Every veteran has a unique story.  Today on Memorial day take a moment to learn a new one. 

I’m getting calls from a company called Blue Moon Capital. Google them and you'll find the website.  Annoyingly enough, they have been posting comments on my blog advertising their service – a practice that I’ve requested that they cease.

The premise of the company is that they identify investment possibilities for you, and for a $5,000 fee they’ll provide the investor with title and a bridge loan, then refinance at an 80% LTV. Their main pitch is that they’re offering you, the investor, “20% equity built-in as a head start.”

The details of how they propose to accomplish this are hazy. I’m a smart enough guy, but over the course of a couple of unsolicited phone calls and a few emails I haven’t really figured it out. Here’s their financing overview from their website:

There’s an interesting footnote to the right side of the diagram: “Depending on your loan structure, Blue Moon cannot guarantee no money down at refinance.”  Which to me means that it's likelly that you'll have to pony up 20% of the purchase price in order to get that 20% built-in equity.  Plus the $5k fee upfront.

Well I haven’t done exhaustive due diligence on this company, but I do know that chasing a something-for-nothing strategy is a sucker’s game – especially when the opportunity shows up via a cold call. Remember what your mom told you about deals that look too good to be true.

Well I haven’t been a very diligent blogger as of late, but my excuse is that I’m now working full time for one of our presidential candidates. I’m told that mixing business and politics is unwise so I won’t specify which candidate - because If I did I would alienate 100% of my Republican readers and almost (but not quite) half of my Democrat readers. So – I won’t say who I’m working for.

But I will say that being on the road non-stop (I’m writing this dispatch on a plane from North Carolina to Puerto Rico) has acquainted me with some of the finer points of being a long distance landlord – a good reminder of why I prefer to invest close to home where I can keep an eye on things. What’s saved me is the fact that I have developed a bullet-proof relationship with an excellent realtor that I trust and with a handyman/contractor that values me as a repeat customer and not an easy mark. So although I like to keep an eye on things I realize that the world isn’t going to come unglued while the cat’s away.Good investors who have developed reliable relationships realize that they’re not indispensable - their businesses continue to run in their absence.

I right now am looking at an article in the Economist that is reviewing the current foreclosure/subprime mess that we’re in. The article considers, among other things, the ratio of rents to property values as an indicator that many regions of the country have farther to fall. This is a metric that I’ve written about before, and one that, in my opinion, is not written about enough in real estate circles. Consider it a P/E ratio for real estate which assumes that the price of a property “reflects the discounted value of future ownership, ether as rental income or as rent saved by an owner who lives in the house.” According to the popular Case-Shiller index property values would have to fall an additional 10-15% over the next year and a half for the ratio to return to the historical average of between 5% and 5.5% (it reached 3.5% at the height of the boom.)

And yes – I do understand that all real estate is local. But this stuff is important – the credit market is a tide that lifts and lowers all boats, so I for one am keeping an eye on the broader market as I think about my next entry point.