October 1979
Vol 2 No 1
THE COMMONWEALTH LETTERS ARE ONE YEAR OLD THIS MONTH! In keeping with this occasion we are introducing our new typed format which will allow us to get more words into the issue while shortening the time lag between our writing and its receipt by you.
Let’s take a look at some of the happenings over the past year. Single family houses have continued to grow in value at about 20% in most parts of the country. This was pretty much in keeping with our predictions. In some other areas we were right on the button. For example, we said the Prime would go to 14%. The year’s not over yet and the Prime is 13%. We recommend you get liquid and put your money into “T” Bills, Money-Market Funds, and Gold. All of these are heading for all time highs. Gold recently sold for $371.+ in London. We predicted advances of Rent Control legislation, shortages of mortgage money brought on by record interest rates, stagflation, and new opportunities in paper profits, R.E.O property, and condos or condo-conversions. In general we were right.
When we missed, we missed in our timing. We thought the housing market would collapse in the Spring. It has shown remarkable resiliency as a result of some of the Bond-funded subsidized mortgages, new money-market instruments put on the market by the S&Ls, and continuing clamor for single family homes by users and investors alike.
The CommonWealth Trust has continued to grow in both numbers and assets. Our Trust meetings over the past year have taken place all around the country in conjunction with the Fortune-Building Fundamentals and Graduate Courses. By meeting at regular intervals with others who are using the single family house as the basic building block in their investment portfolios, we are all becoming more affluent as investors and managers.
Some of our WINNERS for the past year include Joanne Reese of Pomona, California who successfully rehabilitated an entire neighborhood while buying all the houses. It took 2 years, but was well worth it. Joanne is a Coveted White Belt Award winner. So is Charlie Green from Pascagoula, Mississippi who, after only 2 years has been able to close his brokerage down, build his dream house, pay off his creditors, accumulate a comfortable margin in paper, and earn the A.C.E designation from the Academy of Real Estate. Jay Turner of Salem, Mass. And Pete Fortunato, of Beverly, Mass., “Award” winners, have found new ways to make capital gains with paper. They now teach their own seminar nationally. Bruce Robinson, a “kid” of 64 has also started his investment seminar, telling others how he started again, after being wiped out in off-shore investments, building his investment portfolio of single family houses in Florida. Anita Ellis and Karen Brown, together with their associates have branched out into their own company buying, building, selling, leasing, and rehabbing millions of dollars worth of houses and condos in the Chicago area. Carla Melhorn and Laurel Billman converted the 3-mile Island incident into real estate equities by buying during the panic selling in Harrisburg and York, Pennsylvania at wholesale prices. Tom Fay from Corpus Christi, Texas won the Award in Denver for managing/controlling hundreds of SFH while traveling the country seeking opportunities. Denis Koelsch, of St. Petersburg, Florida was an Award winner who acquired 45 houses BEFORE he got married. He retired the same day.
HERE’S A GENERAL TABLE OF CONTENTS FOR THE PAST YEAR’S ISSUES BY MONTH.
October: IRS rules on rebated fees, Federal Credit Union Mortgages, Washington D.C.’s new tax on speculator’s profits, Creative formulas for funding down payments, National renters credit ratings, Lease-language verbiage to control pets, vehicles, costs of living increases, Tenant termination techniques, New usury rates in Arizona, Rent control news, Creation of mortgages to buy with.
November: Proposition 13 back-lash, Missouri’s new speculator’s license, House for lot exchange formula, Chicago’s subsidized mortgage rates, HUD lease-back program, IRS outlook for Independent Contractors, Builder’s estate building formulas, Gold hedges on contracts, Credit card speculating at 12%.
December: Cash opportunities in the credit crunch, 10 year projections on SFH, Indexing your debt instruments, Inclusionary Zoning by regulation, Reverse annuity mortgages, Home-equity lines of credit, New tax breaks on SFH and 20 year old commercial buildings, Lease provisions for discounts, maintenance, and appliances, Area income projections, Gold clauses in listings, IRS views churches.
January: SFH projections for 2000 A.D., Inflation, causes and effects, Sources of non-institutional cash, Depression is coming, Regional economic growth patterns, Making money using “paper”, Coping with negative cash-flow, Tax audit patterns, Due-on-sale clauses and strategies, Rehab profits, Opportunities in insurance.
February: Protecting investments with a weakening dollar, Comparisons of net living costs by region, Profits through loan KONSTANT concepts, discounting and re-writing, substitution of collateral, and cash-back closings, Buying builder’s models, Medical building write-downs, Social Security projections, Distress.
March: Softening housing market, 14% prime rate projections, Economic outlook for 1979, Saudi/Soviet Gold/Oil manipulating, Inflation-proof paper formulas, FTC looks at Realtor fees, Builder distress formulas, IRS looks at Barterers and Trade clubs, Taking tax losses on sale of personal residence – a concept.
April: Condo & Co-op market opportunities, gross profits from neighborhood rehabilitation, Making money as a pro Buyer, Upfront fees in California, Real costs of owning F&C properties, Underground economy’s effects on monetary policy, Management formulas for Bankers, Investors, and you, Private annuities and IRS.
May: 1979 housing slump projections foretell increasing rents. Condo conversion combats rent control, Raising long term private financing, Regional comparisons of property tax burden, Using 2nds to fund HUD financing, Tax-free profits from kid’s Sub-S dealer corporations, Buying SFH with positive cash-flow structures.
June: Rent control: threats and strategies, Stagflation forecast, Buying energy-efficient house for investment, Intelligent liquidation and investment, Renter Tax legislation, Reverse annuity mortgages, Estate planning without joint tenancy, Tax deductible Fly/Cruise seminars, Validating your Krugerands.
July: CommonWealth Trust forecasts, Buyer opportunities in a high interest period, Political risks affecting the economy, Distress buying in outlying areas, A look at the “Singles” sector for rents and investment cash, Dealing with car dealers to finance houses, Selling the “Leasehold Interest” versus the fee.
August: Survival in an out-of-control-economy, Middle income family outlook bleak, Unemployment forecast by Region, political shifts in 1980, Management incentives to offset rent controls, Avoiding effects of high interest on cash flows, Lease holds – a technical discussion, Legal strategies for Due-on-sale clauses.
September: Living with runaway inflation, getting depreciation creatively with lease/options, Tax rulings on Exchange/cash out transactions, IRS – proof independent contractor arrangements, The $70,000 VISA Card formula, Title Co. “holding” agreements that save cash, SFH forecast to rise 20%, Self-insurance, Finding the “hot” market, “Errors” and “Omissions” from the Nitty-Gritty Clinic.
BACK ISSUES MAY BE ORDERED, WHILE THEY LAST, FOR $2.50 BY CURRENT SUBSCRIBERS.
WE NEED YOUR INPUT! We have found that YOUR perceptions of your market area are unusually more valid than some government economists’ opinion based upon exotic computer models. Please take a few moments to jot down on the back of your card the average price of a single family house in your area, the average price one year ago, whether you are enjoying a buyer’s or a seller’s market, and the number of SFH you currently own/control compared to this time last year.
We promise not to reveal your personal statistics, but would like your response in order to validate some of the things we have seen in the national media. In our recent trips around the country from Seattle to San Diego, across to Tampa and up to Massachusetts by way of the Mid-West we found, as Mark Twain almost said, “The report of the death of the single family house market has been vastly exaggerated.” We promise to publish the consensus of the market data you send us.
Jimmy Napier (Mr. 2%) is still at it, devising more formulas to increase our yields. Now he’s talking paper. Suppose you owe a debt. You should contact the Note holder and offer to INCREASE the interest rate a couple of % points in return for his REDUCING your monthly payments by ½. On the other hand, in the event you are the holder of someone else’s note, you should offer to DECREASE the interest rate a couple of points in return for their DOUBLING their monthly payments. The effect of these counter-point moves on the present value of the income stream is very interesting.
Let’s take a look at two $10,000 notes. The first one we are PAYING $200.00 per month at 8%. As written it would take 61.02 months to amortize it. This means it has a present value of $7,028.78 if we discount it to yield 15% to an investor. Now by increasing the interest rate to 10% and cutting the payments by ½ to $100.00 per month, it will take 215.91 months to amortize. This cuts the present value down to $4,105.14 when discounted to yield 15%. We have made a capital gain of almost $3,000 in this instance.
Taking the position of the Lender, let’s suppose we are owed $10,000 on a 30 year mortgage with interest at 10% and payments of $87.76 per month. This note will have a present value of $2266.07 when discounted to yield 15%. If we can get the Maker to double his payments to $175.51 in return for our cutting the interest rate to 8%, we will have increased the present value of the income stream to $6601.28 when discounted to 15%; over $4,000 profit. Interesting?
For you who like large numbers, here’s a formula that appears to be tailor-made for endowment trusts, pension plans, etc. Characteristically large trust funds are charged by law to make only conservative investments TO PROTECT THE CORPUS OF THE TRUST for the beneficiaries. Suppose you could offer them absolute security of their capital with only slight risk to their interest? Here’s how!
Get them to deposit (i.e. $1,000,000) their funds in a Federal Bank. Offer to pay them $800,000 at the end of 8 years (10% simple) if they will assign you ONLY THE INTEREST WHICH THEIR MONEY EARNS DURING THAT PERIOD. Since the C.D. will be in their name, you will never touch their principal. Over the period you will have a quarterly cash flow of about $20,000 with which to fund your single family house programs. With this amount you could easily buy one house per month. Assuming an average value of $60,000 for 96 months compounding at an annual rate of 10%, your portfolio would be worth about 8.7 million dollars. You would have encumbrances of about $5.7MM and of this you would need $800,000 to pay back the Trust fund. Your profit would be almost $3,000,000. Let’s not even consider the kind of unsecured line of credit you might negotiate with the bank in return for placing the 8 year C.D. with them.
For you who like smaller numbers, the above illustration will work just as good if you remove one of the zeroes and you’d be surprised at how many people with $100,000 would like to invest it safely for a few years until retirement.
As the money supply tightens up, there will be more and more opportunities to invest creatively or to modify your existing portfolios to increase profits. During the coming decade of the 80’s, providing we don’t find ourselves at war, we will see investment in SFH creating wealth at rates we can only speculate on in today’s uncertain economy. By gaining investment skills now, we will be ready.
QUICK BURSTS FROM THE POTPOURRI DEPARTMENT: We know a fellow who wears his Keough Plan on his hands in the form of diamonds. His diamond investment plan has been approved by IRS. We are accepting Chattel Mortgages on household furnishings and automobiles as security for deposits and back rent in lieu of eviction. We’ve been offered an assignment of a veteran’s pension check as well. We’d prefer cash, but don’t mind earning 10% on mortgages secured by 200% value in the form of personal property. If we’d taken the deposits in cash, we would just have to deposit them into a trust account without interest. This might be better.
We’ve just read a slender volume published by The Kiplinger Letters, 1729 H. St., N.W. Washington, D.C. 20006, ATTN: Mr. Barach. It’s called “The Exciting 80’s” and it’s an upbeat version of the next 10 years. Read it! You’ll like it!
Upcoming changes predicted for early 1980 include lower capital gains rates; and return to the pre-TRA-76 law which taxed gains occurring only after death of the benefactor on inherited property, thereby cleaning the way for continued estate building through Section 1031 exchanges. (Schedule closings and death after the first of January to optimize your tax picture).
Copyright Sunjon Trust All Rights Reserved
Quotation not permitted. Material may not be reproduced in whole or in part in any form whatsoever.
1-888-282-1882 www.CashFlowDepot.com
