Notes: We don't believe in credit cards.

Dwolla is a tiny 12-person startup founded by 28-year-old Ben Milne. The company is looking to change the way money is being transferred by sidestepping credit cards completely. This is different than what PayPal offers and incredibly more powerful.

I really love the ground-up approach Ben employs, the way he disregards the status quo that others have avoided questioning for over 30 years. Here's a snippet from an interview with the founder:

Why hasn't anyone side-stepped the credit card companies before?

I think a lot of it is timing and luck. And a little bit of getting your foot in the door. One of our investors is a $1.8 billion financial institution. That's atypical anywhere, let alone in Iowa. Having them on board allowed us to get into a lot of rooms.

We serve everyone from the landlord taking in one payment to the individual buying a coffee with their cellphone, to billion-dollar corporations. Because we're so atypical and look at mobile payments differently, we got in the room with the Federal Reserve and the U.S. Treasury who allowed us to have a conversation, not only from a corporate standpoint, but from a government monetary distribution standpoint.

All banks are connected by one ACH system. Credit card companies utilize that same system to pay off your credit card charges. Banks internally set along that same system to move money in their own banks. This system in its own right is riddled with flaws — tons of fraud issues and waste and delays. If you've ever had a payment take a few days to clear, its because they're waiting on that ACH system.

We want to fix that system between the banks, take out the delays and make it instant. If we can create this ubiquitous cash layer of distribution between consumers and merchants and developers and financial institutions, that actually fixes the problem.

No one has built a payment network in 30 years — since credit cards. Everybody has concentrated on how we build a portal for credit cards, from digital wallets to Square.

We don't believe in credit cards. We believe in authorization and in lower cost transfers. Our generation actually understands that when you buy sh*t, it comes out of your bank account and you have to pay for that.

Overcoming Desire, Part II

My brother bought a motorcycle this past weekend (a black 1992 Honda Night Hawk 750cc) and after seeing him and my uncle riding together I suddenly had a huge desire to own a motorcycle. But this isn't the first time I've wanted to buy a motorcycle.

Last year when I got my motorcycle license I had planned on buying a bike shortly there after. I rode my brother-in-law's Honda CBR600RR a few times and went to a couple of Harley Davidson demo rides to compare sports bikes with the Harley's. I decided the Harley's were much nicer for long rides and since I expected to be doing a lot of riding, a Harley made the most sense. I quickly found the bike I liked the most: a 2008 HD 1200XL Sportster Nightster:

Harley Davidson Sportster Nightster

It's about $9,500 new, which isn't that bad for such a nice bike. However, due to financial constraints, I simply couldn't afford it at the time. I was still going through a bankruptcy and my bank accounts were empty. It was clearly more of a want than a need and even if I decided to buy one, I didn't have the money and I wouldn't be approved for financing. That made it pretty easy to dismiss the desire and bury it for future reconsideration.

After seeing my brother's bike this past weekend, the desire was unearthed and I found myself again wondering how I could buy a motorcycle. But I ran into the same problem: with my tight financial position it's hard to justify spending any amount of money on something that I only want and don't actually need. That's when I began subconsciously looking for ways to justify buying it: "I'll save money on gas!", "I'll save money on insurance!", "I'll be able to enjoy the open air!", "I can sell my truck and worry about winter and snow when it comes!", etc, etc. Inside, I knew I was trying to justify the desire for something that wasn't needed and I heard a tiny part of me quietly rebelling.

I felt a sense of déjà vu as I observed myself doing this and that's when I remembered going through the same exact same process of overcoming desire a few years earlier (in fact, almost exactly three years ago) when I wanted to sell my truck and buy a Jeep Wrangler. That got me thinking... what the hell would I really do with a motorcycle when the ground looks like this:

During the winter months, there would be absolutely no way to use the motorcycle and I'd need to spend more money storing it (or risk spending money on maintenance in the spring). I started thinking about the goals I set for this year and the things I've already decided I really want to do, all of which will require money: complete the AFF program, learn scuba diving (classes, gear, etc), spend lots of weekends camping (commuting gas money), plane tickets to fly to various fitness events, and of course simply saving some money!

It really comes down to priorities. When I stopped thinking about how cool it would be to ride around on a motorcycle and I started thinking about what my priorities were, overcoming the desire for a motorcycle became easier and easier. The motorcycle simply didn't fit anywhere within my priorities! This didn't obliterate the desire, but at least now I feel like I'm thinking more rationally.

"Maybe I can find a cheap $3,000 motorcycle that I won't be so worried about spending money on maintenance and that I would feel comfortable tinkering with (great learning experience!)." "Maybe if I find a good deal, I can resell it before winter." Suddenly my approach seems more practical and I don't feel this urge to just go out and spend money.

Three years ago, when I almost sold my truck a splurged on a Jeep Wrangler, my truck had 133,000 miles on it. Now it's got 190,000 miles and I've had it for 4 years 8 months. Here's to another 110,000 miles of overcoming unnecessary desires. 🙂

Minty Mints

I came across an impressive self-hosted web site analytics program called Mint ( It's $30, but for those with privacy concerns it looks like an awesome alternative to Google Analytics. The site's color scheme (and of course the name) reminded me of another popular web app that allows you to manage your personal finances online: Mint ( I'm a bit skeptical about giving a 3rd-party site all my bank account information, but it appears to have been reviewed by some big names, including Forbes, The Wall Street Journal, and the New York Times. The idea of being able to easily access all my spending and budgeting info online is compelling, but I'm still debating with myself the security/privacy issues.

Think of debt payments as an investment

Think of debt payments as an investment. When you make a $100 payment on a loan with a 13% interest rate, your annual return is 13%, or $13. Why? Because you avoid having to pay that extra $13 in the future, which leaves you $13 more than you would have otherwise had. [source: wikiHow]

Mortgage Lender IndyMac Seized by the US Government

I was shocked to see news that IndyMac, the holder of the mortgage for my second property (Bowers St), had been seized by US regulators. The mortgage for that property went to foreclosure back in March (my first foreclosure), so needless to say, I contributed to their downfall.

IndyMac's fate was sealed after Senator Charles E. Schumer wrote a letter about the bank. Mr. Schumer spoke strongly about the agency:

“IndyMac’s troubles, like Countrywide’s were caused by practices that began and persisted over the last several years,” he said. “If O.T.S. had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today.”

IndyMac held $32 billion in assets and its demise is being called the biggest failure in 24 years. In addition to loans, IndyMac Bank held one of the largest savings in the country. The FDIC said nearly $1 billion of the $19 billion in deposits held by IndyMac were uninsured, affecting about 10,000 people. When news got out that IndyMac was in trouble, people started taking their money out of their bank accounts, to the tune of $100 million per day. Things like this are exactly why I feel uneasy saving money at all. It feels safer to invest in things that are real, be it a car, motorcycle, boat, education, health, general experience, or yes, even real estate.

Coupled with the craziness that happened to Fannie and Freddie yesterday, the reality of what's happening in the US is finally starting to sink in. Fannie and Freddie, which own or guarantee almost half the $12 trillion of home loans in the U.S., plunged as much as 49 percent and 51 percent yesterday. [1] Think about that for a second: half of all the home loans in the U.S. This happened as investors feared failure in the market would cause the U.S. government to rescue both companies, which would wipe out the shareholders.

Every Little Bit Counts

I watched a great documentary tonight called The 11th Hour, produced and narrated by, of all people, Leonardo Dicaprio. It was definitely weird to see and hear him talk about something serious, but I suppose thats always the case when actors take non-acting positions on the screen. If you're interested in watching the movie, there are plenty of ways to get it.

Despite it being very cold both at night and in the morning, I've had the heat off in my apartment for the past month. I didn't turn it on even once. I did this mainly because the previous two months' gas bills were over $250 and I simply couldn't afford paying that much for heat. When I received this month's bill, I was happy to see it under $150.

That's when I realized how living without heat wasn't all that bad. Sure, it was a little annoying, but it wasn't cold enough to make me sick -- I simply dressed warm. It never got below 45 degrees because the residual heat from the furnace in the basement (for the apartment above me) rose up and provided some heat to my first floor apartment. I saved a ton of money and helped the environment at the same time. All that by simply overcoming a minor inconvenience.

I keep all of my lights off in my apartment (there are seven rooms) except maybe one where I sit at my computer. I turn off all of my computer screens when they're not being used and I unplug things like my multi-function printer until I need to use it. I have three computers and two routers running 24/7 and I turn on an electric space heater every now and then when my feet are cold. For the past three months my electric bill has not topped $50.

There are tons of more ways that I can reduce unnecessary energy expense and I will continue to look for new ways to reduce waste. Every little bit counts.

Offers Accepted on Two More Properties

A few weeks ago I accepted an offer on the sale of my first property. The two other properties I own are both facing foreclosure so I told my real estate agent to see if he could get any kind of offer on them.

Within a few days he found a cash buyer who is interested in buying both of the properties, for $100,000 each. Keep in mind that I bought these properties two years ago for $280,000 a piece and put at least $30-40k into them.

The way I see it is any sale is better than a foreclosure. Now I just have to wait to see if the banks will approve the short-sale.

A Lesson in Social Engineering

In this post I will explain how I was able to social engineer a local sporting goods store employee to give me a store credit for something that I should not have been able to get credit for. Why did I do it? Partly to prove I could and partly to make a point. Please read the entire thing before drawing any conclusions. I encourage you to post your opinion in the comments section.

The Prerequisites

About a year ago I bought a jacket for about $130. I probably bought it on sale in the spring or early summer. The jacket was definitely comfortable, but when I finally started wearing it in cold windy weather I discovered that it did a terrible job of keeping out the wind. It practically felt like I was wearing a jacket full of holes.

I keep everything I own in as new condition as possible and this jacket was no exception. When I was looking at new jackets in a local sporting goods store, I realized that buying a new jacket would mean my old one would never be used again. That seemed like a big waste. I noticed the sporting goods store was selling the same design jacket, but with a few slight differences (maybe better wind-proofing). This gave me an idea. What follows is the story of how I received a $165 credit for a year old jacket. The jacket brands and store names have been left out to protect myself from incriminating myself. 😉

A Social Hack, 1st Attempt

When I arrived at the local sporting goods store with my used jacket I went straight to the counter and gave the jacket to a cashier. I immediately noticed that she looked like a new employee.

"Hello. I got this jacket for Christmas but I want to exchange it for something else." I said as I placed the jacket on the counter.


"I don't have the receipt and the tags were lost when it was wrapped."

"Ummm, hmmm..." she muttered, obviously very confused about how to handle the situation.

"I'm pretty sure you guys still sell this same jacket, so I'm just going to leave this jacket here and go find the same jacket with a tag, OK?"

"OK..." she replied, still sounding very unsure of herself.

I knew exactly where the similar jacket was and went straight to that section of the store. I found the similar jacket and also picked up the different brand jacket that I wanted to exchange it for so the cashier could do the transaction all at once.

When I got back to the register with the two jackets, a man in plain clothes was holding my used jacket and waved me over to a different register. I assumed he was a store manager, as everyone else was dressed in the store outfit.

"Can I ask the reason you're exchanging this?"

"Well I got it for Christmas and after wearing it a few times I discovered it just doesn't keep out the wind at all, so I just want to exchange it for something else."

"Do you have the receipt or the tags?"

"No, but this looks like the same jacket." I said, as I handed him the new similar jacket from the store.

"OK, how long ago did you say you bought this?"

I knew he was catching on to the fact that the jacket looked used, so I tried my best to rescue the situation. "I got it this past Christmas, so... a few weeks ago. I washed it a couple of times, so thats why it looks slightly worn."

"Well," he said inspecting the bottom side of the jacket, "this looks extremely worn. There is a tear here and these markings are from very regular usage."

"I told you I washed it once or twice, so it must have got caught in the dryer and thats how it was torn."

"The only way you could get these kind of using markings is if you wore this jacket 24 hours a day for the past few weeks." He looked very satisfied and sure of what he was saying. "I'm sorry, I cannot do the exchange. It just wouldn't be a fair exchange."

I said OK and left the register to put back the two jackets (the new similar one with the $165 price tag and the different brand jacket that I wanted to exchange it for). I then picked out a store brand jacket to buy (you'll see why later) and brought it back to the register where the manager rung me up. He placed the new jacket in a store branded bag. I left with the newly purchased store brand jacket and my used jacket.

A Social Hack, 2nd Attempt

I then drove about 35 minutes West to their only other store in this area. I walked in carrying the store brand bag I got from the first store. Inside was my used jacket. While I waited in line, I was happy to see there was only one cashier and that she was doing a return for someone else (this meant she knew how to do returns and wouldn't have to call someone else for help).

When it was my turn, I put the store brand bag down on the table. "My mom bought this jacket for me a few days ago," I said as I took the jacket out of the bag. I pointed to the tear in the jacket and continued. "I don't know why it was even for sale because it looks very used."

"Wow..", the cashier said, sounding as if she almost didn't believe what she was seeing.

To keep the story going and prevent any room for questions, I kept talking. "I don't know how she could have missed that, but it definitely looks like someone wore it for a long time. How could that have been put on the shelf?"

"Well, we wouldn't have put that back on the shelf, but sometimes when things are returned they are thrown into the wrong pile. Someone might have picked it up by accident when they were tagging and put it back on the shelf. Do you have the receipt?"

"No, she has a bad habit of not keeping her receipts."


"And look, the tag is gone too. I couldn't find it anywhere."

"Well, is she a..."

"A member? No, but I'm a member. I know if she was a member you could look up the transaction that way, but I've been trying to get her to become a member for so long. My sister is a member. She's the one who convinced me to become one."

"Did your mom pay with a credit card?"

"Yes.", I replied, knowing she was going to suggest something that I could easily make an excuse for.

"Well, if you waited a month, the transaction would show up."

"I know, but she bought a bunch of things, so I doubt you'd be able to tell that way."

"Hmmm... because without the tag or receipt I really have no way of knowing what she paid for it..."

"Well, if I can find the same jacket in the store, can't you just use the price from that? You do still sell these jackets, right? I mean she only bought it a few days ago..."

"Yes, I'm sure we still sell them...."

"Then I'll just go find one with a tag, OK?"

"OK" she said, finally seeming to give in.

I went to the jackets section, hoping this store carried the similar jacket as the other store did. Sure enough, I found an entire rack of them. I picked out the same size jacket and brought it back to the register.

"This looks like the same jacket" I said, placing it on the table. She glanced at the two jackets and noticed they had different looking tags inside. She probably didn't say anything about it though because she knew my jacket shouldn't have gone back on the shelf in the first place. She began poking away at the register to make the exchange.

"It's the same size right?" I said, pretending to make sure my new jacket would fit me.

"Yup, they're both medium" the cashier said, continuing to make the exchange. She scanned the price tag on the new jacket; $165. She then voided that amount, placed the new jacket in a store brand bag and handed it to me.

"Thank you and have a nice day!"

"Thank you" I said, trying to keep a straight face.

Concluding the Hack

The following day I went back to the first store and brought in the new jacket with the $165 tag on it. I told them my brother bought the jacket yesterday but that he didn't have the receipt. Since the price tag was still on it, I was given a $165 store credit and was able to use it for the different brand jacket.

Unfortunately that store manager wasn't there this time. I would love to have seen his reaction if he did the exchange for me. 🙂

Reviewing the Hack

The only thing that could have foiled this was if the suspicious manager at the first store called the second store and told them about me. That was one of the reasons I bought a store brand jacket at the first store -- I wanted to make him feel guilty if he was to call the other store about me. If I actually spent some money while I was at the store, and spent money on store brand stuff, then he would be less likely to feel like I was trying to rip the store off.

I also made use of the managers observation that jacket looked used and decided to change my story when I went to the second store. The second time however, I didn't try to exchange my used jacket for a different brand jacket all together. Instead I exchanged it for a newer version of the same jacket... with a $165 price tag on it.

When the exchange was made, the cashier did not ask me for an ID and did not ask me to fill anything out. I made sure not to buy anything extra when I made the exchange, so there would be no credit card linking me to the exchange. I also made sure I didn't show them my membership card. The only way they can link me to the jacket I exchanged is by the security tapes in the store.

So, what's the social engineering lesson? If at first you fail, try, try again.

Unethical, Unmoral, Criminal?

I'm sure there will be many people who would consider what I've done unethical or even criminal. I beg to differ. What I did should not have been possible. The manager in the first store handled the situation exactly as I would have expected, but the failure came two ways: When information was not passed from one store to the other and when the employee in the second store was easily convinced of something that seemed very unlikely.

Should all clothing have unique ID tags that allow such attempts to be logged? Should stores never accept an exchange, return, or provide a store credit for something unless the receipt or product price tag is available? Until you remove the weak link (humans), those seem to be the only alternatives -- yet stores fail to implement such measures.

Businesses attempt to provide better customer service without having the necessary policies and technology in place to prevent unwanted social engineering. The very thing that drives businesses to save money by assuming people are generally good is what also drives people to find ways around normal procedures: greed. I was simply trying to save money and in doing so I discovered how I could.

What it really comes down to is trust. If someone writes you a personal check in return for purchasing something from you, do you just assume the check is good and give the item to the purchaser? No, of course not. You wait until the check has cleared your bank. You have no reason to trust the person who wrote you the check. (This delay in processing checks is one of the reasons Congress passed the Check 21 Act a few years ago.) When you accept payment with cash, you're saying that you trust the US Government to honor its promise that those dollar bills are worth their stated value.

If I can make a cashier believe something that isn't true, then that cashier should not be working as a cashier. Imagine if I was able to walk up to a bank teller and make that person believe that I just gave them $100. If the teller actually believed me and gave me $100, would I be stealing or would the teller?

It is the job of the people employed by businesses to determine who they should trust and who they shouldn't. And it is the job of the employer to put the proper policies in place for those employees to follow. The only reason identify theft is so huge is because people are so gullible. With enough confidence and consistency, you can practically convince anyone of anything. That brings us back to the lesson:

If at first you fail, try, try again.

Bush's mortgage plan doesn't help MY situation!

Forbes has an article today about the "Bush Administration's plan to rescue the housing market" -- well I'm a landlord who owns three multi-family houses, all of which have adjustable rate mortgages and all of which have seen interest rate hikes of double what I was originally paying. If my profit margin was $300 per-month when I originally bought the properties, all of that has been washed away with mortgage payments increasing by $700 per month, per property!


It also won't help the 16% of subprime borrowers who are already delinquent or in default, and it won't help millions of other homeowners who either will be deemed able to pay the higher rates when they adjust, starting in January, or who have the unhappy circumstance of having a house worth less than their mortgage or a loan that has already reset to the higher rates.

Well let's see... I'm already delinquent and in default on all of my properties, check. I'm one of those in the "unhappy circumstance of having a house worth less than their mortgage", check. My mortgages have already reset to higher interest rates, check. Great, I don't qualify.

The big problem with the sub-prime situation doesn't only apply to the single-family owners who bought a bigger house than they could afford -- it also applies to all the landlords who purchased or refinanced multi-family properties and who provide housing for the more than 34 million renters in the USA. Speaking of the rental market, it is projected that the number of renter households will increase by more than 1.8 million between 2005-2015 [1]. I'm sure that number doesn't even take into account all the people who lost their homes (and their good credit) and now need a place to live.

I've given up trying to afford my properties. I'm ready to walk away. There is no help in sight and stressing about trying to pay for them isn't worth my health. I already know its financially impossible for me to afford them (rental income is $7,000 per month, new mortgage payments are $10,000 per month), so why fight the inevitable? I have all three of my properties listed for sale with a broker, at prices totaling $195,000 less than what I owe the banks. The real estate market is bad because everyone is waiting for the prices to keep falling. Even if my properties do sell, I'm going to end up owing the banks over $200k -- which I also cannot afford.

Labor Day Weekend

I had a good Labor Day Weekend. I went up North to the White Mountains with the intention of camping and just relaxing. I ended up hiking three mountains and making myself as physically exhausted as I've ever been. It was incredible. I had never hiked to the summit of any mountain in NH until this weekend (the only other summit I have reached was in Utah, Frary Peak on Antelope Island (6,596')).

My sister Meera, and my brother-in-law Thea, drove North on Saturday morning to hike the Falling Waters Trail in Franconia Notch with me, which Thea and his friends had started, but not finished, a few weeks earlier. The trail leads up and crosses two peaks above the alpine zone before finally reaching the summit of Mt. Lafayette (5,260'). We only got as high as the first peak, Little Haystack (4,760'). Meera and Thea returned home, but I was already feeling a calling to go back to the mountains.

On Sunday I decided to hike another trail, this time along the Kancamangus Highway. I bought a small book of 200 hiking trails in the White Mountains at a local shop. After glancing at a few trails I decided to hike to Mt. Hancock's North (4,400') and South (4,274') Peaks. This hike was definitely a step up from the hike to Little Haystack. I don't like taking my time and enjoying the sights; I like to make it physical. I walked as fast as I could and kept my pace as steady as possible. My heart rate must have stayed at 120+ BPM the whole time. I was sweating non-stop for over 6 hours. My feet were so incredibly sore by the time I got back down that I could barely feel them touching the ground. I loved it and I was hooked. That night, I fell asleep at 8pm.

On Monday (Labor Day), I woke up at 7am and decided to ignore the pain and fatigue I was feeling and hike another mountain. From the trail book I choose Mt. Osceola (4,340'). The book only talked about the East Peak of Mt. Osceola (4,156') but I told myself I would push the extra 1.5 miles and go all the way to the top. This time, I made sure I packed enough water, and enough food. Hiking at such a fast pace burns an enormous amount of calories. I had about 800 calories for breakfast and 1 hour into the hike I was already hungry. Even though I consumed over 4,500 calories that day, I was probably still running a deficit. If anything, the hike to the top of Mt. Osceloa was more a test of my metal endurance than my physical endurance. This hike had the most dangerous, and challenging, climbs of all three mountains. There were a couple of places where if I slipped, I would plunge a few hundred feet to the rocks below. Definitely not for those afraid of heights!

I took plenty of pictures and I'm sure you'd like to see them, but you'll have to be patient. I've decided that I will post a new post each day for the rest of this week detailing each of the hikes. I took close to 200 pictures total and since I can see hiking becoming a big part of what I do in my free time, I'd really like to document each hike as best I can.

On Sunday morning, before my hike up Mt. Hancock, I passed a truck with a giant 350LB black bear in the bed. I stopped and talked to the people around the truck and they said they killed him last night, in Bethlehem, NH, which is only a few minutes away from were I was camping. What a waste of a beautiful animal.

Another major thing that happened early this past weekend was my firm decision about what I'm going to do with my properties. I've decided I will get rid of all of my properties, even if that means going bankrupt. I simply feel the time and energy I will spend maintaining even one property is not worth it. I would much rather have the freedom and clarity of mind that goes with knowing I don't owe hundreds of thousands of dollars on a property while still being responsible for maintaining it. Owning a property will greatly restrict my options for travel and the financial freedom to do what I want with my life. Even if it means going bankrupt, I believe I'm making the right decision. At least I'll have a clean slate to start with (excluding the fact that my credit will be screwed for the next 7 years due to the bankruptcy).

I'm glad I made this decision early in the week because the experiences I had during each of the hikes seemed to reaffirmed my decision. I'll be listing all three of my properties with a Realtor later this week for a price lower than what I owe the banks. When I have a buyer, I'll submit the offer to the bank and if they reject it, or if they accept it with the stipulation that I will still owe them the remainder, then I will tell them to foreclose on the properties and then I'll file for bankruptcy. Hopefully the banks will work with me and I won't have to go the bankruptcy route.

Making more than 50,000 percent profit from JUNK

A few weeks ago on Tuesday, the day before trash day, I saw someone put a black reclining chair outside next to the trash barrels. The chair was fully functional, but it had a tear on the front of the cushion (which by the way, was also removable). Even though I already had a bigger, more comfortable couch-like-chair in my apartment (the previous tenants were going to throw it out, so I asked them to leave it), I decided to bring this reclining chair inside.

A few weeks went by and I realized that not only don't I lounge around, but also that it simply takes up too much space -- it was getting in the way of my morning stretching routine. So I told myself I would put it back outside with the trash. But trash day came and I forgot to put it outside. Then I thought, "Hey, CraigsList doesn't cost anything. Why not list it there and see if, by some chance, I can actually make money from this.". So I listed the chair on CraigsList this past Wednesday. The following day I received this email:

Hi Raam,
I would like to have the chair please , if it is still available? Is it very heavy?What is your adress? just wanted to see if its walkable with the chair...
Thanx so much

I replied, and after going back and forth a bunch of times, we settled on $7. The extra $2 is for me dropping the chair off at his house, which just so happens to be even closer than my office.

I picked up the chair from the trash. To figure out how much profit I made by selling the chair, there needs to be a cost associated with it. Lets assume the chair somehow cost me $0.01. I sold it for $5 (which is 500 pennies), so I basically made 50,000% profit. Calculate in the extra $2, and its even more than 50,000%!

If you're wondering how I did the math, here it is: 500/1*100 = 50,000% (Five hundred pennies, divided by one penny, multiplied by one hundred, equals fifty thousand).

What should I do?

I haven't explained what's been happening with my properties over the past few months, mostly because I haven't been sure of what I wanted to say about them. A few months ago I listed two of my properties (Ware St and Bowers St) on CraigsList for $315k and I have been dropping the price ever since (as far down as $289k). A few nibbles, but no bites.

The past few months it has come to the point where I simply haven't been able to afford them. I transitioned from a consultant to an employee at Aerva in July, which meant I now receive $800 less every month due to taxes. The two properties have an adjustable, sub-prime, rate, and one of them recently adjusted -- the new payment is $500 more per month. So a few months ago, I stopped paying the mortgages on two of my properties. I told myself, "What was the worst that could happen? The banks foreclose on the houses and my credit is hurt." But my credit is already screwed (under 550 credit score due to a couple of late house and credit card payments) so I'm not too concerned about that. The problem is if the banks foreclose on the houses, they may still try to come after me for the money I owed, upwards of $600k between the two mortgages. This debt would most likely haunt me forever, even 10 - 15 years down the road.

I already submitted my financial statement and a forbearance letter to one of the banks a few weeks ago. They called me Thursday evening and told me they can't do anything about my monthly payment and that my best solution is to try and sell the house, even if I have to sell it for less than what I owe. This is known as a Discounted Payoff, which means the bank may accept a sale of the house, including closing costs, and forgive the rest of what I owe. This would be great because I would get rid of the houses and not have to worry about any debt associated with the properties. The standard procedure all of the banks follow is that I need to find a buyer, and fax the mortgage company a buyer pre-qualification letter, along with a HUD 1 or Net Sheet (which shows where all the money is going), and the Purchase and Sale agreement. The bank will review the information and decide whether or not to accept the sale.

So that's what I'm going to do with Ware St and Bowers St. Next week I will list them with Paul Brouillette from Century 21 for whatever price he says will make the property sell fast, which will no doubt be much less than what I owe (probably $20-$30k less). He is the one I originally bought the properties through a few years ago and I have developed a good relationship with him. Listing the houses with Paul means he will do all the work, but he will also get his $20k commission, hopefully paid by the bank. If the banks don't accept any offers that come through, they will have no choice but to foreclose on the properties. And if they foreclose and tell me I still owe them lots of money, I will have no choice but to file for bankruptcy.

So by now you might be wondering what I'm referring to by asking "What should I do?". If you've been following, you probably noticed I've only been talking about two of my three properties. The third property is the first property I purchased, Cumberland Rd, in 2003 for $213k. As much as I hate to admit it, I do have an emotional attachment to the property. I lived in the renovated studio apartment of this property for several years, built my first 16'x12' shed in the back yard, I spent countless weeks carrying out dirt from the basement to increase the height of the basement, and then many more weeks pouring concrete forms. I've put a lot of thought and planning into what can be done to make the property better and it's definitely the nicest of my three properties. But, I also owe $352,000 on the property (refinanced many times to pay for purchasing the other investment properties and for upgrades in the property). Luckily I have a fixed rate that will never go higher than 6% for the life of the loan, which means my monthly payment, barring any major increases in taxes or insurance, won't be higher than $2,700 a month. I currently have three units which can be rented, and if the basement is finished and rented I can be bringing in about $3,000 a month. Of course, I still have to deal with everything involved in owning a rental property, the very thing I'm trying to remove from my life by getting rid of my other two properties.

So the question is, what should I do? Should I get rid of Cumberland Rd as well? It's nice to have a fixed rate, but who cares about the fixed rate when I still have to worry about vacancies, property maintenance, collecting rent, and all the other responsibilities attached to owning a multi-family rental property? I will continue to dread every phone call I receive, fearing it's a property disaster. However getting rid of Cumberland Rd means I'll have to hope for a similar discounted payoff being accepted by the bank. I owe $352k on the property and in this market, I doubt the property would sell for more than $270k, an $80k difference. Will the bank simply forgive $80k? Unlikely. This means getting rid of Cumberland Rd increases the likelihood of me needing to file for bankruptcy. However there is one upside to bankruptcy: all of my credit card debt ($27k) would be wiped away.

If I could see the real estate market making a sharp upturn sometime over the next few years, I could understand why keeping Cumberland Rd makes sense. But I don't see that happening and honestly, I don't want to live the next five years of my life knowing I have a $350k piece of debt, which requires constant maintenance, riding on my shoulders. I would rather wipe the slate clean and start fresh.

As you can see, my mind is already more or less made up. This weekend I'm going camping and on the 2 1/2 hour ride up North, I plan to spend lots of time thinking about this decision. I suppose I just need to convince myself that it's the right move. Its a big decision and a major turning point for my financial life.

What do you think? What would you do in my situation?

Sold my Audi A4

I bought the car back in November of 2006 and almost exactly six months later, I decided to sell it. After a month went by with it listed on CraigsList at $5500, I decided to spend some money and list it on AutoTrader. Only a week later, I dropped the price on CragsList and over the next few weeks I continued to drop the price. Finally, I decided to just get rid of it. I dropped the price on CraigsList from $3900 to $2900. I had three email responses within 20 minutes of posting!

I sold the car today for $2750. If I had sold the car for $2750 when I originally put it up for sale, I could have saved $540 in insurance payments. I'm just happy I've sold it.

It's strange how nice it feels to have less stuff. Even my keychain, which I carry with me everywhere, is lighter and takes up less space in my pocket.

Forbearance Letter

This is the letter I wrote to Wilshire Credit Corporation's Forbearance Department, regarding my mortgage with them for my Ware ST property. I'm currently two months past due and the interest rate just adjusted from 8.25% to 11.5%. My monthly payment went from $2,450 to $3,000 per month. The property currently brings in about $1600 in rents every month. This letter is apart of an envelope of documents, including a personal financial statement, last two months bank statements for all my bank accounts, last two years tax returns, and W-2's.

I'll be sending a slightly modified version of this same letter to IndyMac Bank, who holds the mortgage for my Bowers ST property.

To Whom It May Concern:

Several years ago I started investing in real estate with the intention of renting multi-family properties for long-term investment. I bought my first property in 2003 (Cumberland RD, my primary residence) at the age of 21. Since this was my first property, I was not experienced with being a landlord and I had to learn a lot on my own. My first tenant, George Demasse, was a good tenant for the first year – but then he started having drug problems and stopped paying his rent entirely. Eventually I went through all the legal processes to have him evicted. In the end, he cost me over $15,000 in lost rent and legal fees.

In 2004 I bought another property (3 family on Bowers ST) which was fully rented. Only 3 months after purchasing the property, all three of the tenants moved out. I was required to spend considerable amounts of time and money cleaning and preparing the units for new tenants. By early December 2004, I had 3 tenants that were ready to move in. Only one week before they were supposed to move in, a water pipe on the third floor froze and flooded both of the units below it. An insurance adjuster came by, and after explaining my situation to him, he told me to get all the work done – he said not to wait and that the insurance company would cover everything. A week later, after spending over $17,000, I received a call from the insurance adjuster telling me my policy doesn’t cover for broken water pipes and that I’m fully responsible for paying the contractors. I spent over a year with the Insurance Complaint Department fighting my case, but they eventually sided with the Insurance Company.

In 2005, I bought my third investment property (4 family on Ware ST) fully rented. A few weeks after purchasing the property, one of the tenants moved out and I needed to spend about $8,000 renovating the unit before it could be rented (it was in bad shape). The following year, another tenant in the same building had drug problems with the police and the building inspector was called in. He demanded I evict the tenant and do not rent that unit until it had been renovated and had an occupancy permit pulled. This required over $10,000 in work. During that winter, I had several other issues with leaky water pipes and a couple of times the water pipes started to freeze. There were many times when I had to leave work in the middle of the day to use a hair dryer on the water pipes; I was afraid they would freeze and cause the damage and expense I experienced in 2004 with Bowers ST. The following summer, the gas company went into the basement to change the gas meters and noticed the two furnaces in the basement were in very bad shape. They refused to turn the gas back on until the gas furnaces were to code. A heating company came by to give me advice on the condition of the furnaces. They told me they were beyond repair and needed to be replaced. So during the fall of 2006 I spent about $12,000 replacing two gas furnaces and having new duct work installed. Since I didn’t want to go through the issues with the water pipes again, I also had the plumber redo all the water pipes in the basement. At this time, one of the units became vacant and I was required to spend and additional $8,500 renovating it (new carpets and kitchen/bathroom floors, three new windows, new kitchen sink & counter, new paint throughout, new bathroom fixtures).

It’s been 10 months since the new furnaces were installed in Ware ST and I still owe the plumber over $4,000. He has threatened to sue me, so I’m making $100 a month payments to him. I’ve already exhausted all the credit on my credit cards to help pay for many of the renovations in the rental units. I was unable to pay my American Express payments for several months and in July I made a couple of payments. Now I’m two months behind again. I’ve also had to sell all the stocks I owned to help cover bills related to the properties.

Over the past few years, being mostly self-employed (I do freelance technical consulting), I’ve struggled to maintain a steady income and maintain the properties at the same time. In April of 2006 I started working part-time at a software startup company in Cambridge, MA called Aerva. It was a very good opportunity, however being a startup, they have had to be very tight with money and have been unable to pay me market rate since I began there. As of July 1st, 2007, I started working at Aerva full time as a W-2 employee.

My tax returns are done by a CPA. I have included the 2005 tax return with this letter. I have filed for an extension for 2006’s tax return, and I have included the extension with this letter.

I have two checking accounts, however I only use the TDBanknorth account. I also have two Savings accounts (INGDirect and ETRADE), however I don’t use either of them (since I don’t have any money to save!). I have included the latest two months statements from all accounts as requested.

I do not have a vehicle in my name, but I use my family’s business vehicle and simply pay for insurance, gas, and maintenance.

Because of the condition many of my rental units are in, I must rent them for a discount. The properties are also not located in desirable locations, so renting them is more difficult. It’s also very difficult to find tenants who will actually pay every month and who won’t destroy the units. The taxes and insurance have increased on all of my properties since I bought them, which has increased my monthly expense. Many vacancies, bad tenants, and expensive property repairs over the past few years have drained me of any backup funding I had saved.

The recent rate adjustment on the Ware ST mortgage with Wilshire has increased my monthly payment by $500. I was already having trouble making payments!

If my monthly payment cannot come down to $1800 a month including tax and insurance ($1300 a month principle and interest), I will be forced to request a discounted payoff and try to sell the property at a huge loss. About a year ago, I attempted to sell the property for $305,000. It wouldn’t move at all and there was very little interest, so after 9 months on the market, I took it off. If this property is listed for $240,000, I believe it would move very quickly. If I do end up having to go the discounted payoff route, I can get you a proposed listing agreement and estimate of closing costs.

If you have any other questions, please feel free to call me directly anytime.

I await your response,

Thank you,
Raam Dev

Here’s what my portfolio could like – Part 2

A few days ago, two to be exact, I posted what my portfolio would look like if I had kept all the stocks I owned in 2006. I would have been making 303% on one of the stocks, Denderon (DNDN). This morning that stock dropped 60% on news that the FDA is delaying any chances of approval for their prostate cancer drug Provenge. Here's what my portfolio would look like today:

The lesson: don't place all your eggs in one basket.

Here's what my portfolio could like

Here are the stocks I owned a little less than a year ago. I sold them all because I was in a really tight financial position and needed the money. If I had held on to them, here is what my portfolio would look like today:

But instead I lost about $10k by selling them when I did. You just can't win'em all...

Think One Dollar

I sold my entire portfolio today. I wasn't going to, but after learning two tenants in one of my houses are moving out this Thursday, I took a hard look at my cash position and where it was headed. A third tenant in the same property left a few days ago, leaving three vacant units; an extra $2000 per month I need to come up with to pay the mortgage. One of my other property's also has a vacant unit that I'm about to put an ad in the paper for; another $800 I need to come up with for that mortgage. Oh, and the first floor tenant at my house, George, hasn't paid me rent in over 8 months; a total of $8000 worth of rent, all of which came out of my pocket to pay the mortgage. I'm sure you're beginning to see why I've become desperate enough to sell my entire portfolio at a 50% loss. Grrrrrr. You have no idea how hard it was to press those sell buttons, knowing I lost so much. Who knows, maybe the stock market isn't for me.

It's said, a penny saved is a penny earned. In today's terms, that penny is equivocal to a dollar. When we look in our wallet, or purse and see a dollar bill, we treat it with Continue reading

Overcoming Desire

So there I was, looking at the Jeep Rubicon on and configuring the model exactly to my liking (pictured). I sat there calculating the monthly payment, modifying the interest rate, down payment, term, etc. I couldn't help myself. I absolutely love Jeep Wranglers. When I was a little kid, I remember watching movies that showed Wrangler's crashing through the forest, blazing trails, and climbing rocks. A vehicle that could go places others wouldn't stand a chance. A design proven reliable during World War II, and 65 years later, still a popular design. Jeep Wranglers stand for everything I'd look for in a vehicle: rugged, versatile, a sign of independence and an outdoor spirit to conquer the world.

2006 Jeep Rubicon

But I don't need it, I just want it. There is that clear distiction between what I need and what I want. After spending hours looking at pictures and planning how I could afford to purchase one, someone reminded me about what I had forgotten. I really don't need one. My 2000 Chevy Silverado 1500 pickup truck runs fine. Sure there are a few transmission problems, 133,500 miles on it, and it costs me $65 to fill the gas every week, but it does what I need; it gets me from point A to point B (as well as anything I Chevy 1500 Pickup Truckmight need to haul along). It makes a lot more sense to pay off my credit card debt and save my money until I really do need a new car. I told myself when I bought my truck, that no matter what, I would keep it for as long as possible (all my previous cars had come and gone within a year!). I've had it for 1 year 7 months; the longest I've ever owned the same vehicle. So for now, I'll have to use the pictures and my imagination to pretend what it would be like to own a Jeep. Sure, the urge to buy it is strong, and I really want one, but overcoming the desire for something you don't need is a goal worth reaching.