I was listening to the radio yesterday and I was listening to an investment show. The announcer was talking about mortgages and I heard him mention a NINJA loan.
It stands for "No Income No Job or Asset" verification! If that isn't a liar loan I don't know what is. You basically show up at the bank(or mortgage broker's office) and say I have a job and assets to qualify for this loan to buy a house but I don't want to show you anything. Just take my word for it!
Talk about easy money and excess liquidity! No wonder there has been such a boom in the real estate prices in some parts of the country.
Seems like there's a lot of easy money chasing global investments. The Swiss and Japanese carry trades (where borrowers could borrow money under 2% in these currencies and invest them in something else, say a US T bill yielding 5%, and pocket the difference) has created a lot of excess liquidity that is chasing investments all over the place.
Some people think that asset prices have now become a function of liquidity and are no longer a fucntion of value.
I wouldn't be surprized if the subprime meltdown caused coastal property prices to drop 40-50% from the peaks.
Why Use Seller Financing?
Here's an example of a buyer using seller financing to purchase a property.
The buyer, a real estate investor, bought a cabin in a sparsely populated place. Recognizing that the seller didn't really have many potential buyers, he negotiated a seller carry-back. Basically the seller is carrying back the mortgage. The advantage? No appraisals or closing costs, or downpayment(well ok, some downpayment). And a better rate than he could have from a bank.
The seller probably executed an All Inclusive Trust Deed (AITD) to wrap his existing loan into a new mortgage for the seller. It seems like the payments from the buyer were for the amount he owed on it.
However, in order to make some extra money, the seller could've charged the buyer 8% interest. For example suppose I have a 30 fixed loan at 6.25% on a $100,000 30 year loan. The interest payments are $520/month (lets ignore the principle portion in this example). Suppose I offer to finance it to a buyer at 8% with on $120,000 purchase and loan amount, the payments I get are $800/month. That leaves with me a net profit of $280/month.
Of course, if you're offering long term fixed rate financing you should make sure that you have fixed rate financing too! If you have a 30 yr loan and you're 15 years into it, after 15 years you don't have a mortgage payment, so all of the payments from the buyer are yours to keep! (A great way to boost your income in your retirement years.)
Make sure you don't have a 5 year ARM on it. If you do, put a provision in your mortgage that states there's a balloon payment after the 4th year. This means you get cashed out at that point. Of course, you wouldn't want to offer 100% financing in a flat or down market in a situation like this. You'd want 20% down so in case the buyer doesn't get financing and just abandons the property (or you foreclose on him) then you're not left upside down yourself!
Advertising a property as a seller-financed property is a good way to get more interest in a slow moving markets. As the subprime lending dries up, this may be the only recourse for many buyers with no credit.
And it might be the only way a buyer can dispose of a property in some markets like Florida!
The buyer, a real estate investor, bought a cabin in a sparsely populated place. Recognizing that the seller didn't really have many potential buyers, he negotiated a seller carry-back. Basically the seller is carrying back the mortgage. The advantage? No appraisals or closing costs, or downpayment(well ok, some downpayment). And a better rate than he could have from a bank.
The seller probably executed an All Inclusive Trust Deed (AITD) to wrap his existing loan into a new mortgage for the seller. It seems like the payments from the buyer were for the amount he owed on it.
However, in order to make some extra money, the seller could've charged the buyer 8% interest. For example suppose I have a 30 fixed loan at 6.25% on a $100,000 30 year loan. The interest payments are $520/month (lets ignore the principle portion in this example). Suppose I offer to finance it to a buyer at 8% with on $120,000 purchase and loan amount, the payments I get are $800/month. That leaves with me a net profit of $280/month.
Of course, if you're offering long term fixed rate financing you should make sure that you have fixed rate financing too! If you have a 30 yr loan and you're 15 years into it, after 15 years you don't have a mortgage payment, so all of the payments from the buyer are yours to keep! (A great way to boost your income in your retirement years.)
Make sure you don't have a 5 year ARM on it. If you do, put a provision in your mortgage that states there's a balloon payment after the 4th year. This means you get cashed out at that point. Of course, you wouldn't want to offer 100% financing in a flat or down market in a situation like this. You'd want 20% down so in case the buyer doesn't get financing and just abandons the property (or you foreclose on him) then you're not left upside down yourself!
Advertising a property as a seller-financed property is a good way to get more interest in a slow moving markets. As the subprime lending dries up, this may be the only recourse for many buyers with no credit.
And it might be the only way a buyer can dispose of a property in some markets like Florida!
New Star Wars Stamps Released Today
USPS just released a sheet of 15 Star Wars Stamps. You can check out the website USPS Jedi Master for more details.
You also get to vote on your favorite stamps and on May 25th it'll be available on its own separate sheet. Right now Dark Vader is leading, and my guess is it'll probably stay that way.
Housing Numbers Disappoint
Sales of new U.S. homes declined for the second consecutive month in February, and the nation's supply of unsold homes continued to rise, an indication that the weak housing market has yet to hit bottom.
The Commerce Department reported yesterday that sales of newly constructed single-family homes fell 3.9% last month to an annual pace of 848,000 units. That rate was 18.3% below a year earlier and followed a decline of 16% in January from the previous month.
"There is no question that after thinking we had a stabilization of new-homes sales late last year, we are in another down leg," said David Seiders, chief economist for the National Association of Home Builders. "I think fundamental demand has weakened."
Last month's sales pace was likely chilled by snowstorms in the Northeast and Midwest, where sales plunged. But some economists said the recent pullback by subprime-mortgage lenders -- companies that make home loans to people with weak credit -- may also be driving down demand. And the decline is occurring just as the critical spring selling season gets under way.
Among the nation's large publicly traded home builders, the percentage of homes sold to subprime borrowers varies widely. The builders say they don't track all subprime mortgages -- only those made through their in-house mortgage units.
KB Homes also reported that its profit was only $27 million in the last quarter as opposed to $173 million a year ago. Thats some significant slowdown!
As if that wasn't enough, CNN Money reports that foreclosures are increasing very fast.
The once red-hot Florida housing market leads the nation in delinquencies, according to the latest report on foreclosure filings from RealtyTrac, an online marketer of foreclosure properties.
There were more than 19,144 properties in some stage of foreclosure in February in the Sunshine State, up 63.5 percent from January and nearly double the number a year earlier.
In addition to Florida, other once-hot markets showing weakness include California, where filings shot up nearly 79 percent compared with a year ago, and Nevada, which for the second straight month had the nation's highest foreclosure rate relative to the number of households.
Got A Free IPOD
TDAmeritrade had a promotion sometime back. If you open an account and put a certain amount of money into it, they'd give you a free Ipod. I had already put that exact amount into the account 2 weeks before so I called up and asked if they'd send me a free Ipod. The customer rep I spoke to agreed and 3-4 weeks later I got a free 2 GB Nano!
It always pays to follow up with a phone and ask for something.
This is actually the 2nd Ipod I've gotten free. The christmas before last, I won a free Ipod shuffle from Geeks.com.
Even though I'd never bought anything from them I had entered into a drawing on a banner ad on some website(something I usually never do) and via a free Ipod shuffle they got a new customer! They're pretty good on they're prices and on Tuesdays have discounted shipping.
It always pays to follow up with a phone and ask for something.
This is actually the 2nd Ipod I've gotten free. The christmas before last, I won a free Ipod shuffle from Geeks.com.
Even though I'd never bought anything from them I had entered into a drawing on a banner ad on some website(something I usually never do) and via a free Ipod shuffle they got a new customer! They're pretty good on they're prices and on Tuesdays have discounted shipping.
Site Review: Earners Blog
I've been writing about various ways to earn money and one of them is monetizing your blog. I've come across several sites, whose main focus is to earn money from your blog.
One of them is EARNER$ BLOG, run by Stuart an SEO consultant based out of Melbourne Australia. In the 8 months that the site has been up, he's managed to get a PageRank of 4, something which took me over a year to achieve. That's probably because he lot much better advice than me and he's an SEO expert!
Some of his good advice about monetizing your blog is providing a list of top paying keywords to write content about.
Here's the top 12 and what advertisers pay per click:
He also discusses how to join adsense and other affiliate programs, increasing your blog traffic, increasing your ad revenue and various other marketing promotions. Its a clean site with easy to read and understand posts.
He also has some very clever ideas like this idea for generating additional income through click
by writing reviews on products.
I was really impressed with this site, and as if I didn't already enough to read I signed up for his feed too!
One of them is EARNER$ BLOG, run by Stuart an SEO consultant based out of Melbourne Australia. In the 8 months that the site has been up, he's managed to get a PageRank of 4, something which took me over a year to achieve. That's probably because he lot much better advice than me and he's an SEO expert!
Some of his good advice about monetizing your blog is providing a list of top paying keywords to write content about.
Here's the top 12 and what advertisers pay per click:
Keyword CPC
conference calling 36.26
cheap auto insurance 33.55
consolidate student loan 32.72
life insurance quote 32.38
cheap car insurance 32.01
refinance home 31.48
car insurance quote 29.43
refinancing 29.28
online car insurance 27.27
online insurance quotes 27.2
criminal defense lawyer 27.12
debt consolidation 26.32
refinance home mortgage 26.19
He also discusses how to join adsense and other affiliate programs, increasing your blog traffic, increasing your ad revenue and various other marketing promotions. Its a clean site with easy to read and understand posts.
He also has some very clever ideas like this idea for generating additional income through click
by writing reviews on products.
I was really impressed with this site, and as if I didn't already enough to read I signed up for his feed too!
Top 10 Reasons Why You're Not Rich
Thestreet.com has a good article on Why you're not rich.
Here's the summary:
And from another reader, here's another top 10 reasons.
1. Wasn't born rich.
2. Didn't marry rich.
3. Not a criminal even though it pays.
4. Ignorant of tax loopholes to avoid most taxes.
5. Didn't buy Microsoft stock in 80's.
6. Didn't buy Apple stock in the 90's.
7. Didn't buy Google stock in the 00's.
8. Majored in Philosophy.
9. Played in a funk band rather than an emo band.
10. TiVo
Here's the summary:
- You Care What Your Neighbors Think
- You Aren't Patient
- You Have Bad Habits
- You Have No Goals
- You Haven't Prepared
- You Try to Make a Quick Buck
- You Rely on Others to Take Care of Your Money
- You Invest in Things You Don't Understand
- You're Financially Afraid
- You Ignore Your Finances
And from another reader, here's another top 10 reasons.
1. Wasn't born rich.
2. Didn't marry rich.
3. Not a criminal even though it pays.
4. Ignorant of tax loopholes to avoid most taxes.
5. Didn't buy Microsoft stock in 80's.
6. Didn't buy Apple stock in the 90's.
7. Didn't buy Google stock in the 00's.
8. Majored in Philosophy.
9. Played in a funk band rather than an emo band.
10. TiVo
CountryWide Insiders Dumping Stock Like Its Going Out Of Style!
When the subprime mortgage collapse gathered speed two weeks ago, Eric Sieracki at Countrywide Financial (CFC - Cramer's Take - Stockpickr - Rating) sought to calm his investors' nerves.Read the rest of the article at The Street.
"This is the pain phase of a healthy cycle," the CFO said at an investment conference in San Francisco. "We've been through these kinds of cycles before and we've seen another day. ... We're a top-conditioned athlete."
Doubtless that's why his fellow executives and directors are throwing stock overboard on a heroic scale.
Insiders at Countrywide, the nation's largest mortgage lender, have sold $314 million worth of shares in the company just since August. That's according to regulatory filings tracked by Interactive Data Corporation.
The sales include a staggering $94.5 million by chief executive Angelo Mozilo, and $17.5 million by mortgage division chief David Sambol.
I think the subprime lending problems will spread to Alt-A and maybe even Prime loans. I think CFC will be affected (I don't think it will go bankrupt) and I think the insiders feel the same way.
Link Love
I go through my site logs about once or twice a week and I see there's a lot of traffic. From various blogs, a lot of which I read whenever I get the chance.
Some of the ones which throw me traffic are (in no particular order)
1.DINKS Finance
2.The Budgeting Babe
3.My Open Wallet
4.2 Million
5.Consumer Commentary
Thanks for the link love guys.
Special thanks to James & Miel at DINKS Finance for the special mention a few posts back!
Some of the ones which throw me traffic are (in no particular order)
1.DINKS Finance
2.The Budgeting Babe
3.My Open Wallet
4.2 Million
5.Consumer Commentary
Thanks for the link love guys.
Special thanks to James & Miel at DINKS Finance for the special mention a few posts back!
Self Storage Seminar
Spent 6 hours this weekend at a self-storage mini-seminar. The speaker, Cory Donaldson was pretty good. He started buying real estate 15 years ago. He bought a duplex, then a four-plex and eventually starting buying small apartment buildings.
From there he 1031'ed into mobile home parks and self-storage facilities. He currently owns 500 mobile park lots and 2500 self storage units.
Seems like self storage units can be better investments than regular real estate like single family homes and apartment buildings.
I had attended a 3 day boot camp before but it seemed a lot more difficult at that time. I guess as I've done more and more deals, my confidence to do bigger deals has increased too. Anyway, I'll be looking at self storage facilities to possibly buy.
I have been looking at apartments but none of the ones I've seen are any good. They're being sold solely on proforma (which is a fancy name for best case scenario that the current owner hasn't been able to achieve) and are too expensive. I've come to the conclusion that people that buy apartment buildings that are over-priced for one reason. Not to make any money, but to be able to use the write offs against their other income.
From there he 1031'ed into mobile home parks and self-storage facilities. He currently owns 500 mobile park lots and 2500 self storage units.
Seems like self storage units can be better investments than regular real estate like single family homes and apartment buildings.
- There's hardly no maintenance.
- It easy to get rid of people's stuff if they don't pay
- You can remotely run it if you have internet and a phone line
- Boosting the rents can greatly increase the value of the property
- They might actually cashflow!
I had attended a 3 day boot camp before but it seemed a lot more difficult at that time. I guess as I've done more and more deals, my confidence to do bigger deals has increased too. Anyway, I'll be looking at self storage facilities to possibly buy.
I have been looking at apartments but none of the ones I've seen are any good. They're being sold solely on proforma (which is a fancy name for best case scenario that the current owner hasn't been able to achieve) and are too expensive. I've come to the conclusion that people that buy apartment buildings that are over-priced for one reason. Not to make any money, but to be able to use the write offs against their other income.
Blogging For Money {Sponsored Post}
I've been talking about people who blog for money. Well I've been making some money off advertising at the bottom of my blog. Well I've been paid to post this article on Responsibility In Pay Day Loans. What do you guys think of people who monetize their blogs in this way?
This post was sponsored by NationalPayDay.com.
Choice And Responsibility In PayDay Lending
As of December 20th, 2006 there have been a total of 11 states that have banned payday lending. The payday industry has become a target of state and federal agencies that believe that the high rates of interest on payday loans constitute predatory lending for low-income families. By cutting off this source of emergency cash, the state and federal government has decided it knows best when it comes to consumer lending even when payday lending has been a viable industry in 39 other states for much time now. The states and federal government have not offered a different alternative to meet the fiscal needs that the payday lenders were servicing, essentially leaving many poor families with no way to get emergency funds when they need them. They believe they are doing the right thing.
Individual Freedom To Choose
This issue is not a simple one, by any means. The right of the individual to live as they see fit has always been a basic liberty in the United States. The government knows that guns kill people, but they don’t ban them. They know that people die from not being able to get high-priced medicines, but they don’t lower the cost of the drug. They know that most people will require taking out massive debt to attend an institute of higher education, but they do not regulate the tuitions of private institutions. These are seen as private choices made by the private individual and government doesn’t interfere. With these choices comes the individual responsibility associated with those choices. So, why regulate the payday industry? Whereas in certain instances the individual’s right to choose is held as sacred, in other cases, such as payday loans, government makes what appears to be an arbitrary decision to choose for all its citizens.
What Drives People To Make Bad Loans?
When one examines the forces behind bad loans, one often finds someone who made a bad financial decision for themselves. There are many other people who understand our credit system and use it responsibly. They understand that non-payment of bills can give one a poor credit rating. A poor credit rating causes interest rates on future loans to shoot up or become entirely unobtainable. They know how to get their credit reports for free from Equifax, TransUnion, or Experian, and how to dispute the credit entries. They know how to negotiate with their lenders and how to build up a better credit history. They know how many loans they can budget and how to use them properly. Those that do not have this information make bad loans for themselves, not understanding the dynamics of the lending market in place.
Payday lenders typically do educate their consumer on the terms of repayment and the interest rate due. These are clearly outlined before the loan is made. The consumer is aware that the interest rate is high, but if a late bill poses a $30 late fee and a payday loan only takes $25, this is the better alternative in the short-run. Payday lenders will generally require that the borrower affirm that they do not have more than one other payday loan outstanding at the time they ask for a loan. If someone lies and has multiple loans and then gets in trouble paying them all back on time, it’s simply a case of people making bad loans for themselves. They are advised not to take out multiple loans at the same time, and they do so anyway.
Educating One’s Self Is The Key To Financial Prosperity
There are plenty of people who use payday loans responsibly. As with any lending product, there are others who get in trouble. However, it has always been an American concept to give the consumers the freedom to choose for themselves. It might be easy for people who have a good credit history and little trouble making their bills to decide that payday loans are not necessary. However, there are many low-income people with no other form of emergency cash that would disagree with this position. In the end, the individual earns the money and the individual chooses how to spend it. Instead of limiting people’s options, it might be wiser to increase their financial education.
This post was sponsored by NationalPayDay.com.
Invest In Porn - Part 2
I had an afternoon lunch meeting with an LA business owner. He was trying to raise money for his "Audio Erotica" business. He figured that audio books were growing at a ferocious pace and no one was servicing the needs of Erotica fans(over half of which are female!). So he's tied up with several synergistic partners - well known porn stars(like Jenna Jameson), a publishing house, an audio recording company and is has already created several audio erotica short-story sets. Very interesting concept! He was meeting with me because he wanted to raise some more money. He's issuing an 11% convertible dividend and expects to double or triple the investment in 3 years. The only issue I have is with his valuation, which at $4.2 million is a tad too high. I may not invest but I believe he'll make money in his venture.
After that I skipped out of work and went sailing! That was fun. We docked at a harbor restaurant had a few drinks and went back! Then it was time for dinner and a real estate meeting. Quite a busy day. But it was fun!
As a follow-up to my Invest In Porn post, I actually did invest in a small start-up company that provides the technical website generation and templates to would-be porn-trepreneurs (I just made that word up!) - so basically it provides the technical framework and the ability to integrate data feeds. The deal is to get back 100% return in 18 months and still keep a small equity stake in the company. I'll let you know how it goes. Incidentally, that post is the 2nd link on google.com for the search 'invest in porn!'.
After that I skipped out of work and went sailing! That was fun. We docked at a harbor restaurant had a few drinks and went back! Then it was time for dinner and a real estate meeting. Quite a busy day. But it was fun!
As a follow-up to my Invest In Porn post, I actually did invest in a small start-up company that provides the technical website generation and templates to would-be porn-trepreneurs (I just made that word up!) - so basically it provides the technical framework and the ability to integrate data feeds. The deal is to get back 100% return in 18 months and still keep a small equity stake in the company. I'll let you know how it goes. Incidentally, that post is the 2nd link on google.com for the search 'invest in porn!'.
San Diego Housing Market Getting Worse
Calculated Risk had a post about the worsening San Diego market.
He heard first hand how condo sellers are unable to sell their properties. In order to find a buyer, they'd have to reduce the price so much that they'd have to come to closing with a check for $40,000!
I've been following the local market since I live here. There in currently over 2 years worth of condo inventory on the MLS. Not only that, there are 1800 condos slated to come online in the next 24 months in Downtown. And in the University Town Center area, builders are building a ton of new apartments. It doesn't look good!
I just got a flyer in the mail yesterday that the buider for RIMROCKSUMMIT.com is offering $50 gift card just to see his model homes! Builders are starting to get desperate. With the tightening of lending standards a huge section of home buyers just disappeared too.
If you live in San Diego, don't be in a hurry to buy new property!
He heard first hand how condo sellers are unable to sell their properties. In order to find a buyer, they'd have to reduce the price so much that they'd have to come to closing with a check for $40,000!
I've been following the local market since I live here. There in currently over 2 years worth of condo inventory on the MLS. Not only that, there are 1800 condos slated to come online in the next 24 months in Downtown. And in the University Town Center area, builders are building a ton of new apartments. It doesn't look good!
I just got a flyer in the mail yesterday that the buider for RIMROCKSUMMIT.com is offering $50 gift card just to see his model homes! Builders are starting to get desperate. With the tightening of lending standards a huge section of home buyers just disappeared too.
If you live in San Diego, don't be in a hurry to buy new property!
Time To Cry Uncle
I covered my puts on WCI today. Carl Icahn put in a bid for $22 a share when it was trading at $19.80 yesterday. So in today's market where every was down, WCI was up 15%!!
I had enough second guessing the home builders. The real action was in the Lending stocks and I missed most that action. Anyway, CountryWide's CEO was on CNBC today, lying about how great business was for home builders and that his company would do well by taking market share from all the sub-prime lenders. I was thinking of shorting the stock last week and I didn't and its down 10% since then. I think this subprime malaise will spread to the prime lenders eventually.
Anyway I bought some June puts. Hopefully they'll pan out. If they lose 50% of their value I'll close them out. I'll keep you posted.
I had enough second guessing the home builders. The real action was in the Lending stocks and I missed most that action. Anyway, CountryWide's CEO was on CNBC today, lying about how great business was for home builders and that his company would do well by taking market share from all the sub-prime lenders. I was thinking of shorting the stock last week and I didn't and its down 10% since then. I think this subprime malaise will spread to the prime lenders eventually.
Anyway I bought some June puts. Hopefully they'll pan out. If they lose 50% of their value I'll close them out. I'll keep you posted.
Blogging Yourself To Financial Freedom
Making Our Way has a great post on how people think they can start a personal finance blog and expect to make enough money out of it that they can quit their jobs!
Unless you getting 50,000 hits a day, thats not going to work out for you. And unless your a marketing expert, SEO guru and a great writer with interesting content, that really isn't going to happen.
Instead you should try to make $200-$500/mo from it and consider that to be one of your multiple income streams. If you can develop a dozen income streams each paying you $500/month, you've set yourself up for financial freedom. It may not be enough to live luxuriously, but at least you won't starve if you lose your job, or want to take a year off to pursue your passions.
Other examples of income streams can be paid off rental properties, stocks that pay a dividend, Canadian income funds (also oil & gas funds), actual oil & gas projects, equity stakes in a business, trust deeds backed by real estate, and micro loans(like prosper.com).
The more diversity you have, the safer your total income will be!
Unless you getting 50,000 hits a day, thats not going to work out for you. And unless your a marketing expert, SEO guru and a great writer with interesting content, that really isn't going to happen.
Instead you should try to make $200-$500/mo from it and consider that to be one of your multiple income streams. If you can develop a dozen income streams each paying you $500/month, you've set yourself up for financial freedom. It may not be enough to live luxuriously, but at least you won't starve if you lose your job, or want to take a year off to pursue your passions.
Other examples of income streams can be paid off rental properties, stocks that pay a dividend, Canadian income funds (also oil & gas funds), actual oil & gas projects, equity stakes in a business, trust deeds backed by real estate, and micro loans(like prosper.com).
The more diversity you have, the safer your total income will be!
Japanese Investments
I think the yen and the Japanese real estate markets are undervalued and I've invested a little bit in both. But the strategies I've employed (opening an account with an international broker with access to the Tokyo Stock Exchange) might be too much work for many of you.
Wealth Building Lessons has a good post on this topic. Check out the posts on the
1. Carry trade and how to profit from a rising yen and
2. Japanese REITs and the safest investment in town.
Who knew Bank CDs could be so exotic!
Wealth Building Lessons has a good post on this topic. Check out the posts on the
1. Carry trade and how to profit from a rising yen and
2. Japanese REITs and the safest investment in town.
Who knew Bank CDs could be so exotic!
No More 100% Financing On Home Loans
Countrywide has announced that beginning 12 March 2007, it will no longer be offering 100% financing to home borrowers. This follows its announcement earlier this month that delinquencies among non-sub-prime borrowers are up this year.
It was just a matter of time before the lenders started tightening their loose lending standards. As I've said before, I think their will be widespread losses across the spectrum of lenders, whether they're sub-prime or not.
It was just a matter of time before the lenders started tightening their loose lending standards. As I've said before, I think their will be widespread losses across the spectrum of lenders, whether they're sub-prime or not.
Mint Makes A Mistake
The mint made an estimated 50,000 new $1 dollar Washington dollars without the "In
God We Trust" inscribed along the rim.
Sharp eyed coin collectors have been selling them on ebay for $200 each!! Keep your eyes peeled!
God We Trust" inscribed along the rim.
Sharp eyed coin collectors have been selling them on ebay for $200 each!! Keep your eyes peeled!
Be Like Slim
Mexican telecomm Mogul Carlos Slim Helu added $19 billion to his fortune in 2006. His gain, placing him at No. 3 on the billionaire's list with $49 billion, was the largest one-year gain in a decade.
While not all of us can increase our net worth by $19 billion in 1 year, we might be able to grow it by 38% (19 billion is about 38% of 49 billion).
If you're $14,000 in debt and have $1,200 in your bank account. Your net worth is a negative $12,800. If you cut your debt to $10,000 and increase your savings to $2,100 your net worth is now a negative $7,900 which is means you increased your net worth by 38%!
Suppose you have $40,000 in the bank, no credit card debt and a rental property you bought with 10% down worth $200,000. (yes, its possible to buy houses cheaply in several parts of the country). Your net worth is $60,000. If you were lucky enough for your house to appreciate by 15% (according to a previous post on Real Estate Research, thats 50% less than the median appreciation in Salt Lake City in 2006), thats a $30,000 increase in its value! So now your net worth is $90,000 or a stunning50% more than it was last year!
What if you had 5 homes like that?
With sufficient leverage its possible to substantially increase your gains but leverage cuts both ways. In a down market where the market drops 10%, your 10% down payment would sudden evaporate and your net worth would now only be $40,000. Again a drop of 50%. Did you notice that it drops quicker than than it increases?
Sub-prime Lenders Down Again
Sub-prime lenders LEND, NFI,NEW were down again today, dropping between 3 and 17%. Wish I had shorted some of the sub-prime lenders instead of WCI!
I think this is just the tip of the iceberg, just like in the good old dot-bomb days when there was some initial weakening before the entire sector crashed. I think banks like HSBC will be negatively affected, more than they're willing to admit. I think even regular prime lenders will be affected too. CountryWide (CFC) is flat for the past 1 year as opposed to New Century, which is down 70%. I think CFC will eventually drop another 30-40%.
I closed out the rest of my inverse S&P500 trade (URPIX) for a small profit. I did work out as a good hedge against losses in my other stocks.
I think this is just the tip of the iceberg, just like in the good old dot-bomb days when there was some initial weakening before the entire sector crashed. I think banks like HSBC will be negatively affected, more than they're willing to admit. I think even regular prime lenders will be affected too. CountryWide (CFC) is flat for the past 1 year as opposed to New Century, which is down 70%. I think CFC will eventually drop another 30-40%.
I closed out the rest of my inverse S&P500 trade (URPIX) for a small profit. I did work out as a good hedge against losses in my other stocks.
More On Real Estate Research
In a previous post, I had explained how I research real estate market cycles.
At the time (around september 2005) I was looking for a place to invest the proceeds of my california properties which I thought had peaked. I chose Salt Lake City because it looked primed to start appreciating. I'm terms of appreciation, it was near the bottom of the list of top housing markets.
I just saw the national home-price appreciation numbers for 4th Quarter 2006 issued by NAR(National Association of Realtors) and SLC is now number 2 on the list with 22% appreciation last year!
However, when looking at NARs numbers, don't take them to be the gospel truth. They may be wrong, or wrongly applied. For example, the average number for Dallas-Fort Worth is -4%. Considering that the population there is probably around 7 million, that seems too big an area to consider 'average'.
Always try to look at another source to cross-verify the data. DataQuick is a good source, but you typically have to pay for the information. I really like John Burns's Real Estate Consulting. I consider him a much more relevant source of info than NAR. His Metro Stats page has broken down Dallas and Fort into seperate components (like they deserve to be) and you can see there's a 25% difference in median home prices between the two. But what I think is really important is the Housing Cycle Barometer Index.
Its a proprietary method of determining where home prices are in the housing cycle. This is where you want to focus your attention. An HCB value of 1 means the property is the cheapest its ever been historically and 10 means its the most expensive. (Not in actual dollars, but in economic terms).
For example, Salt Lake City which is 5.2 (out of 10) is roughly in the middle of its cycle. With people spending 29% of the average income its probably a safe place to invest. However, San Diego which is 7.2 on the HCB scale and where people spend 75% of the average income on housing and saw a decline of 4.5% in the 4th quarter is probably very risky! Am I glad I sold out of San Diego when the going was good!
Remember, always do your own research. And never blindly follow someone else's advice. You never know if they have a hidden agenda.
If you don't know anything about research, the first thing to do is read some good investing books.
At the time (around september 2005) I was looking for a place to invest the proceeds of my california properties which I thought had peaked. I chose Salt Lake City because it looked primed to start appreciating. I'm terms of appreciation, it was near the bottom of the list of top housing markets.
I just saw the national home-price appreciation numbers for 4th Quarter 2006 issued by NAR(National Association of Realtors) and SLC is now number 2 on the list with 22% appreciation last year!
However, when looking at NARs numbers, don't take them to be the gospel truth. They may be wrong, or wrongly applied. For example, the average number for Dallas-Fort Worth is -4%. Considering that the population there is probably around 7 million, that seems too big an area to consider 'average'.
Always try to look at another source to cross-verify the data. DataQuick is a good source, but you typically have to pay for the information. I really like John Burns's Real Estate Consulting. I consider him a much more relevant source of info than NAR. His Metro Stats page has broken down Dallas and Fort into seperate components (like they deserve to be) and you can see there's a 25% difference in median home prices between the two. But what I think is really important is the Housing Cycle Barometer Index.
Its a proprietary method of determining where home prices are in the housing cycle. This is where you want to focus your attention. An HCB value of 1 means the property is the cheapest its ever been historically and 10 means its the most expensive. (Not in actual dollars, but in economic terms).
For example, Salt Lake City which is 5.2 (out of 10) is roughly in the middle of its cycle. With people spending 29% of the average income its probably a safe place to invest. However, San Diego which is 7.2 on the HCB scale and where people spend 75% of the average income on housing and saw a decline of 4.5% in the 4th quarter is probably very risky! Am I glad I sold out of San Diego when the going was good!
Remember, always do your own research. And never blindly follow someone else's advice. You never know if they have a hidden agenda.
If you don't know anything about research, the first thing to do is read some good investing books.
Debt Consolidation Tips
In a previous post I mentioned that some bloggers make a decent living.
Well one of the highest revenue producers for John Chow was ReviewMe. Not being one to question someone smarter than me, I immediately signed up towhore myself out review other blogs for cash. Sure enough, a week later someone rich enough for fork over $60 took the bait! So here's my review for Debt Consolidation Tips.
Overall, I really liked the layout and the very clean uncluttered look. (Quite a contrast from Adventures In Money Making !). A good number of interesting and pratical articles related debt-negotiation, debt-management, credit cards, loans and consumer rights. I think my favorite post was the Top 100 Finance Quotes. Some of the gems were
The only thing I didn't like was that I couldn't find out who owns the site.(Well I found out who owns the domain, but thats not really the same thing!) I think people like to associate a name behind a site and get some background information. The fact that I couldn't find any kinda bugged me. An "About" page would be nice.
If you visit the site make sure you check out 17 Hidden Tricks Lenders Use, and How to Avoid Them under the best posts section.
Well one of the highest revenue producers for John Chow was ReviewMe. Not being one to question someone smarter than me, I immediately signed up to
Overall, I really liked the layout and the very clean uncluttered look. (Quite a contrast from Adventures In Money Making !). A good number of interesting and pratical articles related debt-negotiation, debt-management, credit cards, loans and consumer rights. I think my favorite post was the Top 100 Finance Quotes. Some of the gems were
- A dollar saved is a quarter earned. - John Ciardi
- We can loan you enough money to get you completely out of debt. - bank sign
- Why pay a dollar for a bookmark? Why not use the dollar for a bookmark? - Steven Spielberg
- Go for a business that any idiot can run-because sooner or later, any idiot probably is going to run it. - Peter Lynch
- Wide diversification is only required when investors do not understand what they are doing. - Warren Buffett
- I am proud to be paying taxes in the United States. The only thing is, I could be just as proud for half of the money. - Arthur Godfrey
The only thing I didn't like was that I couldn't find out who owns the site.(Well I found out who owns the domain, but thats not really the same thing!) I think people like to associate a name behind a site and get some background information. The fact that I couldn't find any kinda bugged me. An "About" page would be nice.
If you visit the site make sure you check out 17 Hidden Tricks Lenders Use, and How to Avoid Them under the best posts section.
Texas Investments
I have 2 friends with investments in Texas.
One of them has 50 houses in Dallas and would like to sell half a dozen to raise some capital. They're around 6 months old, very reasonably priced, rental ready with property management and the seller guarantees 2 months rent.
Another has an upscale luxury condo in Houston and is looking for partners to go in on it. Minimum investment is $7,500. Yield is supposed to be 7.5%
If you'd like more information on either one, send me an email at emptyspacesinc@gmail.com with the subject line of "Texas Investments"
One of them has 50 houses in Dallas and would like to sell half a dozen to raise some capital. They're around 6 months old, very reasonably priced, rental ready with property management and the seller guarantees 2 months rent.
Another has an upscale luxury condo in Houston and is looking for partners to go in on it. Minimum investment is $7,500. Yield is supposed to be 7.5%
If you'd like more information on either one, send me an email at emptyspacesinc@gmail.com with the subject line of "Texas Investments"
Picked Up A George W. Dollar Coin
I stopped by the bank and picked up half a dozen new presidential $1 coins. Don't know why some people are selling them on ebay for more than they're worth but I guess someone's stupid enough to pay that. They're not all that impressive, except the "In God We Trust" part is along the rim of the coin, which I thought was pretty neat.
What I don't understand why the government is wasting money minting coins when we're moving more and more to a cashless electronic society.
What use is a new dollar coin? Most people don't like carrying around a pocket full of coins, which was why paper notes were invented in the first place. Notes are lighter, easier to carry and don't roll under heavy appliances when you drop them. Most vending machines don't even accept the old Sacagawea coins so I doubt they'll be modified for the new ones. And has anyone ever tried to tip a stripper with a dollar coin?
What I don't understand why the government is wasting money minting coins when we're moving more and more to a cashless electronic society.
What use is a new dollar coin? Most people don't like carrying around a pocket full of coins, which was why paper notes were invented in the first place. Notes are lighter, easier to carry and don't roll under heavy appliances when you drop them. Most vending machines don't even accept the old Sacagawea coins so I doubt they'll be modified for the new ones. And has anyone ever tried to tip a stripper with a dollar coin?
When The Market Crashes
Now that the market dropped like a sack of potatoes, Cramer has some good advice. (Of course hindsight is 20-20, but still its good advice!)
In India, stocks like Colgate, Johnson & Johnson, Proctor & Gamble and Unilever are called blue-chip stocks that never go out of business because they make stuff everyone needs and uses. Maybe I should stop looking at their prices everyday and finally buy some!
You only have a couple of protections from the whims of a broken system:
1. A company that pays you a dividend that is equal to or better than Treasuries after taxes is a good defense.
2. Or you want a stock that has a valuation so low that you know it's a bargain -- and its management knows it's a bargain (read: it's buying back stock right here).
3. Last chance: a company that is so defensive in nature that even if there's a worldwide slowdown, it will meet expectations regardless: Coke (KO), Pepsi (PEP), Altria (MO), Kellogg (K), General Mills (GIS), Clorox (CLX) and Colgate (CL).
If you don't anything that fits one of those three criteria (I'd rather have two or three per company) you will not be OK for now. That's because we are now going to have people who just say, "Wow this is too crazy, let me out of here!"
But nobody ever made a dime panicking. This time will be no different, but only if you are shrewd about what won't hurt you and what can work in a volatile and down environment.
In India, stocks like Colgate, Johnson & Johnson, Proctor & Gamble and Unilever are called blue-chip stocks that never go out of business because they make stuff everyone needs and uses. Maybe I should stop looking at their prices everyday and finally buy some!
Tips On Lending Money On Prosper
1. Don't lend money to people to get cars.
Anyone with a pulse can get a loan on car. If they sell the car, wreck it or it otherwise gets repossesed, their motivation to pay off the loan will drop to nil.
2. Don't lend to people who are terminally ill or very old.
That sounds cruel but unless you're in it for charity(and I admit, I've made one loan like that which surprizing hasn't defaulted!) I suggest skipping this class of people.
3. Avoid people with a large number of delinquencies.
People who've had a dozen in the past 12 months are not good candidates for lending money!
Anyone with a pulse can get a loan on car. If they sell the car, wreck it or it otherwise gets repossesed, their motivation to pay off the loan will drop to nil.
2. Don't lend to people who are terminally ill or very old.
That sounds cruel but unless you're in it for charity(and I admit, I've made one loan like that which surprizing hasn't defaulted!) I suggest skipping this class of people.
3. Avoid people with a large number of delinquencies.
People who've had a dozen in the past 12 months are not good candidates for lending money!
Compounding Interest
I've been doing micro loans on Prosper for a few months now. I have 31 loans with $1910 loaned out. I've only transferred in about $1750 which means that my interest is now being loaned out too!
Thats the secret to attaining true wealth - Compound Interest. Have your interest earn you interest!
Unfortunately, there's no way to shield this from taxes, but maybe if my corporation were to open an account, I could atleast have some deductions against it. Or maybe get a self-directed IRA!
The good thing about Prosper is you can start out with very little money. Yes, your money is illiquid but you're getting pretty good rates of return. I'm getting around 18.6% interest.
Nowhere close to the 21-23% that other people are getting, but I haven't had a delinquency yet.
I've also lent out some money on a private trust deed at 25%, which actually pays out 2% every month. Since I could invest that in some else too, that also qualifies as compound interest.
I also have some Canadian Energy Trusts that pay out a decent 11-15% dividend yield (they show up in my account every month). Since I don't withdraw this money but instead reinvest the dividends, they're all compound too!
Hopefully many years from now, I'll be able to live off the dividends generated by the investments I make today.
I love compounding interest!!!!
Thats the secret to attaining true wealth - Compound Interest. Have your interest earn you interest!
Unfortunately, there's no way to shield this from taxes, but maybe if my corporation were to open an account, I could atleast have some deductions against it. Or maybe get a self-directed IRA!
The good thing about Prosper is you can start out with very little money. Yes, your money is illiquid but you're getting pretty good rates of return. I'm getting around 18.6% interest.
Nowhere close to the 21-23% that other people are getting, but I haven't had a delinquency yet.
I've also lent out some money on a private trust deed at 25%, which actually pays out 2% every month. Since I could invest that in some else too, that also qualifies as compound interest.
I also have some Canadian Energy Trusts that pay out a decent 11-15% dividend yield (they show up in my account every month). Since I don't withdraw this money but instead reinvest the dividends, they're all compound too!
Hopefully many years from now, I'll be able to live off the dividends generated by the investments I make today.
I love compounding interest!!!!
A 50% Dividend ?
I recently bought a stock called Health Management Associates (HMA) when they announced that they would be paying out a special $10 dividend. Since the stock was trading at $19 and change, I thought that would make a neat dividend.
The stock goes ex-dividend tomorrow (well its past midnight so its actually today) and I wonder how much the stock will drop. Will it drop by $10? Maybe less or more?
There were some fluctuations in price this week but its still around $20 which I take is a good sign.
Another issue is the tax consequences. Will it be taxed as a return of principle or as a dividend?
The stock goes ex-dividend tomorrow (well its past midnight so its actually today) and I wonder how much the stock will drop. Will it drop by $10? Maybe less or more?
There were some fluctuations in price this week but its still around $20 which I take is a good sign.
Another issue is the tax consequences. Will it be taxed as a return of principle or as a dividend?
Saving Money On Supplements
I'm a big fan of protein shakes. No, I'm not particularly well-built, but I just like drinking them.
However, once you find a brand that doesn't taste like carboard, it very quickly becomes rather expensive. I usually like using Froogle to find the cheapest stores however it can be misleading because they shaft you on the shipping charges. It becomes cumbersome calculating the shipping costs on several sites but I think I've found one thats rather good.
Its called Supplement Warehouse and they offer 5% less than any other site. All you have to do is put in the url to the cheaper site and they'll knock off 5% of the cheaper price! On top of that if you refer you're friends, they get 5% off their first order and you get the equivalent dollar amount off your next one! Pretty Neat.
If you want to buy something, send me an email and I'll send you a 5% off link.
However, once you find a brand that doesn't taste like carboard, it very quickly becomes rather expensive. I usually like using Froogle to find the cheapest stores however it can be misleading because they shaft you on the shipping charges. It becomes cumbersome calculating the shipping costs on several sites but I think I've found one thats rather good.
Its called Supplement Warehouse and they offer 5% less than any other site. All you have to do is put in the url to the cheaper site and they'll knock off 5% of the cheaper price! On top of that if you refer you're friends, they get 5% off their first order and you get the equivalent dollar amount off your next one! Pretty Neat.
If you want to buy something, send me an email and I'll send you a 5% off link.
Writing Ebooks For Fun And Profit
The Escape Artist Magazine is an online magazine devoted to people who want to move or retire abroad. Its free newsletter is full of useful tips, but of course their main aim is to get you buy their products - other newsletters, ebooks and seminars.
Apparently, their ebooks are so successful that they're soliciting their customers to write more ebooks. They're offering authors 40% of ongoing revenue. They can be on any topic but have to be atleast 60 pages. Your english doesn't have to be perfect (since they'll edit it for you) but it has to be comprehensible.
You can read about it here. Maybe, I'll take them up on their offer. I just need to find a topic to write 60 pages on....any ideas?
Apparently, their ebooks are so successful that they're soliciting their customers to write more ebooks. They're offering authors 40% of ongoing revenue. They can be on any topic but have to be atleast 60 pages. Your english doesn't have to be perfect (since they'll edit it for you) but it has to be comprehensible.
You can read about it here. Maybe, I'll take them up on their offer. I just need to find a topic to write 60 pages on....any ideas?
Yes, Bloggers Can Make A Living!
John Chow of John Chow Dot Com has a great site devoted to, of all things, blogging (and great tips on how to profit from it).
According to his February Income Post, he made $7,000 from this blog!!!
Considering that it only made $352 last September, thats pretty phenomenal. Unlike most bloggers, he doesn't rely on just one source of ad revenue but nine. Here they are in order of income earned:
ReviewMe: $2,250.00
Text Links Ads: $1,162.50
Affiliate Sales: $1,005.00
Google AdSense: $977.60
Vibrant IntelliTXT: $516.98
Direct Ad Sales: $400.00
AdVolcano: $375.00
TTZ Media: $224.17
FeedBurner Ads: $99.80
Just goes to show that with proper marketing and excellent content you can make a decent living from blogging.
He spent about $400 advertising with google ad on Darren Rowse's Problogger Site. Its an interesting strategy where they both advertise on each other's site.
Hopefully, someday I can match that income! Check out his post on Making money from a blog post.
Hopefully, this post will have earned me a free linkback and some traffic too.
According to his February Income Post, he made $7,000 from this blog!!!
Considering that it only made $352 last September, thats pretty phenomenal. Unlike most bloggers, he doesn't rely on just one source of ad revenue but nine. Here they are in order of income earned:
ReviewMe: $2,250.00
Text Links Ads: $1,162.50
Affiliate Sales: $1,005.00
Google AdSense: $977.60
Vibrant IntelliTXT: $516.98
Direct Ad Sales: $400.00
AdVolcano: $375.00
TTZ Media: $224.17
FeedBurner Ads: $99.80
Just goes to show that with proper marketing and excellent content you can make a decent living from blogging.
He spent about $400 advertising with google ad on Darren Rowse's Problogger Site. Its an interesting strategy where they both advertise on each other's site.
Hopefully, someday I can match that income! Check out his post on Making money from a blog post.
Hopefully, this post will have earned me a free linkback and some traffic too.
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