Welcome to Chez Cliff!

To be perfectly honest, I don’t like writing out Goals and Objectives.  The closest I get is writing “To Do” lists and marking items off.

So why am I writing this?

I felt it was important for you, loyal reader, to understand the direction this blog will take during the next 12 months.  My head has this map of how I want the year to unfold and it will be that map I’ll attempt to explain below.

(1)  Real Estate

Yes, I have to get out from under my current situation.  We’re doing alright for the moment but that could change.  In March timeframe, the houses will be back on the market and we’ll try again to get them sold.

Am I getting completely out of REI?  Not at all.  With my recovered funds, I’m hoping to get into something which will be significantly easier on the wallet.  Whatever it is, it will certainly be an asset where if I leave then the unit will have positive cashflow.

No longer am I buying properties with the hope that they will break even.

Oh and if I can help it, I won’t be employing any contractors.  I don’t have the mental energy to climb into that jungle gym again.  My next purchase has to be “no assembly required”.

(2)  Online Business

This is thoroughly fun.  90% of my energies will be focused here.  I want this to grow.  I want this to blow up.  Every day I want to wake up scared with how much this thing has become.  Hehe.

With the REI software, we have several other pieces of software to compliment our collection.  Also we have some completely different software we’d like to develop and release into the wild.

Some serious thought has been given to try the “drop shipping” model that Kenric is working.  I’d like to be able to do something like that with high price items but I want to make sure I can stay out of the loop.  If I could find some way to automate the “Customer order to Drop Shipper” process of the loop, I’d be happy.  I don’t mind answering emails or phone calls.  But I’d hate to think that 10 or 20 orders could pile up in my inbox while I’m traveling across the pond.

(3)  Giving Back.

The more I play around with businesses and investing, the more I realize how blessed my life truly is.  This year, I would like to setup some kind of fund-raising initiative for a charity.  A few ideas are bouncing around in my head which are relatively painless to implement but could impact the lives of many.

(4)  It’s all about fun.

With the exception of a ski trip, I did nothing in 2008.  And I’m feeling it mentally.  That has to change.  Of course I get the distinct feeling that removal of some of this financial dead weight off my shoulders will help out.  But I need to travel.

(5)  It’s time.

I want to leave the “9 to 5″ and be on my own.  It’s time.

Some things just crack me up.

It was over a year ago that Barron’s profiled a little pharmaceutical stock called QSC. At the time it was hanging out at 1.20 per share. To say that I’m a savvy stock investor would be laughable at best. I’m still relatively new to the game but as time passes, I’m getting better.

I’m not sure what it is but I have an affinity for penny stocks. And something appealed to me about this company called QSC. So I bought a few hundred shares.

A few months later, the stock dropped. It landed at 80 cents a share. Two days later it sunk to 60 cents. Then it sailed down to 40 cents. I did the only thing I could think of: bought a few hundred more shares.

Then it went to 20 cents per share.

At that point I felt as if I had made a terrible mistake. I wasn’t too upset about the money because I only invest what I feel comfortable losing. The company had a new CEO and some prominent doctor from Johns Hopkins joined the board. The company still felt right to me so I held my position.

A month passed by before a friend of mine came running to my cube. “Dude! QSC is going ballistic!”

2.12 per share. Once at that point the company was finally eligible to be listed on the NASDAQ exchange where it’s symbol became QSC.

Two days later, it hit 5.10. I couldn’t believe it! My few hundred dollar investment had turned into a few thousand dollar investment.

This last week, it crested above 6.50. I won’t even consider selling QCOR until it hits $10 per share. A 2000% return feels right to me.

Hear me well doubter . . .

I never, ever give up.

Mentor: “Dude, you made your mistake. Now what are you going to do?”
Clifford: “Play again. I just need to figure out how to be able to access a little more capital without having to make monthly payments on it.”
Mentor: “You have access to capital.”

For my next project my mentor has proposed working with me side by side.

It is in my nature to do things on my own. Part of my character rebels against relying on anyone to carry out their part of the deal. Usually the person flakes out, walks away thereby leaving a mess.

When my mentor tossed out the idea, I had to mull it over. The romantic notion still exists that I can do this on my own. My own path can be paved with smart decisions and lessons learned along the way.

But this is unique. My mentor plays at the big boy table. Bringing him gives me virtually unlimited access to all his knowledge, all his skills, and a lot more education than could ever be learned out of a book.

A secondary benefit: the level of risk would be greatly mitigated. If a deal was found that I thought was good, his eyes can see things mine would miss. Since he is usually right in the matters his judgment would prevail.

Indirectly this makes me responsible to other people. My reputation is now on the line. Does this make me nervous? You bet. But by delivering, more capital for future projects will be forthcoming.

My next task: develop a spreadsheet which can be used to analyze properties, front to back. Not usually my calculations but using his. My thinking: why present him with properties if I know in advance won’t work.

My mentor likes this idea.

I’m feeling really good about the next project and I have no clue what it is.

Giddy up!

Once my finances had come together in one place, the decision that something had to go was simple. The next question: Which property to sell?

Looking at my income statement, Property #1 is the biggest negative in my financial picture. Selling Property #1 would alleviate a large, monthly expense.

But there is more than just a negative expense.

The purpose of the Property #1 HELOC was two-fold. (1) get rid of my credit card debt (2) have cash to do the next deal. When the market went soft, the area of Long Beach where Project#1 is located decreased in value between 3 and 6%. Suddenly I found myself in a situation where more was owed on the house than what the value was.

If Property #1 were to be sold, the bank would obviously want their money from the HELOC. Can’t forget taxes. The last expense involved with selling a house are the real estate agent fees. I’ve been told to prepare for 6% expenses. Realistically speaking, tens of thousands of dollars would have to be paid and with no visible means to pay them.

Property #2 has a lot of untapped equity. All loans and taxes owed on Property #2 could be paid. Any proceeds gained from the sale of Property #2 could be put against the HELOC on Property #1. The large, negative HELOC would be drastically reduced.

Putting finances to the side, Property #2 has several benefits over Property #1.

1. Property#2 is in a nicer area than Property #1.
2. Property #2 fits families nicer, since it is a three bedroom, two bath house.

Yeah Property #2 may not be the logical choice but it is the better choice.

Tomorrow, I’ll discuss the error (or optimistically-caused oversight) with calculating the ROI.

Last week, some of you indicating that seeing numbers would help understand more why I decided to sell Project #2.

In order to clearly understand, a review of some history is in order. Along with a snapshot of my current financial picture. Upon finishing the article, the decision will be made clear as to why the decision was made.

Why Selling

It’s no secret that neither property has positive cash-flow. Property #1 is fully rented however it still has a negative cash-flow. This is due to the large HELOC. That money was used for two purposes.

1. Pay off credit card debt
2. Purchase Property #2

Using the HELOC to pay off credit card debt was still a smart move. Instead of paying nearly $700/month, the payment was reduced to almost $125/month with the added bonus of being tax deductible.

The rest of the HELOC went directly into Property #2. Both for the purchase and for the renovations. The purchase went smooth enough. The renovations did not. Large overruns and serious delays turned a three month project into a six month odyssey. To finish, a small HELOC was taken out on Property #2 and the rest was financed via credit cards.

The burden on my finances: Carrying one large and one small HELOC on both properties. Paying water, trash, etc for two properties each month. Credit card debt. On top of all that, add my personal expenses just to live. Car, cable, Internet, food . . .

This has stretched my finances. Purchasing another property, even in these market conditions, has become impossible. Unless the next property has stupendous positive cash-flow, all my negatives would wipe out any serious gains.

With all that being said: the finances forced me to ask some seriously hard questions. The biggest question: Do I remain in a situation with having two negative cash-flow properties OR do I jettison one property in preparation for the next property which will have positive cash-flow? If selling a property resulted in a loss of cash, would it still be worth it?

What do you think?

Tomorrow I’ll discuss the logic behind picking Property #2.