Nina and her partners have closed escrow. She has a.... ummm.... "general" accounting of her profits. Unfortunately she's turned off by some criticism she's received in the past so she has turned on blog approval. If you have comments then this is the place. Personally I'm offended by the unwilliness to admit to the loss. Sure as heck come next April 15th she's going to list this little misadventure as a loss to the IRS, why not now? Anyway I'd like to hear your unmoderated comments on the saga and the responses we've seen. Her post: http://sittingprettyfinancially.blogspot.com/Here is the final installment. We sold it and I’m pleased to report that we closed escrow last Friday. Here is the final tally:
$613,000 Sales Price – July 2006
$475,000 Original Purchase Price – August 2005
$138,000 Subtotal
Minus Costs:
$75,000 Improvements
$31,000 Agent commissions
$32,000 Total Proceeds
The monthly carrying costs (mortgage, taxes, insurance, utilities) are not included in these numbers. If you factor in these then you can call it a “break-even” venture. But we used the house & pool on the weekends so we maximized our dollars and enjoyed the time in Palm Springs.
8 comments:
Don't forget inflation -- adjust the sale price from nominal dollars to real dollars and I bet the "break even" turns into a loss (not that the IRS would agree).
From the "what I've learned" ... Picking your friends based on their suitability for large transactions seems pretty sub-optimal. Let friendships grow organically and leave money out of it (unless all you are about is money).
If you look at the before and after $75,000 seems a suspiciously round number. I just don't think it was all done for that. I suspect lots of items didn't make it to the cost list. She doesn't alk about the loan. I can easily see the lowest cost loan that was available Jul '05. That would have been an exotic. Even in their brackets that's a lot of expense. And $5000 in taxes, hardly an oversight. When time permts I'll run some precise numbers.
She has a purty mouth.
Com'on. Nina did something everyone needs to do. She took some chances, she leveraged her money, she invested. I -suspected- her timimg was bad and I said so with the benefit of hindsight that some decisions were not profitable. I also predicted last year how the end game would play out. Only a lucky guess.
My bottom line: Nina and her crew are now smarter and tougher and have learned lessons that sometimes cost other people ten times as much. And it is clear that she learned them. I'm glad that she's not burned. That's not just human kindness (which my friends tell me I have in abundance) but my own self interest. Smart people learn from mistakes. I'm also pleased that the adventure did not hurt their friendships. Adversity is the crucible wherein friendships are refined after being amalgamated.
I just find it hard to believe this was a "break even." If true, that means her carrying costs (including property taxes, federal and state income taxes, homeowner's insurance, HOA dues if applicable, and PMI if applicable) were $2909 per month ($32k divided by 11 months). It just seems a bit low for a $613k house, even with an exotic mortgage. But maybe I'm missing something. Did she happen to have a very large down payment?
Her reported agent commissions also seem a bit low. 6% of $613k is $36,780. Of course, she may have negotiated a lower rate.
I think you are getting the point OTown. #/1 or 1yr I/O loand last july were 4.5%. The LATime article says they put up $13,000 x4 or $52,000 down on $475,000 for a mortgage balance of $423k or $2200/month. Taxes are $420/month. Insurance and utilities another $200/month. Total $2800/month carrying costs times 11 = $31,000.
So:
+$613k sales price.
-$423k mortgage payoff.
-$031k carrying costs.
-$075k upgrades.
-$031k agent fees.
+$053k Proceeds
-$052k return of seed capital
$1,000 profit or 2% return on investment. Alright, everyone knows I'm being generous above. I still stick to my two claims; this was a very cheap educational foray and the only thing left is for a full accounting that reflects all the costs included. She lost money and she will say so next April 15th and I think we deseve as much honesty as the IRS.
I cannot imagine 4 "unrelated" professionals with jobs in OC could have been allowed to claim owner/occupier but even if they did their original plan was for 3-4 months flip so there's no way they'd have gotten a intro teaser because of the prepay clauses. The best product I could find was the 3/1 or an I/O with annual resets for their purposes.
Post a Comment