On Being An Accidental Slumlord
Newsweek has a good article this week titled "How I Became An Accidental Slumlord." It does a good job at presenting the conflicts a landlord feels when renting to lower income families.
Things Turning Around?
I've haven't spent a great deal of time investigating, but from the signs I am seeing and the news I am hearing, I am starting to think it's getting close to time to get back into local real estate investing. Prices in my area seem to be coming back down to "normal" levels and I am seeing good deals again, especially on foreclosed properties. I am also seeing a large number of "bank owned" for sale signs around town. Of course, you can't just look at home prices to determine if the market has bottomed out. You also need to look at demand and the availability of buyers. As I said, I haven't done any detailed analysis yet, but my gut feeling is things could be turning around soon. Of course, I could be wrong...
Hard Money loan #6 was paid off a couple weeks ago and I have used the principle from that to make another hard money loan. Call this one Hard Money Loan #7. It should be a fairly short loan. This property is a 2,700 square foot house built in 2006. List price is $380,000 and it is already in escrow to be sold. The seller (my borrower) bought it for $186,000. Homes in the area typically sell for $257,000 to $320,000. The loan is for $138,000, so we are fairly well protected. ROI is 10% with monthly interest only payments.
On the landline phone elimination front, everything has been switched from the landline and I am ready to cancel it. I am pretty happy with Callwave's internet fax service. The only thing I don't like is that they have an address book on their website, but you can't use it to select a number to fax to! Seems a bit pointless to me. Other than that, I've been happy with both sending and receiving faxes through them.
And my annual trip to Las Vegas was again fruitful. Well, pretty much for everyone I went with but me. Everyone got royal flushes at video poker except your truly. My wife won $1,300 with hers. My sister-in-law won $1,500. And my brother-in-law won $1,000 with his first one. Not 10 minutes later, he got a second royal flush and won another $1,000 at the same machine! Although I didn't get a royal flush, I did get the most four of a kinds than anyone else on the trip. Those paid between $62.50 and $200 each. I was a bit disappointed though. It seems the economic downturn has hit the Wynn a bit. Last year, many of their video poker machines were set at full pay ("9/6"). This year, there wasn't a 9/6 machine to be found at either the Wynn or Encore. They were all 8/5, which has a lower total return to the player. Oh well. It didn't seem to hinder us to much!
Hard Money loan #6 was paid off a couple weeks ago and I have used the principle from that to make another hard money loan. Call this one Hard Money Loan #7. It should be a fairly short loan. This property is a 2,700 square foot house built in 2006. List price is $380,000 and it is already in escrow to be sold. The seller (my borrower) bought it for $186,000. Homes in the area typically sell for $257,000 to $320,000. The loan is for $138,000, so we are fairly well protected. ROI is 10% with monthly interest only payments.
On the landline phone elimination front, everything has been switched from the landline and I am ready to cancel it. I am pretty happy with Callwave's internet fax service. The only thing I don't like is that they have an address book on their website, but you can't use it to select a number to fax to! Seems a bit pointless to me. Other than that, I've been happy with both sending and receiving faxes through them.
And my annual trip to Las Vegas was again fruitful. Well, pretty much for everyone I went with but me. Everyone got royal flushes at video poker except your truly. My wife won $1,300 with hers. My sister-in-law won $1,500. And my brother-in-law won $1,000 with his first one. Not 10 minutes later, he got a second royal flush and won another $1,000 at the same machine! Although I didn't get a royal flush, I did get the most four of a kinds than anyone else on the trip. Those paid between $62.50 and $200 each. I was a bit disappointed though. It seems the economic downturn has hit the Wynn a bit. Last year, many of their video poker machines were set at full pay ("9/6"). This year, there wasn't a 9/6 machine to be found at either the Wynn or Encore. They were all 8/5, which has a lower total return to the player. Oh well. It didn't seem to hinder us to much!
Your Home Is A Bad Investment
Many people believe their home is a good investment. Using Robert Kiyosaki's definition of an investment as "something that puts money into your pocket," it's obvious it is not. Now the Wall Street Journal is reporting that, even by the conventional definition of investment, your home still may not be a good investment.
Using housing pricing data for the last twenty years in ten major cities, housing prices produced a real return of between 1.15% and 2.2% annually, after inflation. When you figure in maintenance costs, you could actually be losing money.
The article really only looks at property appreciation to determine the value of the investment. There is no mention of the income tax deduction for mortgage interest, which is usually quite substantial for most homeowners and probably would boost the return figure a couple of percentage points. Still, the gist of the article is correct - your primary residence is not an investment.
I subscribe to the "putting money in your pocket" definition of an investment. And while your personal residence may not be a good investment, that doesn't mean real estate isn't. As long as a property has positive cash flow, it's a decent investment. How good of an investment, of course, depends on how good the cash flow is. Then, of course, there are the other factors, such as depreciation, the ability to defer taxes through 1031 exchanges, etc.
While I am glad the WSJ article points out that people's primary residences are not generally good investments, I'm afraid some readers might come away from the article thinking all real estate is a bad investment.
Using housing pricing data for the last twenty years in ten major cities, housing prices produced a real return of between 1.15% and 2.2% annually, after inflation. When you figure in maintenance costs, you could actually be losing money.
The article really only looks at property appreciation to determine the value of the investment. There is no mention of the income tax deduction for mortgage interest, which is usually quite substantial for most homeowners and probably would boost the return figure a couple of percentage points. Still, the gist of the article is correct - your primary residence is not an investment.
I subscribe to the "putting money in your pocket" definition of an investment. And while your personal residence may not be a good investment, that doesn't mean real estate isn't. As long as a property has positive cash flow, it's a decent investment. How good of an investment, of course, depends on how good the cash flow is. Then, of course, there are the other factors, such as depreciation, the ability to defer taxes through 1031 exchanges, etc.
While I am glad the WSJ article points out that people's primary residences are not generally good investments, I'm afraid some readers might come away from the article thinking all real estate is a bad investment.
Moving Forward
Things are moving forward on several fronts.
The property that I had the mortgage on for Hard Money Loan #6 has been sold. Escrow closed last week. I'll be getting my final interest payment from that this week. I've elected to let my partner hold on to my principle for reinvestment in another loan. He thinks he can find another suitable investment in two to three weeks.
The Houston apartment complex had another good month in April. Occupancy remained at 95%, well above the Houston market average of 88%. Cashflow for the month was just shy of $22,000. There were no significant expenses. No word yet on the increased investor returns that management mentioned would be coming.
I've moved forward with my plan to eliminate my landline phone service at home. As I mentioned last month, I tried using myfax.com and had some problems with them. I continued using them to send the occasional fax and their service has not gotten any better. I can count at least three times where I received confirmation from them that a fax was sent but the recipient never got it. After reviewing the companies that several commenters mentioned, I opted to go with Callwave. I had made a list of the various reasons why I rejected the other companies, but I seem to have misplaced that, so here's what I recall: Callwave was one of the few companies that allowed me to port my existing fax number. This eliminates the need for me to make new business cards. Callwave also does not require me to use any special software to send or receive faxes, as some of the other companies did. I also spoke the Callwave's technical support on the phone and, although it was obvious they were outsourcing their support to India, the people I spoke with were knowledgable and helpful and answered my questions. And finally, Callwave's pricing was competitive. I put in the request to port my existing number late last week and the process should be complete sometime this week.
One thing I forgot to include in my analysis was my satelite television receivers. I have two and each has to be connected to a phone line or I get charged $5 a month per receiver. The connection is so the machines can communicate with Dish TV and tell them if I have ordered any pay per view and, I'm sure, to send other information. Luckily, the machines are also network enabled and if they can connect to the internet, you don't need a phone line hooked up and can avoid the $5 fee. I purchased two wireless bridges to add these machines to my wireless network, so that problem is solved. I also found a legal size scanner at Costco for $60. This is cheaper than the $300 I found earlier and the savings more than pays for the two bridges I had to buy. My alarm system has been switched to using radio instead of a phone line, so as soon as my fax number gets ported over, I'm clear to cancel the landline.
I've got my new computer more or less set up now, so things are returning to normal there. It's surprising how lost I felt when I didn't have a computer. All my appointments were in there. Luckily, my iPhone was synced to it, so I still had all my calendar and contact info, but I was still feeling adrift without the computer.
And in 13 days, I take my annual trip to Las Vegas. Hopefully, it will be as profitable as last time!
The property that I had the mortgage on for Hard Money Loan #6 has been sold. Escrow closed last week. I'll be getting my final interest payment from that this week. I've elected to let my partner hold on to my principle for reinvestment in another loan. He thinks he can find another suitable investment in two to three weeks.
The Houston apartment complex had another good month in April. Occupancy remained at 95%, well above the Houston market average of 88%. Cashflow for the month was just shy of $22,000. There were no significant expenses. No word yet on the increased investor returns that management mentioned would be coming.
I've moved forward with my plan to eliminate my landline phone service at home. As I mentioned last month, I tried using myfax.com and had some problems with them. I continued using them to send the occasional fax and their service has not gotten any better. I can count at least three times where I received confirmation from them that a fax was sent but the recipient never got it. After reviewing the companies that several commenters mentioned, I opted to go with Callwave. I had made a list of the various reasons why I rejected the other companies, but I seem to have misplaced that, so here's what I recall: Callwave was one of the few companies that allowed me to port my existing fax number. This eliminates the need for me to make new business cards. Callwave also does not require me to use any special software to send or receive faxes, as some of the other companies did. I also spoke the Callwave's technical support on the phone and, although it was obvious they were outsourcing their support to India, the people I spoke with were knowledgable and helpful and answered my questions. And finally, Callwave's pricing was competitive. I put in the request to port my existing number late last week and the process should be complete sometime this week.
One thing I forgot to include in my analysis was my satelite television receivers. I have two and each has to be connected to a phone line or I get charged $5 a month per receiver. The connection is so the machines can communicate with Dish TV and tell them if I have ordered any pay per view and, I'm sure, to send other information. Luckily, the machines are also network enabled and if they can connect to the internet, you don't need a phone line hooked up and can avoid the $5 fee. I purchased two wireless bridges to add these machines to my wireless network, so that problem is solved. I also found a legal size scanner at Costco for $60. This is cheaper than the $300 I found earlier and the savings more than pays for the two bridges I had to buy. My alarm system has been switched to using radio instead of a phone line, so as soon as my fax number gets ported over, I'm clear to cancel the landline.
I've got my new computer more or less set up now, so things are returning to normal there. It's surprising how lost I felt when I didn't have a computer. All my appointments were in there. Luckily, my iPhone was synced to it, so I still had all my calendar and contact info, but I was still feeling adrift without the computer.
And in 13 days, I take my annual trip to Las Vegas. Hopefully, it will be as profitable as last time!
Free Annual Credit Report Time!
It's that time of year again - time to get free copies of my and my wife's credit reports. Normally, I spread the requests throughout the year, getting one report from each of the three credit reporting agencies every four months, so I have fairly continuous monitoring. Last year, I was a bit lazy and did not request any reports. I had previously reviewed the reports and corrected all the errors, so I wasn't too concerned about what was on there anymore. About 1.5 years ago ago, however, my wife had her purse stolen and some checks were forged and bounced in her name. We went through the whole process of reporting the theft to the police and to the credit agencies. I also went so far as to request a credit freeze on her report from all three agencies. Although I submitted all the paperwork for that, I never got any confirmation back from any of the companies that the freeze was actually enacted. (They eventually caught the woman writing bad checks and she was charged. Unfortunately, we learned that she was released on bail and then never showed up for her court date.)
Today, I received confirmation of the freeze. I was able to get copies of my credit reports without problems, but all three companies denied my request for copies of my wife's report. I can still get copies, but I need to do it via mail and provide copies of identification documents.
My reports from TransUnion and Equifax were correct. The one from Experian only contained one error and a minor one at that - they showed one mortgage as still open (albeit with a zero balance). This mortgage was actually sold to another company, so it shoould show up as closed. I filed a dispute online and I should get notified of the results by email within a couple of weeks.
Today, I received confirmation of the freeze. I was able to get copies of my credit reports without problems, but all three companies denied my request for copies of my wife's report. I can still get copies, but I need to do it via mail and provide copies of identification documents.
My reports from TransUnion and Equifax were correct. The one from Experian only contained one error and a minor one at that - they showed one mortgage as still open (albeit with a zero balance). This mortgage was actually sold to another company, so it shoould show up as closed. I filed a dispute online and I should get notified of the results by email within a couple of weeks.
