I haven't written anything about Casey Serin yet but have been visiting his blog pretty regularly. I came across this story when I was still at Re/Max and the office manager forwarded it by email to everyone.
At first read, I kept thinking, wow, what a disaster. On the second read, I just wanted him to stop, just stop and think for a while. Stop buying homes, stop being so manic. Strategize. Think. Sit still.
Real estate investors (yes, in MY experience) do a lot of thinking and a lot less running around than most people think.
At this point, I had him written off as a fool who will soon part from his money. Then, he appeared on the Suze Orman show. And I was pretty impressed with the breadth of his knowledge, even though it didn't save him from racking up $2.2 million in foreclosures. Maybe the knowledge was in retrospect.
Well, if you can't make a grand mess in your early 20s, when can you?!
Today, I get an email from Casey's mailing list saying he's shutting down the blog and the book and getting a job. And I'm a little saddened. It seems on the surface that he's been broken by the critics. And I sure hope not. As Robert Kiyosaki says in this video to Casey, Only successful people have critics.
Personally, I think people criticize because 1. Someone else's success makes them think about why they're not successful themselves and this means introspection and admitting one's own mistakes or 2. Seeing someone else's mistakes that justify their own inability to perform. This leads them to feel justified in their own dead-end lives and see no hope.
But this is besides the point. I started this post because I wanted to talk about leverage and what an important tool it is, not to be taken lightly. Investors love leverage but it must be handled carefully and with a lot of patience.
It is with leverage that I think Casey really failed and is failing again.
His real estate was bought with leverage that he didn't learn to respect. His website was leverage that he can't handle. His book, yes, even his critics were opportunties for leverage he doesn't seem to understand how to use. He seems to think in terms of a job or investing and most people seem to be able to do both successfully. In fact, a job is necessary to provide cashflow in the first 5 - 10 years of real estate investing.
Casey says he will probably be back in two years. I hope he is. He has learned much that can help him for a lifetime of investing. This is "The Dip." If he lets the critics break him now, he is finished. If not, he might just be a force to be reckoned with in about ten years.
I hope for his sake that it is the latter.
Thursday, July 12, 2007
Sacramento Flipper Casey
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If Casey isn't in the still in the pokey in two years, the only lenders that will give him financing are hard money lenders who want 40% down, with 7 points paid upfront, and 15% interest rates. It will take Casey years to just start over. His credit is toast for 7 years. Even if he gets his foreclosures and other charge offs to disappear on his credit report, he will most likely have an IRS lien showing. That doesn't go away until it is paid in full. With his infamy, no responsible lender will touch him.
As far as only successful people having critics like RK says, if that's the truth, Casey really would be earning millions of dollars in sweet passive income a month.
It is because of flipper idiots like Casey that made homes unaffordable for people that really needed them. I wonder how many families couldn't move to a better school district because they couldn't afford the home prices. Or what about those families that did move there because they felt they had to, only to go into foreclosure because they took on too much debt? Then there are the cash back at close schemes. What did those do to home prices? When he got to buy a property in excess of it's true price (via cash back at close), what did that do for property values in the neighborhood? You are seeing a massive meltdown on the mortgage industry as a result of lending to the likes of Casey Serin.
There is a positive to the present housing bust. This will be the death knell of easy lending programs and it will help make homes affordable. If you want a $400,000 home from now on, you will have to prove you earn $120-150,000 a year in order to pay for it. You will have to make a down payment if you want the home. There will also be many less wanna be real estate investors to compete with because of their ruined credit histories. You won't have fliptards buying multiple homes and artificially bidding up prices because of liar loan financing. Hopefully they see someone like Casey in jail and it may make them think twice about breaking the law in order to get rich quick.
You can get rich. You do it by living below your means, saving money, and investing long term on a monthly basis. You need a balanced portfolio (domestic stocks, bonds, RE, natural resources, international stocks and bonds, etc). I saw your quote yesterday about investing in RE v. stock market. Yes RE did better than the stock market for about 4-5 years. How about going back 10 years, 25 years, 50 years? Look it up. Stocks are a much better investment long term. It's not even close. What about this year? The typical balanced stock mutual fund has already made at least 10% this year. Think RE is going up 10% anytime soon? How can prices in RE go up when there are many foreclosures, tighter lending standards, and renters like myself sitting on the sidelines watching prices go down? I live in FL. In my area, there is a 15 month supply of homes on the market. It doesn't sound like a good basis for home appreciation.
I hope Casey does turn it around and does things the right way, but I have no sympathy for him. He deserves his fate. Good luck turning things around Casey, you will need it.
Bah lady, you're trolling!
"The Dip"? You've got to be kidding me! Please look at the Credit Suisse ARM resetting chart, then thing again about your statement.
Subsonic22,
There's a lot of truth to what you say.
The cash back at close offers infuriated me when I was selling real estate last year - and I came across them as the market was going down, not up. That's the difference. You can only do those cash back at close deals as the market's cooling because appraisals are based on the last 6 months of sales. If current sales are under past sales, it creates an opportunity for cash back at close.
Those deals are legal only if they show on the HUD1 and the lender knows about the cash back at close.
These however do not send real estate prices up because as I said they are common on the way down. They make the way down a smoother slope, if you will, instead of a sharp cliff.
Yes, flippers did mess up the market, but not as badly as you would think. And not without getting themselves in trouble as well. Toward the beginning of spring, there were a lot of unfinished flips on the market and they all sold at rock bottom prices.
Here's a thought: if people like Casey made homes unffordable a year ago and now the same houses are foreclosed and back on the market for more reasonable values, why don't the people that wanted to afford better school districts move now?
There are two sides to every coin - just wondering why you choose to be upset about one and not see the opportunity on the other.
Subsonic22:
I agree with most of your post but I have to say that your comparison of RE returns to stock market returns was simplistic and unfair.
RE does not need to appreciate by 10%/yr to beat the stock market because if you own a property you can *lease it* to someone and because you can buy real estate with *borrowed* money. To calculate RE returns you need to look at 4 factors:
* expected cashflow (including expenses like a vacancy factor and a maintainence factor)
* debt paydown
* appreciation
* tax savings
As a simplified example imagine buying a property for $100K with $20K of your own money and the remaining $80K from a loan. Let's say that the after-tax cashflow is $0/month and that the loan is interest only. Then a 3%/yr appreciation gives you a return on your money of around 15%/yr.
Obviously this example is overly simplified but if you own a property and look carefully at it's actual performance over a long period or if you project using a well designed spreadsheet to test projections you will see that returns like this are not at all unreasonable.
That said, owning a rental property becomes much chancier if you have significant negative cashflow which is the norm in the current CA market as prices are very high compared to rental income.
Purva,
Here's a great site featuring the fabulous Sacramento RE market:
http://flippersintrouble.blogspot.com/
I plan to follow your advice, crushing the lives, nay, the souls of those that have lost their homes due to predatory lending practices and unethical REALTORs®, building my wealth on a foundation of their bones! YES! And the website above will be my yellow brick road!
Thanks, Bogonflux.
I couldn't have explained that better myself. :)
"Here's a thought: if people like Casey made homes unffordable a year ago and now the same houses are foreclosed and back on the market for more reasonable values, why don't the people that wanted to afford better school districts move now?"
Well, it's like saying, CISCO stock was at $100 now its at $75, why don't people buy it?
Housing is still not affordable, pure and simple. When salaries come in line with prices people will buy. When the median will be 2.5-3X median salary, then housing is affordable. Before that it's a waste of money.
Tyrone,
There is a big difference between sub-prime lending and predatory lending. I'm not defending the actions of predatory lenders and other unethicals.
But how does your refusing to become a success pay homage to those that have lost their homes?
A negative comment on my blog will not feed you in your retirement, will it?
Earlier I wrote:
>As a simplified example imagine
>buying a property for $100K with
>$20K of your own money and the
>remaining $80K from a loan. Let's
>say that the after-tax cashflow is
>$0/month and that the loan is
>interest only. Then a 3%/yr
>appreciation gives you a return on
>your money of around 15%/yr.
I should also note that the reward side of this picture does not describe the whole situation.
That 15% return comes with a lot of RISKS that don't exist when you buy a well diversified stock portfolio. Some investors would consider a projected 15% annualized return of their money to be a POOR deal due to these risks.
A few routine examples:
* even if you are making money on paper you may be losing money on cash flow. At times cash flow is king!
* your money is illiquid and you could encounter circumstances that force you to sell at an inoppurtune time; sales costs could wipe out all of your paper profit and then some if you are forced to sell too soon or in a buyer's market
* you could have poor timing and have to bear through a sustained down market where appreciation is not sufficient even over a 5-7 year period. Many markets currently have sufficiently inflated prices or ability to build new inventory that this risk is very real.
* your 'conservative' assumptions about projected costs could be way off. If costs are much higher then your profit is much lower.
* you may need to have much more active interest in the property then you anticipated which can be disruptive
And then things could go REALLY wrong. When these happen all that lovely leverage that made 3% appreciation translate into a 15% return applifies the negative effect of what happens when things go really wrong.
* you could be sued for a variety of reasons (frivolous or otherwise)
* your home can become seriously damaged in a way not covered by insurance
* vacancies could be MUCH higher then were projected
* a property manager could fail to pass rental income on to you
* the situation can go sour in a million other fascinating ways
* etc, etc...
"And I sure hope not. As Robert Kiyosaki says in this video to Casey, Only successful people have critics."
Wow, Casey sure proved that wrong!
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