Running 
a close second behind Casey Serin in notoriety among the housing bubble blogs, Jeff from the San Diego Creative Investing Association forums purchased 14 homes in 14 weeks using 100% financing. Unlike Serin, it does not appear that he lied on his stated-income ("liar") loans. It is however surprising to say the least that a Taco Bell night manager would be able to qualify for this much debt. Here, through Jeff's own comments, we track his state of mind as he goes from cocky over-confident newbie investor to puking finger-pointing financial trainwreck.
In the beginning, the modest investor...""Ludicrous" is a word in the same category as "irrational" (as in lacking rational thought) or "unreasonable" (as in lacking reason) or "foolish" (as in stupid). It does not fit well into a well-meaning discussion among thoughtful peers.
But even if it did, you should reserve it for cases where you are actually right. A 50% return is NOT ludicrous, or silly, or unreasonable. In fact, the idea that you should expect ANY less with a 5% downpayment is, to put it mildly, far-fetched."
No ego here..."My hesitation at embracing your choice of words was NOT that ludicrous was offensive (though it was) but that it was wrong. It is NOT absurd to expect that a reasonably competent investor, one who is paying even the slightest attention, can expect returns of 50%."
Jeff knows best...""I doubt you would make much money on this" indeed. How could you not make money on a house that is going up at 27% a year...dang!
First of all, I am not a flipper. I have no intention in trying to sell this home and "make" my ~30k this year. I am funding my retirement!"
Itsallgood..."For the Benjonsians...first some good news. Due to some cost over-runs by the builder (can you trust any builders?), plus 4-8 months over on the construction loan limits (I have to pay the interest!), plus some hidden costs on the modification to term loans, the final 3 houses will cost me 10k to 20k to close. If true, this will entirely wipe out my primary cash reserves.
Now the bad news...for you B.J. guys...even using this new conservative approach to valuing my homes (using the minimum value), I still come up with an estimate of an increase of $42k per house--or a total increase of $582k. Another way to look at it, I have turned my original $198k of equity (in my primary residence) into $706k of equity in 14 other houses. This is about a 350% return (albeit "on paper") in roughly 20 months of investing."
Whoops..."The bad news is...I can't quit my job as night manager at Taco Bell.
The good news...I was fired from my job as night manager at Taco Bell. I am unemployed."
Jeff sasses Ben Jones..."Once again, my thanks to Mr. Jones...for his help in teaching us "morons" a thing or two about taxes!"
"I love America..."
Everything is FINE..."Though not as remarkable as my earlier estimates, a conservative 170% is still pretty good for ~20 months of investing..."
Just PEACHY..."You can state whatever you want, that is the problem with (beauty of?) stated income loans!
The short answer is I "feed it" the same way I purchased it--with 100% borrowed funds."
Cracks in the facade..."I am having difficulty renting two properties. One in ABQ (slow time of the year) and one in Cape Coral (too much competition or bad PM, I can't decide). These two houses alone are costing me ~3k a month. Ouch!
Change in perspective or approach? I can say that I adamantly wish I hadn't bought any houses in Cape Coral! If only I would of known that they were going to be the worst performing. Except for them, I would say that I am batting a thousand. All my other houses have gone up remarkably and cost me very little each month."
Storm clouds on the horizon..."O.K., I am sick to my stomach and have tears in my eyes...
The above two cut-and-pastes, taken together, seem to support the view that only the Katrina Go Zone, 1400M(1), qualifies for the bonus depreciation...
I am so MAD at my tax guy, he assured me I qualified (and charged me $750 bucks!). He is "looking into it..." and will get back to me...""
Prophecy time..."I would of bailed on these houses--took my loses--if I hadn't been given assurances by several professionals that I could get Go-zone depreciation bonuses on these houses. Turns out that is unlikely (not absolutely sure STILL), so sticking with them was an even bigger mistake.
On the flip side, every other purchase I made that year was a good one. So not counting the Cape Coral homes I am WAY ahead. My two SLC houses probably have increased 120k all by themselves. Still, those CC houses really burn my hide...
Anyway, am I happy I did it? You bet. I'll be even happier in 20 years when I retire with 8 million in equity (assuming 6% appreciation).
Or I'll go bankrupt in the next two years...one or the other."
Not looking good..."Sadly...it looks like those who warned me that Florida properties won't work were right--so far, it might change (acknowledgment to those that warned me this might be the case...).
This is true despite many Realtors and others, (professionals!) swearing to me that Florida DID qualify--including the nationally famous Marshall Reddick."
Uh oh..."As you suggest...selling one of my SLC houses is a good idea (or a requirement!). In fact, I have been "selling" them for two years...in the sense that a LO is "selling." As it turn out, none of my "sales" has gone through. I hope to hold on for one more year...~25% appreciation (the second highest in the nation) is difficult to walk away from. But I will need the money from one of these houses simply to pay the negative on my "dogs."
I am embarrassed/disappointed to report that I am well into my "back up" reserves. They will hold me for another year or so depending on vacancies. A sale of one of my SLC houses will hold me for another year or so..."
EVERYTHING IS FINE..."I will be the first to admit that my CC homes are a huge problem, one without any easy solution. But even if I end up losing 30k a piece on them, I am still ahead of the game a couple hundred thousand dollars (so far).
If I would of listened to the Ben Jones crowd I would still be huddled under my bed yelling "the recession is coming, the recession is coming" and praying that everyone else looses their shirts in real estate so that I can "buy in." No thanks.
Am I sorry I took the plunge and did something crazy? No way. I will cry all the way to the bank."
It's not Jeff's fault..."Sadly, regrettably, this is exactly where I have my houses. Even more sad is I have three of them. I am not the type of person to sue other people (even though I was misled or outright lied to by the broker, the builder, the lender, and the PM!), so I will just be trying to keep up my end of the bargain (even though the builder and the lender did not keep up their end).
These houses were my one clear mistake in my year of purchases (I actually signed contract on 14 houses in 14 weeks). But they are BIG mistakes I am am trying to live with them."
DOH!!!!"Basically, they promised that I would close on this loan in less than 12 months, and that I would have to bring no money to closing.
Instead, because the builder went over the 12 months (it has been 25 months on one house that has about three more to go). I am paying about $1700 a month holding costs on a house under construction, and I will have to pay about 8k-10k for a refinance on this loan. Times three houses.
Ouch."
It's the lenders' fault..."The problem is when lenders either lie or encourage other people to lie to get a loan...like the guy whose payments were over 100% of his income--I do blame those type of lenders..."
RUH ROH..."Well...as many of you know I own three terrible houses in Cape Coral Florida. Through a series of misjudgments and being taken advantage of (and lied to), I am losing ~$1000 on month on each of these houses when they are rented. I am just sick about them and often cannot sleep--like now."
Humble pie..."I am not so cocky now!
I am in the process of evicting the tenant in one house in SLC. When she leaves I am putting that house up for sale."
RUH ROH RUH ROH..."I do have some new info to share. One new fact is that "short sales" are now going for as low as 185k for these houses. Ouch!
The lender doesn't even want to discuss with me my options until the house has been on the market 60-90 days...and they won't tell me what price to put it on at for a short sale...I am supposed to just guess and bring offers...
Going to bed...night all. With any luck I'll be able to sleep. I know this has been coming for months now, but I feel that it all became real only in the last couple of days..."
MEGA RUH ROH..."Depends...these houses "appraised" for 315k. They are selling on the MLS for anywhere from 209k (possible short sales?) to 230k. I was told yesterday that some short sales are going as low as 185k. Selling on the MLS adds an additional cost of ~15k in Realtor fees...
I currently have my empty house on the market as a LO at 284k. I am also offering to carry a 10% second at this price. My agent in the area says this is a "possible"--so far two weeks and no bites."
*** side note: 4/25/07 Jeff busts Nigel on his lack of fact checking ***
*** Jeff disappears ***
Jeff begins to crack up..."I have been ill...
I can't sleep, I can't eat, when I do eat it comes up. This morning I started the day with a shower and threw up in the shower...
I am barely functioning, I try to read everyone's posts...
To those of you that insist that these houses were a mistake, you were right.
To those of you offering constructive advice and support, thank you.
I try to read everything but the words are just swimming, I'll try again later..."
You'll want to start it off with either the tiger striped or leopard print speedos. This will add a little bonus flavor for the ladies when they discover your hidden wild side.
Of course, you'll need sunglasses with leather side visors (preferably Ray-Bans) to give you that I'm mid-30's and impotent look.
