CLEVELAND OHIO REAL ESTATE INVESTORS ONLINE NEWSLETTER
"Investing in the local community and in each
other."
http://www.coreio.net
Vol.2 Issue #1 - Monday, October 4, 2004
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- "Critical Mass – Are we
there yet?"
- Today's Quote
- Investing Tip -
"Using Mortgage Debt Wisely"
- COREIO Classifieds
-
Landlord Tip of the Day! - Who Does Repairs?
- Freebies on the
Net!
Critical Mass
Are We There Yet?
Copyright by Barbara Meyer
Followed by instructions
on "How to Participate"
As many of you know, COREIO.net was established in
2002 as a communications link between local real estate investors in
Northeast Ohio, allowing us to share ideas, insights, information and
inspiration.
It was founded by an individual (me) in response to
a desire to give busy investors a means of sharing their experiences with
other investors without taking up a lot of their time. My thinking was that
if we had a place to bounce ideas off of each other, we could avoid costly
mistakes and make our investing endeavors more efficient.
I also wanted to be able to easily FIND fellow
investors so that we COREIO.net members would be the first to know about new
properties on the market, new regulations affecting our industry, and new
opportunities in the communities where we invest.
I still believe that this is a great idea. I still
know that it can make all of us richer, both financially and in terms of
knowledge and free time. I still know that I can sustain it with very
little cost to me, and that it’s worth it.
However, I have to admit that I dropped the ball. I
simply got too busy to devote time to something that is, essentially, a
labor of love. I started another business (in addition to the one that’s
been my livelihood for the last 10 years) and I got sidetracked. I stopped
processing membership requests, as near as I can tell, in June of 2003.
Anyone who signed up after that simply got no response. I imagine they
wonder what happened... which is why I’m spilling my guts right now.
This weekend I spent a LOT of time updating the
member list, adding people to the main discussion list, and creating this
newsletter. In the coming days I will continue to add members to the
discussion list, 10 at a time, until I’ve completely caught up with the
backlog. I’ve also put in place new methods to make this a much more
automated process, so that my personal lack of free time won’t have such a
drastic impact on the health of our network.
I’m pleased to tell you that we are now 135
strong!! This means that the COREIO.net community currently consists of 135
unique, mostly local, investors and professionals, all looking for the same
thing YOU are – the opportunity to learn and grow their real estate
investment business by learning from other Cleveland/Akron area investors.
This 135 number is made up of 86 members in the
COREIO.net main discussion list and 105 individuals subscribed to our
newsletter. (This adds up to more than 135 because there is some overlap in
these two groups.)
So, what I’m wondering is this – have we reached
“critical mass?” Are we now to the point where we will begin having some
active discussions in our group? Will we soon see information and ideas
flying around, helping us all learn more about our industry and the
communities where we own property?
These are questions that only YOU, the COREIO.net
community, can answer. A discussion group is only as active as the members
who participate in it. This means that if you choose to keep quiet, the
discussion list will remain silent.
I’m certain that with 86 members, we have enough
knowledge to answer most any question posed by a new investor just starting
out. We also have enough experienced investors in our midst that we can
learn from each other’s mistakes and experiences in the more nuanced areas
of real estate investing. The key will be whether we choose to share them,
and if other members choose to respond with their own comments.
We’ve seen what happens when I try to be a
“one-woman show” – a lot of nothing. But if we all give just a little bit
of ourselves, this group can become the single most valuable “real estate
asset” in the community.
Please, help us reach our potential by
participating!
If you do this for me, I PROMISE to return the favor
by keeping our membership roles up to date and keeping you current with
issues that are important to our investing community.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Barbara Meyer has been investing in real estate
for 13 years and is the founder of Cleveland Ohio
Real Estate Investors Online .Network
http://www.coreio.net
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
How to Participate
If you’re already a member, you can simply send an
email with your question, idea or comment to:
mailto:coreio@yahoogroups.com.
Or you can post your message directly on our group
site at:
http://finance.groups.yahoo.com/group/coreio/.
If you’re not a member, you can join by simply
sending an email to:
coreio-subscribe@yahoogroups.com, then following the instructions that
are emailed to you.
There are a few steps to this process and it
requires you to provide a fair amount of information. Rest assured that the
information you provide is not shared with anyone besides COREIO.net’s
membership approval department (i.e. me, Barbara).
I request this information so that I can ensure our
membership consists of people who have a serious interest in real estate
investing issues in NE Ohio. Too often, spammers attempt to sneak on the
list. The approval process ensures that spammers can’t gain access. I hate
spam!
When you’ve completed all the steps, I match up the
email addresses and voila – you’re a member. :)
If you have any problems at any point in the sign-up
process, please feel free to contact me directly at
mailto:info@coreio.net?subject=COREIO sign-up help needed or call me at
440-546-1554.
“Without ambition one starts nothing. Without work
one finishes nothing. The prize will not be sent to you. As to methods there
may be a million and then some, but the principles are few.”
-- Ralph Waldo Emerson
* * * * * * * * * * * * *
* * * * * *
--> Would you like FREE answers to your real
estate questions?
Become a full member of COREIO.net! We welcome members with any level
of experience. You'll be able to ask questions and share your
knowledge about real estate investing. You probably already know more
than you realize!
http://www.coreio.net/Members.htm
by Barbara Meyer
Using Mortgage Debt Wisely
- Don't Make My Mistake!
First a bold statement:
As a general rule, you should have the biggest,
longest mortgage possible at all times with the smallest possible monthly
payment.
I know this may sound counterintuitive, but it’s
true. This is a lesson I learned the hard way.
When I bought my first house in my early 20s, I was
living paycheck-to-paycheck and bought the most house I could get based on
the down-payment I could scrape up and my credit rating. For many months
afterwards, I lived very frugally, eating mainly pasta and using pillows as
furniture – I was officially “house poor.”
Over time, my income increased. I bought furniture,
started eating better, stopped mooching meals and tools from my parents,
etc. I was no longer “house poor,” but I wasn’t yet ready to move up to a
bigger property or purchase my first investment property.
I certainly didn’t want to take the newfound “extra”
money I had at the end of each month and go on a spending spree. I also
didn’t like the idea of allowing it to wallow in a savings account earning
meager interest. Being a pretty conservative person, I give a lot of
thought to what I do with my money.
So, I had the bright idea of taking that extra money
and applying it toward my mortgage. I thought that this was a great way to
“earn” a little extra on my savings. The way I saw it, I could put it in a
bank account and maybe earn 5%, or I could pay down my 7.25% mortgage. It
looked to me that by paying down my mortgage, I was 2.25% ahead.
This theory looks good on the surface, but it is
completely WRONG.
Why? Taxes and available money.
Taxes:
In our country, the US government uses taxes to
encourage certain behaviors. One of these behaviors is home ownership. The
government believes that homeowners are more stable, contribute to their
communities, maintain their neighborhoods, and take pride in their property
– and the government is correct.
The way that the government encourages home
ownership is they give tax breaks on mortgage interest and real estate
taxes. This is true for both private homes and investment properties.
When you pay down your mortgage faster than
necessary, you lose the tax break provided by the government on mortgage
interest faster than you otherwise would. This means that the extra 2.25% I
thought I was earning was actually considerably less.
Available Money:
In addition, when you pay down your mortgage, you’re
taking money that could be available for other investments and tying it up
in your property. This makes it more difficult to access that cash if you
should ever need it. Without a Home Equity Line of Credit (HELOC) or a
second mortgage, you can’t access that money unless you sell your house!
Over any given 10 year period of time, the stock
market as we know it today has consistently returned over 10%. That’s
considerably better than the 7.25% I thought I was earning by paying down my
mortgage (which, due to taxes, was actually less than that). In addition,
if you put money into taxable stock market investments, those funds are
readily accessible if you should need them – even if the investment value
has dropped.
(We’re talking about real estate investing here, not
stock market investing, so I’m not going to get into details about the
vagaries of the stock market. If you want to learn more about stock market
investing, visit The Motley Fool at
http://www.fool.com/)
In addition, without ready cash, where are you going
to come up with the down payment for your *next* investment property?
(I know, there are ways to acquire property with
zero-down, seller-financing, etc., but by far the easiest, most
straight-forward way is to simply get a conventional mortgage with a down
payment. I’ll leave discussions of those other techniques to other
newsletters or to the COREIO.net discussion group.)
The Lesson:
Say that you have been dutifully taking every extra
cent each month and applying it toward your mortgage principal, so that in
10 years you owe maybe $50,000 on your property instead of the $100,000 that
you would have owed if you hadn’t paid extra on your mortgage. You’re
ahead, right? Nope.
Say that you lose your job during that 10th year and
have no savings, other than the extra equity you’ve built up in your
property.
Q. - How do you pay your mortgage?
A. - You don’t.
Q. - Is your property any safer due to your extra
equity?
A. - No, in fact it is LESS safe.
Your mortgage holder doesn’t care that you’ve
diligently paid extra on your mortgage every month for the last 10 years.
They still expect your full minimum monthly mortgage payment on the first of
the month. If they don’t receive it for a number of months, they will
foreclose on your property. The fact that you have all that extra equity
makes the prospect of foreclosing on you MORE attractive to them, not less,
because it means that they are more likely to be able to recoup the full
amount owed – perhaps even considerably more.
If you had taken that extra money and invested in
taxable stock investments, or even simply stashed it in a bank account, you
could now dip into those investments for many months, using it to pay not
only your mortgage, but your monthly expenses, too. Your bank can’t
foreclose on you simply because you lose your job – as long as you’re making
your monthly payments on time and in full and paying your property taxes,
your property is safe.
So, have you earned more by paying down your
mortgage than you would have if you’d invested the extra money in the stock
market? Maybe, but probably not.
Have you made your investment in your real estate
safer by paying extra on your mortgage instead of socking away those extra
funds? Absolutely not!
In reality, you have made it LESS safe by paying
down your mortgage. The only time your investment is made safe from bank
foreclosure is if it is paid off IN FULL. Even then, it can be foreclosed
upon due to non-payment of taxes. It’s better to set aside a nest egg in
case of emergency.
At the beginning of this article, I told you that I
had paid down the mortgage when I bought my first house. By this point,
you’re probably wondering how I discovered that this was a mistake.
Well, I didn’t lose my job and I didn’t get
foreclosed upon. I lost my tax break and I had to get a bridge loan when
buying my next property.
I’d paid down the mortgage to the extent that I was
better off taking the standard tax deduction than I was by itemizing. This
means I paid more in taxes than I needed to.
In addition, when I went to purchase my next
property, I didn’t have any cash available for a down payment, so I had to
get a bridge loan. I incurred extra expenses and extra headaches because of
this.
At that point, I fully realized the error of my
ways. Learn from my mistake.
******************
If you’d like to share
mistakes that YOU’ve made so that the rest of us can learn from them, please
send a note to
mailto:coreio@yahoogroups.com.
Not a member yet? Become
one today:
http://finance.groups.yahoo.com/group/coreio/
or
mailto:coreio-subscribe@yahoogroups.com.
******************
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******************
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We're here to inform you about the real estate
investing topics that are important to you, the local investor.
Who Does Repairs?
Some friends of mine
bought their first investment property earlier this week. They’re currently
in the process of collecting samples of leases from all the investors they
know, including me.
When talking to one of
them, he was telling me about a great idea he found in one of the leases
he’d received. The lease stated that the tenant was responsible for any
repairs needed that were less than $100. He felt this was a wonderful way
to not only save a bit of money, but to save some hassle too. After all, if
the tenant is responsible for small repairs, then you, as the landlord,
don’t have to bother with them and can save quite a few trips to the
property.
While I think this
arrangement might work for some people, it’s the opposite of what I state in
my lease.
I’d be afraid that the
tenants either wouldn’t have the money or wouldn’t have the motivation to
take care of minor repairs and that they’d allow the property to
deteriorate, completely ignoring these small repairs rather than taking care
of them promptly, as I would.
Say, for example, that
the toilet develops a slight leak in the wax seal. This is a very
inexpensive repair to make, so it would be covered in the “under $100”
clause. However, it’s also a hassle to pull the toilet up and replace the
wax seal. How many tenants would actually go to the trouble of doing this?
I’d guess that the vast majority would simply ignore it.
Over time, a slight leak
can cause a number of very significant (and costly) problems. Constant
moisture can cause deterioration in the structure of the floor the toilet
rests on, damage to the plaster in the unit below, mold, rot and insect
damage. Taking care of the problem once it has reached this level will run
considerably more than $100, and hence be YOUR responsibility.
The above scenario
scares me. A lot. Because of this, my tenants are only responsible for
general maintenance such as cutting the grass and shoveling snow. Any
repairs are my responsibility.
In my lease, I state:
“Tenant is to promptly notify Landlord of any event or condition adversely
affecting the Premises that he/she becomes aware of, including, but not
limited to: leaks in the roof, windows or basement, sewer or drainage
backups, structural damage or failure of any major system (plumbing,
heating, electrical) so that such condition may be repaired by the
Landlord. Failure to promptly notify will be considered negligence on the
part of Tenant. Tenant will be held liable for additional damage that
occurs which could have been averted by prompt notification.”
My
tenants are not responsible for making repairs, but they ARE responsible for
notifying me in a timely way of repairs that need to be made – or else! I
feel that this arrangement goes much further toward protecting my investment
and saving me money/time in the long run than does requiring the tenant to
do minor repairs.
That’s my opinion, what’s yours? Let us know by sending a note to:
mailto:coreio@yahoogroups.com.
Not a member yet?
Become one today:
http://finance.groups.yahoo.com/group/coreio/
or
mailto:coreio-subscribe@yahoogroups.com.
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---------------------------------------------------------------------
Newsletter Publisher: Barbara Meyer
Cleveland Ohio Real Estate Investors Online .Network
http://www.coreio.net
440-546-1554
"Investing in local investors so that we can profit
from each other."
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Copyright
(c) 2004 Cleveland Ohio Real Estate Investors Online .Network
Articles in this newsletter may be available for reprint.
Contact the listed author to obtain written permission in advance.
For More Information Contact:
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7703 Treelawn Drive, Independence, OH 44141
Tel: 440-546-1554
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