I Dare to be Dumb! - Posted by Melissa
Posted by Melissa on January 15, 1999 at 11:22:39:
I am hereby appointing myself unofficial spokesperson for all the silent newbies out there who have questions they are afraid to ask because they’re afraid they will sound dumb. Luckily, I have no pride.
I’m an intelligent entrepreneur and homeowner with a master’s degree and I admit publicly here that although I’ve been through the CS course three times, I still don’t understand the logic behind the Carleton Sheets philosophy. I don’t doubt that it works. It obviously has for many of you on this site. I’m not a skeptic.
And I do understand the HOWs of the program as in HOW to buy a property no money down. He lays that out pretty clearly. What I don’t get is WHY one would want to–why it benefits one’s net worth to buy properties this way. Let me give you an example as I understand it and please show me what I’m missing here:
Let’s say I find a nice bread-and-butter property in a modest neighborhood that will fetch a rent adequate to cover expenses. Its fair market value (FMV) is $80,000 (in the Washington DC area, believe it or not, that’s very modest). Let’s also say that the seller is so anxious to get rid of the property that he/she is willing to take $65,000 for it. I also understand that the amount of equity the seller has is important because the seller is more likely to be flexible on terms than a lending institution would be but I won’t go into that. (Maybe that’s the key I’m missing.)
So I’m paying $65,000 for a house that’s worth $80,000. Great. That’s $15,000 in instant equity. But I still owe $65,000 to someone. Whether it’s the seller, a bank or a mortgage company, I still owe $65,000. This looks to me like my net worth would go DOWN by $50,000 ($15,000 new equity minus $65,000 new debt). And if I multiply this by 10, 20 or 30 more houses it just seems to me that the debt would increase exponentially faster than the equity.
What am I not getting here??? Please help. In fact, if you would be willing to e-mail me your phone number, I will call on my dime to get this cleared up. My e-mail is MelissaOTP@aol.com