Common sense perspectives and finding a way to retire

Direct Mail in Real Estate

Posted by Paul on January 2, 2007

Well, my New Year has started off with a bang for my real estate venture. In the past I had used Realtors almost exclusively to buy property. For the past 6 weeks I have been direct mailing absentee owners and people entering foreclosure. Every week I have been mailing about 100+ postcards or letters out. At first I got only a few crank calls from people upset that I mailed to them. But in the past 10 days I have received about 11 calls. About 5 of them seem to be really good leads. I’m not sure if it is just a matter of planting seeds that are starting to sprout or the change I made in my letter. All of the calls have come since I changed the letter. I’ve got an amusing picture on the top of the letter (the previous letter has a picture of a check) with a catchy question.

I had never given direct mail much thought, although Dave Whisnant had spoke quite persuasively about it in his course. But now I am dealing with really motivated sellers that basically are handing me their papers and trusting me to solve their problem, and not worried about whether they will get money out of the sale.

So today I am scrambling to get a package together for each of the good leads I have. Each of the properties has a second (or third) that is a weak position and I will try to find a bank that will give me a short sale. It’s easy to get caught up in the emotion of what is going on. I will have to keep myself in check and make sure the financial outlook of each deal I agree to makes financial sense.

What ever the result, this experience is cementing my belief in direct mail. It won’t be the only advertising I do and I will still use Realtors, but I plan to keep it as a main part of my business.


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Buying a car – new or old?

Posted by Paul on December 31, 2006

I’m not sure why there is ever a discussion on this topic. I’ve run through the calculations many times and there is never any way that a new car can be financially justified. One of the more important ways people get into financial trouble is buying depreciating assets. A car is the largest depreciating asset that most people buy. The worst financial decision is to buy a depreciating asset with credit.

Now some very smart people will try to convince you otherwise. A young man named Ramit who writes a blog called Iwillteachyoutoberich does just that. He tries to justify his decision with various reasons but in the end gives himself away when he talks about the “new car smell”. This means in the end he made an emotional decision, not a financial decision. (The ironic thing is that “new car smell” is a mix of VOC’s including benzene which can be harmful.) New cars depreciate quite rapidly – often 30% right off the lot. Add to that the interest nearly every purchaser pays and the cost of owning that car can double.

Now some people claim that they need a new car for business credibility. I don’t buy that logic either. Confidence comes from within – not from external things. Now when I was young I too feel prey to the idea that I needed a shiny red RX-7 to impress the women. Fortunately, I’ve grown out of that phase although many middle aged men think they suddenly have to buy a new Vette for the same reason. My car strategy at the moment is to buy cars with good repair records that are 5-7 years old which I can pay all cash for. Typically my cars have close to 100,000 miles on them (cars today when maintained will easily go over 200,000 miles – everyone of my 12 cars has.) I keep them well maintained so they don’t break down unexpectedly. My typical maintenance costs are less than $1500 a year including routine maintenance.

Let’s assume you buy a new car for $25,000 with $3000 down and I buy a $3000 car cash. Now I don’t carry collision or theft and carry a $1000 deductible – you’ll have to carry collision and theft insurance. Here’s a simple spreadsheet:

After 3 years the typical new car buyer is upside down in their car loan so there is no re-sale value per se. The new car buyer is out an extra $14K Vs my strategy.

I have grown tired of buying cars from dealerships. Even with the advent of kbb and other services, the dealers want to play a game of giving me far less than my car is worth and asking over kbb average retail values. Instead, the last 3 cars I have bought have all been on E-bay. I research the cars and history and only bid when I can get close to the wholesale value. So far this strategy has worked extremely well and I have no plans to change it. Even a sudden windfall would not tempt me.

Posted in finances, money | 2 Comments »

Real Estate Coaching

Posted by Paul on December 30, 2006

I wrote a few days ago about a motivated seller who is facing foreclosure. I also posted about real estate courses. One course that did not impress me was Don DeRosa. However, when I purchased his package he gave me his cell phone number. I decided to call him about this deal and wasn’t expecting much (my previous attempt at buying coaching did not yield much with Dave Whisnant). So I was quite surprised when Don answered the phone right away. He spent 45 minutes on the phone with me, created a spreadsheet and emailed it to me. He walked me through short sale procedures even though I have not purchased his Short Sale course. All in all, I was very happy with his responsiveness and helpfulness. I would have to recommend him if you can get his cell number.

Don confirmed my belief that this was an excellent candidate for a short sale. There are 3 mortgages on the property and the second is foreclosing. He did not think the third would do anything and would probably take a few pennies on the dollar. So I have been working with the banks and trying to follow his advice.

Meanwhile my wonderful wife returned from China this week and came with a check for $20K for the sale of her garage condo. So now I feel I can go back to hard money lenders and see if I can qualify for a line of credit. 2007 is starting out on an upbeat note and I am excited about reaching my goals.

Posted in real estate | 1 Comment »

Real Estate Courses and Resources

Posted by Paul on December 23, 2006

I’ve spent over $2000 in the past two years on real estate courses. On the one hand I’ve used the information to make 2 profitable real estate investments. On the other hand I feel that these real estate guru’s charge far too much for the quality and content of the courses they offer. One guru who agrees with that view is John T Reed who has read and evaluated many of the guru real estate courses. His view is that the prices the gurus charge is too high and the information should be sold in books under $100. He offers 21 such books at ~$40 each. So in fact his real estate course costs $840! I’ve bought a couple of his books and they are quite good, but narrow in scope, so you almost need to buy all of them to get a complete picture and spend as much as for other courses.

Some of the courses I have purchased and my opinion:

  • Ken Preuss – I purchased an e-book from Ken, so the price was fairly reasonable but there is no audio. The information was OK. He emphasizes lease-purchase and I learned a lot about that concept which I used for my rental property. The technique works well – I’ve got the best tenants I’ve ever had (ten years experience), I got $3500 from them to get in the house and they pay about $150 more than the going rental rate. Ken had the most up-to-date web resources of any of the courses I’ve bought. His course is so focused on lease-purchase that it leaves out a lot of other useful information, so not really complete.
  • Don DeRosa – I’ve purchased two courses from Don ($895 seminar special). The workbooks are useless in my opinion and the two courses have so much common information that I would never recommend purchasing them separately. The spreadsheet he provides is riddled with math errors and I had to write to ask for forms that were supposed to be provided but were not. I don’t think that Don has put enough value in his courses to justify the price. If he combined all 3 of his courses (subject-to, private money, short sales) I might think otherwise, but as is this is the worst of the three. I’m supposed to have one year of consultation with him but I have not used that yet. Maybe that will justify the price.
  • Dave Whisnant – Dave is an attorney turned investor. His course is jam packed with information. He has excellent information on public records and covers every topic I have encountered from repairing your credit (quite good), to marketing (very good insights) and rehab (so-so). I was supposed to get on-line help. I used it once but his advice was not especially insightful. John Reed had some criticism of this course, but I found his comments kind of petty. If you were to purchase one course, I would recommend his (I get no commission and have not been in contact with him for 2 years). His course was less expensive and certainly as insightful as Reeds books.

On-line I use Real Estate Investment articles which are a little vague (these are guru’s writing hoping to get you to buy their course. But there are enough different articles from different investors that you can get 90% of what you need from this web site.

Paying a lot for real estate courses is kind of a pet peeve of mine. On the one hand, I don’t begrudge the gurus from trying to use capitalism from making more money. But, their marketing is so vague that you never know what you are getting until after you spent the money. I’m at the point now that I have lots of experience and knowledge. These guru’s mostly focus on new investors.

One of my goals is to use a tool I’ve come to really like (the wiki) to create a “live” real estate investment course that can be improved by the investment community. I’m sure the guru’s will not like this idea. I’ve tried to create a wiki template to do that RealEstateGuru. At the moment it is only a draft. If you have real estate experience and would like to contribute, please email me. I am only working at this as time allows at the moment, since I am still in the process of developing my business plan and goals.

Posted in real estate | 6 Comments »

Motivated seller and a short sale potential

Posted by Paul on December 22, 2006

I’ve started a direct mail advertising campaign to find motivated sellers for my new real estate venture. Each week I get a list of lis pendens filed (people going into foreclosure). I also use First America real estate software to create mailing lists of absentee owners. In our county there are about 50 to 70 lis pendens filed per week. To date I’ve mailed out about 250 letters and received 3 phone calls (1.2% response rate which is supposed to be a typical range). Today I met with one of the callers. She gave me all her original documents, essentially freezing out any other possible investors. She just wants to get rid of the property and doesn’t care about making any money.

This property is one which may be ideal for a short sale. The owner originally took out a first mortgage and HELOC from the same lender. The HELOC was a 5 year balloon due last June. The lender diddled around about refinancing the HELOC and is now foreclosing against it. Meanwhile three years ago the homeowner took out another mortgage against the property which is in a third position. The payments on the third are up to date, but the third is in a weak position. The total of the three mortgages is close to the actual value of the house. So the third mortgage, in order to save their equity will have to take over the first two loans at the auction or hope someone else does.

I’m hoping to negotiate with the third mortgage and see if they will accept a short sale, in other word, try to pay them 10 cents on the dollar owed them. At any rate, I am in the catbird seat on this deal. The seller has put her complete trust in me and the clock is ticking down on the third mortgagee.

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The Fog of War

Posted by Paul on December 22, 2006

One of my goals with this blog was to write posts with some perspective. I have not written about the war yet. War is something that is extremely difficult to keep in perspective during its execution. Even hundreds of years later historians still debate the merits of strategies and events. I’ve read a couple of fascinating books this year about WW II and the Revolution. Malkins In Defense of Internment provides an alternate view of the thinking behind the internment of the Japanese in World War II that is not part of the conventional wisdom and Ketchums Victory at Yorktown is a mind blowing account of how far in despair we were during the Revolution. Few people today appreciate the extent of Washington’s leadership in creating this country.

As a college student in the 1970’s I was mildly anti-war. I cast my first vote for George McGovern – an anti-war candidate. As time has passed I have learned new facts about Vietnam that have changed my views of that war. Most significant was our victory during the Tet Offensive which was spun into a defeat by the biased reporting of Walter Cronkite.

So now we are in a war with a radical foe that is bent on attacking and conquering us. Many people think that if we simply pull out of Iraq the danger will pass. I wrote a post about good and evil that tried to highlight what I believe is a fundamental problem with Western thought – namely the belief that evil does not exist.

One of my favorite books used to be a collection of writings by the Sufi poet Rumi. It contains some tremendous spiritual insights. However, I believe today Muslim belief is dominated by Wahhabism that has taken Islam down a violent path.

While some believe that only a small percentage of Muslims believe in violent jihad (10% of 1.2 billion is still a lot of people), those that don’t believe in violence are at the very least being intimidated into silence and acquiescence by the violent minority. And the problem is not only intransigent, it is generational as the young are being taught to hate.

So we are in the “fog of war” having swiftly conquered Afghanistan and Iraq only to be surprised by a high level of attacks due to a variety of fighters (disgruntled Sunnis, Al Qaeda, Iranian subterfuge, Shia vigilante groups). The President of Iran threatens the end of Israel nearly weekly and police in the west undermine plots constantly.

One perspective that I do have is that no mater our course in Iraq, this war will not end soon. I think at the present many in the West have become quite fearful of Islam. We dare not write the truth about fascist Islam or call it the evil that is now is.

So we may stagger along for many years or even decades living with the status-quo assuming some group does not set off a nuclear bomb in the interim. If freedom were able to take root in the Middle East (improbable but not impossible) we may avoid a great conflict. However, human history clearly shows that when evil is not confronted the worst of our fears come true. I pray that is not the case, but I too am caught in the fog of war and do not know the best course of action or the outcome. The enemy will surprise us and we will find out what kind of people we are again.

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The Courage to Be Rich

Posted by Paul on December 21, 2006

I was reading an article titled The Courage to Live Consciously by Steve Pavlina and was reminded (again) of the root reason for my current financial state -living too much in my fears.

How would I live if I had no fear at all? Have you ever asked yourself that question? When I was involved with Amway I often asked myself this, but had long forgotten about the question or my answer. Recalling back to the days I used to travel long distances to show the Amway business plan to prospects, I often would be driving home late at night listening to self-improvement tapes and sometimes would catch a glimpse of this awesome lifestyle that I could lead should I succeed – great friends, financial security, wonderful family and spiritually connected. But by the next day, trying to do my job with only 4 hours sleep, I slipped back into negative thoughts about why I would not succeed (fatigue can kill dreams).

Now I’m not totally a wuss. In some areas of my life I have a lot of courage. I relish heights and have no fear of dropping off the side of a mountain, I’ve had 20′ boa constrictors crawl over my back. I love speaking in front of large crowds (I’ve given speeches before 10,000 people) and I have never had a fear of investing money. I don’t really have a fear of failure, but I do have a fear of success. And I have had a very real fear of being rejected by other people in one-on-one situations.

Life shrinks or expands in proportion to one’s courage”.

Anais Nin

The word courage is derived from the Latin “cor” which means heart. Steve Pavlina seems to think that courage is more about mental decisions. However, for battlefield decisions the Marine that falls on a grenade is not making an intellectual decision, but a very real emotional one. He (Steve) thinks that our decisions are not “fight or flight” based because the real danger to most of us is mostly in our mind – not life or death decisions our ancestors (or today’s soldiers) faced.

Steve lists lots of practical advice to overcoming your fears (making list of possible negative aspects of you decision, breaking them down and setting goals to overcome them, becoming more educated, etc.). Maybe this helps some people, but I have tried this logic with only limited success.

So how do I gain the courage to be rich? My only good analogy is when I am at the top of a very steep ski slope and can’t see the trail past the edge of my skis. I simply push forward over the edge and trust in my ability, God and my instincts that I will make it down the slope. I am totally immersed in the moment, not worrying about falling, breaking a leg or anything negative.

I think that business success will take a similar route. When I was in Amway I was 99% committed to my success. I invested heavily in tools, seminars, travel. I would drive anywhere to show the plan to people, but I withheld myself in one critical area out of my comfort zone – I wouldn’t drop off that cliff when I was in the presence of a stranger. I have a colleague I work with who I admire greatly for that quality. For him everyone is a friend whether a CEO or the girl at the drive-through window. In seconds this man establishes rapport with strangers, a trait I envy.

So is becoming rich just about courage? To a large degree it is and a very emotional decision. It is about putting yourself on the line, about immersing yourself 100% into what you are going to achieve and blowing up the bridges that would allow you to retreat. That retreat has for me been too easy ( I make a six figure income at a job). But my job will never allow me to get rich.

“Successful people expect the best, and they generally get it, because
expectations have a way of attracting to us their material equivalent,”

Tom Butler-Bowdon

When I started in real estate the first time 20 years ago, I didn’t have a plan, wasn’t organized and invested based on poor information. But I also failed to commit myself 100% to making it work, so I retreated to my job and let it bail me out. This time I am better organized, have good market data, have a planned exit strategy, know what I want to buy and am not letting emotion drive my purchase or selling decisions. But I still have the opportunity to give up – I’ve got 4 teenagers to care for with associated activities, a wife who wants my time and still have that 8 hours every day to exchange with my employer. I don’t have time to do this ( I could reason).

I’m 53 and I have no hope of retiring before my late sixties based on my financial position. I had not planned to be in this position, but that’s because I never did stick with a plan to do it. So its going to take relentless persistence to succeed. And ultimately, the courage to push myself over the edge.

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Real estate and liquid assets

Posted by Paul on December 20, 2006

One of the banes of new business is being under capitalized. I thought that with my excellent credit score I could convince Brookview Financial to give me a line of credit, but no luck. Even though they claim to loan 100% of project costs and don’t even require payments during the holding period, they want me to have more liquid assets before they will give me a credit line.

I’ve been sending out direct mail pieces to people going through foreclosure and have started to receive calls (about 1.2% response rate). No sales are imminent but now that Brookview has my application on hold, I have less confidence in my ability to close the sales. The sellers I am marketing to need quick closing and I was counting on hard money to have the wherewith all to do that.

At the last seminar I attended Don DeRosa talked about doing “subject to” purchases. His claim was that you could buy houses for “nothing down” by essentially taking over the mortgage of the person who is facing bankruptcy. But, this is not really true. You need cash to bring their payments current, you need to pay closing costs and sometimes need cash for the seller if they have any equity above their loan value.

So I am considering my options about how to increase my liquid assets:

  1. Capital One has offered to increase my installment loan from $14k to 30K. Interest rate will go up 2% and payments up $200/month plus a negative impact on my credit score
  2. Another bank says they will refinance my rental property for up to $40k cash out. I would have to pay off the Capital One loan but my net payments wouldn’t increase. The cost to take out this loan is about $4k and it would take one month to get the funds.
  3. My wife has a garage to her condo in China she is trying to sell. Her ex has promised to buy it but he is not reliable, so I am not sure if I can count on it
  4. Try to re-focus my strategy to “wholesale flipping” of any properties I find.
  5. Start to focus more on getting private money.

In my younger days I often tried the Casey Serin route, trying to get loans on top of loans and over-leveraging my self. I think that I will try patience this time and stay focused on my goals.

 Our need to get instant gratification often creates an urgency to act quickly and make bad decisions and settle for mediocre deals (just like the desperate teenager that settles for a mediocre boy/girl friend).

When we were looking at houses this past winter my wife seemed to get impatient that we didn’t buy for a long time. But in the end we got an excellent deal that continues to increase in value. It’s disappointing to be turned down but not the end of the world. So for now I will resist the urge to rush out and borrow more money and focus on items 3, 4 & 5.

Posted in real estate | 1 Comment »

Using scarcity consciousness for gain

Posted by Paul on December 19, 2006

I’ve been posting about prosperity Vs scarcity consciousness here and here. Today a blog post popped up on my GoogleReader which seemed to prove the point by Derek Pierce.

He talks about using a “take-away” technique during negotiations. If the person he is trying to negotiate with starts to waffle he “takes back” something he had previously given. Here’s his explanation”

“The takeaway method works like gangbusters. But, you may ask why?
Well, it’s proven that we all are motivated by scarcity. In other words, if
there is a product or service that is freely available, then the desire for that
product or service is not that great. However, if there is a limit or some
deadline to that product or service, then it will increase your desire to have
the product or service. That’s why you see so many deadlines with

When I was involved with Amway, this is one of the common techniques also taught. If a prospect wasn’t sure that they wanted to join your business, you simply told them you were not sure if you could work with them, that your business was very successful and your time was limited you tried to give them something to lose.

In some respects, its sad that you can take advantage of people’s scarcity consciousness with such ease, but my experience in Amway convinced me that it is far easier to work with their existing mentality than to change it. Sometimes I spent hours with people trying to convince them that they could have more money, make their dreams come true, help their family and nothing would register. But the fear of loss motivated them time and time again.

One of the wage roll employees that I work with is forever complaining about his situation in life – he honestly believes that he is no better off (he makes $25/hr) than his father who was also a factory worker. I think this is quite an irrational perspective. Just consider the following:

  • health care has advanced tremendously. Survival rates from heart attacks and cancer have increased dramatically. This employee recently had a heart attack. Perhaps in 1965 he might not have survived
  • automobiles today last longer, run more efficiently, require less maintenance and are safer than ever
  • electronics are prolific and cheap – you can buy an HDTV and receive hundreds of channels (and the cost will be a lower portion of your paycheck than it was in 1965). Cell phones, DVD players, ipods and computers didn’t even exist back then
  • we spend a lower percentage of our income today on essentials like food and clothing than we did then leaving more disposable income for eating out (consider the proliferation of restaurants

Now I don’t think I can ever convince this fellow employee that he is living a prosperous life. So are people hopeless? No, I think that most people have hope, but few have belief and even fewer believe that they can have real prosperity.

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My Chinese wife

Posted by Paul on December 19, 2006

My wife will be returning to the US next week after having spent a month in China helping her mother recover from a stroke. She is a gem of a woman and a perfect wife and I am counting the days until her return.

Some people ask me why I married a Chinese woman. There are tremendous barriers just between the sexes, much less between two very different cultures without a common language. My wife speaks good basic English, but we have much difficulty communicating complex ideas. And sometimes the cultural viewpoints are so divergent that we cannot make sense of each others view points at all.

There are 1.3 billion Chinese living in the same geographic area as the US and the way they have learned to deal with that abundance of people is sometimes unique and strange to us. In China, you focus on yourself and family first. For example, getting on a bus means pushing your way past the elderly or pregnant or children, otherwise you never will get on. I think the Chinese (I’m generalizing here and don’t mean to offend the many kindhearted strangers that have helped me) find the degree to which we our are “brothers keeper” a strange concept (My wife doesn’t understand American generosity towards strangers.). On the other hand, the Chinese are fierce defenders of their immediate family. Their loyalty to family is something that is quite rare in the US.

My wife grew up during the Cultural Revolution. The stories she tells of her childhood are of extreme poverty that I can imagine as much worse than those in the US experienced even during the Depression era. She is also deeply affected by many events where outspoken critics of Mao were executed. Her parents lived their entire lives in a home with no indoor plumbing and no heat (at the same latitude as Buffalo, NY), until she purchased them a home 2 years ago.

After graduating from college she moved 1000 miles from home to the Northwest Tibetan plateau where she married, only to have her husband abandon her after her daughter was born. She sacrificed her own food to feed her baby, studied to earn an accounting certificate and eventually was able to find a job in the southern most Chinese province. For several years she was separated from her daughter who was raised by her mother in the northeast.

Like most Chinese, she is an ardent saver. She lived meagerly and saved her money. When her bank went bankrupt due to legal shenanigans, she found a job in the middle eastern part of the country at a large bank where she moved up the corporate ladder. At that time China started allowing people to buy “houses” (really what we call a condo), so she took her savings and a small mortgage (which she paid off in 5 years) to buy a nice home. Her parents came to live with her there for several years to help with childcare.

So what are the qualities that I have found so compelling in the woman?

  • respect – she respects men and me in a way that I had not experienced from an American woman. Our culture so devalues men now that the weak, disrespected male is the norm on TV. “Women-talk” is often nothing more than male-bashing.
  • strength – her upbringing and life experience have made her one strong woman. Many people assume Chinese women are timid – this could not be further from the truth. Certainly those that are my wife’s age have experienced too much to be intimidated by anyone or anything
  • love – when she is with me I am pampered in a way that is unimaginable to most Americans. I don’t think this is uncommon in Chinese-American marriages. The more she does this, the more I am motivated to find ways to love her back – its been an un-ending upward spiral

Now I could go on, but suffice it to say I am one lucky man. My wife never had to read The Proper Care and Feeding of Husbands because she lives it.

If you would like more information on this topic visit CandleforLove.com

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