I Dare to be Dumb! - Posted by Melissa

Posted by J.P. Vaughan on January 16, 1999 at 23:19:05:

Newbies who want serious answers to real estate questions
should post on our main News Group. That’s where all
the experienced investors hang out. Many also hang out
in our chat room (after 10pm EST).

JP Vaughan

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

Thanks!

Re: I Dare to be Dumb! - Posted by Mr C

Posted by Mr C on January 24, 1999 at 23:49:02:

You have a masters degree, etc. So Why can’t you understand the philosophy? Your masters is obviously not in accounting.

I own 13 properties (using Sheets and others) and you need (NEED) to understand the following accounting equation: Assets = Liabilities + Owners Equity. The asset is worth 80,000. The Note is at $65,000. Your instant equity is $15,000. Therefore the equation is equal.

I’m worth $125,000 (give or take a dollar or two) because my tenants are making me richer every month. The equation works out that way. The more they pay down my liabilities, the higher my OE and Assets. My CPA can tell you the specifics. I won’t even get into tax liabilities etc. Trust me, you can go to school and achieve 15 PhDs, you’ll still be a moron in the real world.

Don’t take that wrong, nothing beats the real world.

Dumb is a good start - Posted by karp

Posted by karp on January 15, 1999 at 19:26:36:

Hey Melissa,

Email me and I will give you my office number.
Feel free to call me anytime.
I will try to be gentle.

Thanks,

karp

Lightbulb! DUH! - Posted by Melissa

Posted by Melissa on January 15, 1999 at 13:39:15:

I’m following up my own posting, and, happily, I’m the first to do so because I’ve seen my own mistake. My earlier posting was a sudden brain fart.

Of course, if I’ve bought the house, even though I owe on it, I did get something for that loan, namely, THE HOUSE. I had forgotten that principle. I was raised with the “don’t get into debt” philosophy so I don’t even think of my own house as mine because I’m paying a mortgage, but that mortgage did buy me the right to add the house’s value to my net worth. DUUH!

As silly as I feel, I’m still glad I posted my dumb question. Real estate investing has so many details to absorb and it’s possible to get befuddled. I think it’s important as we learn to admit what we don’t understand.

By the way, I’m serious about being an advocate for newbies who are shy. If you have a question you’re afraid to ask, let me know and I’ll pass it on under my name. But I wouldn’t be shy about posting your questions; the only way we’ll learn is to admit what we don’t know!

Cluelessly yours,

Melissa
MelissaOTP@aol.com