All Forum Posts by: Tom NA

Exactly the conflict that I saw John and after digging a little deeper, it appears that Investor Champ hails from a little different area than I. While I don't want to speak for him, I think he's in the East Bay which I believe to be on the soft side as I mentioned in my original post. I really don't know that area at all nor am I in the real estate business so of course he could represent much better than I.

In terms of my area, definitely Mountain View *in the general price range that I noted* continues to be very strong. Other towns nearby that I believe to be strong include Palo Alto, Menlo Park, Los Altos - these are always desirable areas on the peninsula. I'm less in touch with other peninsula towns and I'm really out of touch with the San Jose and San Francisco areas.

I guess what all that says is that since I'm not active in my area, I only know my very immediate market by osmosis and have a small idea of some other local communities via the news.

In my immediate area, things remain very strong. To specifically answer your request:

City: Mountain View
County: Santa Clara
State: CA
Status: Inventory is low and sales are very hot

Of course it's all neighborhood/city dependent as with any other area but houses in our area are still selling in under 10 days over asking price with multiple offers and we're talking typical asking prices in the $800k-$1.3mil range. I think overall, the Bay Area remains strong as the tech companies are doing well but I really only see what is happening on the Peninsula. Any desirable property, especially in a good school district, gets swallowed up very quickly. I think the East Bay has been weaker, at least in some areas (James could probably validate that) and I have no idea how SF is doing.

Sorry, it's all anecdotal as I don't really look for detailed reports on how things are doing.

I sold my home last year for a 4.5% total commission. 2.5% to buyers agent and 2% to my agent. It's common to offer the buyer's agent 2.5% out here as that still brings them $25k on many of the "average" homes. And, my agent gave incredible service for the 2% she got - much, much more than just listing on the MLS.

Of course, an added benefit that my agent received is that she also represented me on our new purchase so that was another 2.5% for her.

Finally, the commission doesn't really matter *if* you have educated buyers. We have easy online access to the MLS in the Bay Area so when I bought, I told my agent which houses I wanted to see regardless of what the commission might be. She really had no choice but to show me everythying that I was interested in.

Thanks for that post, Linda. I think you have provided solid facts on real deals nicely and with all the data you provided, it's easy for people to draw their own conclusions. In fact even in my past communications with Blue Moon a couple years ago, I felt the representative was very professional and I appreciated that all numbers and assumptions were spelled out in great detail for me.

For my part, I never felt that you were attacking but rather, trying to spell out as clearly as possible what Blue Moon brings to the table and I feel you remained professional in doing so. I only got involved in this debate because I might know *slightly* more about Blue Moon offerings than some others and thus, wanted to contribute my thoughts since people have been asking on the forum. I believe with the great detail you've provided, forum members are armed with more than enough info to draw their own conclusions.

Good luck!

While I agree that it doesn't make any sense to get into a negative equity deal, I assume your father is buying this as his personal residence, correct? If so and nothing has changed for him financially, is it really so bad to follow through on the purchase? He already decided that he can afford the property when he signed the contract and presumably will be living there for many years to come so other than something that can be tapped into via a line of credit, equity is more conceptual than anything anyway until you sell a property. Is he really any further ahead on a day-to-day basis if he has equity in the house? Yes, he has more flexibility when it comes to refinancing or drawing on a line of credit but those are not typically things that are done on a frequent basis and if he foresees the need to do one of these anytime soon, I would suggest that he got in over his head to begin with.

Anyway - just a little different angle to look at things. Many of us have had our main homes lose equity over a short period of time (some right after purchase) and as long as you are staying put, it really doesn't matter. Your monthly payment is still the same, your expenses are still the same, and in fact you can probably argue successfully to get your property taxes lowered.

Sorry Linda, I'm not an investor by trade (which I admitted in my post) and have never found such a deal for myself nor did I claim that I could find such a thing. My 2 properties were purchased at or near retail and I've only done ok due to buying during the rise in RE prices over the past few years but my cashflow is slightly negative on one property and slightly positive on the other. Now that I'm more educated, I'm trying to stay away from these types of deals and certainly I would stay away from something that has a large negative cash flow like what was presented to me by Blue Moon.

Regardless, I'm not selling anything so I'm not sure I need to justify the numbers behind my deals (good or bad). You *are* selling something which is why I am asking you to do so. Again, your deals may be fine for many people and that's fine - they are probably even better than what I have bought which is not unexpected as I'm no pro and was quite green when I bought. But I have to believe in what I read from the experts on this site that better deals can be found with equity and cash flow and common sense tells me that bleeding $800/month on a single property is a recipe for disaster.

If you want to see your competitors, talk to MikeOH, BiggerPO, Ryan, and others who are seasoned investors that seem to regularly find such deals that you claim are nearly impossible to find.

Sounds like we should just agree to disagree - you believe in your product which is great and you should, and I don't. It's not the first opportunity that I have viewed as inadequate and won't be the last. In fact, 95% of the people I come across have deals that are marginal at best and disastrous in the worst case and I would say that yours falls somewhere in the middle.

Thanks for the rich discussion.

Joseph - best place to find the calculators and any other mortgage info you could possibly hope to know is mtgprofessor.com (sorry mods if I'm not supposed to post a link here). This site is absolutely the best from an unbiased perspective.

As for your concern about paying rent - I think mach brings up some good points. Owning your own property is glamorous and you hear about people seeing great appreciation but the fact is that it is almost always *more* expensive than renting, even after considering tax breaks (which get limited depending on your income and other factors). You never have to pay property taxes or replace the roof when you're a renter. Buy a house and those expenses (and many many others) come out of your pocket.

Don't rush in because you feel you need to. Most important, make sure you are prepared financially as the expenses and responsibilities are much greater than just a monthly mortgage payment. On the loan side, my personal opinion is to stick with 30-year and make extra payments on your own - this provides protection if money is tight whereas if you go with a 15-year mortgage, you are required to make higher monthly payments. I also don't believe in buying down the rate. I spent $10k buying down my first mortgage and had refinanced to a lower rate within 2 years. I would have been just as well off throwing most of that money out a car window. Unless you really believe that you will stay put for a very long time AND not refinance to get extra cash, lower the interest rate, etc. - paying points is a waste of good money. I'm sure opinions vary on this last point and no offense to Mil Orig but of course the loan guys want you to buy down the mortgage as that's guaranteed money in their pocket today vs. *potential* money in the future.

Linda,

No matter how it is positioned, I just don't see anything more than a risky value proposition and so I decided to look into an old email where I was being solicited by Blue Moon for a couple properties in Atlanta. Here is what I found (Jan 2006):

Property 1:
Appraised value: $275k
Investor cost: $220k (80% of appraisal)
Built-in Equity: $55k
Monthly rent: $1k
Monthly cashflow per numbers provided by Blue Moon: -$721!!!
This cashflow is very optimistic as you include no maintenance, vacancy, utilities, etc. - only PITI, taxes, property mgmt. so I'm going to round it to -$800/month which is still generous in my opinion.

If I hold for 1 year, I bleed $9.6k and if, as you suggest, I hold for 3-5 years, I may go bankrupt before I unload this thing! I'm lucky if the appreciation covers the money coming out of my pocket.

Property 2 is very similar to this one.

I also saw back at the time some of the Philadelphia properties being offered and defy you to show cashflow from any of those. I highly doubt your $80-$150k properties can command the amount of rent necessary to really generate any cash.

So again, if a buyer can actually cash in on the 20% equity position in a year or two then yes, not a bad use of $5k. However, I certainly wouldn't want to be bleeding cash on a monthly basis and then realize that the house can't really be moved in the open market for the originally appraised price.

As for some of your other "benefits" - yikes! Because I'm only coming out of pocket for $5k, I can load up on properties?!? So if I buy 5 I have the opportunity to cash flow a negative $4k/month? Wow.

Again, Linda, I'm not an experienced investor nor do I claim to be one. However, I am someone who has had discussions with one of your reps in the past and lucky for me, I'm analytical enough to not have bought into what I view as a risky situation. Of course others can draw their own conclusions but I will stick with my comment that any of the more seasoned investors on this site would cringe at the "deals" you have to offer when they see the numbers. If you disagree, I think you should feel free to post a typical deal with all the numbers and let others decide for themselves. I posted the deal that was brought to me and frankly, was shocked at how bad it looks now.

Good luck to you and Blue Moon Capital!

Thank you Linda for a very well articulated explanation of what Blue Moon is and what it isn't. This is at a level well beyond anything previously presented to me and provides a very fair summary without all of the sales hype. The business model makes sense to me - I just fear it from my perspective. Let me use your example to show why:

Property purchase: $129.6k
ARV: $162k

Without running any numbers (because I'm too lazy), I'm assuming a negative cash flow of $300/month. That's $3600/year out of pocket. Assume 1-year holding and then sell at ARV with no appreciation, you end up with:

$162k revenue
-$129.6. investment
-$3.6k negative cash flow
-$9.7k realtor commissions
-$4k closing costs
--------------------------------
$15k profit if you are able to sell immediately after 12 months. Otherwise, you are bleeding more cash on a monthly basis. Finally, while this is a nice return on a $5k investment, you actually have another $3.6k invested as you are feeding money in every month. I know the numbers are very rough but not unreasonable.

Of course there is some validity to the thought that you are raising the value in entire neighborhoods but that is certainly not a given and has yet to be proven out IMHO. Over the past several years, it's just as possible that you have benefitted from the general increase in RE prices vs. something specific done by Blue Moon within a community. To be fair, the reality is probably a mix of the two are factors in equity gains that your properties have seen but I'm not willing to bank on any factor pulling up the Retail Value of my property over a short time period and I'm certainly not willing to bleed cash for a several year period in the hope of an equity gain.

In the end, I view the Blue Moon opportunity as the abiliity to purchase a quality negative cash flow property at 80% ARV. All the rehab and other steps prior to purchase are in large part immaterial. Certainly you can do much worse as an investor but due to the negative cash flow, it's not for me.

Hopefully that helps explain where I'm coming from Linda when I make my comments. I have taken an in depth look in the past and found that while there is a somewhat valuable commodity being offered, there is also a lot of hype and assumptions that can be dangerous to the investor.

I had an AC problem in a rental property that I own and due to issues with the home warranty company (I hate those things!), it took several weeks for them to finally replace it. I didn't wait for my tenant to ask - I offered them a concession off of their rent for the inconvenience. Much better to take a small financial hit and have a happy tenant who sees that you are doing your best to keep them happy than have a tenant who believes that you don't care. I suspect if you explain the inconvenience and merely propose a fair concession, the landlord will probably be accommodating.

As a sidebar, as part of my experience, I wisened up and stopped using home warranty companies as they mostly spend their time finding ways to not pay for anything - lucky for me before cancelling, I got the expensive air conditioning replaced.