Adventures in Money Making

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.

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!

Labels: Real Estate, Revenue Streams

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.

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.

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.

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:

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!

Thestreet.com has a good article on Why you're not rich.

Here's the summary:

1. You Care What Your Neighbors Think
   
2. You Aren't Patient
   
3. You Have Bad Habits
   
4. You Have No Goals
   
5. You Haven't Prepared
   
6. You Try to Make a Quick Buck
   
7. You Rely on Others to Take Care of Your Money
   
8. You Invest in Things You Don't Understand
   
9. You're Financially Afraid
   
10. 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

Short simple steps to attain wealth.



read more | digg story

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.

"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.

Read the rest of the article at The Street.

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.

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!

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.

• 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.

Labels: Real Estate

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?

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.

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!'.

Labels: alternate investments

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!

Labels: Real Estate

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.

Labels: WCI

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!

Labels: alternate investments, personal finance, Revenue Streams