Beating the Bubble Mentality May 8, 2008
Posted by Jeff Nabers in : Money, real estate , add a commentI recently talked to a real estate investor friend online who I have known for about 4 years. He started investing in the height of the housing bubble, and now I think he’s finding it difficult to shed the “bubble mentality”. In our conversation I did my best to cause him to question his perspective and his investing strategy.
I’ve pasted our Instant Message conversation below (with the screen names changed for privacy). I didn’t correct capitalization, punctuation or spelling errors, so you’ve been forewarned.
I thought this would be a useful post because of how tightly this gentleman seemed to grip onto his investment strategy he’d been using since 2004. How tightly are you gripping onto your investment strategy?
[19:00] re_investor: HI Jeff
[19:00] re_investor: How are you buddy?
[19:00] jeff_nabers: Hey there
[19:01] jeff_nabers: I’m doing good. How are you?
[19:01] re_investor: How have you been doing?
[19:01] re_investor: Im alright!
[19:01] jeff_nabers: How’s the RE market up there?
[19:01] re_investor: OH its tight!!
[19:01] re_investor: Its flat and declined over the pervious 6 months
[19:01] re_investor: TOUGH
[19:02] jeff_nabers: what about cash flow?
[19:02] re_investor: Its cashing …
[19:02] re_investor: but, its still tight. I actually was in the process of buying another one
[19:02] re_investor: I stoped canceled the purchase/sale
[19:03] jeff_nabers: how did your previous investments turn out?
[19:03] re_investor: Oh great actually..
[19:03] re_investor: I sold the one in Fairview park
[19:03] re_investor: I got a cash buyer
[19:03] re_investor: The other three are turning out fine
[19:04] re_investor: The one house I have I have 67K in equity right now
[19:04] re_investor: I am currently renting it for 1K
[19:04] re_investor: but, I cant do anything with it until the maket comes back
[19:04] jeff_nabers: Sounds decent
[19:04] jeff_nabers: how’s the cash flow return?
[19:04] re_investor: Its about 300 dollars
[19:04] jeff_nabers: renting it at $1k what do you net per year?
[19:04] jeff_nabers: i see so 6k per year
[19:05] jeff_nabers: how much money did you put into it?
[19:05] re_investor: I was just in the process of refinancing it
[19:05] re_investor: and the mtg company I was using closed up
[19:05] re_investor: so the refi stoped
[19:05] jeff_nabers: how much money did you put in tha tone?
[19:06] re_investor: I was bummed out
[19:06] re_investor: I put in 15K
[19:06] re_investor: to fix it up
[19:06] jeff_nabers: and the down payment was?
[19:06] re_investor: It was alot
[19:06] re_investor: I cant remember…
[19:07] re_investor: I am trying to do something with the equity.. but, I dont know what
[19:07] re_investor: There is not much I can do
[19:07] jeff_nabers: you don’t remember how much you put down?
[19:08] re_investor: why are you wanting to no such details?
[19:08] jeff_nabers: i’m curious what your return is
[19:08] jeff_nabers: cashing out would only decrease your cashflow
[19:08] re_investor: I got into it on no money down
[19:08] re_investor: I had good credit
[19:08] jeff_nabers: well then i would never refi it and never sell it
[19:09] jeff_nabers: you are making a 40% annualized return on the cash you put in
[19:09] re_investor: yeah. Its only worth so much you know
[19:09] jeff_nabers: why would you ever want to take an asset like that off your books?
[19:09] re_investor: To use the equity in the house
[19:09] jeff_nabers: with 10 – 15 of those you’d never have to work again
[19:09] jeff_nabers: to use the equity to do what? continue working real estate like a job?
[19:10] re_investor: right. I just need 9 – 14 more of them
[19:10] jeff_nabers: do your other properties cash flow like this one? (more…)
Grading Promoters – Fairpointe… B May 1, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k , add a commentI ran across a site advertised on Google today – www.coloradodeedsoftrust.com – run by a company called Fairpointe. This post is just my initial opinion from reviewing their web site. I haven’t spoken with or met these people or anyone who has done business with them. Once I have I will post an update.
Fairpointe offers self directed IRA investors the ability to invest in deeds of trust for properties in Colorado. A deed of trust is essentially a mortgage. Fairpointe’s site says in one place that the minimum investment amount is $25,000, while in another place they claim it’s $50,000. Either way, I immediately can respect what they are promoting more than those who promote putting all your retirement funds into one or two pieces of real estate through direct ownership. They also seem to allow, possibly encourage, forming an investment group so that each investor can invest a smaller amount which allows for diversification. I like the sound of that.
In the past, I’ve run across self directed IRA/401k promoters who really bash the stock market. Usually it’s in a very emotional way that just comes across as a cheap shot, and those people lose credibility in my book. Now, Fairpointe on the other hand does oppose the stock market, but in an interesting way. They point out what I believe to be the single misunderstood fact about numbers, math, money and investing. In fact, I think that the securities industry would not exist if everyone understood this concept:
Lying averages
Ever heard the phrase “numbers don’t lie”? Oh, yes they do. If 4 different investment portfolios each start at the same time, start with the same amount of principal, experience different gains/losses each year, but have the same average return during a period of time, would they perform the same during that period of time? No.
While many people believe (more…)
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