Brian over at How To Invest In Real Estate posted a story from the Arizona Republic about how sellers are basically clueless about the current real estate slowdown and are still looking to sell their homes for the inflated prices of the last two years. Realtors are having to educate them on the current market dynamics and find ways to make them realize they may need to lower their price, not once, but several times.
But one line in the article really jumped out at me and made me question the knowledge of most Realtors:
You can't count on city or town medians or appraisals but have to look at what comparable homes in the neighborhood are selling for, they said.
No shit.
As a real estate investor, this is the first thing that was drilled into my head. It should be the most self-evident statement ever to anyone remotely involved in real estate, yet at this meeting of 200 members of the Southeast Valley Association of Realtors, they had to specifically point this out.
And these are supposed to be real estate "professionals".
Another Prosper.com Update
I've already mentioned I've grown disappointed with Prosper.com and will not be lending any more money through there. I've noticed now that they have added a new feature called "Community Payment" which I'm not sure I like. The concept is simple: if a member of a group is behind on payments, other group members can chip in and make a payment on the overdue loan. This helps keep the group's rating up by cutting down on the number of late loans the group has, which can scare away other lenders from that group.
As a lender, I should be glad for this. If the borrower can't pay me, at least someone else will. In fact, this has just happened. One of my loans is 2 months late and I received a community payment. The amount was only $1.43 and after all the late fees and service fees, I only get $0.21, which is still better than nothing (although not by much).
But on another level, I am against this idea. The point of Prosper, I think, is for people to help other people get back on their feet by lending them money. But part of getting back on your feet means learning and accepting fiscal responsibility. The community payment option gives borrowers less of a reason to accept that responsibility. I think it is also a huge source for potential abuse. If you find a group whose members tend to make community payments for others, why not join that group, borrow money, and default on the loan? The community payments will stretch out even further the amount of time it takes for a loan to go to the collection agency and thus, hurt your credit score.
As a lender, I should be glad for this. If the borrower can't pay me, at least someone else will. In fact, this has just happened. One of my loans is 2 months late and I received a community payment. The amount was only $1.43 and after all the late fees and service fees, I only get $0.21, which is still better than nothing (although not by much).
But on another level, I am against this idea. The point of Prosper, I think, is for people to help other people get back on their feet by lending them money. But part of getting back on your feet means learning and accepting fiscal responsibility. The community payment option gives borrowers less of a reason to accept that responsibility. I think it is also a huge source for potential abuse. If you find a group whose members tend to make community payments for others, why not join that group, borrow money, and default on the loan? The community payments will stretch out even further the amount of time it takes for a loan to go to the collection agency and thus, hurt your credit score.
First Payment From Commercial Project Received
I received my first payment yesterday from the large commercial project in Louisiana I invested in recently. Also had an update on the progress from the property owners. They have hired a new property management company and that company is actually moving into the building, which is a plus. This company managed the building for over a decade before the previous owner took over and had the property at 80% occupancy. They are currently at 40%, but they feel they can get it up to 80%. On the bad news front, three air conditioning units went out and they will cost the owner $30,000 to repair.
In looking at my last post on this topic, I realized I forgot to mention one important fact: My ROI on this investment is infinite! Yes, I am getting a 12% return, but the money I put into this project came from a line of credit that is costing me 7%. I get each payment, use some to make my line of credit payment, and pocket the rest. While it looks like this means I am actually making 5% on my money, I am not. Because none of the money generating the income is my money, I have zero dollars in the deal. This means I am getting money each month with none of my money invested, which gives a return on investment figure of infinity! Of course, there is some risk involved in this and I do have reserves set aside in case things go south, but it's hard to beat an infinite return!
In looking at my last post on this topic, I realized I forgot to mention one important fact: My ROI on this investment is infinite! Yes, I am getting a 12% return, but the money I put into this project came from a line of credit that is costing me 7%. I get each payment, use some to make my line of credit payment, and pocket the rest. While it looks like this means I am actually making 5% on my money, I am not. Because none of the money generating the income is my money, I have zero dollars in the deal. This means I am getting money each month with none of my money invested, which gives a return on investment figure of infinity! Of course, there is some risk involved in this and I do have reserves set aside in case things go south, but it's hard to beat an infinite return!
Bonus Cash!
I spent the weekend in Las Vegas, where I won about $500. Unfortunately, my wife lost the same amount, so it was a push overall. Still, it's good to come back from Vegas with the same amount of money as when I left!
But the bonus cash I am talking about is not from Sin City. It's from Security Union Title Company. When I checked my mail when I got back into town, I had a refund check for $44 from this title company. The accompanying letter says the refund is a result of an investigation by several states into the reinsuring practices of the company to "captive reinsurers." They claim the reinsurance agreements did not increase the title premium and without it, the charge would have been the same. Hmm.. Really? Then why are they paying refunds? And doesn't calling them refunds imply they were over-charging in the first place?
But the bonus cash I am talking about is not from Sin City. It's from Security Union Title Company. When I checked my mail when I got back into town, I had a refund check for $44 from this title company. The accompanying letter says the refund is a result of an investigation by several states into the reinsuring practices of the company to "captive reinsurers." They claim the reinsurance agreements did not increase the title premium and without it, the charge would have been the same. Hmm.. Really? Then why are they paying refunds? And doesn't calling them refunds imply they were over-charging in the first place?
Reverse Merger Arbitrage Works!
Wow.. I just completed a deal that gave me a 2,567% ROI in 212 days. That's an annualized ROI of 4,419%!! And it's perfectly legal! Anyone can do it!
I sound like a bad infomercial. I better explain.
Thanks to Gualberto over at The Art Of Money blog, I learned about a stock investing technique called reverse merger arbitrage. He's explains the concept here. How it works is you buy shares in a shell company - a company that has no operations and is basically created just to be sold. The shell company has a stock symbol and is typically traded on the "pink sheets", the over the counter market (as opposed to on the NASDAQ or NYSE). These stocks are typically trading at pennies per share.
Why do this? Because the whole reason for this company's existence is to be sold to another company. The buying company wants to become a publicly traded company and issue stock. However, it is very expensive to put together an IPO - you need to pay a company to issue the stock, you need to get regulatory approval to be listed, you need to go through audits, etc. Rather than deal with all this, it is cheaper and easier to simply merge with another company that is already listed as a public company. Hence, the buying company buys out the shell company. Often, at the completion of the sale, they will change the ticker symbol and do a reverse split on the stock to raise the price from pennies to dollars.
Normally, a split or a reverse split does not change your investment amount. If you have 100 shares at $1 per share, after a 1 for 50 reverse split, you'll have 2 shares at $50 per share. In both cases, you have a total of $100 worth of stock.
But many times, the reverse split will include special treatment for small shareholders. For example, if you have less than 100 shares, they might say your shares will not be affected by the reverse split. This is probably done to preserve "round lots" and prevent the company from having to pay out any cash to shareholders. For example, without the special provision, if I had 99 shares before the 1 for 50 reverse split, I would end up with 1 share plus cash in the amount of 49/50ths of one share (or $49 in this example). But if the company has specified that holders of less than 100 shares are not affected, then, after the split, I am left with 99 shares still. But, and this is where the magic happens, because the reverse split affected everyone else, the stock price is now at $50. So I have 99 shares of stock at $50/share where before I had 99 shares at $1/share!
Hard to believe, but it's true. This happens. It's legal. It works. The drawback, of course, is that there is an upper limit on how much profit you can make - typically only 99 shares worth. But even so, that's one heck of an impressive return. But if you have several accounts, you can do this in each account.
Here's what I did. Back in December, Gualberto posted about a potential arbitrage opportunity with QRUS. That was going to be a 1 for 10 reverse merger with shareholders of less than 100 shares being unaffected. I bought 99 shares of QRUS at $0.30/share. Time passed and no news came. Nothing happened. It turns out, that deal fell through and the merger never happened. However, I held on to the stock, figuring another merger would come along soon. Sure enough, in July, Gualberto posted about a new merger involving QRUS. This time, the split was going to be 1 for 50, meaning I could make an even bigger profit!
Again, time passed and there was no news. (You'll find it's somewhat difficult to get news, or any information at all, on companies trading on the pink sheets.) One day, I received an information packet in the mail explaining the split. I took this as a good sign that the merger was going to take place, since I didn't get one of these for the failed merger. (Why incur the expense of printing and mailing the things if it's not going to go through?) Unfortunately, the only date listed for when the split would happen was "at least 20 days after" the information packet was first distributed. So I've been watching the stock daily and checking Gualberto's blog daily for news. One of his readers posted a press release saying the split was to happen on 8/2 and that the new ticker symbol would be DFXN. Sweet!
The next concern was that my broker, Schwab, would handle the reverse split correctly. Well, August 2 came and went and nothing happened. My account showed that my shares of QRUS were replaced by a number, no symbol. I called and was told that the stock was undergoing a reverse split and that Schwab was waiting for the new shares to arrive from the company. I explained to the broker about the special treatment for those holding less than 100 shares. He had never heard of such a thing. I was transferred the Schwab's Reorganization Department and they had never heard of such a thing either. So time went by and I was a little anxious about whether or not Schwab would handle the split correctly. Both the broker and the Reorg Department said I would received 1 share plus cash. This was not what I wanted. But I was hopeful things would work out since they said they were waiting for instructions from the company. Presumably, the company would know the special conditions of their split and would instruct Schwab to handle things accordingly.
Today, a week after the split, I logged in to my Schwab account and saw 99 shares of DFXN. The last trade price was $11. I got a real time quote and saw the bid was $8 and the ask was $11. I put in a sell order for $10.50 and waited. Nothing happened for about 30 minutes. The stock was somewhat volatile, trading between $8 and $14 over the last week and I didn't want to get too greedy and end up holding on to a $2 stock, so I changed my order to sell at the bid price of $8. The shares were immediately sold.
So, to recap, I bought at $0.30 a share and sold at $8.00 a share. Put another way, I turned $29.70 into $792 (not counting some trading commissions).Pretty darn impressive! And this was done in my Roth IRA account, so the profit is tax free!
I don't know how Gualberto finds out about these opportunities, but I check his blog daily for news of upcoming mergers. Next time, I'm doing this in 5 different accounts to really jack up my profits.
I sound like a bad infomercial. I better explain.
Thanks to Gualberto over at The Art Of Money blog, I learned about a stock investing technique called reverse merger arbitrage. He's explains the concept here. How it works is you buy shares in a shell company - a company that has no operations and is basically created just to be sold. The shell company has a stock symbol and is typically traded on the "pink sheets", the over the counter market (as opposed to on the NASDAQ or NYSE). These stocks are typically trading at pennies per share.
Why do this? Because the whole reason for this company's existence is to be sold to another company. The buying company wants to become a publicly traded company and issue stock. However, it is very expensive to put together an IPO - you need to pay a company to issue the stock, you need to get regulatory approval to be listed, you need to go through audits, etc. Rather than deal with all this, it is cheaper and easier to simply merge with another company that is already listed as a public company. Hence, the buying company buys out the shell company. Often, at the completion of the sale, they will change the ticker symbol and do a reverse split on the stock to raise the price from pennies to dollars.
Normally, a split or a reverse split does not change your investment amount. If you have 100 shares at $1 per share, after a 1 for 50 reverse split, you'll have 2 shares at $50 per share. In both cases, you have a total of $100 worth of stock.
But many times, the reverse split will include special treatment for small shareholders. For example, if you have less than 100 shares, they might say your shares will not be affected by the reverse split. This is probably done to preserve "round lots" and prevent the company from having to pay out any cash to shareholders. For example, without the special provision, if I had 99 shares before the 1 for 50 reverse split, I would end up with 1 share plus cash in the amount of 49/50ths of one share (or $49 in this example). But if the company has specified that holders of less than 100 shares are not affected, then, after the split, I am left with 99 shares still. But, and this is where the magic happens, because the reverse split affected everyone else, the stock price is now at $50. So I have 99 shares of stock at $50/share where before I had 99 shares at $1/share!
Hard to believe, but it's true. This happens. It's legal. It works. The drawback, of course, is that there is an upper limit on how much profit you can make - typically only 99 shares worth. But even so, that's one heck of an impressive return. But if you have several accounts, you can do this in each account.
Here's what I did. Back in December, Gualberto posted about a potential arbitrage opportunity with QRUS. That was going to be a 1 for 10 reverse merger with shareholders of less than 100 shares being unaffected. I bought 99 shares of QRUS at $0.30/share. Time passed and no news came. Nothing happened. It turns out, that deal fell through and the merger never happened. However, I held on to the stock, figuring another merger would come along soon. Sure enough, in July, Gualberto posted about a new merger involving QRUS. This time, the split was going to be 1 for 50, meaning I could make an even bigger profit!
Again, time passed and there was no news. (You'll find it's somewhat difficult to get news, or any information at all, on companies trading on the pink sheets.) One day, I received an information packet in the mail explaining the split. I took this as a good sign that the merger was going to take place, since I didn't get one of these for the failed merger. (Why incur the expense of printing and mailing the things if it's not going to go through?) Unfortunately, the only date listed for when the split would happen was "at least 20 days after" the information packet was first distributed. So I've been watching the stock daily and checking Gualberto's blog daily for news. One of his readers posted a press release saying the split was to happen on 8/2 and that the new ticker symbol would be DFXN. Sweet!
The next concern was that my broker, Schwab, would handle the reverse split correctly. Well, August 2 came and went and nothing happened. My account showed that my shares of QRUS were replaced by a number, no symbol. I called and was told that the stock was undergoing a reverse split and that Schwab was waiting for the new shares to arrive from the company. I explained to the broker about the special treatment for those holding less than 100 shares. He had never heard of such a thing. I was transferred the Schwab's Reorganization Department and they had never heard of such a thing either. So time went by and I was a little anxious about whether or not Schwab would handle the split correctly. Both the broker and the Reorg Department said I would received 1 share plus cash. This was not what I wanted. But I was hopeful things would work out since they said they were waiting for instructions from the company. Presumably, the company would know the special conditions of their split and would instruct Schwab to handle things accordingly.
Today, a week after the split, I logged in to my Schwab account and saw 99 shares of DFXN. The last trade price was $11. I got a real time quote and saw the bid was $8 and the ask was $11. I put in a sell order for $10.50 and waited. Nothing happened for about 30 minutes. The stock was somewhat volatile, trading between $8 and $14 over the last week and I didn't want to get too greedy and end up holding on to a $2 stock, so I changed my order to sell at the bid price of $8. The shares were immediately sold.
So, to recap, I bought at $0.30 a share and sold at $8.00 a share. Put another way, I turned $29.70 into $792 (not counting some trading commissions).Pretty darn impressive! And this was done in my Roth IRA account, so the profit is tax free!
I don't know how Gualberto finds out about these opportunities, but I check his blog daily for news of upcoming mergers. Next time, I'm doing this in 5 different accounts to really jack up my profits.
