Property Grunt

Thursday, December 30, 2004


If you are interested in investing in real estate particularly in the New York City area you should read this article below since it displays the mistakes this landlord made along with my comments.

A Landlord's Lot Is Sometimes Not an Easy One

So ignorant was I of New York real estate that I was barely aware of the Great Landlord-Tenant War of 1997, which was then raging. The Senate majority leader, Joseph L. Bruno, had pledged to end rent regulation and the Assembly speaker, Sheldon Silver, in alliance with various tenant advocacy organizations, had sworn to preserve it.

The sentence that sticks out for me here is this

So ignorant was I of New York real estate.

You cannot afford to be ignorant of real estate especially New York Real Estate therefore you must educate yourself. Being ignorant of real estate in New York City is as dangerous of being ignorant of combining gasoline and a lit match.

In my rookie season as a landlord, I quickly discovered I had little kinship with the barons of the industry, who had management companies to supervise their buildings, with an on-site superintendent and several porters for each address. Even small buildings need a super, and while big-league landlords can afford a factotum, someone exceptionally handy who saves them money on repairs, their small-time counterparts cannot.

This is very true. If you don't have the money to hire people to cover repairs and other costs you better have the know how to fix it yourself.

In my case, I hired a cheerful, obliging native of the Balkans who was already in charge of several buildings on the block and who had a solution for every problem: leaks ("You need plumber."), shorts ("Better get electrician.") and faulty deadbolts ("You call locksmith.").

A super is supposed to save you money. Not waste it. A super should be able to fix any problem before calling in the heavy artillery. If all the super does is give you lip service the super is useless. I have a live in super who I consider a God among Supers since he has fixed so many problems in a more than timely fashion with only his bare hands. If I could I would clone him.

Like all landlords, large and small, I soon found that in any apartment house, plumbing is by far the biggest source of grief. A handyman can replace a rotted out washer or install a new shower head, but if a pipe ruptures in a wall or ceiling, you have to swallow hard and send for . . . a licensed plumber.

A leaky pipe can cause a tremendous amount of damage in an apartment and become an insatiable source of aggravation for the owner. Never underestimate the damage they can cause.

Not that anyone of this description will ever actually show up: expect a "plumber's assistant" instead. However small the job, this surrogate is guaranteed to hand you a bill that will buckle your knees. But you must remember that you are paying not only for the work he did but for the boss's overhead — his insurance, payroll tax, office supplies, coffee, bagels, etc.

A plumber can eat you alive if you do not know what you are doing. Of course if his super had these skill sets this genius of a landlord would not be at the whim of the plumber.

All plumbing breakdowns are potentially serious, but a landlord's most perilous dramas occur in the boiler room. Our boiler, though brand new, was so erratic I nicknamed it the White Devil. As if in response, it inflicted its own brand of Jacobean tragedy, shutting down more than once in the dead of winter.

What does brand new mean? Was it just put in or 4 years ago? If the boiler has problems then it is not brand new. It’s either defective or too old. This was a critical mistake on the buyer's part. What he should have done was researched the boiler to see if it was still functional if it wasn't then he could have negotiated it to have it replaced or a price reduction to make up for a new boiler.

People who see all landlords as creatures of insatiable greed do not understand that for thousands of small-building owners obscene profits are not in the cards. We are more vulnerable to a sudden jump in oil prices or the turbulent effects of utility deregulation than the industry goliaths.

Boilers are the heart of a building that fires 24 hours a day 7 days a week. Oil is their blood that fuels them. One might argue hydrogen fuel cells or solar energy are better choices but those alternatives are either too expensive or unreliable at this time. Oil is a reliable source of energy but as the articles states it is always a target of increases. All that needs to happen is another oil crisis which will eat up a landlord's profits.

For the small-building owner, a further barrier against prodigal wealth is debt service. Your larger brethren will, of course, face monthly mortgage payments that dwarf your own, but, then, so do their assets. Moreover, banks cut their biggest customers the best deals.

There is a tremendous amount of debt management involved in real estate. Not only are you dealing with your mortgage payments but also any debt incurred by expenses including heating, water and other fun things that eat into your profit margins. And if you don't have a tenant in your apartment that is going to take a huge chunk out of your cash reserve. Don't even think of telling the bank you can't make the mortgage due to vacancies.

The meter in my head told me we were probably up around $700 by now. But when Frank checked the line, it was still not clear. Uh-oh. The going rate for clearing a stoppage before sundown on a weekday was $100 to $120, so on a Saturday night, it could cost . . . mmm, maybe it was better not to know.

No. You should know. You want to know how much money it is going cost.

A little after midnight, I waited in my vestibule while Frank wrote up my invoice, including $300 for the snaking. Well, I thought, it took him almost 15 minutes. The final tab was $1,028, which capsized my budget for months to come.

However some problems are completely unforeseeable but he should have realized that sooner or later plumbing would be an issue especially for a building of that age and prepared for the inevitable by finding a plumber through references who would give him a good deal. But hindsight is 20/20 this is the reason why you need at least a reserve fund of cash in case of an emergency.

If you are out-of-town rubes like us, however, with newly hired and inadequate counsel, you may soon find yourself locked into a penal loan agreement. Our lender, a major player in New York real estate, feigned generosity by requesting only a 10 percent down payment, then hedged its bets by requiring liens on two of our other properties. The interest rate, 9.25 percent, was so high that it might as well have been called "the vig."

First of all he can't blame counsel for incompetence since he was the one who hired the lawyer. What he should have done was scour Manhattan for a good lawyer. Before signing the agreement he should have investigated the bank's proposal to see if it made sense and if there were any alternatives that were overlooked. This what is known as due diligence He could have accomplished this by talking to brokers, lawyers, landlords and other banks.

Every clause in our agreement was a windowless cell, and any request to be released from one was met with the same response: "You signed an agreement . . . you signed an agreement." One of the clauses compelled us to turn the first and second floors of the building into a duplex and get at least $4,000 in rent for the new space. (Small apartment buildings, I learned, are more valuable if, by virtue of at least one luxurious unit, they have the potential to be owner-occupied.)

Once again, due diligence.

I wrote a polite letter to the bank president suggesting that it made more sense to rent two floor-throughs at $2,000 to $2,500 apiece than to try to squeeze double that amount from one duplex. When the answer eventually arrived from Mount Olympus, it read, "You signed an agreement."

When you sign that piece of paper it becomes all she wrote. It takes an act of God to invalidate it. It’s not in the best interest for the bank to change the agreement since it would take more money and time on their part. Their stance is if it ain't broke don't fix it.

Now our landlord decides to take advantage of the low interest rates and refinance his mortgage.

Her response: "We can offer you a five-year balloon, fixed, at 7.5 percent, with an option to renew, or an adjustable-rate loan."

All I needed to hear was the word balloon. Balloon mortgages are the most dangerous mortgages around because when the policy ends you need to either sell, pay off the loan or foreclose.

Real estate is a great business but if you do not make the effort to protect yourself you will quickly become your own worst enemy. I am curious to see how this landlord will do in the next 10 years. Maybe his property will be up for grabs. When I first read this article I had just completed my 45 hours of real estate school and I did not even do my first deal yet I saw all of his errors. My words are harsh but the mistakes this landlord committed were atrocious.

Monday, December 27, 2004

A text book case of a landlord assuming the best of her tenants and getting the worst.

And if she does get a chance to rent it out again, Dr. Fox said, she plans to use a broker and do a very thorough check before signing a lease.

Moral of the story is this: Do not be a penny wise and pound-foolish. Spend the money for the credit check and check the references of the references. Trust no one. If you can't do it yourself get a broker you can trust. BUT TAKE CARE OF THE CREDIT CHECK YOURSELF! My heart goes out to this poor woman and if I were in her circumstances I may have taken similar actions in finding a tenant. That is why it is important to have a reserve fund in case of vacancies in order to cover those costs.

The laws of New York are beyond protective to all tenants even the rich and the courts are no different. There are many people in New York who take advantage of these laws and live as professional squatters and have to be removed through judicial means.

If you are a landlord you are going to be spending a lot of time in court. There is absolutely no way around it. There is someone out there who has a grievance and feels you are responsible for it whether it is justified or not because you are a landlord. For those of you dazzled by Rich Dad, let this be a reminder that real estate is not a walk in the park and there are no shortcuts. This landlord lost a tremendous amount of time and money from this one tenant just because she tried to take a shortcut. It’s not worth it. This poor woman lost her husband and nearly lost her own life to cancer. But did that bother the tenant? Obviously not.

For those of you who are reading this and are considering a career in squatting I do not recommend it. All litigation is on public record and will show up on your credit report. If a landlord sees even one incident of litigation between you and a landlord let alone several, they will exercise their LEGAL RIGHT TO REJECT YOU. Good luck getting a mortgage when the bank sees your credit report and there is no way in hell a coop board will allow someone with that record like the HALLS to get even past the doorman. Which is the reason why they are buying a townhouse. So pay your bills. Not every state is like New York. Other states are a hell of a lot more hostile to deadbeats. Las Vegas is so hardcore about evictions that it takes 14 days for the eviction to be completed. 2 weeks. That’s unheard of in New York. Which is too bad for Dr. Fox

Low economic model of housing

Mr. Filthy Rich is an article about Morris Piller who is a successful landlord. However his tenants have a very different opinion. According to the Department of Housing Preservation and Development he is a slum lord.

His empire of 29 residential buildings is riddled with an astounding 7,313 current housing code violations, according to city inspections performed this year.

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Well maybe he forgot about this stuff.

Vermin, lead paint, mold and other fungi, leaks, defective wiring, missing smoke detectors and broken windows are among the violations cited by the city's Department of Housing Preservation and Development.

So far not so good. So why doesn't he fix those problems? His response:

Through an intermediary, he characterized himself as "a landlord in the middle of the pack [who is] admittedly slow to correct violations and make repairs."

But he's a really good guy!

Tall and immaculately dressed, Piller also said he is "proud of the many charitable contributions" he has made.

But his tenants have a different opinion of Mr. Piller.

That largess does not extend to his tenants, many of whom are poor immigrants who speak little or no English. In some cases, they live crammed six to a room with rats and mice for company. Some lobbies are foul-smelling.

In Brooklyn, at 362 Linden Blvd., Piller collects $675 a month for Gina Morris' one-bedroom apartment, where she cannot turn off the hot water in the bathroom and there is a large, bizarre black hole in the floor beneath the kitchen sink.

"I can put my arm right through this wall," said tenant Jahira Rivera, 31, referring to a leaking, yellow piece of fractured plasterboard above the bathtub where there should have been tile.

And what happens when the tenants ask for help?

"I call the management office because it was freezing, and the management, a guy named Joe, said, ‘I'll have you evicted,'" she said.

That's not very helpful.

"Centipedes come out of the cracks," said Rivera, pointing around the bathroom.

The floors of her apartment are cracked linoleum, on top of more linoleum; the kitchen is a narrow wreck and the tiles are black with mold.

"I just sprayed them with Clorox," said Rivera, who has been living in the apartment for three years with her daughter, Dayawara, 3.

The windows of her apartment do not close properly, and in the winter, Rivera said, the boiler is frequently broken.

"I call the management office because it was freezing, and the management, a guy named Joe, said, ‘I'll have you evicted,'" she said.

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Sounds disgusting. These problems have not gone unnoticed by the government.

While up to date on his New York City taxes, Piller is at war with the Department of Housing Preservation and Development, which has been pressuring him for years to clean up his buildings. "The N.Y.C. Department of Housing Preservation and Development has sued landlord ... Piller in all 29 residential buildings he owns in the Bronx, Brooklyn and Manhattan," the agency said in a statement.

So far, the agency has collected $105,275 in civil penalties from Piller for code violations. It also has spent more than $100,000 on repairs to his buildings.

And the agency has petitioned Housing Court to turn several of Piller's buildings over to a special administrator and bar him from collecting rent.

In two cases, as the court proceedings moved forward, Piller began to make repairs and the cases were dropped. A third case, involving 23 E. 194th St., is still active.

So why does this landlord go about his business in this fashion?
This owner gets his revenue from a completely reliable and stable source of income. The government.

Because many tenants receive hundreds of dollars a month in rent subsidies paid directly to Piller by government agencies, taxpayers are helping to make him rich.

Let's do the math.

Piller receives $938.16 a month - of which $800 is paid by the government - for Rivera's one-bedroom apartment at 2000 Cross Bronx Expressway. That 90-unit building has 142 violations as of last month, including mice, leaks, defective plastering, mold, roaches, defective faucets and radiators, broken locks and missing smoke detectors.

800 x 90= $72,000
$72,000 x 12= $864,000

This landlord probably realized it was more profitable in the long run to go to court and fight the violations rather than spend the money to fix and maintain the buildings. Since its only cost him $105,275 in violations and the government has done $100,000 in repairs on his buildings why go through the trouble. HPD is very aware of his business model.

"That's the way Piller works," said Joshua Lucchiaro, an HPD official in the Bronx. "Right up to the edge, he knows he's going to lose the building and then he starts to fix it up so the judge lets him keep it."

It looks like this model works.

Piller, 54, lives in a luxury townhouse worth $1.4 million in Borough Park, Brooklyn, and also owns a home in Rockland County.

This article is an example of how illogical real estate can be. This landlord is being dragged to court, his reputation is being trampled upon, however his profit margin is higher due to managing his buildings in this manner. The irony is that the majority of his profits are coming from the system that is dragging him to court. If you are under the impression that I am promoting this type of investing, you are missing the point. This is not about advocacy but a presentation of another perspective on real estate investing and how illogical it can be yet be so successful.

Monday, December 20, 2004

Rental Hazing!

Below is an article from the New York Times that profiles people trying to find apartments in the city simply titled "The Hunt". I read this column every Sunday because of the knowledge and entertainment that it presents. Anyone who is considering moving to NYC should read this column since it will save you a ton of money and heartache.

I rarely do this however this couple that was profiled made a series of mistakes that I feel need to be addressed. And they should consider themselves lucky that they have a home.

A Fresh Start Loses Its Freshness

FOR Sara Antunovich and her boyfriend, Orion Montoya, moving from Chicago to New York was an experience so arduous that, had they known, they would have done everything differently.

Ms. Antunovich, 24, and Mr. Montoya, 25, University of Chicago graduates, shared a one-bedroom apartment in the Hyde Park neighborhood of Chicago for $890 a month. But they wished to upend their lives.

"I felt a nagging need to move - if I didn't leave, I never would," Mr. Montoya said. "A friend said: 'You are moving without a plan - that's great. I love when people do that.' I thought she was making fun of me."

Her friend wasn't making of fun of her she was expressing pity for her. Wherever you move to especially if you are coming to New York. You have to figure out how much you want to spend. Where you are going to live and what you need to live. e.g. light, kitchen, bathroom

Last spring, they decided to look for a one-bedroom rental for up to $1,300 in Brooklyn, where they hoped they would find greenery and the "neighborhood conviviality" of Chicago. During two trips to New York, they acquainted themselves with the market.

On the Web, they encountered "a lot of tricks," Ms. Antunovich said. They waited for brokers to show up. "I got a lot of reading done," Mr. Montoya said. One $1,350 "hellhole" was an eye-opener, with "a rotting staircase and some kind of plastic sheeting on the floors," he said. "We immediately upped our price range."

They did two smart things.

1. They went to New York and learned about the market and apartment inventory.
2. After some horrible experiences with brokers and learning about tricks and seeing what they could get they realized that they needed to raise their budget. RULE OF THUMB IN RENTALS. THE HIGHER THE BUDGET THE BETTER APARTMENT YOU WILL GET!

They didn't, however, realize how much a spotty credit history could work against them. "We saw some places that were possibilities," Ms. Antunovich said, "but they didn't see us as possibilities because of my credit."

In this NYC credit is king. Landlords use credit as a tool to determine if you will be able to pay the bills. Moral of the story. Don't want to have spotty credit. Pay your bills on time. And if you do have spotty credit, make a lot of money. Landlords will forgive the credit if you are willing to put down extra security or a year rent up front. But all of the complaining in the world won't change a thing. Want to know what happens when a landlord doesn't check credit. Click onto this link.

Arriving for a job interview in early September, Mr. Montoya took the bus and subway in from La Guardia Airport. From the No. 7 train, Queens looked nice. And so did a $1,450 one-bedroom on 72nd Avenue in Forest Hills, listed by Harari Realty. He sent digital photographs to his girlfriend, wrote checks for a month's rent and security deposit, and flew back to Chicago, he said, with assurances the two could move in on Sept. 15.

Mr. Montoya did everything correctly except for one thing. He did not sign a lease. It doesn't matter if he wrote the checks, it doesn't matter if the broker gave his or her word and assured that the apartment would be available when they arrived. Unless both parties sign a lease that apartment is up for grabs.

As they were loading a rented van, their broker called. That date wouldn't work, she said, because of a delay caused by the city's new lead-testing requirement. "I was furious," Ms. Antunovich said. "We had no lease and no key. We had no claim to this place other than the broker's promise. I said: 'We need to move in tomorrow - if this apartment isn't ready, you need to tell us. Should we start driving or stay here and wait to see what happens on your end?' She said: 'Definitely come, get on the road.' "

See what happened? Now he figures out that since he does not have a lease he has no stake in the apartment. What he should have done was stayed in the broker's office and waited for his application to be accepted or rejected. If it was accepted than he should have demanded that leases be presented and signed by both parties and that they include a guaranteed move in date. Sounds impossible? Actually closing a rental deal can take 15 minutes. The broker can take care of all of the paperwork in their office and anything they need from the landlord in terms of documentation can be sent via fax or email. It all depends on how motivated all of the parties are. He should also put in an application for a second apartment in case the first one fell through. It would have cost him another 50 or 60 bucks but even if he were accepted to both apartments he would not be legally bound to them. An application is not a contract and whether they are accepted or rejected applicants have the freedom to walk away. Likewise for landlords and property managers. If a client is taking too long to make a decision, the landlord or property manager has the right to give it to someone else.

So they did, driving through Hurricane Ivan. Their cat, Cola, paced and panted. But the situation didn't sit well. They had no clear destination. Increasingly worried, they called their broker.

Several conversations ensued on the drive through Indiana and Ohio. They were told several things, Ms. Antunovich said: that they could move in at a later date, that Ms. Antunovich needed a separate application, that the owner was holding the apartment for someone else, that they could have a different apartment.

"We couldn't get a straight answer about anything," she said. "The emotional cost of dealing with these people was extreme." They decided to cut their losses. They hung up the phone and stopped payment on the checks.

"I would rather have anything than an extension of the uncertainty," Mr. Montoya said.

Dan Harari, owner of Harari Realty, denied that his company had strung them along. The checks for rent and security merely started the application process, he said. "We didn't sign any contract that guaranteed" a move-in date, he said, adding that the results of the lead tests were late. What's more, Ms. Antunovich had a "bad attitude and bad credit," he said. "I made this decision to reject them.".

The broker in this situation did not do anything illegal. Ethically, that's another story. Ideally the broker should have informed them that another client was in the running for the same apartment and that a separate application was required for Ms. Antunovich and when the lead test would be completed.

What I suspect what happened was that the broker was putting a set of clients head to head and played them against each other. Whoever was willing to pay a bigger fee, higher rent or had better credit would be the one to get the apartment. Was there a lead test? Perhaps, did the landlord promise this apartment to someone else? Maybe. It doesn't matter because as the broker put it there was no contract that guaranteed a move in date leaving this lovely couple at the whim of the broker.

Bad attitude or no attitude, a rental broker's objective is to close a deal. Very rarely do they care what their clients think of them unless the clients are really, really annoying. The broker took advantage of the situation because he knew there was no signed lease and that the clients were on a deadline therefore they had very few options and they had to rely on him.

The two considered driving back to Chicago, but decided to press on. When they arrived in New York, they drove around until they found a wireless Internet signal, setting up shop next to Starbucks in Cobble Hill in order to find a pet-friendly hotel.

They found the Extended Stay America in Melville, on Long Island, put their belongings into storage, returned the van and realized just how far the hotel was from the city (50 minutes) and the train station (too far to walk).

If they had simply compared the map on the MTA and a map of the Extended Stay America they would figured out it was too far away. In fact all they had to do was make a phone call. In the audio slide show they picked this hotel because of their cat. Pets especially dogs can be a huge liability in renting an apartment since clients can be rejected on just having a pet even if they have impeccable credit.

"The credit check is absurd since I'm not asking for credit but for a place to live, which would take priority over other financial obligations," Ms. Antunovich said. "People pay their credit card late because they have to pay their rent. In terms of bills, rent comes first."

It sounds like she has a brilliant argument, however it’s completely wrong. If you can't pay your credit cards on time, how will you pay your rent on time? The landlord doesn't know you from Adam and needs some type of proof that you can pay for housing.

Issac Matyas of Central Brokerage showed them a loft in East Williamsburg. Ms. Antunovich thought, "This is O.K." It had no walls and no closets. But it had big windows, and the owner was willing to take an out-of-state guarantor, Ms. Antunovich's father.

They moved in late September, at a rent of $1,700. On the way from the hotel, in a car they had rented for the move, they hit a van. Nobody was injured; everybody was shaken. "It was impossible that it was this hard to move to New York," Ms. Antunovich said.

Now, three months later, they have furnished their new place and "managed to make it homey," Mr. Montoya said. "I like it more than I expected to."

Though his job prospect didn't pan out, he is working on other computer projects. Ms. Antunovich, who studied theater and anthropology, is doing temporary work. "We had such upheaval," she said. "We wanted our life back. We were so tired, so drained. Only since Thanksgiving have I felt any measure of settledness."

These people were very, very lucky. They probably got a better deal in the end and were able to find an apartment.

Maybe it was bad luck or bad planning, too much optimism or too little skepticism. They lowered their expectations and raised their price range. They wiped out their savings. "I want to forget it ever happened," Ms. Antunovich said. "I have found nothing productive, nothing to learn from the experience."

This is an understandable attitude however it’s the wrong one to have especially when dealing with real estate. I pray that she makes an attitude adjustment because when she wants to buy it’s just going to get worse.

Saturday, December 11, 2004

How the Magic Happens Part 2: Down Payment and closing costs

The Down Payment

In Manhattan a down payment might be equivalent to 2 semesters of college tuition. That is not a joke.

According to the NYC GOV site

One important part of being approved for a mortgage is having cash available for a down payment and closing costs. These costs will vary according to the type of home you wish to purchase and the particular mortgage you obtain. Generally, a down payment is 10 to 20 percent of the purchase price of the home, though some programs allow for down payments as low as 5 percent or even no down payment.

Closing Costs. Can't live with them. Can't live without them.

One of the components of buying a home is the contract, which requires a lawyer to prepare.
I do not recommend preparing your own contract.

And I do suggest you get an attorney who is experienced in real estate transactions particularly in what you're buying. For example, if your focus is a Manhattan coop it would be a bad idea to use a lawyer who has only worked on houses in Nyack.

Closing costs, such as your attorney's fee, loan processing fees, mortgage points and engineering report fees, can add up to about 5 percent of the cost of your mortgage. Even though there are programs available that can help first-time buyers cover these costs, it is important that you have some money saved for a down payment and closing costs before you get a mortgage. This will show the lender that you are serious about the purchase, and it will help to bring down the costs of financing the purchase.

If you want to get a better idea of what it’s going to cost you. This link has an array of mortgage calculators that will show you what the numbers are.

Friday, December 10, 2004

How the magic happens. Are you ready to buy a home?

I stumbled on the New York City Government site describing the home buying process while researching noise issues. I have noisy neighbors, which is a story for another time.

Now I want to make something very clear. This information I am presenting is just information and will give you a better insight of how the magic happens.

Before even buying property you should take a hard look at yourself in these 4 areas.

Job History

Do you have a job? I know it sounds like a stupid question but seriously how else how are you going to pay for your home? If you decide to get a mortgage the bank wants assurances on your ability to pay back the loan.

According to the site

Generally, if you have held each of the jobs you've had for two years or more, the mortgage lender will consider your job history steady.

If you have changed jobs frequently in the last two years or have unexplained gaps in your work history that you cannot explain, then you probably want to wait to buy a home until you can present a more stable employment pattern. Job changes for a better salary, to attend school or to take care of children are examples of acceptable explanations for an unsteady job history.

Banks like stability. It signifies consistency on your part and it means they will be getting their money back. In a sense a mortgage is an investment for the bank. They are loaning you money and gambling that you will not only pay them back in a timely fashion but also pay any interest generated on the loan.

How is your credit rating?

Are you late paying your bills? If you are, start being early on your payments. Every time you are late on a payment or default on a debt it is recorded on your credit report.

In order to gauge your consistency in paying bills, a lender will order a credit report from an independent credit reporting company that will show the history of any debts you have accumulated over the years and how well you have managed them.

If you have any problems on your credit reports you better be able to have a good explanation to provide to your bank.

A credit report is a vital document that can determine whether a bank authorizes a mortgage or not. SO TAKE CARE OF YOUR CREDIT CARDS AND PAY YOUR BILLS!

Don't believe me. Go to this link Secret History of the Credit Card.

This program will make you never want to use a credit card ever again. Btw, if you have any credit debt, get rid of it. I don't care if you want to save your money for a rainy day. That credit debt is a liability so pay it off.

Landlords also use the credit report to determine if a potential tenant is a risk. If they don't this often happens.

The credit report is also part of your Fico score that stands for Fair Isaac Credit Organization.

According to My Fico

A fico score is:

It's a number lenders use to help them decide: "If I give this person a loan or credit card, how likely is it that I will get paid back on time?" A FICO score is a snapshot of your credit risk picture at a particular point in time. The higher your score, the lower the risk to lenders. Fair Isaac Corporation develops the mathematical formulas used to produce FICO scores.

Your fico score consists of the following:

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What if you don't have a credit history?

According to the homebuyer's guide

Lenders will accept proof such as canceled rent checks or copies of phone bills that show you have no outstanding balance. If you have a history of paying your bills on time, you should still be able to qualify for a mortgage.

In my next entry I will get into the nitty gritty of down payments and closing costs.

Thursday, December 09, 2004

Investment clubs

This is a great article from the New York Times about real estate clubs where you can learn about real estate without putting yourself at risk.

According to this article this real estate club educates their members in a productive manner.
Those starting out must first learn the ropes and understand the risks, and that takes time -- usually 6 to 18 months, on average, before most people absorb enough information to feel comfortable initiating their first deals, said Dan Schwartz, the vice president for the 300-member Metropolitan Real Estate Investors Association in Kenilworth, N.J., which has been around for 22 years. The club guides new members along in the process through ''mentoring breakfasts'' and speaker meetings that cover the basics. ''Our program is a get-rich-slow program,'' he said.

The "get-rich-slow program" is the right philosophy to have about real estate since profits generated from real estate investment occur over time. It is also best to learn from people who have succeeded therefore you learn about what worked for them and more importantly what mistakes they made so you can avoid them.

''What our clubs try to do,'' she said, ''is help people make informed decisions about investing. Some do become millionaires, but it doesn't happen overnight.''

This is the most important quote of the article. After going through some of the steps of just buying a home there are a ton of variables that come into play and its important to understand that it is a long and frustrating process. And even after you buy the property as the investor you have be vigilant in maintaining your investment.

Wednesday, December 08, 2004

What is an investment?

Buying your home is a great investment.

We hear that all the time. But what exactly is an investment?

According to Investopedia

An asset or item with value that is purchased for income or capital appreciation.

Is your home an investment?

According to Investopedia. No

Investment Real Estate

Real estate that generates income.

So if your own home does not generate income it does fit in the category as a real estate investment. Does that mean there are no benefits from owning a home?
Absolutely not!

The biggest benefits of home ownership are the tax breaks.

According to CNN Money

The Internal Revenue Service lets homeowners deduct their mortgage interest, property taxes and some other expenses of home ownership.

David Block states

"The tax breaks are significant," said David Block, a licensed tax preparer with Tax Masters Financial Services in New York. "The government is subsidizing your mortgage and property taxes."

Although your home is not generating income it’s saving you income as a tax break.

Sunday, December 05, 2004

The Purpose Of This Blog

I became immersed in real estate about a year ago after reading Robert Kiyosaki's Rich Dad Poor Dad.

His philosophy regarding real estate was quite infectious and his words left me galvanized at a fever pitch about real estate investing. That changed really quickly when a family member pulled me aside and told me that I should get a license and work as a real estate agent to get a better understanding of the industry before doing anything drastic.

I realize now that Rich Dad may mean well but from my experiences I strongly disagree with his approach towards real estate.

The blog contains articles that I have been collecting and include my commentary about the industry. I do not claim to be an expert in this field. I am just a grunt, a foot soldier in the Manhattan real estate front presenting my experiences and opinions.

The worst thing you can do is use this blog as a how to guide to real estate investing. Its not designed as a step by step guide to invest in real estate besides there is no such thing as a step by step guide to real estate investing.

The best way to use this blog is to read the entries and compare the information I present with other real estate information resources including websites, brokers and other real estate professionals. Also to find others who are also entering this journey and learn from each other.

Good luck. Any questions feel free to email me.