Early Prosper Payoff!

When I logged in to my Prosper.com account over the weekend to check things out, I was surprised to see that one of my loans was being paid off early. This was a nice contrast to my two loans that have defaulted. Once this loan has been paid off, which should be in a day or two as the transaction settles, I will be left with one remaining loan, which is at 8.85%.

Foreclosures Up Again - Government Bail Out?

CNN is reporting that RealtyTrac says foreclosures were up another 9 percent in July over June and up 93% over the same month last year. They originally predicted a 33% increase over last year in foreclosures for the year, but have now raised that forecast to 60%.

But more ominous is this story from msnbc.com. Congress is looking at bailing out homeowners and lenders. Right now, it seems most of the possible action seems to be related to modifying the rules of Fannie Mae and Freddie Mac to allow them greater flexibility in the types of loans they can insure. I don't know about you, but I get nervous whenever the government decides to step in and "fix" a problem.

And in other mortgage related moves, there is this story that says Warren Buffett is considering buying part of Countrywide's mortgage business. Buffett has a pretty good track record at picking up good companies and discounted prices..

Natural Disasters

Growing up in Southern California, I rarely experienced the full force of Mother Nature. We had the occasional earthquake and once in a while the El Nino winds paid a visit, but for the most part, the weather was pretty idyllic. And now that I live in Arizona, I still don't really experience much bad weather. We get some pretty intense thunderstorms, but they typically don't last for too long - hours at most. So when I bought Rental #1 in Oklahoma, I mentally prepared myself for the fact that a tornado could destroy the house. After all, isn't the Midwest a swirling dustbowl of bad weather? Isn't that where Dorothy got blown away to Oz?

Of course, I know my weather stereotypes are not true, but some preconceptions persist. The bottom line is I have never lived in a an area that experiences extreme weather and so I have no idea how much it may affect buildings. I know if you live in areas that have really cold winters, you need to winterize your house. Apart from making sure your pipes don't freeze and burst, I have no idea what else winterizing your house entails. Nor do I know what can happen if you don't do something that you should have.

Hence, I am mentally prepared for my rental property in Tulsa to get blown away in a tornado. I have insurance, after all. But I wasn't prepared for flooding. This weekend, I saw images of the flooding going on in Oklahoma City and other parts of the state and was a bit worried. Flooding is not usually covered under normal homeowner's insurance, so I don't think my property would be covered in the event of a flood. Luckily, it turns out Tulsa is getting lots of rain, but experiencing no flooding, so I appear to be safe. But this weekend did serve as a wake up call.

This weekend also was my birthday! Woo-hoo!

Cashflow Day

Got my rent check today from Rental #1. I am pleased to report the tenants have finally paid the $200 they never paid back in May. No need to evict them.

I'm of two minds on this. These tenants have a history of late payments and I have already decided that I will not renew their lease when it is up in November. After reading what happened to Trisha's property after her tenant was evicted, I'm not really looking forward to having to evict someone. So to get the tenants out of the property, my choices are eviction for some reason and face possible property damage now or wait and try to find new tenants during the winter holiday season. If the tenants do decide to really damage the property if they get evicted, the property would probably be vacant for repairs close to the same amount of time as it would be if I tried to find a tenant during the holidays. In terms of lost rent, it might be a wash, but in terms of clean up costs, it would probably be cheaper to wait for the lease to expire.

In reality, I'll probably just wait for the lease to expire. August rent has been paid, so that only leaves two more months on the lease.

Reverse Stock Split Arbitrage Revisited

Several months ago, I wrote a couple of posts about some reverse stock split arbitrage plays I made. I've still been making them, but they have been a little harder to find. I've made about 6 or 7 of these trades and all have been successful except for one. That one failed because the terms of the split were altered so that small shareholders were affected instead of not being affected, which this technique relies on. In my comment here, I speculated that the terms might have been changed because the company's Board of Directors saw an unusual level of trading in their stock right before the split and suspected something was up. For that reason, I decided to stop writing about these opportunities on this blog. (Well, that and the fact that I want to keep this blog focused on real estate investing and not stock investing.)

Today, I came across an SEC filing that confirms what I suspected in that comment:

The Board's first election to reverse split the stock 100,000 to 1 with an automatic roundup to 100 shares would have accomplished the desired reconfiguration of the stockholder base, however, the announcement of the action by filing of the Company's Preliminary Information Statement caused speculation in the stock. Many speculators purchased one share in an attempt to gain entry to the reorganization. The Board contacted the OTCBB and inquired as to the possibility of stopping trading in the Company's stock, but was unable to do so. The net result of the buying by opportunistic speculators would have been to dilute the stockholder base. For this reason, Management decided to abandon the reverse split of 100,000:1.

So the companies do notice trading patterns and volumes. Furthermore, at least one company was willing to change their previously announced plans in reaction to it.

So if you are looking for these opportunities, what are you supposed to do? Well, I think the safest bet would be to wait for the definitive 14C form to be filed with the SEC. Note that the above mentioned speculation occurred after the preliminary 14C was filed. I believe, although I have not verified, that once the definitive 14C is filed, the company cannot change or cancel the actions mentioned in the filing. I should also note that I do not believe companies are required to file a preliminary copy, so some companies might not do so.

Anyway, this trading technique seems to be all over the internet if you know to look for it, so perhaps the good times are coming to an end..

House Swapping

When I need to put gas in my car, I usually stop by Costco on my way in to work in the morning. I get there just around 6 AM, when the place opens, and usually spend a few minutes chatting with the guy who unlocks the pumps. He knows I'm a real estate investor because my car has a license plate frame that says "I Buy Houses" and we often talk about local real estate trends.

This morning he told me he has seen stories of people who are trading their houses with someone else instead of buying a new one. With prices still too high in some parts of the Valley, these people can't afford to purchase a new home, so they find someone to swap houses with. The hard part, of course, is getting two people together who have homes the other one wants and are similar in price range, but that's a something the internet is great for.

I'm not sure how all the details would work out. I'm sure if one home was worth a couple thousand more than the other, the extra cash would be paid, so the typical exchange probably isn't a true house swap. However, this is an interesting concept.

I'm sure Realtors won't like this idea, since there would be no commission in it for them.