Your Home Is A Bad Investment

Many people believe their home is a good investment. Using Robert Kiyosaki's definition of an investment as "something that puts money into your pocket," it's obvious it is not. Now the Wall Street Journal is reporting that, even by the conventional definition of investment, your home still may not be a good investment.

Using housing pricing data for the last twenty years in ten major cities, housing prices produced a real return of between 1.15% and 2.2% annually, after inflation. When you figure in maintenance costs, you could actually be losing money.

The article really only looks at property appreciation to determine the value of the investment. There is no mention of the income tax deduction for mortgage interest, which is usually quite substantial for most homeowners and probably would boost the return figure a couple of percentage points. Still, the gist of the article is correct - your primary residence is not an investment.

I subscribe to the "putting money in your pocket" definition of an investment. And while your personal residence may not be a good investment, that doesn't mean real estate isn't. As long as a property has positive cash flow, it's a decent investment. How good of an investment, of course, depends on how good the cash flow is. Then, of course, there are the other factors, such as depreciation, the ability to defer taxes through 1031 exchanges, etc.

While I am glad the WSJ article points out that people's primary residences are not generally good investments, I'm afraid some readers might come away from the article thinking all real estate is a bad investment.

Moving Forward

Things are moving forward on several fronts.

The property that I had the mortgage on for Hard Money Loan #6 has been sold. Escrow closed last week. I'll be getting my final interest payment from that this week. I've elected to let my partner hold on to my principle for reinvestment in another loan. He thinks he can find another suitable investment in two to three weeks.

The Houston apartment complex had another good month in April. Occupancy remained at 95%, well above the Houston market average of 88%. Cashflow for the month was just shy of $22,000. There were no significant expenses. No word yet on the increased investor returns that management mentioned would be coming.

I've moved forward with my plan to eliminate my landline phone service at home. As I mentioned last month, I tried using myfax.com and had some problems with them. I continued using them to send the occasional fax and their service has not gotten any better. I can count at least three times where I received confirmation from them that a fax was sent but the recipient never got it. After reviewing the companies that several commenters mentioned, I opted to go with Callwave. I had made a list of the various reasons why I rejected the other companies, but I seem to have misplaced that, so here's what I recall: Callwave was one of the few companies that allowed me to port my existing fax number. This eliminates the need for me to make new business cards. Callwave also does not require me to use any special software to send or receive faxes, as some of the other companies did. I also spoke the Callwave's technical support on the phone and, although it was obvious they were outsourcing their support to India, the people I spoke with were knowledgable and helpful and answered my questions. And finally, Callwave's pricing was competitive. I put in the request to port my existing number late last week and the process should be complete sometime this week.

One thing I forgot to include in my analysis was my satelite television receivers. I have two and each has to be connected to a phone line or I get charged $5 a month per receiver. The connection is so the machines can communicate with Dish TV and tell them if I have ordered any pay per view and, I'm sure, to send other information. Luckily, the machines are also network enabled and if they can connect to the internet, you don't need a phone line hooked up and can avoid the $5 fee. I purchased two wireless bridges to add these machines to my wireless network, so that problem is solved. I also found a legal size scanner at Costco for $60. This is cheaper than the $300 I found earlier and the savings more than pays for the two bridges I had to buy. My alarm system has been switched to using radio instead of a phone line, so as soon as my fax number gets ported over, I'm clear to cancel the landline.

I've got my new computer more or less set up now, so things are returning to normal there. It's surprising how lost I felt when I didn't have a computer. All my appointments were in there. Luckily, my iPhone was synced to it, so I still had all my calendar and contact info, but I was still feeling adrift without the computer.

And in 13 days, I take my annual trip to Las Vegas. Hopefully, it will be as profitable as last time!

Free Annual Credit Report Time!

It's that time of year again - time to get free copies of my and my wife's credit reports. Normally, I spread the requests throughout the year, getting one report from each of the three credit reporting agencies every four months, so I have fairly continuous monitoring. Last year, I was a bit lazy and did not request any reports. I had previously reviewed the reports and corrected all the errors, so I wasn't too concerned about what was on there anymore. About 1.5 years ago ago, however, my wife had her purse stolen and some checks were forged and bounced in her name. We went through the whole process of reporting the theft to the police and to the credit agencies. I also went so far as to request a credit freeze on her report from all three agencies. Although I submitted all the paperwork for that, I never got any confirmation back from any of the companies that the freeze was actually enacted. (They eventually caught the woman writing bad checks and she was charged. Unfortunately, we learned that she was released on bail and then never showed up for her court date.)

Today, I received confirmation of the freeze. I was able to get copies of my credit reports without problems, but all three companies denied my request for copies of my wife's report. I can still get copies, but I need to do it via mail and provide copies of identification documents.

My reports from TransUnion and Equifax were correct. The one from Experian only contained one error and a minor one at that - they showed one mortgage as still open (albeit with a zero balance). This mortgage was actually sold to another company, so it shoould show up as closed. I filed a dispute online and I should get notified of the results by email within a couple of weeks.

If It's Not One Thing, It's Another

After being out of work for almost 5 months, a couple weeks ago, I was able to get a job on a 4 month contract. I've another company that is interested in me for a full time position as well, but that is taking a bit longer to play out. As you might imagine, when I was not working, expenses had to be cut back and plans put off until later. I was living the classic case of "deferred maintenance" that many real estate investors know about from looking for properties to purchase form owners in similar situations - if it is still working, don't put any money into it.

So once I got a job, I went on a buying spree - both my car and my wife's car needed new tires, routine maintenance and other repairs to the tune of about $1,000 each, our dishwasher and oven got repaired, and some other general stuff was done. I was just thinking I was about caught up when... my computer died. Even worse, it died right after I bought something to fix a different problem it had.

Saturday night, I noticed my computer's event log was showing lots of disk drive-related errors. I knew the drive was going to fail soon, so on Sunday, I went out a bought a new drive. When I got home, I put the drive aside and planned to install it that evening. Two hours later, I went to check my email and the machine locked up hard. I cycled power and, in the middle of booting, everything went dead - the screen went black, the drives stopped spinning, and the only light on the machine was a blinking orange LED in the power button. It would not turn on again. After much investigation, I noticed a couple of blown capacitors on the motherboard. Crap. Dead motherboard. Well, at least I hadn't spent any time replacing the hard drive yet.

Thankfully, I have some income coming in now to pay for a new computer, in addition to the other repairs I had to pay for. And, even more thankfully, I had made a full backup of my computer about 10 hours before it failed.

Anyway, so after being unemployed for months, I was just starting to get back into the swing of things and was thinking about putting together another blog post, and now this happens. It'll be about 1-2 weeks before the new computer arrives.

One the positive side, I received another payment from one of the four flipping LLCs in California. I also received a quarterly payment from the Houston apartment investment, which, as I mentioned last month, should be increasing in the future. The same day I received those checks, I also received my huge federal income tax refund. Unfortunately, it was so huge because I had a huge loss on the sale of Rental #1. Well, the tax refund gave me back about one-third of my loss and, really, it came at an opportune time. I would like to post updated ROI numbers for these investments, but, unfortunately, all the data was on my computer.

In Escrow Again And Web Faxing

I got the word yesterday that the property I am a mortgage writer on in California has once more gone into escrow. Last time, it fell out of escrow, so maybe this time things will go better. Not that I need the loan to be paid off. I've been getting on-time payments and have no worries about the borrower.

I also started testing out web faxing options, as mentioned last month. I purchased JotNot for the iPhone. That seems to do decent job, although the resulting image can be a little blurry, despite my best efforts to hold the phone as still as possible while taking the picture. For most stuff, it should be ok, but I would not want to use this for real estate contracts or any documents that have a lot of fine print.

Based on reader's comments, I tried using the free service from MyFax.com (www.myfax.com/free) to send a fax. (The free version limits you to sending 2 faxes per 24 hours, but this is keyed off your email address, which has to be valid because you need to click a link they email you to actually send the fax. However, you can get around this limitation by using a disposable email address service such as sneakemail to generate as many email addresses as you want.) Since I still have my landline fax, I tried sending faxes to myself so I could check the quality. In short, I don't think I will use MyFax. The images taken with JotNot (JPEG files) came through so pixelated that they were unreadable. To be fair, I don't think a real fax machine would have done much better, given the blurriness of the source, although being able to set the machine to "fine" mode might produce slightly better results. MyFax also seemed to have trouble scaling. The image sizes I sent were very close to a standard piece of paper (8.33" x 11.11"), yet the resulting fax from MyFax rescaled the image so there was 4 inches of blank space at the bottom and 2.5 inches on the right side.



Click the above picture for full size. These captures were taken at 100% zoom. The top is the source JPEG file from the JotNot program and the bottom is the resulting fax image from MyFax. (The documents I was testing with contain medical information, which I why I am not posting whole page images of the scaling problem.)

Thinking this might just be a problem with the conversion of JPEG images, I used a scanner to create a PDF file as the source for MyFax. Results were a bit better, but there were still unacceptable issues. Text was legible at least but while the scaling problem went away, the last page of the two page fax had the bottom 2 inches cut off. To be sure this wasn't just a fluke, I faxed it twice and obtained the same results.



Click the above picture for full size. These captures were taken at 100% zoom. The top image is the original .PDF file from a scanner and the bottom image is the resulting fax image from MyFax.

MyFax also sends an email confirmation when a fax has been sent or failed to be sent. I found these confirmations to be unreliable. I sent 10 faxes total and received 5 confirmations that the fax was successfully sent, 2 that the fax had failed, and 3 faxes produced no email message at all.

Given that most of the paper I have to fax has small print, I think I will have to buy a scanner to get my paper documents into electronic form. I'll also try some of the other web fax services and see if they produce better results.

AT&T Discount Plans

Not real estate related, but I had to pass on this huge money-saving tip!

Last week, I purchased iPhones for my wife and I. Previously, we had cell phones on the Sprint network and were billed separately. As part of my cost-cutting hunt that led me to eliminate my landline phones, I switch our cellphones to a family plan from AT&T where we share minutes. That saved us about $30 a month. Then, I found an even better discount.

AT&T has apparently has agreements with large corporations and schools throughout the country to give employees and students discounts. I first read about this on an iPhone hacking site that I can't find again, so sorry for no linkback. But here is the link to AT&T site to check your eligibility. The iPhone site mentioned I could get a 15% discount on my current service. Since my wife works at a university, I figured I try. She was eligible and so I signed up. Within minutes I got a confirmation back that I was signed up for the discount.

Today, I got a new info packet from AT&T that shows my new costs. Instead of a 15% discount, I got a whopping 55% discount!! My cost went from $106 a month to $48! In looking at the details, my Familytalk Nation 700 plan went from $60 to $9.99. I still have the unlimited data plan for the iPhone and all the other service features.

The iPhone data plan ($30 a month) is not eligible for a discount, but even so, this is still a huge savings. If you or your spouse work for a large organization and use AT&T, it's worth the 5 minutes to check to see if you are eligible! I do not know if the amount of the discount varies depending on what company / school you are affiliated with, so your mileage may vary.

March Updates

It's been a good week!

I received another interest payment for the hard money loan I made on the property in California. I also received another on-time payment from my hard money loan to my (former) co-worker. And last, but not least, I got a great monthly update on the Houston apartment complex.

Total revenue for the month of March was $199K, the highest amount so far. Management also collected some bad debt that they had previously written off as uncollectable, so that was bonus money coming in.

Occupancy was 95% for the month of March and cash flow for the month was just over $32,000. The property is performing better than expected. Management will be revising their forward-looking projections based on the improved performance. The investor distributions for the first quarter will be mailed out this week. But the best news of all of is that management will be increasing investor distributions in future months based on the better-than-expected performance of the property!