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Jeff

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A very small fraction of you will be interested in this…mostly long-time members…

In 1993, I went from renting a nice 2 bedroom one bath from UCSD student housing to purchasing a rundown 3/2 in Claremont…coming to closing with my entire life savings--$9,600.  Nine years later I sold that house and put the gains into a new house, with an equity position of around 135k.  At that time, I only wished I had somehow bought 10 houses (which I vowed to do if I ever got the chance).

In 2005, I had about 100k in my retirement account, and was surprised to find that I also had (though no fault of my own) a bunch of equity in my personal residence.  I felt flush with money, and in a fit of optimism, or mania, I decided to take out a loan against that equity and fulfill my dream.  I bought 14 houses in various states around the country—all with 100% borrowed money.  Let me repeat that, I used NO money of my own…only borrowed money.  I joined SDCIA with the tagline “The first million is the hardest...”  Little did I know how true that tagline would become.

Looking back my choice was crazy of course, and I have suffered greatly for my insanity.  The negative consequences of my risk-taking behavior I have talked about elsewhere…but they include three short sales (when a builder refused to build for 2 years, I sued them and somehow lost), damage to my credit, huge financial problems that resulted in a brush with bankruptcy, the need to empty out one retirement account to make my mortgages, etc.  The financial struggles were significant and lasted for roughly a decade.

But that is not the end of the story.  Starting about 3-4 years ago, I was able to re-finance most of my houses using HARP (which works even if your house is under water, as some of mine were).  This changed the rates on most of my houses from around 7% to around 4%--and of course significantly reduced my monthly nut, which was now over 20k less than it was.  I was also able to refi my personal residence despite my less than perfect credit (thank you Thom MacFarlane) which saved another roughly 20k a year.  Then I found a credit union in SLC that would refinance to 90% LTV on two of my houses there, and was able to pull out 150k.  Now I don’t have to struggle each month, putting my mortgages on my credit card or worse.  And something else happened.  My houses, instead of losing value each year, began to actually gain in value (well, some of them anyway).  For the last two years running, my houses as a whole have appreciated an average of 150k a year.  My LTV, which used to be 100% or higher, is now down to 70% (thanks, largely, to the incremental, slow-but-steady power of principal paydown).  For the first time in 12 years, I sometimes wake up feeling like I am not a complete failure as an investor.  I just wanted to share that with someone…preferably someone who knew the story from the beginning.  

That meant that I had to post here.

 

Oh, and since my equity position in my houses (not including my primary residence) added to my retirement account just hit 1 million dollars, I will have to change my tagline…                

 


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rickencin

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Reply with quote  #2 

Nice updated tagline!

I remember your posts well.  It was hard not to be optimistic when everything was coming up roses!  So you had 14 houses 100% financed in 2008.  Yikes!!!  I'm glad you managed to come out of the ordeal with some nice equity.  I'm always going on about CAP and ROI but if your CAP is enough above your mortgage rate, you can cash flow with 100% financed rentals.  Not that that is likely to happen in San Diego.  You may not be able to predict the highs and lows of the real estate market, but it is hard to argue that they don't exist.  What's that old saying "Buy Low, Sell High"?

 


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Reply with quote  #3 
It gladens my heart to see that your struggles are rewarded for sticking in there, so far at least.  Congratulations!!!

Bryce
Suzanne

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Reply with quote  #4 
Nice to hear this Jeff.  I remember your posts.  We all found ways to survive and thrive from those days!
Nyou

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Reply with quote  #5 
Remember you Jeff. Very smart guy!!
You located very good spots for those houses.
Now Your struggles are rewarded. Congratulations!!!
SeanHillier

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Reply with quote  #6 
Great post Jeff! I love hearing how investors snatched victory from the jaws of defeat. At first, I too struggled to carry my first few rental houses, but now they are all cash-flowing nicely. As a broker (and out-of-state investor) who specializes in finding profitable properties for my clients in San Diego County, my hat is off to you.
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Greg

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Reply with quote  #7 
Jeff,

Your posts were famous. Some went "viral" before they even used that term. You disappeared for a long while and that was concerning. 

I'm very glad to hear you survived.

Greg
javipa

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Reply with quote  #8 
Few have the determination to plow through circumstances like that.  You're the man.

I trust your second million comes faster and easier.

One thing you've illustrated well is that taking action trumps everything. 

You could have sat back and done nothing, been safe, saved yourself a LOT of grief, and then risked being part of the six in ten Americans who can't handle a $600 emergency.

Instead you acted, faced a giant wall, remained committed and determined, and finally came out on top, with more equity than 98% of Americans (if my math is right).  There are approximately 9 million millionaires in the United states, with a population of three hundred and thirty million people, which put you in the .02% class.

Great going and congratulations your success!
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Jeff

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Reply with quote  #9 
Thanks for the kind words everyone...
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Homeloanwisdom

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Reply with quote  #10 
Jeff - Thanks for accolade on your home loan.

Congrats on that first "hard" million milestone. That second million will be a lot easier with loans amortized at lower rates and  continued, if only moderate,  appreciation. 

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Jeff

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Thom MacFarlane,

I know you can't do loans in Utah.  I need help with 2 in OK.  Can you help in OK?   Give a referral?

 

I am running into the same old problem of having more than 10 houses.  Anyone else have a suggestion about getting around the 10 house limit?

 

Jeff

 


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Homeloanwisdom

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Reply with quote  #12 
Hey Jeff

Try this for Oklahoma City:
AV CU.JPG 

 



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Jeff

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Reply with quote  #13 
Thanks...they are closed now but first thing tomorrow...
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niravmd

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Reply with quote  #14 
Congrats Jeff!

Glad you had not only the monthly cashflow to stay afloat during those tough times, but also the willingness to deal with your problems instead of throwing in the towel!

How you deal with adversity dictates how successful you will be.

I'm sure the 2nd million will be a lot easier!

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Jeff

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Reply with quote  #15 
Quote:
Originally Posted by niravmd
Congrats Jeff!

Glad you had not only the monthly cashflow to stay afloat during those tough times, but also the willingness to deal with your problems instead of throwing in the towel!

How you deal with adversity dictates how successful you will be.

I'm sure the 2nd million will be a lot easier!

 

My wife told me, no begged me, to stop paying on the houses...even if that meant foreclosure or worse.  I had already sold (RV, artwork, car, furniture) and cashed-in (retirement account) everything I could sell or cash, and run up all our credit cards too (to this day we literally have nothing in our house worth over $200, except maybe my computer...but even that is 5 years old so maybe not).  I asked her for ONE more month to try and find a solution.  Over that next month I was able to qualify to refinance 8 homes through the HARP program.  Hurray!  I am SO happy I didn't miss a payment, because you can't have any missed payments and qualify for HARP.  

Those refinances saved me over 20k a year...and saved my business to boot!


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kaihacker

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Reply with quote  #16 

Thank you for sharing and congrats.  The word "grit" comes to mind when reading your update. Many people were in the same position as you walked away and gained nothing.  

What are you investing plans going forward?  What do you plan on doing differently going forward?




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davidoosnk

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Reply with quote  #17 
Good job on the perseverance. Might be a good time to sell a house or two and pocket some gains and build a security cushion. 
Jeff

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Quote:
Originally Posted by kaihacker

Thank you for sharing and congrats.  The word "grit" comes to mind when reading your update. Many people were in the same position as you walked away and gained nothing.  

What are you investing plans going forward?  What do you plan on doing differently going forward?



 

My investing plans?  I plan to do nothing...even if I had some "extra" money, even if found a bargain or two, no bank would loan me any money.  Besides, I just got things working properly, I don't want to change now (except I would like to refinance two more ARMS, as I mentioned elsewhere).

12 homes aught to be enough for almost anyone.


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Jeff

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Quote:
Originally Posted by davidoosnk
Good job on the perseverance. Might be a good time to sell a house or two and pocket some gains and build a security cushion. 

 

The idea of selling a house is off-putting.  I worked so hard to keep each one...and with the refinances, even my very worst house only costs me <$50 a month (when rented).  For that $50 monthly loss I "earned" $2686 in principal paydown last year--and 18k in appreciation. 

If YOU had a retirement program that cost you $50 a month, but each month put $239 in your account--would you get rid of it?  What about if that same program also included the possibility of a year-end bonus of 18k?  That's how I look at even my very worst house...

Plus who wants to pay 6% for a realtor, and 20% capital gains, and 25% depreciation recapture?  For me, the transactions costs of selling are prohibitively high.

"Security Cushion"?  What is that?  lol.

 

 

 


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davidoosnk

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Reply with quote  #20 
Well, to each his own. One might want to diversify and buy assets other than real estate. Retirement plans are nice. My investing is more a full time job so I tend to quickly recuperate the sunk costs you mention and actively steer a portion of my portfolio. 
Jeff

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Quote:
Originally Posted by davidoosnk
Well, to each his own. One might want to diversify and buy assets other than real estate. Retirement plans are nice. 

 

Diversification is why I have houses in Florida, Texas, Oklahoma, New Mexico, Utah, and California.  I have trouble imagining a economic downturn that would impact all these far-flung markets without also bringing down the stock market. 

Plus I have the luxury of a pension.  With "guaranteed" income as the foundation of my retirement plans, diversification becomes much less valuable or appealing.

 

Quote:
Originally Posted by davidoosnk
My investing is more a full time job so I tend to quickly recuperate the sunk costs you mention and actively steer a portion of my portfolio. 

 

I have 35k in equity in that house.  If I pay 20k in realtor's fees, closing costs, holding costs, and taxes (conservative?), that would leave me roughly 15k.  If you can "quickly recuperate" 20k in costs using a 15k investment...then my hat's off to you.

Frankly, I can't imagine a situation where it makes financial sense to pay 20k to sell an investment house that is "working" (putting money in the "bank" each month, either through principal paydown or through appreciation).  Certainly it is not worth it for 15k...

 

 


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davidoosnk

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Reply with quote  #22 
OK. So you don't have enough equity it seems for it to make sense. It makes sense all day long if you sell at high retail and buy at wholesale, wash, rinse repeat a few times a year at San Diego and LA prices but it doesn't work when the equity is so marginal on properties that are not as expensive so you're right to hold on. 
Jeff

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Reply with quote  #23 

Quote:
Originally Posted by davidoosnk
OK. So you don't have enough equity it seems for it to make sense. It makes sense all day long if you sell at high retail and buy at wholesale, wash, rinse repeat a few times a year at San Diego and LA prices but it doesn't work when the equity is so marginal on properties that are not as expensive so you're right to hold on. 

 

"don't have enough equity" is my middle name...


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