Tuesday, October 27, 2009

Foreclosures Still Happening All Over

RealtyTrac has put out foreclosure statistics for September. While the number dropped 4% from August, it is 29 % over a year ago. In my state of Arizona, one out of every 53 houses is in foreclosure. The worst in the nation is Nevada, with one in every 23 houses in foreclosure. There's a big sexy graphic representation here.

Thursday, October 22, 2009

Double Update

I haven’t reported on the Houston apartment complex for the last two months, so here’s a two month recap:

August occupancy was 95% and revenue was $228K or, excluding a payment from AT&T for having them become the complex’s preferred phone provider, $196K.Total cash flow was $40K.

The economic woes hitting the rest of the nation have finally started to creep into Houston, which had been somewhat spared from the slowdown before.

In September, occupancy dropped to 94%. There were 22 move-outs, about half of which were due to the slowing economy and half due to typical reasons – home purchases, job transfers, etc. These move-outs have already been filled thanks to new marketing efforts.

In September, revenue was $202K revenue with a cash flow of $14K. The large drop was due to an escrow analysis by our lender which showed our escrow account was being underfunded for insurance and tax costs. Therefore our monthly payment for our loan will increase slightly and a chunk of cash had to be deposited into the escrow account to bring it in line with estimated payments. This deposit was mostly covered by income we received from AT&T last month for referring our tenant and new tenants to them for phone service, but it does impact the figures for this month.

I also received another quarterly profit distribution.

In other news, I continue to receive on-time payments for my three outstanding hard money loans – hard money #4, #8, and #9.

Tuesday, October 6, 2009

Kiyosaki Joins The Crowd

My interest in real estate investing started with my discovery of Rich Dad, Poor Dad in a local bookstore. After reading that, I read the next several books by Robert Kiyosaki, went to see him speak, and even got to meet him a few times. I liked his approach - namely that wealthy people thought about money and investments differently than most people and that he would teach us how to think like they did. Whether or not he really had "two dads" or if his story was 100% true didn't, and still doesn't, matter to me. He opened my eyes to a different way of looking and evaluating investments.

When the real estate bubble started to burst, I wondered if and how Kiyosaki was going to change his message. It now seems I know the answer.

Now, to be honest, I haven't read any of his recent books. I think the last one I read was Retire Young, Retire Rich. I couldn't even tell you how many have come out after that one. Once a daily reader and poster, I haven't visited his website or discussion boards in over 3 years. This wasn't due to any change in my opinion of him or his methods. Rather, I just felt I had learned all I could from him and he was starting to repeat himself. But I am still on his mailing list and I get email about his new products occasionally.

I have recently gotten a couple of emails for his latest project, called Conspiracy Of The Rich and am dissappointed in what I see. As public opinion has turned against bankers, Wall Street, and government bailouts, it seems Robert has changed his tune to ride that wave. A perfect example is the title. Now, instead of showing the masses (us) how to become rich, he is writing about a "conspiracy" of the rich against the rest of us. Suddenly, he is no longer the nice father figure trying to educate us to join him in the easily attainable ranks of the wealthy, but the champion of the poor and middle class protecting us from the "evil" rich and their scheming ways.

This is from his latest email:

Yes, you read correctly. In his latest Conspiracy of the Rich Bulletin, Robert discusses how the government is proposing a plan to have the banks bailout the government – and how the FDIC is not the solution, but the problem.

"The conspiracy of the rich knows no boundaries. For months now, the government has bailed out the banks. Now the government is proposing that banks bail out the government, which, of course, the banks are enthusiastically supporting."

He is referring, I figure, to an option the FDIC is exploring to raise funds, which have dried up from all the bank failures of late, in which banks will loan the FDIC money. You can read about it here and here. If you read the articles, you'll find out the banks are supporting this because it means the FDIC will not have to impose new fees on banks, so this will save them some money. Yet Kiyosaki's quote above clearly implies some massive collusion between the banking industry and the government - two groups that are none too popular right now.

Now I will be the first to admit that I have not read Conspiracy of the Rich. All I am basing my view on are the marketing emails for it that I have received. And I will also admit that marketing materials are, by definition, meant to be intriguing, draw people in, and make people want to buy or at least further investigate, a product. It is entirely possible that the marketing message and the actual message of the book are completely at odds. It wouldn't be the first time the truth was stretched in advertisements.

But still, I am disappointed in what I perceive to be a shift in tone in his work. There are many people who criticize Kiyosaki for many things. Some of those criticisms are valid. Personally, I don't believe he advocated what many of his readers did - bought houses with negative cash flow, hoping for rising equity to make them money. In fact, I always found his advice to be "make sure the property will be cashflow positive from Day 1 and don't count on property values increasing." I am still glad he got me interested in real estate and I don't think the bursting of the real estate bubble invalidates his main lessons. But I am sad to see him switch to an "us versus them" position. It makes it clear to me that what he really is is a salesman interested in selling more of his products - books. And he will write whatever the public wants to hear at the moment.