This just blows my mind!

Buyers denied loan, but still lose deposit

First, why would anyone put that much cash at risk as earnest money for a P&S agreement?  That is insane!  I usually only give a check for $500 with any offer I write. There’s really no reason to give more.  A contract can be made legally binding with as little as $1.  That's right, one dollar.  But this couple for some reason put down thirty-one thousand dollars!  Why?

I would love to know what realtor they were working with.  Then I’d make certain that realtor was NEVER involved with any of my transactions!  It is morally repugnant to even consider putting anyone in that kind of position.

And the whole thing would have been easily avoided with just a slight tweak to the wording of the contract.  The standard forms generally have a financing contingency clause.  But, as we can see in this case, it is not really strong enough if the sellers side want to be pricks about it.  Typically the clause will read something like this.

If Buyer cannot obtain financing within 30 days Buyer must notify Seller (in writing within 30 days of the date of this contract) of his election to cancel this contract. Failure to give notice of cancellation within such time period constitutes waiver of this financing contingency.

In the case of this couple they could have obtained financing if they had listed their current house for sale.  Since they were unwilling to do so the bank refused to give them the loan.  And the court decided that was a reasonable requirement and is letting the seller keep the deposit.  This could have been avoided by adding four powerful words to the clause:

If Buyer cannot obtain financing SUITABLE TO THE BUYER within 30 days Buyer must notify Seller (in writing within 30 days of the date of this contract) of his election to cancel this contract. Failure to give notice of cancellation within such time period constitutes waiver of this financing contingency.

That way, if the buyer does not want to sell their house and the bank is demanding it – that offer of a loan is “not suitable to the buyer” and the contingency remains in force.

If you just deal with the listing agent yourself, you need to understand that they have a fiduciary responsibility TO THE SELLER.  They are not your agent, they don’t work for you.  If you are not a real estate pro – work with one!  A buyer’s agent could have steered them away from this disaster.

Please take a number…

Two weeks ago I made an appointment to meet with someone from the mortgage department at my bank.  That appointment was this morning. 

I got all dressed up.  Trousers and polo by Botany 500, my best going to the office shoes, watch by Michelle* on a tooled leather strap made by yours truly.  I don’t get that spiffed up on the weekend for just anybody…

[* It’s very real but I got it for next to nothing at the flea market.  It’s so nice when the venders don’t know what they have! ;-) ]

I arrived about ten minutes early and fully prepared.  I had my pay stubs.  I had my bank statements.  I had two years worth of tax returns. I had documentation regarding my pension and 401(k).  All laid out nice and neat in a ring binder.

I also had five (5) copies of my personal Income Statement and Balance Sheet.  The first one shows things as they stand today (admittedly not very pretty…), the next three show the three steps I’ve laid out that will solve my cashflow problems once and for all, and the final result – a wonderfully clean and productive Income Statement and Balance Sheet that, once I achieve it, will give me the freedom to invest as I see fit for my future.

She didn’t look and any of it.

She just fired up the banks web-based mortgage application form and filled it in for me as if I didn’t know how to type.  I could have done that myself two weeks ago at home on my own computer in my skivvies had I chosen to do so.  The “person from the mortgage department” we were meeting with turned out to be nothing more than an order taker!

(muffled by the speaker)

“Would you like fries with that? – Please drive up…”

This was a total waste of time!  Both my time in the meeting this morning and of the two weeks we waited for this morning to arrive!  I need to talk one-on-one with a real decision maker, not waste my time with low level data entry clerks!  How do I get past these underlings and reach the real mortgage people?  I may not be independently wealthy now – but very soon after I get to that fifth spreadsheet I expect to be someone my bankers will know on a first name basis!

Why get into Real Estate?

“… Real Estate or other entrepreneurial investments” might be more accurate.  But that makes for a lousy headline.  ;-)

Anyway, my answer to that is simple.  The old industrial age model no longer works. 

That was:

• Go to school* so you can
• Get a good education so you can
• Get a good job
• With a good company
• With good benefits
• And a retirement plan
• And you’ll be set for life

* By school they really mean collage.  For most people and most careers these days a high school education simply won’t cut it.

I had friends who retired from Polaroid many years ago.  They retired with a full pension and benefits and should have been set for life.  Then Polaroid filed Chapter 11.  As part of their reorganization they convinced the bankruptcy judge to ‘relieve them of the burden’ of their obligations to their retirees.  In an effort to save the corporation the judge threw all of the ‘no longer productive employees’ under the bus, as it were, and cut off all of their pensions and health insurance.  That saved the corporation a bundle!  And hosed all of the people who made Polaroid what it once was.  Not the Board of Directors, mind you.  All of the rank and file.

This is but one example of many and it was quite a few years ago now.  But it is still going on to this very day.  In some cases the corporations skip all the fuss and bother with filing bankruptcy and just cut the bennies themselves.  CNN has an article on their Money page on that very subject, as a matter of fact.

Early retirement a scary health care option

You simply cannot rely on the old model of retiring from the company you’ve worked for for thirty years, plus what Mum calls Social Obscurity, to guarantee a secure retirement.  And don’t expect your 401(k) to be there for you either.  Robert Kiyosaki has a whole book on thesubject.

You need to take responsibility for your own financial future.  You personally as an individual. 

Don’t expect the government to save you.  They can’t even save themselves!  Just take a look at the latest budget crisis spawned by our ‘leadership’ in Washington.  I don’t even need to post a link here because no matter how many years down the road you may be reading this there will be some financial crisis in the news that has as its origins foolishness emanating from Capital Hill.

Don’t expect some NGO to save your bacon either.  I’m not casting aspersions there.  It’s just that an NGO’s resources are invariably much more limited than the government with its ability to print currency on a whim.

You may get lucky and get help from somewhere.  But you can’t count on it.  That is why YOU have to take the initiative and take care of yourself for yourself.

The safety briefing given by the flight crew always states “If the oxygen masks are deployed PUT ON YOUR OWN MASK FIRST!”  You cannot help others if you pass out.

Likewise, you have to take care of your own financial well being, especially if you want to help others.

Bringing this back around to the headline: Investing in real estate that produces a solid passive income, such as the 14-unit apartment complex I am working on purchasing, is a time tested and proven method of generating a reliable income without trading time for cash as in an industrial age job.  It also has the benefit of providing that income even after you retire from your job in the corporate world.

Some would say that now is a lousy time to get into real estate.  “The bubble’s burst and property values are in the tank.  Why on Earth would you want to get into that mess?”  I would reply that now it the best time to get into real estate that will ever occur in our lifetime!  Everything’s on sale!  There are bargains everywhere you look! 

Buying to “flip” in a rapidly appreciating market is only one way to make money in real estate and IMHO it’s far from the most reliable.  Frankly, it’s a form of gambling.  You are buying something in the hope that someone else will pay you more than you paid.  That model will simply not work in most markets at this point in the cycle.

On the other hand, buying a rental property that will pay you more than the cost of owning it over however many years you choose to own it is a sound investment.  That passive income may not be the big flashy bundle of cash the flipper may have made a few years ago, but it will continue to come in.  Month after month.  Year after year.  And if managed property it can continue to do so for your kids and their kids and barring some great calamity for many generations into the future.

Now about that calamity, that’s what insurance is for.

Right now is the very best time we will ever see to get into real estate.  That is why I am working so hard, even staying up late to get the paperwork done, to get this first deal under my belt.  As I said in my one pager: once I have completed a couple of deals of this type my next destination is “To Infinity and Beyond!”  (Thank you Buzz Lightyear for that quote!)

If you’ve read Robert or Dolf or Loral or the other Robert or any of a dozen others this will all sound familiar to you.  If you haven’t I’d suggest you get on down to your local library or book seller and get your hands on a few of these books.  Reading them will open your eyes to a whole new world of opportunity!

One Pager

One of the things that one of my favorite authors, Robert Shemin, recommends is to write up a personal business plan.  His is all of one page long.  He calls it his One Pager.  I’m openly swiping that phrase for mine, though the title on the page is The Master Plan.

I had been thinking about this for quite some time and finally sat down and wrote it out in detail.  Actually I was working on it at lunch yesterday much as I am writing this today.  It was up on my screen when my boss comes along, plunks himself down in my guest chair and asks “Whatcha got going?”  I told him about the actual work I was working on and that I’d switch back to that after lunch.  I don’t know how good a look he got, but my one pager was almost finished…

Anyway, I included that in the fax I mentioned in my last post to try to give the lender a sense that I have a defined plan that includes a time-line for getting myself out of the mess that becomes apparent when you examine my financial statement.

I hope it helps!

In any event, I now have the plan.  I know what my next steps need to be and what to do after that.  I just need a little OPM (that’s Other People’s Money) to get me started along the path.

Another Step Taken

Last night I faxed in the application for my first ever commercial mortgage.  (At 2:00 very AM this morning, actually…)  It was so humid that my fax was trying to take the pages 3 at a time.  I had to feed each sheet individually by hand to keep it from jamming.  Talk about a pain! 

But the problems with the fax machine were nothing compared to the effort of compiling the data to fill out the forms. 

Actually, the application itself wasn’t bad at all.  The problem I had was pulling together everything I needed to fill out a full fledged personal financial statement.  I already have one, but it’s based on the form in Robert Kiyosaki’s game Cashflow 101 that I fleshed out into an Excel spreadsheet.  It turns out that form is somewhat simplified in order to make game play flow along more smoothly.  Having that grounding in the process, I was at least somewhat prepared to “do it for real.” 

I’d hate to think what it must be like for someone who’s never even thought about personal financial statements before!

So the fax is off to one of the banks that my buyer’s agent recommended.  Hopefully we will be adding them to our team.

Our first team member

So Mum and I are back home after a busy day of getting things done. 

The afternoon edition was incredibly boring!  We spent several hours hanging around at Pepboys while they replaced an arthritic ball joint in Galileo’s left front suspension.  I’m glad we had lunch before we had the work done!

Lunch was good and our waitress was great.  (And cute, but I digress…  (I wonder if she’d be interested in managing a B&B?  But I digress still further!)

Things took so long at Pepboys (not their fault.  We didn’t get there until lunch time and because they were booked solid at the moment we went off to get lunch first…) we didn’t get back in time to pick up my Armani suit at the cleaners.  I’ll have to get that Monday after work and bring it to the consignment shop next Saturday.  But that’s worthy of a blog post all its own.  :-)

Now the morning edition is the part you may be more interested in, ‘specially if your reading this blog.

After floundering a bit with our latest real estate adventure and not getting much accomplished, yesterday Mum took the initiative and made a few phone calls. 

I really can’t do much phone work because of my Just Over Broke.  A while back my boss bitched me out for making calls during work hours – even though I was still getting my work done even as I talked on the phone.  “It sounds like an MLS office around here!”  My day job is mechanical design on SolidWorks 3D CAD so reading back MLS numbers to make sure I’m looking at the right listing and having Realtor.com up in a small window off to the side of my screen really doesn’t go over too well.

So anywho, Mum was unable to find a commercial real estate lawyer who sounded worthy of our time.  One actually wanted to know all the details of the deal up front.  Mum responded “I am not at liberty to reveal any details at this time.”  You done good, Mum!  He sounded like the kind of skunk who’d run right out and get it under contract himself and cut us right out of the deal!  In fact I saw his name on several signs listing commercial property for lease while we were out.

Failing to find a lawyer to help out with keeping this deal as strictly a FSBO I suggested we try to find a buyer’s agent.  Mum found one and we met in person at his office this morning.  Our first team member is now firmly on board and he likes the sound of this deal.  More than that, he’s been involved in the real estate game as an investor himself in the two to four family market.  That’s exactly the kind of help we need.  This deal is for a fourteen unit apartment complex, so it’s bigger than any of his, but it’s not that much of a stretch.

As Mum and I were talking about this latest step I used the analogy: “Our ship is on the launch pad and being fueled.”  Once we own this property we will have lift off.  With two more like it we will have reached orbit.  From there who knows how far we’ll go!

Not sitting idly by...

Since the Guilded Cage is flying a holding pattern right now I'm keeping busy looking at other property a bit closer to home.  As in a 14-unit apartment complex.  This property cash-flows right out of the box.  Wish me luck!