Wednesday, December 31, 2008

Our Nightmare Before Christmas

Forwarded by Danielle Rocheford

Our Nightmare Before Christmas

(or Unitil Utilities Suck)

Twas two weeks before Christmas and all through the town
it rained and it froze and the trees all fell down.
The wires that were strung on utility poles
snapped like a twig and the houses all froze.

We got our selves nestled all snug in our bed
while visions of warmer days danced in our head,
and me in my thermals and Pa in his cap
stayed huddled together for a bone chilling nap.

The moon on the ice made a crystalline glow
and we thought to ourselves, just how long can this go?
When what to our wondering eyes did appear
but our son with some coffee and donuts and cheer.

We could see our white breath in the darkness above
and deep under the covers I searched for my love.
His feet, they were frozen and so was his head ---
made me think to myself that he just might be dead.

The days passed so slowly, we must be insane
as we waited and wondered and called out by name
"On Thursday, on Friday, on Saturday (shit!)
on Sunday, on Monday, on Tuesday (please quit!)
on Wednesday, and Thursday and Friday (oh dread!)
the kerosene fumes must have gone to our head.

To add to the pleasure of winter's delight
two snowstorms came by - 18 inches of white.
The snowing and blowing made things bad to worse
and we prayed to the heavens our pipes wouldn't burst.

Pa's eyes now were sunken, his expression --- not merry,
his cheeks had a pallor, his nose like a cherry.
The odd little smile on his face wasn't fun
and he often was mumbling "go get my gun".

Then a rap on the door, and the fireman said,
"Are you sick, are you sane, and is anyone dead?
There's a shelter, there's warmth, you can come if you're able,
we have showers and kindness and food on the table" ---
and we looked at each other and thought --- "what the heck?"
yeah ... eleven days later you FINALLY check!

On night number twelve we heard the faint roar
of a convoy of trucks and we ran to the door.
To the top of the poles, to the stretch of the cable ---
please bring us your power just as fast as you' re able!

They spoke not a word, but went straight to their work
and the power came on with a hum and a jerk.
They heard us exclaim, as they drove out of sight ---

Thursday, November 20, 2008

Fanny Mae and Freddie Mac Halt Foreclosures!

Wow! Fannie Mae and Freddie Mac have ordered their services to halt foreclosures and evictions between November 26th and January 9th. There are qualifications to meet and it's designed to allow a rescue plan time to work.

Get more details

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Monday, November 3, 2008

Be a patriot. Vote.

Tomorrow, November 4, 2008, is the day where you get show that you are a patriot.

It's all well and good when people show flags on their car, despite being an improper display of flag etiquette. I'm not talking about any silly criticisms of wearing (or not wearing) a flag lapel pin. I'm talking about the single most important duty of a citizen in a democracy.

I'm talking about going to your polling place to vote. Naturally, I'd prefer that you vote for the party and candidates that I support. More importantly, I want you to vote.

I've heard all sorts of responses leading up to election day this year, just like in years past. Some are diehard supporters of one candidate or the other, some hold their nose and some refuse to vote claiming that it doesn't matter.

If you think it doesn't matter, then don't whine about how bad things are while you endanger the foundation of democracy. You claim to care so much yet show me that you care so little.

Pay attention, really learn about the issues, make your choice and engage others in discussion. Show yourself and others that you value living in a free country. Participate and take your duty seriously. We are all responsible for what happens in this land.

Vote. If you are local and don't have a way to get there, call me. I'll drive you there, even if you vote differently than I do.

State issues in Massachusetts on the ballot

Tomorrow, statewide in Massachusetts, there are 3 ballot questions. They are elimination of the state income tax, decriminalization of small amounts of marijuana and elimination of dog racing.

Here's where I stand. No on 1, yes on 2 and 3.

Question 1: I think, I hope, that the selfish insanity of libertarianism is finally starting to taper of. Question 1 is a libertarian ideal. What will happen if state income taxes are eliminated? Local aid with be eliminated and towns will have to replace that revenue from somewhere. Where you might ask? Property owners. Mitt Romney's revenue cuts about 6 years ago caused property taxes to go up roughly $2B, even though reducing $50 per person less would have meant not police fire fighter or teacher layoffs and it would have meant that people would have died. Local aid was slashed as a result and property taxes went up.

Question 2: I don't like pot and I'm allergic to it. But it is absurd to to lock so many people up in jail, hurt their chances for jobs and education, etc. for using or possessing small amounts of marijuana. Nobody is going to buy it and use it because it's a minor infraction now. And really, it's banned because of hemp, which got lumped in because of the cotton trust which is absurd too.

We have the highest rate of incarceration in the world, much of it because of minimum mandatory sentencing over what should be petty drug offenses. We're building more prisons than schools. Let's help stop this nonsense.

Question 3: Dog racing should be banned. It's true; I love dogs. I like them better than most people. Dog racing has cruel and inhumane conditions and for that reason, it needs to end.

Monday, October 13, 2008

Cashflow at La Tazza

We had a great game of Cashflow 202 Saturday night, October 11th at La Tazza, in downtown Leominster. James, Dan, Marria and myself played. Anita McHugh dropped by for a while before she had to take off.

Lee got out of the Rat Race first, about an hour into playing, followed a few turns later by James, then Dan and Marria. James won first thanks to striking oil with the Russian oil deal. These things happen in life; you have to be willing to take a risk. In real life, this sort of thing would be open to qualified investors (anyone in the Fast Track is) because of risk and in James' case, it would not have negatively impacted him if it had not succeeded. We continued playing and I was able to buy another business on the next turn or two which put me over the $50K per month increase in cash flow and I already had two dreams. We called the game at this point because it was still early and Dan had a long ride home. We didn't actually start until 7PM or so and we were done by 9:30PM. Now that was a fast, focused game and we ate dinner while we played.

In this game, we all played the business manager but started with different starting portfolios. I started with a small amount of cash and a smallish stock portfolio. Initially, I had not been able to buy any real estate on my own (not enough money and I didn't go heavily into debt) but I was able to partner profitably. I also was able short and option stock and sold my initial portfolio after a while without the companies failing. That allowed me to progess slowly in passive income and generate over $500K. I wasn't negatively affected by a bad economic outlook and diminished rents. Then, with lots of cash on hand, I was able to buy a lot of junk bonds with a conservative yield that but me out of the Rat Race and on to the fast track. I never was able to lend privately to the Rat Race as all had sufficient cash.

I stayed and talked with Stephanie, the owner, and patrons of La Tazza until just after midnight. I like the place and really enjoyed the political discussion. It also was good for another reason because I was given a strong lead for a potential deal. I'm not saying this to brag but. I'm saying this to share what this experience shows: if you are in the market for (insert item here), TELL PEOPLE! I don't care if it's a laundromat, real estate, a boat, some particular year and model car, etc. People know people you don't or they may have what you are looking for and may need to sell it. You don't know what their situation is or what the situation is for someone they know. This is what networking is all about.

Sunday, October 12, 2008

He's #1!

Warren Buffett has has once again become the wealthiest individual because of market volatility and shrewd buys. Would you believe his networth INCREASED by $8B last month?

Click and learn more.

Wow! Forwarded by Danielle.

Thursday, October 9, 2008

What a mess

I've been delinquent the past few months in posting. I've been quite busy, what with some of my business ventures (including a couple of new ones), real estate and the real estate investment clubs. There's a lot of fodder for blog posts over the past few months. From more bank collapses including Fannie Mae and Freddie Mac, insurance company implosions including AIG, foreclosures skyrocketing, etc. But keep reading because you'll find what finally motivated me to blog today when I've already get about 18 hours of work in the next 5-1/2 hours.

I'm pretty much sick and tired of hearing mortgage brokers lay the blame squarely at the feet of borrowers. Let's face it: there are (or were) a lot of bad brokers that coached borrowers and in some cases outright misled them. There were also borrowers that went along knowing full well that they were lying and could. The borrower knew it, the broker (and originator) knew it, the bank knew it.

Even the insurers knew it. AIG was "insuring" these loans that everybody in all financial sectors knew were fundamentally unsound.

Then they were put together with other loans of all grades into a great big pot. Then, like apples that you wouldn't eat because they look bad and are on their way out but when pureed you don't know the difference when made into apple sauce and sugar is added, they got sliced and diced into little pieces sold to investors as a sanitized product that had supposedly reduced the risk. Then they paid the companies to rate the new securities. Just like banks that had their preferred property appraisers that were compromised (think the investigations in NY and CA into inflated appraisals pushing people into jumbo mortgages or sub-prime products by collusion), the ratings were inflated (and unregulated). To further wash these bad mortgages, these securities were sliced and diced again in new securities, and rerated even higher!

What investors doesn't want some of their assets in AAA rated securities that pay a rate of about 8%? For those wondering, that AAA rating is supposed to mean that there's about as little risk as there could possibly be.

Ever since falling out of the last real estate bubble in the early-mid '90's, government has wanted to increase home ownership. That's good for everybody including real estate investors and government because, lets face it, prices go up and so does tax revenue in a world of increasing value. So let's just drop that partisan political nonesense. Republicans have been trying to blame Bill Clinton, Democrats, Congress, etc. In other words, it's that nebulous "them". Democrats have been trying to blame "them", corporate greed, Republicans, Congress, George W. Bush, etc. And they are all right and all wrong.

It's US as in America that got us into this mess. And it's US that need to get us out of it.

The big popping sound and then the rushing air going by as the vacuum is drawn pulling down home prices, wages, tax revenues, stock values. Oh, yes, and inflation is being drawn up by forces like running the printing presses and massive government spending.

Let's face it. The country turned more socially and fiscally conservative starting with the election of Ronald Reagan and culminating with the election of George W. Bush. Everyone agrees that taxes were high. But over the last 8 years, the Congress and President have pursued a cowardly tax policy. Lot's of Libertarians with a big L joined the Republican party because the figured out that they were going nowhere as big L Libertarians.

Yes, that's what I said. Cowardly.

Why do I say they are cowards? We let's see. We had a huge deficit and we were finally paying it down and paying it down quickly. But we had an enormous crushing debt load still. So instead of maybe making a small cut to taxes and still paying down your debt, a big one was instituted. What happened is the equivalent to you or me having huge debt (that we have to pay for) and deciding that we don't need 1/4 of our income. Now we are upside down and paying out more than we take in. You can think of it as quitting your job or being laid off and living on your credit cards. Sounds good when we talk about tax cuts but it's really like losing your job but you still have the same expenses. Oh, just stop eating or heating your home. Now you won't be spending as much! Especially if you don't spend on you spouse or kids!

Then throw in a very unpopular war and try to lower taxes again! This is the first war in American history where taxes were lowered in wartime! Too bad the government doesn't act like we are at war! Except of course for spying on us. Think of it as now you've been laid off but you just decided to double your expenses and you just naively think you'll borrow and let your heirs pay for it!

Isn't that the opposite of what we are trying to do?

Fast forward to bank failures, insurance giants failing, etc., because of their bad decisions. Their leaders got paid upwards of $100 Million per year and justified it by saying look how much we made the company and shareholders! Of course, shareholders would and should have received a bigger piece but that's a different story. Basically, they took the money and ran. Now we see that there was widespread fraud.

There have only been about 6% of sub-prime foreclosures and 3% of prime. That shouldn't bring down the financial situation. Except that the securities were weaker than advertised and how do you break them up and get the mortgages out.

Yea, the free marketeers now want a socialist answer. Not that I think that's necessarily bad, but the same people that wanted no regulation want the government to fix it. Call it what it is. It's nationalizing these businesses and essentially these industries. So what do we call it something else when it happens here? Or right, because America doesn't have refugees either, just evacuees like after Katrina. Anywhere else, we'd be calling them refugees.

If I were in Congress, I probably would have voted for the bailout/rescue/nationalization. Then I've have gone to the john and puked.

So who suffers the most? Sure investors do. Sure the government does because there won't be as money to spend (oh, wait, I forgot about the aforementioned printing presses). We do, the tax payers. We'd suffer if these businesses failed and we'll suffer with the bailout. Which would be worse, we won't know. But the bad fiscal, monetary and tax policy, especially over the past 8 years allowed for a death blow.

Why do I think we are in this mess? Greed? Incompetence? Greed? Fraud? False populism? Vote pandering ($600 tax rebate and a bigger deficit)? You bet. But they are symptoms.

It's deregulation, my friends (oh, great, now I sound like John McCain). It started under Reagen, continued under Bush the Elder, accelerated under Bill Clinton and reached it's peak under Bush the Younger and a Republican party that controlled Congress and could deregulate (or defund enforcement which amounted to a cynical way to achieve the same result--see they don't do a good job anyway inspecting/regulating, see?) yet couldn't pass a budget.

A number of real protections (that's what regulations are for) were put into place because of widespread fraud, misrepresentation and a believe that too many people were speculating on stocks among other things that led the Black Friday in 1929. Through the 1930's, these regulations came into effect for insurance, banking, stock markets, etc., etc. Fast forward and we're back to where we were. Just like in the '30's, massive foreclosures, growing unemployment, inflation, etc.

I've said all of that and now I don't feel any better. I might feel worse.

So why did I post? Because an act of compassion and humanity. The Cook County, Illinois, Sheriff announced today that he will not evict people living in multi-family housing that are being evicted because the owner is losing the property. He won't put them on the street.

I'm in the market for these types of property so why am I posting?

Because he's right. He's right from a humanitarian aspect. It's also pretty dumb sometimes when banks evict when they've got paying tenants and I see it every day. Property rots like overripe fruit when it's vacant.

Here in Massachusetts, the Senate in the Spring passed this provision. The State House hasn't taken it up and we are a largely progressive state.

This is a social justice issue. Screw the money. There will be a lot of people on the streets, families, kids, the elderly. Call your state rep. here in MA and ask why they never passed Senate Bill 2664 / House Bill 4734.

Read the act.

It allows for eviction for cause, like non-payment of rent; the tenant violated the lease/tenancy; the tenant is a nuisance, causing damage or interfering with other tenants; being used or permitting to be used for illegal activities; they've refused reasonable requests for access by foreclosing owner for repairs or improvements required by law. It's pretty reasonable.

The act would sunset end of year 2013 and evictions that happen illegally carry reasonable fines.

This should be passed.

If you are in a different state

Kiyosaki predicted collapse of Goldman Sachs and Lehman Brothers

Indeed he did! Watch and find out.

Also, check out his new post on Yahoo Finance.

Both from an email earlier today for the Rich Dad Company to Insiders.

Sunday, September 28, 2008

Some great stuff

Several big items of interest or just good fun. All forwarded by Danielle Rocheford. Thanks!

This guy shorted sub-prime and it made him a billionaire with a B! Click and learn more!

Here's a Powerpoint presentation that pretty much gives a few minute description of the hows and whys of the real estate / mortgage debacle. Laugh, it's funny. Then cry, because is isn't. Don't know who created it buts it's brilliant.

Friday, July 11, 2008

Indy Mac Bank Fails!

Federal regulators took over Indy Mac today. Check out the story! Less banks and less money in the capital markets means more money necessary for investors from private sources!

Friday, June 13, 2008

June 2008 Games

The next games for the Twin Cities Rich Dads and Moms Cashflow club are
this Saturday, June 14, 2008 in Leominster, MA and June 12, 2008
in Leominster, MA.

We'll have a speaker on January 12 talking about building wealth for families.

To find out more, visit our website and sign-up for the newsletter at the bottom of the page.

Number of mortgage brokers may be dropping by 80%!


The mortgage business has been hard for many mortgage professionals as the real estate market has cools from a flippers dream or from the idea that just owning a home makes you rich. I've seen many many mortgage originators and brokers go into other lines of work and honestly who could blame them?

With Massachusetts adding the requirement of licensing, the number is now being seen as falling as much as 80% from the height of the real estate boom when mortgage brokers made easy money and lots of people entered the field. This comes from the Massachusetts Mortgage Bankers Association.

Read the article from the Boston Business Journal! Thanks go to Danielle Rocheford for forwarding the article to me.

There is likely a silver lining in this for the mortgage brokers that stick. They will have far less competition and the ones that stay should have a lot more business I'd guess.

Friday, May 30, 2008

REOs Open! a big success!

The first REOs Open! for Worcester Real Estate Investors and the Northern Worcester County Real Estate Investors was a success! With 8 people in attendance, including Jeff Landry and Tina Miller of J.A. Landry Carpentry. Jeff is not only carpenter but he's also a general contractor. Jeff and Tina helped with ballpark repair prices on each property that helped with analysis. Jeff and Tina are both board members of the Northern Worcester County Landlord Association.

We visited 4 properties, 3 in Leominster and 1 in Fitchburg. 2 properties were SFH and 2 were multi-families. There was a lot of interest in the 3-family REO in Fitchburg. It's not currently listed and needed some repairs and some asbestos remediation in the basement. The Duplex in Leominster was the worst house in a great neighborhood. The lot value alone is more than the current price!

We analyzed the Fitchburg property to determine what the likely repair costs would be, carrying costs, etc., what the maximum amount that could profitably offered if performing the full repairs and remediation as well as will a more modest rehab. In other word, what needed to be done to know how the property would perform. We also discussed the types of financing that would be available and the cash down requirements for those loan products. So a lot of information was discussed and shared!

The next REOs Open in Gardner is tentatively scheduled for June 22nd. Check your mailboxes! We look forward to another successful outing.

Friday, May 23, 2008

REOs Open!

Northern Worcester County Real Estate Investors: REOs Open Event

NWCREI and Worcester REI are sponsoring REOs Open! tomorrow between 10AM and 4PM. Sitting on the fence, wanting to learn about buying bank owned property or wanting to buy something now with our without partners?

Come tomorrow and tour several properties, including at least one thatREOs Open! isn't listed for sale currently!

What makes this different than other real estate tours? How about analysis! Not only will you walk through the properties but you'll have experts on hand. Some of the things discussed:
  • What are the ball park repair costs?
  • What are likely mortgage scenarios?
  • What would my holding costs be?
  • Etc., etc.
In fact, you should come away with more than enough information that you should be able to offer on these properties, alone or with partners!

Go to: Northern Worcester County Real Estate Investors: REOs Open Event for more details or to register.

The Fitchburg Cashflow game follows at 5PM at James' house.

Saturday, April 26, 2008

So long Countrywide Finance

On April 24th, 2008, Mortgage Lender Implode-O-Meter reported that Bank of America is going to make the Countrywide Finance name go away. No big surprise! It's kind of got the same disaster-tinged feeling like Valujet after the crash in the Everglades. Countrywide lent money that it appears they shouldn't have than anyone else.

I've finally broken $100 on Google Adsense

As on April 26th, 2008, I've passed $103. The magic $100 point actually took place while I was working out of the country about 2 weeks ago.

Like anything, work is involved and I've got a lot of irons in the fire. You can see that this is true I'm sure by how infrequently I've been posting on Rat Race Escapes. Those that know me, know I own several businesses and have real estate investments so maybe I split my time a little much. Sounds to me like I need to delegate more than I am so I can handle the different pursuits I have.

Do you have a web site? If you do, and you think that it might make sense for you to make some money off of it, check into Google Adsense.

How do you make money with Adsense? Google and others can explain it better than I can but with the right marketing for your site, you can potentially get a lot of clicks. For some Google Adsense links, you get paid for clicks that people viewing your site make. For others, you get paid when somebody actually buys something. Google doesn't cut an actual check (send a direct deposit) until after you've hit the $100 threshhold. Then it still takes until after the following month. So I won't see it until June sometime.

I haven't spent anywhere near the time optimizing Adsense or referral revenue that I'd wanted to over the past 10 months. I won't beat myself up over that because I know my the revenue has been slow. But it has increased on a monthly basis. While revenue has averaged about $10 per month ($103 / 10 months), December, January, February and March, all were at least $20.

Before throwing in the towel, that tells me something. What does that tell me? Looking at site statistics, affiliate statistics through the various places I'm monetizing, including Adsense, I had more clicks because I had more traffic. That traffic came because I paid attention through the fall promoting various web site, got newsletters out promptly, etc., that all drive traffic to the various sites. One thing I always keep in mind is that only relevant content gets included and the ads only have value to somebody reading the content. Maybe they won't to everybody but they will to some of the readership.

Given the traffic I've been fairly effective, falling into high average for click-throughs (clicking on links to go to the Adsense links or other links of the sort). Can I do better? Sure. And I intend to.

There are sites that generate more than US$100,000 each and every month just from Adsense. Maybe not a lot but some. There are quite a few more that generate US$10,000. My current goal for end of year is US$3000 from all online affiliate and Adsense like things combined and I'll be satisfied this year if I get to US$1000 per month. I'm a little behind to reach these; so I've got to focus a little.

It's a matter of better allocating my time but I'll get there!

Friday, March 28, 2008

Rich Dad 2008 Predictions Part 1

Stop and listen. Here's Rich Dad's predictions for this year. When the video ends, at the bottom you can pick parts 2, 3 and 4.

The Spare Time Co. or boosting your personal bottom line and getting out of the Rat Race with a business in the basement

When playing Cashflow, most players in 101 won't start the small businesses "in the basement" like the software company or widget company thinking it's a lot of money with no payoff and a chance to lose your money. This is the same attitude that they have in life. The network marketing in 202, Spare Time Co., on the other hand, every wants to do because it's cheap and easy (too easy, really).

Most things in life take real effort. Taking the time to come to Cashflow games and getting out of the Rat Race takes effort to. It just happens to be enjoyable so it doesn't seem to be as much work. Most people that play with the Twin Cities Rich Dads and Moms are in the E Quadrant. Remember the Cashflow Quadrant? We are all trying to make our way to the Investor and Business Owner quadrants. Going through the S Quadrant (self-employed) is an excellent way to move in that direction because of extra income and business growth.

Of course, not all small businesses make it. But there are enormous tax benefits to having a "business in the basement" that is not a hobby as defined by the IRS. And that doesn't mean the business can't be your hobby either! After all, improving your economic means is about life style as well, right?

Any type of business or investing takes effort and your part-time business would too. The pay-off could be immediate but probably takes some amount of money to start and perhaps on an on-going basis for a while, but when you reach profitability, you have cash flow. We've all heard about "delayed gratification" and this kind of falls into that category.

What kind of things can you do? The possibilities are endless. You could be an online affiliate marketer, have a ecommerce site where you do no product fulfillment or orders, follow the system laid out in "The 4 Hour Work Week", build picnic tables, create websites, manage real estate, plan parties, walk dogs, etc. You could do all of the work yourself, some of it or none it. There's still planning, managing and funding it (and other things too) but it doesn't have to kill you.

So when you think about your goal of getting out of the Rat Race, do you think that extra income and an asset you can sell later perhaps would help? And think of the education you'll get!

One real important aspect of the business in the basement, or any business for that matter, is it changes how you are taxed. Remember what Rich Dad says: in a business, you make your money, you pay your expenses and you are taxed on the rest. As an employee, you make your money, you are taxed and you pay your expenses on the rest. When you have a business, there are a number of expenses that are legitimate business expenses. So it costs less to live, and you keep more.

What could be better?

More banks freezing HELOCS

Yesterday, I got word from another investor that her HELOC was frozen, this time by Bank of America. This is the third large company that has frozen the HELOC of someone I know personally. So consider your strategies where HELOCs are concerned. And think about maybe refinancing them with a small bank.

Sunday, March 9, 2008

Lessons learned from March 9th

Last night we had a good crowd of eight people at my home in Leominster. In attendance, we had, in addition to myself, were regulars James Greelish, Mike Marques, Susan Sudhalter, Dan Langford and Bob Kay. Marria St. Michael was back for a third time and in attendance for the first time was Terry Keane.

James, Mike, Dan & Marria played Cashflow 202. As he usually does, James got out of the Rat Race twice by about 10PM. I believe everyone got out on their table.

Sue, Bob, Terry and I played Cashflow 101.

I played the teacher. Because the monthly cash flow is lower than occupations I normally play, it was much longer before I started taking big deals. Things moved pretty slowly for me for quite some time, buying 400 shares of MYT4U at a reasonable price of $10, even though I immediately landed on charity and in my next 3 roles I had for paychecks. Shortly thereafter, I partnered with Bob and Sue on a limited partnership with a doctor's office and then immediately I was downsized.

Things were looking great when I bought a "great deal" for $35,000, a government owned home with a tenant, for $2000 down and $220 per month cash flow. Just before my next turn, a buyer appeared and I sold the house for $135,000, putting $102,000 in my pocket. I paid my bank loan plus my credit card and retail debt and still had $90,000 in cash!

On my next turn I drew a Big Deal and it was the 60 unit apartment building. Perhaps I should have passed on it. It was initially a net neutral deal for my monthly cash flow: with a down payment of $200,000, I borrowed $110,000 to make up the difference in the cash I had on hand but the $11,000 in monthly cash flow covered the loan. I still had a decent monthly cash flow of about $1600. Had I passed and taken a different big deal on a subsequent turn, I'd have retained cash, increased my cash flow and I may or may not have exited the Rat Race sooner.

After a couple more turns, and starting a software company in my basement, received a paycheck and borrowing more money from the bank, I got laid off again. My cash flow shrank to less than $100 and on a subsequent turn to about -$300. I survived and then sold the limited partnership, double the money for myself and partners and then sold the MYT4U stock for $40 after a split. After paying debt down, I was back to good cash flow and still had cash. In the mean time, Bob exited the Rat Race getting $600,000 as his initial Cash Flow Day.

Bingo, now there was a private lender offering better rates than the bank. I had a Big Deal Opportunity for a 8-Plex but didn't have the cash for the down payment and there were no partners in sight. But with the private money rates from Bob, borrowing the amount I didn't have the cash flow made the property cash flow. Bingo!

Now I refinanced my remaining bank debt with Bob increasing my loan from him to $127,000 but my monthly payment was only $6350! Adding the cash flow from the 8-Plex and refinancing the remaining $104,000 bank loan dropped that payment from $10,400 to $5200 and Bob had $6350 cash flow from me in the Fast Track. Great investment for him and such better financing for me that I was immediately out of the Rat Race with passive income of $12,700!

Ultimately I won because of a little luck. I loaned money to Sue in the Rat Race so she could buy a property that now made sense where it wouldn't have before because the cost of the money would have been too high and I bought several businesses. But I won because the Russian Oil Deal paid off with $75,000 in cash flow.

So I learned two good lessons:

(1) I jumped on a huge deal that immediately netted me no extra income, took all of my cash and gave me a lot of debt. Had I waited for a less expensive big deal, I would have had more flexibility and cash. I don't know if I would have exited the Rat Race sooner but I do know it wouldn't have felt like a struggle. Ultimately, despite some financial pain, it still paid off handsomely, primarily when I got to the Fast Track with monthly cash flow of $1.3 Million. Maybe sometimes being circumspect pays off. Or not. It's a matter of risk tolerance and while I still did the deal, I had less stomach for it than usual.

(2) Debt strategy and exit is a major component of success. Sometimes, paying a seemingly high rate for debt is okay (think hard money, borrowing downpayments, or even using credit cards on a daily basis while running a balance), IF you have exit strategies for this debt. For example, paying down to reduce what you pay monthly is a valid strategy and the only one that "stock" rules allow for. But life isn't like that. Refinancing and restructuring of debt are real world examples of debt strategies that allow you to get cash or reduce the cost of debt.

Strategies change over time and debt should be no different. Say you bought a property with hard money for the purchase and rehab. You bought well and now the property is occupied and you have an appraisal that shows your debt is 65% of it value. Maybe you paid 5 points are paying 15% on the hard money. You'd want to refinance, right, especially if you could at Fanny Mae rates. You'd cut you debt payments in 1/2!

My strategy changed for debt when Bob got out of the Rat Race since I now could get a money backer that would help me along beautifully while giving him returns he was happy with. I call that WIN-WIN! He got a 60% yield and there's only one business with that kind of yield in the Fast Track. Does he have risk? Sure, if I were to go bankrupt in the game on unsecured debt, he'd have a problem and lose his money. Would it kill him? Hardly but no one would like it. The bank takes the same risk on bank loans.

I went from struggling to being free because my strategy evolved and I had a new exit. So look for your options and act when conditions change.

Private Lending from the Fast Track to the Rat Race

We actually added private lending before but i forgot to get it added with the house rules. It's added now. So now, just like in life, you can get a private mortgage, just like you can find a money partner!

Fast Track players can lend to Rat Race players at the same terms and conditions stated in the house rules for borrowing from the bank except that the rate is 5% instead of 10% per month. Hey, that's still 60% per year and only one Fast Track business has a yield that good.

Now, debt restructuring and refinancing is a strategy that can be pursued in Cashflow, just like the real world, in addition to just paying down debt. In other words, it makes "good debt" even better.

Friday, February 15, 2008

Indy Mac Follows Countrywide

As of February 8, Indy Mac followed Countrywide's lead and canceled some if not all HELOCs.

Thursday, January 31, 2008

Some banks are canceling or freezing HELOCs

Some real world news for you all. As the title of the post says, some HELOCs are getting yanked. The reason: declining market. My understanding is that Countrywide is pulling all HELOCs and my understanding is that the form letter states that it's because the home is in a declining market. Even if it's not!

I suspect they are looking at this as reducing liability and I supposed they are right on one hand. The probably have a lot of good notes that are current too and they are hurting themselves by cutting these off. I feel for the people whose credit scores with get dinged because the bank canceled the credit line even when they did everything right.

Investors and home owners need to be aware of this because this can hurt your ability to leverage. A HELOC can be a great source of down payment capital, carrying costs, repair costs, etc. This can radically alter your strategy! For instance a HELOC can be a spectacular source for option payments, earnest money, etc., so be prepared.

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