Adventures in Money Making

Well maybe they're not fleeing yet, but they've started to leave. According to an article in the Union Tribune, there was a net exodus of 43,126 people from San Diego county last year.

County demographers have forecast a long-term flattening in growth, although not a population decline. Housing analyst John Karevoll said he doubts the population loss is a long-term trend, nor does he believe it will have an impact on housing sales.

What is surprizing that John Karevoll predicts it will not affect housing sales. This is despite the fact that prices are dropping, inventory has more than doubled, time on market has increased 4 fold and interest rates are increasing. New home builders have started advertising on the radio, offering 10% worth of incentives and a new brand new Xterra or Beatle Bug. Is this guy smoking crack or is he just stupid? Or maybe he's just trying to annoy me!

Quite a few readers asked me why I was looking for a job instead of investing full time. There are a few reasons to that.

• The wife is still studying. One of us needs to have a stable job [and health benefits].
  
• The investments I've made have seen mostly capital appreciation. There is very little cashflow thrown off at the end of the month. I need about 5 times that to live-off of [including health benefits].
  
• If I don't spend my time at work, I'll probably spend more time spending money. This means I'll need even more money!
  
• Someone mentioned that if I spent my time doing what I loved, it wouldn't feel like work. While there's some truth to this, I haven't figured out how to monetize the things I'd rather be doing. I used to love to program[which is what I currently do] but a few years ago I realized that programmers[& engineers in general] are underpaid for the headache they go through and are also under-appreciated. [Case in point, a CPU which costs years to develop and millions in research costs less than a fancy birthday cake]
  

What am I doing to boost my cashflow? Nothing right now. I haven't found a single investment generates a good Cash-on-cash return. I've looked at some apartment buildings and found the sellers were just lying about the numbers.

I think I'll be looking at oil wells for cashflow.[This is not the deal I'm currently invovled in but other companies that raise money from private individuals.] The returns are between 30% and 80% a year. [Of course, theres a 30% risk of hitting a dry well and losing your investment]. However there are some companies that will spread your investments over 20 or more wells, thereby reducing your risk significantly. Of course, these investments have higher barriers to entry.[usually 50k-100k]. I'm still doing my research but I think I'll be ready to invest in one of these in a few months. I'll probably form an LLC and get 5 other partners which will reduce our risk further.

Also, I read this article yesterday about people in other countries are living well off of Google's adsense program. Some dude in India is making $1,000/mo off it and its funding his graduate studies. Stories like this give me hope! Initially I put ads on this blog to see if I could figure out how it works. I've found out that some people make a really good living off them. They make niche website with tons of canned content and put up ads which pay them hefty returns.

I read the article yesterday and thought I should put more effort into monetizing my blog. Co-incidently, 2 companies contacted me today about sponsoring my blog! The money is insignificant so far, but I'm learning how to monetize my blog writing skills!

Last week I found out I was going to be out of a job starting March 31st. Brushed up the old resume and started applying to a few companies. Anyway, I've found a new job and I start next week. Needless to say, I'm going to have to work extra hard for atleast the first 6-8 months. That means I'll have to cut down on my investing while I focus on my J.O.B.[incidentally, JOB stands for Just Over Broke. I learnt that at a very expensive seminar. The other noteworthy thing I learnt at that seminar was poor people always have 100 channels on cable or satellite and also that you shouldn't waste money on stupid & expensive seminars].

Anyway, I did send my resume out to a few companies via Monster.com. Sadly Monster.com has taken sneaky advertising to a new level. If you see a job you like, you can click on the "Apply" button. It takes you to a form with all your personal data filled in and you mindlessly click "Submit". A fraction of a second later you think "wait a minute, that wasn't for the job, it was an advertisement for something". Of course only make that mistake once but the damage is already done. I've recieved 4 calls and 3 voicemails [on my cellphone] from some company trying to refinance my student loans. The guy today was particularly annoying.
"Hi, I'm calling from Jackass Financial Student Services."
You're the 4th person to call me from your company. Delete me from your database.
"We specialise in refinancing student loans".
I know. Delete me from your database.
"Would you like to refinance your student loans"
No. Delete me from your database.
"Do you have any student loans".
No. Delete me from your database.
"Does anyone in your family have student loans".
No. Delete me from your database.
"Do you know anyone with student loans".
Click

A good saleman always knows how to annoy the customer!

I came across this very interesting article WHY YIELD INVERSION FORETELLS RECESSION: Exposing the Fraud in FRS Study to Predict Recessions from Yield Inversion.

This guy basically explains how the Feds are lying about the low chance of a recession coming up based on the Inverse Yield Curve.

There has been massive propaganda by the US Federal Reserve System’s (FRS) senior officers and economists to downplay the importance of the so-called inverted yield curve’s ability to forecast a recession 6-12 months in advance. Nothing we know of has a better record of predicting recessions. Hence, when such an inversion seems likely in not too distant a future what should they do, especially, if they wish to purse Fed Funds policy that might lead to the inversion? Resort to propaganda and misleading, even fraudulent, reports, or studies, which severely downplay the probability of a recession based on the degree of yield inversion.

He predicts that in 12 months, the chance we'll go into recession is 85%!

As a follow up to a previous post on the oil deal I'm doing, the private lender is very interested in our deal. We have to go through his contract and sign it within 7 days and post the commitment fee of $200k. At that point, we cannot back out. If he does, we get our deposit back, but if we back out, we lose it.

After that he'll send someone out to take a look at the leases and make sure everything is as we say it is. If everything goes according to plan, we should be able to close on it in about a month's time.

Our loan broker is also trying to find someone to just flip the deal to so we don't even need to drill on it. That'll be the quickest way to make money but probably not the most profitable. Lets see how it unfolds.

I found out why they've charged us $850 for the appraisal. Apparently since Jan 1st they're requiring all loans to have 2 appraisals. That sounds like a bunch of crap but atleast we know why its so high. Anyway, the builder wasn't willing to extend the close of escrow so its a take it or leave it situation. We took it.

However, on another interesting note, they wanted us to pay more interest because we took 2 days extra to close. This is what the loan processor told us.

We had wired out already on the file yesterday and then the Etrade wire would have originally been today, so once this is all set, I need to send a few more days interst on that wire to match the day we record.

Since we're closing the loan 2 days late, I would've guessed we'd pay less interest. [Since you pre-pay the interest for the remainder of the month, that way you have a nice round mortgage payment the next time its due]. So this what she said.

It is less interest you got a day back for each the first and second
mortgage So yes, you paid less interest to close today then yesterday.

We didn't understand that so we asked if we had to pay more interest.

I have to send the title co. more interest because we withhold our fee's and just send them the remaining balance... (loan amount and their fee's etc.) So since the charge was less to you, I needed to forward more interst to them.

Does that make sense?

No.

Ok, It's just technical stuff. I don't know how to explain this further,
but it makes your bottem line less.
So you pay less interest....

Did anyone else follow this?

Google's blog recently announced an upcoming Google Finance Site.

Its still in beta version and you can see its currently lacking in information, but its good idea. I hope Google takes Yahoo's great idea and makes it even better!

I'm trying to close on an investment property in Boise and I just got the loan docs. The appraisal for a single family house thats brand new and 1966 sq ft was $850!!!!

Normally they cost $350 and if you doing an investment home they sometimes charge $450-$550 , but $850 is simply outrageous. The broker for the mortgage company "Market Street Mortgage", had this explanation.

I know I think the appraisers are really "sticking it" to borrowers lately. FNMA etc required new forms as of Jan 1st so the appraisers took advantage of this and increased their prices. In addition lenders are requiring more documentation on NOO properties. We had to get a field appraisal and it was much more expensive than it has been in the past. As Brandy said we are just passing along the amounts that we have been charged. I don't have a lot of room on this loan your pricing is at PAR as usual.

What a complete rip-off! Also, our agent [who is completely retarded and speaks about 4 words per minute] has been no help whatsoever. She's pretty incompetent and half the time doesn't know whats going on. She called up the mortgage broker[who's been 2 weeks late on 5 out of 5 loans so far] on the last day wondering if he could close. Thats when he got started on the loan process and ordered an appraisal. So I'm guessing the appraiser charged extra for a rush job.

What a great concept! Offload your incompetance onto someone else!

The three credit reporting agencies have come up with a new credit scoring system.

Its going to be from 501 to 990 and there's only going to be one score instead of 3 seperate scores. While on the face of it, it sounds like they're simplifying it, I'm suspicious. Sounds like a way to generate more revenue since people like me will have to pay to get my score and make sure it stays high.

I just hate it when they change the rules as soon as you've figured them out!!!!

I spent the last few days in New York. My partners and I had a meeting with a private lender for the oil deal. He' a pretty interesting chap. He has a pool $300 million which he uses to make short-term and bridge loans. Jewish ex-wall street guy. Very sharp and hard-nosed. We discussed the deal for 2 hours after which he left for a plane to Naples, Florida where he was going fishing for the weekend. I guess we'll know whether he's interested when he gets back on Monday.

Incidentally, while I was there I read a really neat Star Wars book, Heir to the Empire (Star Wars: The Thrawn Trilogy, Vol. 1). Its set about 5 years after Return of the Jedi ends. Han and Leia are married and expecting twins and a new grand admiral is creating trouble in the galaxy. Its incredibly well written and very face-paced. A must-read for Star Wars fans. I just ordered the next book in the series, Dark Force Rising (Star Wars: The Thrawn Trilogy, Vol. 2). It has 4.5 stars on Amazon. Can't wait to get it. Yes, this doesn't have anything to do with finance or investing but I'm a sci-fi fan and I just had to share. :-)

I'm not too thrilled with my property manager on the 2 houses I bought in Indiana. Since I did such a lousy job the first time around, I guess I need to pull out the old books and see how to choose a better one. Who better to find a good property manager than Adiel Gorel who promotes distance investing. I flipped through his book Remoted Controlled Real Estate Riches: The Busy Person's Guide to Real Estate Investing.

Adiel calls himself a facilitator and helps newbie investors invest in different states and of course charges a commission. While I may not fully agree with his choice of location for investments, his advice is rock-solid.

Here's some questions to ask a potential property manager:

1. How long have you been in the business?
   
2. Are you a member of any professional associations?
   
3. Do you specialize in residential properties?
   
4. Do you work weekends?
   
5. How many properties do you currently manage? Whats the total number you've ever managed?
   
6. Are these properties in the same area as my property?
   
7. Can you supply references?
   
8. which services do you offer?
   
9. What is your fee?
   
10. Do you charge a leasing fee?
    
11. Do you have additional fee for lease renewals?
    
12. How do you advertise and market the properties you manage?
    
13. Whats the average time for renting a new property?
    
14. Whats the average turn-around time for a property(cleaning, repairs, move-in)?
    
15. How often do you check on a property?
    
16. How do you handle late payments?
    
17. Have you ever evicted a tenant? Whats the procedure? How much do you charge the owner?
    
18. Do you issue annual and monthly statements?
    

This list is quite comprehensive and I failed to ask my property manager most of them. I should know better by now!

For those of you who've been following my blog, you know I've been working on some secretive deal regarding some oil deal. Well now its that time in the process when the rubber hits the road. The bank we've been dealing with has agreed to lend us $20 million. However, we need to show up in person in Connecticut pretty soon and deposit $200,000 with their attorney. The deposit is to make sure we don't waste their time and money and then decide to go with a cheaper lender. Anyway, we're going to be borrowing the money from private investors at a generous rate. Here's the official spiel.

20% Return in 90 Days – Principal Guaranteed

We are in the process of closing on a $20M loan for a large oil and natural gas investment opportunity. We need $200,000 to be used as deposit to ensure that we will not go with another lender. This is a no-risk loan as the funds will never be used and will only sit in an escrow account during the entire closing process (this is the reason we can guarantee the principal back in case the project does not fund).

The full principal will be paid back within 45 days in case the loan does not get funded. For all purposes, we are 99% certain the loan will fund as all of the documentation and due diligence work has been provided and completed. The only remaining steps before closing are a face-to-face meeting with the lender and a site inspection visit of the mineral lease location. We are offering a 20% return over 90 days (80% annualized return) with full payout when the project gets funded. The minimum investment amount is $25,000.

If you're interested, shoot me an email but more importantly wish us luck!

Incidentally, several people asked me how I came across this deal and what due diligence I did.
The short version is that it included being in the right place in the right time, asking a lot people a lot of stupid questions, flying out to the middle of freaking nowhere to look at a stupid oil pump & recognising that when commodity brokers and lenders are salivating at the prospect of giving a $20 million non-recourse loan, its probably a good deal.

Picked up Safe Strategies for Financial Freedom over the weekend. Really good book. I wish I had read it a few years ago. Its been on my book list for ages but I never got around to buying it.

One of the things I believe might happen is the devaluation of the dollar. This book has also voiced similar concerns[even though it was written in 2003] and it has some strategies to hedge against this. One is to buy gold. Another is to invest in foriegn currencies. It has a good link to EverBank. This company allows you to buy CDs in different currencies. The 3 month Australian CD offers over 4%, the 3 month New Zealand CD offers 6% and the Icelandic CD offers a whopping 8%.

Another thing the book mentions is that Australia is a gold producing country and we can expect its currency to strengthen against the dollar because of this. It mentions why the dollar is likely to devalue and its pretty interesting. If you invest in the Australian CD through everbank and it strengthen's against the dollar, not only do you get a 4% return, you also get some capital appreciation.

Also has some good debt reduction tips and offers encouragement to the readers to gain financial freedom.

The authors suggest that you always want to invest in the stock market when interest rates are dropping and get out or short the market while interest rates are climbing. Ok, its slightly more complex than that, but thats the gist. In inflationary times they recommend investing in real estate, gold and collectibles[like rare coins and stamps]. Since I don't currently invest much in the stock market I skimmed through the section on stock investing. Sounds pretty basic, and they wants you to sign up for some advanced training offered through their websites:www.investmentu.com and www.iitm.com.

On the whole I thoght it was a very good book on general strategies and when to implement them. But don't be taken in by the simplicity of the strategies. If it was that easy, everyone would be rich!

February 28th edition of the Wall Street Journal had an article called "Meathead Economics".

The said that 240,000 people left the state of California in 2005 because of high taxes. What BS! Just another example of reporters looking at data and drawing the wrong conclusion.

They left because of unaffordable housing. Would you pay $400k for an 800 sq ft condo with 1 parking spot when you can move to a neighboring state, get a job that pays the same and get a new house for $200k thats atleast twice the size?

Previously I posted an article about this being an issue and I believe it will only get worse. In 2006 I wouldn't be surprized if that number doubled. Since 2001, 50% of jobs in CA have been real estate related. Once the housing market falters, a lot of people who've been used to making 6 figure incomes will find themselves without any source of revenue and no real skills. These people will be forced to move to other booming states, which will only add to the housing woes.