Not a Good Time to Invest in Real Estate

The Government is looking to rent out its surplus of foreclosed properties, according to an August 11^th, 2011 article in the New York Times.  This is a great way for the Government to generate income on liabilities that are currently sitting vacant, but this could prove extremely dangerous to real estate investors.

The Obama Administration states that the proposed solution will stabilize the market value of homes, however many real estate investors are no longer in the real estate market for capital gains (increases in home value).  Instead investors are after the steady income generated through rental properties.  The problem is the government will be able to undercut the local rental prices in the name of providing “affordable housing.”

When determining whether a property is a good investment you need to calculate if your property will produce positive cash flow according to Robert Kiyosaki, real estate investor and bestselling author of Rich Dad Poor Dad.  The involvement of the Government will alter the average rental price thereby lowering the cash flow and turning investments that were once good into potential money pits.

Let’s use a hypothetical situation to demonstrate the problem.  Let’s say you purchase a $100,000 3 bedroom 2 bath rental house with 30% down ($30,000) at 5% interest, and a 1.25% tax rate.  The mortgage payment would be $641 per month (http://www.mortgagecalculator.org/).  Let’s say you can rent this home out for $900 a month.  That means our positive cash flow would be $259 per month, which adds up to $3108 per year on our initial investment of $30,000.  This is over a 10% annual return and would be considered positive cash flow.

Now let’s throw the Government into the mix.  The Government is currently making no money on their foreclosed houses so any money they can get for rent is better than nothing.  In our example the Government rents out the same 3/2 house for $600 per month.  With many of these houses available it drives the average rental prices down in the area.  Now you can only charge $600 per month for your rental house as well, but the mortgage is still $641 per month.  Your cash flow is now -$41 per month, and your rental house is costing you $492 per year.

In a time when there really are no solid investments out there, real estate was one of the only games left in town.  With the possible scenario being put into effect, I would hold off on buying a rental property.

Sources:
http://www.nytimes.com/2011/08/11/business/us-seeks-to-rent-out-its-foreclosures.html

Avoid This Scam - Cardilly.com Follow up

Cardilly.com is a website offering discount gift cards for purchase online.  It advertised a great deal, but looked like a scam.  It was a relatively new site so there wasn't a lot of information about it yet so I figured I would try it out.  Here are the results.

My order was scheduled to arrive no later than Aug 25 - Aug 27.  I was order number 511.  When I had not received my card by August 27^th, I sent an inquiry as to the location of my card.  I received the following unprofessional reply:

What is the order number?

Regards,
Customer Support

They had my name and email on file... shouldn't they be able to look up my order number?  Apparently they don’t know where my card is either.

I sent them another email including the order number.  This time I received the generic email reply below.

From: support@cardilly.com
Subject: Re: Cardilly.com: I have not received any of the cards I ordered.
Date: Mon, 29 Aug 2011 18:26:48 -0400

Hello,

First let me say that I am sorry that your order seems to

be late or at the very end of the delivery timeframe.

As I’m sure you are aware, we are a new company and

I guess there will always be some growing pains.

Shipping from Canada without tracking was probably not

the best way to go.  But wanting to offer our customers

free shipping and not hiding the shipping in the cost of

the item, we seemed to have dropped the ball on this one.

We will be changing our policies and all future shipments

will have full tracking.

We thank you for your patience.

Your order shipped from Canada and gift cards are often

inspected by customs due to there monetary value.

We will contact Canada Post and U.S.P.S and put a trace

on your order. 

If the trace does not turn up your order within a week, we

will just reship.  We will send express which will get to you

within a few days only. 

Or if you rather, we can arrange for a refund if it does not

show up within a week.  But please do allow for the trace

results.

Again, I’m sorry for the delay and thanks for your patience.

----

Cardilly.com Support
support@cardilly.com

Upon receiving this response I logged into my Cardilly account and copy and pasted the order numbers and transactions into an email asking them to cancel all the transactions I had made.

I then proceeded to contact my credit card company and disputed the transactions which are listed under “SG MARKETING ETOBICOKE ON” for not delivering the goods or services I was charged for.  Thus far Capital One has been very cooperative with me in getting my money back.

I followed up by filing a complaint with the Better Business Bureau to help shut these crooks down.  If you made a purchase at their site I recommend you file a complaint as well.

Part of being smart with your finances is to avoid scams like these.

AVOID THIS SCAM