that interest.It comeswith the territory.The trick,which I'm sure Neal knows,is to invest in what appears to be high risk paper when it is in fact not that high of a risk.Say lousy credit but you have a good equity protection of your loan.Maybe even looking at the borrower to determine if his bad credit was somewhat explainable.And of course his ability to pay you.
Back to the real world,my finances.

Pete

[Neil]

... in response to Re: Re: Secrets to my success/retirement, posted by Pete E on Feb 23, 2005

bad credit score is ok with me.  I only look to the value of the collateral.  I also evaluate the borrower, but place little weight on his credit score.  I have even loaned to people IN bankruptcy.  This is good because the court will supervise the payments to you and the bankruptcy trustee will send the payments to you monthly.  Only watch your loan to value ratio.

[Pete E]

... in response to Re: Re: Re: Secrets to my success/retire..., posted by Neil on Feb 23, 2005

Thats the key,equity protection,which is just what lots of home lenders do not have,making 100% loans,My ex wife even bought a house,100%.She was working part time.Must have been a no doc.But she had a great credit score after I paid off her 3-3 year old credit cards,High 700's I bet.And never screwed up her credit before,basically never had much of a chance to.Things like credit scores being gold will bite them on the ass big time.A good idea used to extreme becomes a bad idea.

Pete

[Heat]

... in response to Secrets to my success/retirement, posted by Neil on Feb 23, 2005

Great web site and lots of good info!!