I went back and fixed one of my old posts to use tinyurl’s as the long links were broken .. yes, I know, I’m very slow, it was written over a year ago. Check out the 2006 forecast article in that post. Could it have been more wrong?

The last few weeks in San Francisco have been magical.  Bright, sunny days in the 70s with that deep blue cloudless sky that you only seem to see in California.  On my trips when I’m out and about, people are going about their business, everything seems normal.

And then you turn on the radio.Like a lot of people I’ve been following the subprime debacle, listening to reports of the credit crunch, watching the stock market buck like the recent collapsing bridge in Minnesota. The Country Wide news freaked out a lot of people. There was a story on NPR about stated income loans — something like 10% of borrowers that used stated income loans overtstated their incomes by 60%. 60%! What were these people thinking?

I’ve never done stated income, I’ve always gone full doc. However full doc seems to mean different things with different lenders. Oh sure, you always need to provide your paycheck stubs and two-three months of statements to prove your reserves. But otherwise it varies. Once in a while they want a copy of my tax return. In the past I have successfully pushed back on sending a copy of my tax return. This time I didn’t dare.

I’m in the process of getting a mortgage on a house I’m buying. This was a preconstruction deal so I actually committed to it over a year ago. Of course if I knew then what I know now, I’d probably not do it. I really need to figure out where to find one of those crystal balls.

The final loan is taking forever to get through. I know it will because I have good credit and it is not a jumbo loan. However I’m having to go through a lot of hoops. More than any other loan I’ve gotten in the past. In addition to the regular stuff, I had to send them a copy of all my leases, two years of tax returns. And then they wanted a copy of my 2006 tax extension as well. Seems like this will be the way of the future.

Anyone else getting a loan right now?

Positive cash flow in real estate investing seems to be an elusive thing. You run into people that have it and wonder why you can’t be smart enough to figure it out. I met a guy at a party that had parlayed the profits from the sale of his business into a nice portfolio of high end real estate that paid him money. For example he bought a three story Victorian in San Francisco for $850K, converted it into TIC (tenants in common) units, sold one for $700K and the other for $800K. So he has a beautiful view apartment that is completely paid for, and often rents it out for a nice chunk of change.

The more common approach, and more accessible to those short of time and money, is to find locations that have really cheap houses, like around $40,000 and rent them out for $600 a month.  At the moment it seems you can find such deals in Ohio and New York but I’m sure there are other places that have similiar numbers.   These houses will never see any appreciation and from the little I have seen, the neighborhoods are not what you would call desirable.

Most of my properties are in middle class neighborhoods, places I would live.  I have experimented with one “cash flow” property and it’s been a learning experience.  One of my property managers believes there is a sweet spot where you want your rental to be.  Too low and you have more problematic tenants, more turnover and even crime.  Too high and they buy instead.  But right in the middle you have responsible people who take care of the property and pay their rent on time.

The problems and the higher than expected vacancy chip away at the promised cash flow.  I have talked to some people that have been disappointed with the returns.  With mine, I have had my search of problems.  The seller stole March’s rent.  A month after closing the tenant caused a fire in the unit.   Finally the unit is rehabbed and ready to rent, but we have to board up the windows because of BB gun practice.  So, so far no positive cash flow although the insurance payout has kept it at breakeven.

Do you have positive cash flow?