What’s best: a Tortoise or a Hare Real Estate Investor?

Which type of real estate investor are you?

You see it all the time. Some real estate guru touting the latest and greatest technique for getting rich. They all sound like it’s a piece of cake to buy and sell real estate. Let me tell you, it ain’t.

The latest big thing is AirBnB. Just get a property and do short-term rentals. There’s a lot of money to be made in short-term rentals. Well, yes and no. AirBnB and Vacation Rentals by Owner (VRBO) have enjoyed much success over the years. Unfortunately, vacation rentals are no longer the wild-wild-west. Local governments see vacation rentals as a cash cow and they’re clamping down on them. A friend of mine had a AirBnB in Aspen, Colorado they had to sell because Aspen decided they wanted a bigger piece of the action. Check this out before you jump into short-term rentals.

We had a VRBO rental in Breckenridge, CO from 2006-2010. It was at a place called Tiger Run. Tiger Run is a vacation rental community located on the north side of Breckenridge. Tiger Run has a lot going for it for a mobile home park with long-term lots and a bunch of pull-through lots for RVs. They refer to the mobile homes on the lots as chalets. I have to laugh. As if, a french sounding name means they are upscale. LOL. But they are just mobile homes. I know because, in a previous life, I lived in an actual mobile home park east of Denton, TX.

The biggest problem that we had was with the Tiger Run HOA. Unfortunately, the people running the HOA were too snooty for me. Somehow, because they owned a small lot with a mobile home, e.g., chalet, they felt that they were in the same league as the folks with multimillion-dollar houses dotting the surrounding hills. We rented our chalet out and the HOA took a big chunk of the profits from that. They were mad because we didn’t rent the chalet through them.

We lived about 2.5 hours from Breckenridge. This made it impractical to manage the property ourselves, so we had to hire people to maintain the property. That took some time with varying amounts of success. We sold our chalet and got away from the AirBnB business.

What’s wrong with Go Big or Go Home?

There’s a certain sector of real estate investors that subscribe to the Go Big or Go Home mindset. I’ve met quite a few. I was listening to a real estate podcast hosted on Wholesaling Inc where the host, a friend of mine, Brent Bowers was interviewing another real estate investor Brent Daniels. (Brent Daniels has a YouTube channel on wholesaling. I think he convinced Brent Bowers to start a YouTube channel, too.) I’m listening to Brent Daniels tell his story of about getting into real estate. What a disaster!! He ended up at 27 years old $750K in debt and divorced. The former caused by bad real estate decisions; I don’t know about the latter. Brent Daniels clearly belongs to the Go Big or Go Home mindset. He managed to dig himself out of debt by learning to wholesale properties. But at what cost?

I know another guy who adopted the Go Big or Go Home mindset. He was going to make a fortune in real estate. A year or so later I saw his house on the Election and Demand list. The Election and Demand list is the first stage of foreclosure. Yup. He lost his house and probably his wife, too.

Another guy, let’s call him Charles. He got into real estate by taking over peoples mortgages and then turning around and reselling the property carrying the note. He had over 60 properties!! Then the market fell out, people stopped paying, and Charlie didn’t have the money to pay the underlying notes. He lost all 60 houses. He even lost his own house in the process! And, if that wasn’t enough (and don’t you think it ought to be?) because he was acting like an unlicensed mortgage lender, he got the attention of a local District Attorney. I’m sure I don’t have to tell you, but you never want the attention of a District Attorney.

Go Big or Go Home can leave you deeply in debt and possibly destroy your relationships. You will learn something about real estate investing, but at what cost?

Get Rich Slow

I’ve seen lots of people get sucked into the Go Big or Go Home mindset. Sure, for some people it works out, but for a majority of people it doesn’t. If you notice the list of the Forbes top 500 richest people in America isn’t very stable. Yes, there’s a few that stay up on the list, but it’s constantly changing. It changes because a lot of people who get rich quick get poor quick, too.

Personal Story

My great-grandfather, Albert Cassin Penn, Sr., made a fortune selling razors to the miners in Colorado. Penn family lore says Albert left NJ and traveled to Colorado on a conastoga wagon and came back in his own railroad car. Why he returned to NJ is beyond me. Then, because Albert was a gambler, he lost it all and died penniless. His son, my grandfather, Albert Cassin Penn, Jr. made a fortune selling mattresses. He was a gambler, lost it all and died penniless, too. And yet, aother gambler. At the other extreme was my father, Richard. The biggest gamble he ever took was to buy Irish Sweepstakes tickets. He didn’t like to gamble. He skipped the riches his father and grandfather experienced and died penniless, too. So doing nothing isn’t a winning strategy, either.

The Sweet Sport between the Tortoise and the Hare

My goal is to take the middle road. Acquire wealth slowly. Don’t buy expensive things you don’t need. New cars, fancy house, expensive dinners, etc. Use your money smart. Don’t over extend yourself. Buy one property at a time. Buy it smart. Always cash flow.

Maybe you don’t want to be a full-time real estate investor. Maybe, just maybe, you like your current career, but you want to add some diversity or future security to your life. Most real estate gurus don’t understand this. They’re like, either you’re all in or not. Go big or go home. Do you see the disconnect here? Not everybody is destined to be a big time real estate investor. Because you’re just seeing the successful ones, not the large number of failed ones. And, that’s OK.

Most successful real estate investors are Mom and Pop who take a conservative approach. Obviously, slow and steady wins the race. But remember, you have to be in the race to win.

The other part is to develop a process. Once you get one property. Setup a process to get more properties (if you want.) Then depending on market conditions apply the same process. Rinse – Lather – Repeat as often as you want.

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Wow! Huge Changes to the Colorado Real Estate Market in just 3 months!

(Last updated 12/15/2022)

Current Status of Front Range Cities Denver, Colorado Springs, and Pueblo

This page is a snapshot of the state of the real estate market from Denver, Colorado Springs, and Pueblo. Shown are three graphs below (Figure 1.) As I’m most interested in the Front Range of Colorado from Denver to Pueblo, I’m including snapshots of what’s happening there.  Generally, green means good for a seller, and red means good for the investor.

Real estate status in current market 12-15-2022

Figure 1 – Rough indicators for Denver, Colorado Springs, and Pueblo, Colorado real estate.

Analysis

Wow!  What a difference 3-months makes.  In September the STAR Momentum indicators for Pueblo and Colorado Springs were very strong both short-term and long term.  Denver looked like it had some concern in the long term, but otherwise appeared strong.  The TAPS graphs suggested that all these areas were strong seller’s markets.  Now, they are all verging toward weak.  That’s a 180 swing.  

 

From a wealth accumulation point of view, Denver, the largest market in Colorado, reflects the state of Colorado.  All three graphs indicate that these areas in Colorado are still appreciating markets but appreciation has dropped significantly to 5-6%, less than half of what the appreciation was in mid-September. 

Notice that the long-term and short-term moving averages crossed over in the last year and continue to diverge. 

We’re seeing a significant dip in appreciation which we have been anticipating since the two moving averages crossed last year.  If it continues in this manner, expect housing prices to drop sharply and monthly inventory to grow in all three markets.  At this rate, within 6 months it will be a buyer’s market.  

Key to Graphs

The first set of graphs is the Six Trigger Alert Reports (STAR).  There are six momentum indicators ranging from short-term indicators on the left to long-term indicators on the right for Denver, Colorado Springs, and Pueblo.  Roughly, green is good if you’re a seller, red is good if you’re a buyer.  The indicators go back in time as you go down each row on the graph.

Figure 2 – STAR Momentum Indicators for the State of Colorado.  The indicators for the current quarter (top row) suggest that the short-term through long-term indicate a weakening seller’s market for Colorado.  A year ago, bottom row, was still pretty good.  (These graphs are from HousingAlerts.com.   This is just a quick snapshot of what HousingAlerts.com has to offer.  Go to my home page to get a free version for your state.)

The next graph (Figure 3) indicates the Technical Analysis Point Score (TAPS.)  Each market is graded using a series of technical criteria. (I don’t really know the details.) Again, green is good, red is bad.  You can see that Colorado as a whole, has gone from very strong trending to weak./H2>

Figure 3 – Technical Analysis Point Score for the State of Colorado.

Figure 4 shows the wealth accumulation as a percentage of the state of Colorado.  Green areas are when the market is appreciating and white areas are when the market is depreciating.

Long Term Wealth appreciation for the State of Colorado

Figure 4 – Long term wealth accumulation (appreciation) cycle for the state of Colorado.  You can clearly see that Colorado has ended its long upward trend that started in 2012 and wealth accumulation has dropped precipitously by >50% since the high last year.  But if you look at the green (10 quarters) and red (20 quarters) lines of moving averages, you’ll notice that the market changes when these two lines cross over each other.  You can see at the far right that these two lines crossed over signifying a significant change in market direction for Colorado that is now manifesting itself. 

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Want a quick sale? Here are 12 Tips on How to Stage Your Home

We are entering a new era in home sales. Interest rates have doubled in the last year and are expected to go up even more. The Fed is expected to raise interest rates two times after the mid-term elections and before the New Year! Happy New Year!!

But, you still have to sell your house. It used to be just put your house up for sale and let the bidding wars begin! Not anymore. Inventory is starting to pile up and that means your going to have to set your house apart to be competitive. What’s going to differentiate your house from all the others? Well, here’s a start. Whether you’re a flipper or a regular homeowner, you’re going to have to properly stage your house. Here are 12 tips to help you down that road.

1. Clean
A clean home shows potential buyers that you’ve taken good care of the property. Ideally, you should clean every part of the house, from the floors to the ceilings—and everything in between.

2. Declutter
There are two major problems with clutter. One is that it distracts buyers from your home’s features. The other is that it makes it seem like the home has less space.

3. Depersonalize
Buyers need to be able to envision themselves in your home, so remove all the family photos, keepsakes, and refrigerator art. Keep clothes hidden away as much as possible, and make sure the bathroom counters are empty (except for hand soap, of course). Likewise, put away all the toys and anything else that is highly personal or evocative of the home’s current inhabitants.

4. Focus on Fresh
A few potted plants can do wonders to make your home feel fresh and inviting. If you have a lot of plants, space them out strategically so they don’t overwhelm any one area (unless you have a greenhouse). Of course, dead and dying plants don’t do much to make your home look well-tended.

5. Define Rooms
Make sure that each room has a single, defined purpose. And make sure that every space within each room has a purpose. This will help buyers see how to maximize the home’s square footage. If you have a finished attic, make it into an office. A finished basement can become an entertainment room, and a junk room can be transformed into a guest bedroom.

6. Wallpaper and Paint
It is unlikely that a potential buyer will like your wallpaper. Your best bet is to tear it down and paint the walls with a neutral color instead. It’s best not to paint over the wallpaper because it may look shabby and send a signal to the buyer about work they may have to do later.

7. Flooring
No one wants to live in a home with dirty, stained carpet, especially when someone else was the one who dirtied it. And linoleum is outdated and looks cheap. Although pricey, hardwood floors add value and elegance to a home. They are also low maintenance, provide great long-term value, and are perfect for buyers with allergies. In other words, they appeal to almost everyone, and if not, they’re easily carpeted over by the buyer and preserved for the next owner.

8. Lighting
Take advantage of your home’s natural light. Open all curtains and blinds when showing your home. Add fixtures where necessary, and turn on all the lights for showings (including those in the closets). This makes your home appear brighter and more inviting, and it saves buyers from having to hunt for light switches. If you think your existing fixtures are fine, be sure to dust them and clean off any grime. Otherwise, outdated and broken light fixtures are easy and cheap to replace.

9. Furniture
Make sure furniture is the right size for the room, and don’t clutter a room with too much of it. Furniture that’s too big will make a room look small, while too little or too small furniture can make a space feel cold.

10. Walls and Ceilings
Cracks in the walls or ceiling are red flags to buyers because they may indicate foundation problems. If your home does have foundation problems, you will need to either fix them or alert potential buyers to them; fixing any foundation problems would be better in terms of getting the home sold. If the foundation only looks bad but has been deemed sound by an inspector, repair the cracks so you don’t scare off buyers for no good reason.

11. Exterior
The exterior and the entryway—which factor into the home’s “curb appeal”—are important points of focus because they can heavily impact a buyer’s first impression. They may even determine someone’s interest in viewing the inside of the house.

12. Final Touches
Just before any open house or showing, make sure that your staging efforts have the maximum impact with a few last-minute touches that will make the home seem warm and inviting. Put fresh flowers in vases, let fresh air into the house for at least ten minutes beforehand so it isn’t stuffy, light a few candles (soft and subtle fragrances only), bake some chocolate chip cookies and have them out, and put new, plush towels in the bathrooms.

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The Top 5 Big Bad Mistakes in a Housing Bubble

The Big Bad Wolf destroying a perfectly good straw house.

From everything we’re seeing in the news and hearing on the internet, the U.S. is headed for a recession. And, not a mild one, either.

Part of the reason for this is the rise in interest rates. Last year interest rates were around 2%, now they are above 20-year highs at 6%. They only look to be going higher.

This means that the days of easy money are over. At least from the Federal Reserve’s point of view.

And, home prices have concomitantly skyrocketed, too! Home sellers could just put their house on the market and it would sell in a few days. Often with buyers outbidding each other and jacking up the sales price. This was OK, I guess when money was cheap. But now it ain’t cheap.

So, what should you do? Should you buy now? Let me cover 5 big mistakes to avoid in the current market.

  1. Do not flip houses or lend money to a house flipper. It’s going to get much harder to buy a house at a low price because people still think that their house is worth a lot more than they really are. And, you as a flipper, have no idea how long your house will sit on the market. This is due to the fact that people who could afford a property at 2% interest, can’t afford it at >6%. Kapish?
  2. Don’t buy an expensive house. Why? Because everything is going to lose value and you’ll find yourself quickly underwater. As a homeowner, you’ll be unable to sell your house if you have to move.
  3. Don’t get an adjustable-rate mortgage. You definitely don’t want to have your interest rates go up even higher than what you’re paying right now.
  4. Avoid doing expensive rehabs in anticipation of getting more money for your house. You’ll price your house out of a decelerating market. It’s a lot like Flipping. The only exception is if you’re renting out a property. Fix it up to get higher rent. That’s all.
  5. Don’t pay off low-interest or no-interest debt. Inflation is your friend with regard to low-interest or fixed-rate money.

These are just some of the things to be wary of during a housing bubble.

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8 Easy Steps to Your First Rental Property

Everybody wants to get into real estate. But most people don’t know how. That’s why I wrote the book, “Real Estate for Beginners: Finding Your Best Path to Success.”

Figure 1 – Cover for the book.

My book mostly covers the different types of real estate investing that are possible. But if you’ve decided to buy a rental property, here are some steps you should consider.

Step 1 – Determine the property type

What kind of property do you want to invest in, i.e., single-family, multifamily, or storage units? This is critical because it will determine where you will be investing and drive a lot of where your efforts will go.

Step 2 – Determine your market area

Where are you going to invest? Usually, your local area is the best place to start because you are most familiar with it. You know the good neighborhoods from the bad ones. Once you have an idea of where you want to invest, do some investigating. Good places to start are Realtor.com and Zillow.com. Now, if you find out that the prices are too high or in limited supply, you may need to invest far away. Investing far away comes with its own set of headaches. A good resource for investing far away is “Long-distance Real Estate Investing” by David Greene.

Step 3 – Get Pre-approved financing

This is an interesting step. It’s perhaps superfluous if you don’t have some basic requirements:

  • A W-2 job;
  • Good credit; and
  • 20-25% down!!

Unfortunately, lots of folks don’t have these. If you don’t, maybe the best idea then is owner-financing or taking over someone’s note. I describe how I take over people’s mortgages (legally!!) in my book.

Step 4 – Learn how to analyze properties

Analyzing properties has many facets. Here are a few questions to ask:

  • Is the property in your area of interest?
  • What kind of repairs are needed?
  • How is the rental market in the area?
  • Will a property’s rent can cover the mortgage payment (or at least break even?)

These are just very high-level aspects you should investigate, there are lots more.

Step 5 – Look for properties

I like to drive around the areas I’m interested in. Look for “For-Sale-By-Owner” signs. Yes, they are starting to appear again. Over the last several years, people’s equity has increased so fast, there was never a reason to try and sell a property without a realtor. This is starting to change as interest rates have skyrocketed with no end in sight.

There are other resources, too. I got a tip from my accountant about properties in an expensive area in Colorado. I bought a lot, put a house (trailer) on it, and made enough money to get two other properties.

As mentioned above, you can start online with zillow.com and realtor.com. For Zillow, put in your criteria and area of interest.

Last, but not least, I’ve had success by becoming close with a real estate agent. More often than not, they will have a good feeling about the type of property you’re interested in. And, if you treat them right, they will keep supplying you with deals.

Step 6 – Start analyzing a lot of deals

This is the education process. Look at as many different deals as you can. You’ll learn to recognize good ones. Make sure that you can cover the mortgage. Try to make sure your property cashflows.

Step 7 – Make an offer

This is one of the hardest steps. Lots of would-be investors get stuck on the last step and never make an offer. Yes, you’re going to get turned down. A lot. You have to get over this. If you make 3 legitimate offers/week, you’ll have more than enough good opportunities.

Step 8 – Do your due diligence

Inspect the property. Check with your insurance agent and have them look at the property, too. Hire a professional property inspector. They’ll go through the property with a fine-toothed comb. They’ll find stuff that you never thought to look at. That’s their job. If they find something, take it back to the seller. Negotiate a lower price or have them fix it.

Here are a couple more things you line up, too:

  • A Title company
  • Get a real esate Attorney
  • Veryify rents/expenses
  • Depending on your situation, a property manager

That’s all there is to it.

The eight steps outlined here are just the basics. There are nuances to almost every step, but you should get the drift. I cover a lot of this in my book, but you can also learn a lot by attending local real estate investor meetings.

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Why waiting to buy a house is a great idea now

The best time to buy a house is 10 years ago. Have you ever heard that? It’s true but impossible. The next best thing is to buy a property now. Actually, that’s not true right now.

There are several reasons not to buy a property now:

  • Interest rates are on the rise, shooting up past 6% and heading higher;
  • Houses/properties are way overvalued;
  • People still believe they can get top dollar for their property.

Over the past 2 years, interest rates were at historical lows. So people could buy an expensive (for them) property and pay a reasonable mortgage. But now, houses are really really expensive (in most places where people want to live.)

Now, the Fed raising interest rates has put the kibosh on selling an over-priced house. But people still have to move. And houses are starting to sit on the market because a 6% mortgage is a lot more expensive than a 2% mortgage. As these houses sit on the market, the number of houses for sale will increase. As demand decreases the housing supply will increase. Simple economics. As I said, people still have to move. And they are going to get desperate to sell their property.

That’s where you come in. You can save them by taking over their mortgage. You see it’s not the price of the property, but the cost of the monthly mortgage that matters most. And, lots of these people that really need to move have no equity in their property. In fact, a lot will be underwater as the market corrects due to higher interest rates. Selling their house will actually cost them money. Ouch!!

This technique works best if you plan to buy and hold a property. If you can make the mortgage payment, it really doesn’t matter how much is owed on the property because its value is going to fluctuate anyway.

Wait, but you can’t take over someone’s mortgage, there’s a due-on-sale clause in every mortgage now. Not so fast. Using a little-known technique that Attorney/Investor Bill Bronchick suggests, you can legally take over an owner’s mortgage without triggering the due-on-sale clause. Check out how to do this in his course “Buying Properties Subject To.” Use the discount code “legalwiz4u” to get a 20% discount on his courses.

But wait, a caveat if you please….

Now, this advice actually depends on where you live. If you look at the price changes from the subprime collapse of 2007-2012 (figure 1) you’ll see the areas where the biggest drops occurred during that time. Interestingly, the areas in blue actually appreciated during that time.

Figure 1 – 2007-2012 price declines (Realtor.com)

Now, look at the areas that have the greatest increase in housing supply (Year/Year ) now (Figure 2.)

Figure 2 – Year over Year increase in listing (housing supply.)

The technique I’ve discussed here applies pretty much to the places in red. The places in blue are still experiencing a housing shortage.

Now, for the areas in red, it’s not quite time to take over mortgages. Yet. Sellers aren’t motivated enough. The real estate professionals I’ve talked to suggest waiting a year before there’s enough oversupply to push sellers in this direction.

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Current Status of Front Range Cities Denver, Colorado Springs, and Pueblo

(last updated 9/15/2022)

This page is a snapshot of the state of the real estate market from Denver, Colorado Springs, and Pueblo. Shown are three graphs below (Figure 1.) As I’m most interested in the Front Range of Colorado from Denver to Pueblo, I’m including snapshots of what’s happening there.  Generally, green means good for a seller, and red means good for the investor.

Figure 1 – Overview of the real estate market in Colorado focused on Colorado Springs, Pueblo, and Denver Metro areas.

Analysis

From the STAR Momentum, All the indicators suggest Pueblo and Colorado Springs are very strong from short-term to long-term.  Denver looks like it has some concerns in the long term..  From the TAPS graphs, these are all strong seller markets.  From the wealth accumulation point of view, Denver, the largest market in Colorado, reflects the state of Colorado.  All three graphs indicate that these cities in Colorado are appreciating markets.

Notice, that the long-term and short-term moving averages crossed over and a change in the market direction is occurring. We’re seeing a slight dip in appreciation. This is something to watch. Across the U.S. some markets are facing significant headwinds with up to 40% drop in home values. Redfin shows that the current median home price in Colorado Springs is $465K. There is a surge in the number of price reductions to 27%. About the same number as in August 2019.

Key to Graphs

The first set of graphs is the Six Trigger Alert Reports (STAR).  There are six momentum indicators ranging from short-term indicators on the left to long-term indicators on the right for Denver, Colorado Springs, and Pueblo.  Roughly, green is good if you’re a seller, red is good if you’re a buyer.  The indicators go back in time as you go down on the graph.

Figure 2 – STAR Momentum Indicators for the State of Colorado. 

Figure 2 – STAR Momentum Indicators for the State of Colorado.  The indicators for the current quarter (top row) suggest that the short-term through long-term indicate a strong seller’s market for Colorado.  A year ago, the bottom row, wasn’t so bright.  (These graphs are from HousingAlerts.com.   This is just a quick snapshot of what HousingAlerts.com has to offer.  Go to my home page to get a free version for your state.)

The next graph (Figure 3) indicates the Technical Analysis Point Score (TAPS.)  Using a series of technical criteria a market is graded.  Again, green is good, red is bad.  You can see that Colorado as a whole, remains very strong.

Figure 3 – Technical Analysis for Colorado

Figure 4 shows the wealth accumulation as a percentage of the state of Colorado.  Green areas are when the market is appreciating and white areas are when the market is depreciating.

Figure 4 – Wealth Appreciation graph for Colorado.
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The Dark Forest Of Real Estate Investing

The Dark Forest

The term “Dark Forest” is from the eponymous book.  Liu Cixin published his science fiction book, “The Dark Forest” in 2008. The trilogy called “Remembrance of Earth’s Past” contains the sequel to the Hugo Award-winning book “The Three-Body Problem,” however Chinese readers typically refer to the series by the name of the first book.  The premise of the Dark Forest has its roots (pun intended) in the Fermi Paradox.  Famous physicist Enrico Fermi postulated that based on the number of stars (100-400 Billion) in the Milky Way Galaxy there must be thousands of habitable planets with intelligent beings.  “But where are they?” Fermi asked fellow physicists Edward Teller, Herbert York, and Emil Konopinski.

There have been numerous attempts to explain the Fermi Paradox, with the main theories being that intelligent extraterrestrial creatures are exceedingly rare, that the existence of such civilizations is fleeting, or that they exist but (for a variety of reasons) humans find no evidence of them. (Could they be hiding?) This means that even if many intelligent civilizations formed over the course of the universe, it is implausible that two of them would ever meet at cosmic time and space scales.

Now, the Dark Forest suggests that there are plenty of civilizations out there, but there are also a lot of predators looking for resources.  If a species broadcasts its location, predators will come and take all of their resources.  So, sometimes it’s just better to keep quiet and not attract attention. 

“What does this have to do with real estate?” you may ask.  Well, there are lots of underemployed lawyers or lawsuit-happy tenants out there (AKA, predators) looking for an easy kill.  For example, a real estate investor broadcasts how many properties they own.  No one needs to know this. These people are even foolish enough to allow their names to be found on county websites.  I’ve found lots of investors’ properties just by typing in their names.  If I can find you, so can a predator. 

What I strongly encourage investors to do is hide their assets.  Appear broke.  Put the asset into a Land Trust.  Then, make the beneficiary of the Land Trust a Limited Liability Company (LLC.)  You can hire an informed lawyer to do all of this for you, but at some expense.  My recommendation is to get Bill Bronchick’s course on Asset Protection at legalwiz.com.  If you use the code, legalwiz4u, you’ll get a 20% discount on any of Bill’s courses on Asset Protection. 

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Evergrande update; Trouble with Country Garden Holdings; Banking system is collapsing, too!!

At this writing, Evergrande has failed to meet the self-imposed date for a restructuring of its $300 Billion debt. Evergrande is the most indebted company in the world!! Which is about 4x the amount of debt held by Bear-Sterns during the sub-prime meltdown of 2008.

Evergrande restructuring is a fantasy. It is totally impossible for any company without a product to sell to make any payments. Evergrande will ultimately end up being bailed out by the CCP. So will all the other property developers in China.

Now, China has over 60 million vacant uninhabitable apartment buildings referred to as Ghost Cities. And, it is unlikely they will be habitable anytime soon since they lack any utilities including water, gas, electricity, windows, fire escapes, elevators, etc. That’s all. LOL.

The housing bubble popped last year after the CCP implemented the Three Red Lines (Figure 1.) The Three Red Lines consisted of requiring property developers to have certain values before they could acquire more debt including Debt to Cash; Debt to Equity; and Debt to Assets. And, as a reminder, not one of the top 30 Property Development Companies in China met these criteria.

Figure 1 – Three Red Lines Analysis by Bloomberg News | Bloomberg
January 14, 2022

Evergrande used to be the largest property development company in China has slipped to #2. Now the largest property development company is Country Garden Holdings (CGH.) They just discounted their stock by 13% to entice investors so they can generate some cash (about $360 Million US.) They will ostensibly use this money to pay some of their offshore debt. But this is just a stop-gap. More bonds are due in 3 months, 6 months, etc. CGH has a bunch of ghost properties, too. These properties have no value, so no one is buying them. With no money, how will CGH pay future payments? This problem won’t be going away because their business model is based on a property bubble. It’s always been a Ponzi scheme destined to fail.

And if that weren’t enough, and don’t you think it ought to be? The Chinese banking system is failing because they loaned a lot of money to these property developers. Last week, there were a bunch of bank failures in China. As a result, there were lots of protests because the banks simply closed their doors to bank members. The CCP sent in groups of thugs and tanks to disperse the protestors. That’s how the CCP works.

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Time is actually Money

I remember a comic by Gary Larson in the Far Side with a mustached man in a lab coat in front of a board full of what looks like partial differential equations concluding with “= $” and the line “Einstein discovers that time is actually money.” OMG!! Too funny!

I had a recent experience that sheds multiple lights on the saying time is money. In real estate, Real Estate Guru, Ron LeGrand was fond of saying many things including “You can’t steal something slowly.” Which correlates well with my first example below.

Serious People Move Fast

I had this property under contract that was in foreclosure. It was for a condo that was worth around $85K. The condo didn’t need much except for paint and carpet. It was probably 800 ft^2 in total. Two bedrooms and a bath.

I shopped it around to a few investors. One guy was interested, but his father had to approve the deal. Apparently, they were partners. The guy, we’ll call him Dan, said he was really interested. Dan said, “just give me a day or two.” Two days turned into a week. I finally cornered Dan, “What’s it going to be?” I asked. Finally, Dan said his Dad wasn’t too sure about the project.

I euphemistically hung up the phone and immediately called another investor. Within two hours he said, “I’ll take it.” He got the deal. Simple.

But you have to think like this. If someone is interested they’ll move; if not, they’ll delay and drag their feet. It’s like they don’t want to say no to you. Watch for this. If someone is dragging their feet; drop them and move on. Most times they weren’t really interested anyway.

To Maximize your profit, Use a realtor

To make the most profit when you’re selling a house, use a realtor. Sounds pretty simple, but in the long run, use a realtor. Yes, it takes longer, but that’s the point. These people will market your property to the broadest audience giving you a chance to make the most money. The cost is worth it.

The Yin and Yang of Time and Money

When selling or negotiating for a property there are two variables that are intimately connected: time and money. Sometimes they are inversely proportional; sometimes directly proportional. For example, the longer your property sits on the market, the lower its value becomes and the less Money you usually get. There are a plethora of reasons why a property sits on the market but it usually boils down to price, i.e., money. You’re asking too much.

On the other hand, if you’re in a hurry to sell, you must discount the price for a quick sale. The shorter the timeframe, the bigger the discount and the less money you get. By discount, I mean, take less than the property is worth (in your eyes.)

In these examples, time and money act differently for each situation. But the real difference is your perspective value of time and money. Which is more valuable at this moment? This is a reasonable question because their values are constantly changing. Usually, everyone wants to minimize time and maximize money, but not always. Sometimes as an investor time is more critical than money. When someone wants a quick sale because they’re being transferred tomorrow, then time trumps money. If you can let the property sit for a while, then money trumps time.

Exchanging Time for Money

Everything is negotiable. You can exchange money and time. In most people’s jobs, they exchange money for time. In the examples above you can see how people trade money for less time but in the opposite sense of working for money. You as the investor can do the opposite, trade money for more time. In Figure 1, you see a buyer and a seller. Above them are two pie charts representing their respective value (or abundance of either time or money.) Both parties value what they have the least amount of.

Figure 1 – Example of two people’s value for Money and Time. You as the investor have more time and less money. A motivated seller has more money, i.e., equity, but little time.

If someone is willing to wait for a little (or a lot) longer time for their money, then I can give them more money because they are giving me more time. For example, in a lease/purchase situation, I may give the seller their asking price.

When I meet someone who needs to get out of their property fast, I mean like yesterday. I know that time and not money is the real issue. So that’s what I try to address. Remember when you’re talking to a seller, try to figure out what is more important to them: time or money. Then structure your negotiations with that in mind.

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