Over the past several months, participation in the chats has declined as the economy, and real estate especially, have struggled. Although the economy is the best for true investors they have seen in their lives, both Mike and Roger have come to the realization that continuing the chats with such limited participation is no longer an effective use of their time. Therefore, at the end of the year, they will be retiring to devote more time to their passions for golf, fishing and other similar activities others enjoy in retirement. The transcript posted below is of the final chat, which was held December 5, 2012.

Both Mike and Roger wish you HAPPY INVESTING AND A REWARDING FUTURE!

That’s where our nation is today and the current crisis is just the tip of the iceberg. Here are some staggering numbers to which no one seems to want to pay attention. As of November 2011, after all the bailouts, the federal debt was just shy of $15 trillion, but that doesn’t include the unfunded portions of Medicare, Medicaid and Social Security. When these amounts are added the total rises to $116.3 trillion. That’s over $1,000,000 per taxpayer. But wait! There’s more. Add to this nearly $3 trillion in state and local government debt and almost $16 trillion in consumer debt and you have a nation facing eventual bankruptcy unless we rein in spending and start paying off the debt.

Over the past 40 years, we have created the most envied standard of living in the world. The problem is, it has been done with massive debt. The current financial crisis is nothing more than a gentle breeze rattling the house of cards compared to the inevitable collapse that could come if we don’t start getting our house in order. Just as the family in the earlier example will eventually exhaust their ability to borrow and be forced to take drastic and painful measures, like Greece, so will our country.

Currently over 25 percent of our federal debt is held by foreign countries. Japan and China hold over $1.5 trillion of it. Imagine what would happen if either country stopped investing in US treasury back securities and decided to unload the ones they already hold. It would make today’s financial crisis look like a mosquito bite compared to a rattlesnake bite. It probably wouldn’t kill us, but it would sure create a painful experience that practically everyone would feel. Don’t think it couldn’t happen. Neither did the Greek population. The moment the rest of the world fears that we are becoming overextended, they will do like any other lenders and cut off our credit.

Today’s dilemma is how to get politicians to make responsible decisions when those decisions may cost them reelection. Reining in run-a-way spending and asking constituents to make sacrifices is not popular. Lacking basic financial literacy, it’s impossible for most people to understand that the euphoric feeling which accompanies an increasing standard of living is unsustainable when it’s done with borrowed money. That’s why I’m such an advocate of placing special emphasis on teaching personal financial literacy in our public schools. An educated populace will be better able to understand and accept the tough decisions that are needed to put our financial house in order.

Until elected officials stop putting reelection ahead of what’s best for the citizens, we are going to continue having economic problems. More government intervention is not the answer! As Gerald Ford said in his address to a joint session of Congress on August 12, 1974, “A government big enough to give you everything you want, is big enough to take away everything you have.” We have to educate ourselves so we can understand and deal with the problems. Thomas Jefferson said, “If a nation expects to be ignorant and free…it expects what never was and never will be.” We need more personal responsibility and fewer government bailouts.

Here’s a tip! Visit the website www.usdebtclock.org to see the problem and how rapidly it is accellerating. Then think! Individually, there may not be much you can do to influence out of control government spending, but you can put your own house in order. A good place to start is by learning basic consumer economics. If you have been living above your means and have racked up a pile of consumer debt, now is the time to go on an austerity program. Reduce your spending to a bare minimum and start paying off your debts. When you become debt free, your future will belong to you instead of being owned by your creditors. Tomorrow’s income can be used to start a regular program of saving and investing instead of making debt payments. That’s the way to secure your future. The more wealth you can build, the less impact tough decisions will have on you when they finally have to be made.

As many Americans are now discovering, the dream of owning your own home can quickly turn into a nightmare when you don’t follow sound financial principals. I believe lack of financial education has contributed as much to people losing their homes as the unscrupulous lenders who made them their loans. We all have to take the blame for tolerating this major failure of our educational system, but we don’t have to keep tolerating it.

If you are outside the US, this will be 1:00 AM Greenwich Mean Time (GMT), December 6, 2011. Also, here is a link to a world timezone clock to help you determine the time in your area.

http://www.worldtimezone.com/

When buyers are abundant and money is easy to obtain, buying becomes competitive and leads to the same type hype and enthusiasm an auctioneer can create. The difference between asking and selling price is small or non-existing during these times. Conversely, when inventory abounds, money is tight and buyers are few, the price difference can be quite significant.

Real estate has three types of buyers. The first is retail buyers who buy homes in which to live. They typically make offers that, within reason, are based more on how much they like a property than whether it is a good deal. The second is investors who make offers based on the amount of income a property can generate. And the third is speculators who buy properties hoping to sell quickly for a profit.

Don’t confuse investors with speculators. Investors buy and hold for the income real estate can provide. People who have to sell properties to make a profit are speculators. Flippers, rehabbers and wholesalers fall into the speculators group and are the ones impacted most by market movements. When prices rise rapidly, speculators make huge amounts of money, but when conditions change and prices fall or just hold steady, they can suffer big losses.

The difference between asking and selling prices is largely determined by retail buyers and speculators. Investors are wholesale buyers who base their purchases on the income stream properties can support and therefore are rarely affected by volatility in the market. They hold their properties for the income and don’t sell. On the other hand, retail buyers forced to sell due to job loss, divorce, transfer, rising interest rates or other factors and speculators facing falling demand are often forced to take huge discounts in order to sell. This price cutting causes the gap between asking and selling prices.

Investors aren’t swayed by appraised values, the way retail buyers and speculators are. They know that appraisals are nothing more than calculated estimates of market values assuming sufficient marketing is conducted and reasonable time is allowed to find a buyer. Appraisals, especially ones involving single-family homes, establish retail values and are of little use for anything other than obtaining conventional financing from banks or supporting a retail sales price. They have little to do with the investment value of properties.

Appraised values often give new investors a false sense of accomplishment. They become very excited when they make a purchase a few thousand dollars under the appraised value, especially if they can finance it so that the payments are less than the rent. They quickly learn the value of appraisals when they start having to dip into their earned income to pay all the expenses. Many sell their properties for less than they paid, take big losses and become ambassadors for the crowd who proclaim, “Real estate investing is not for me.”

With the market growing colder by the day and unsold inventory on the rise, now is a great time to buy. Sellers are becoming increasingly flexible in both price and terms and rents are rising. While the outlook for real estate investors is very good; for speculators it’s very bad. It’s also bad for retail buyers who are forced to sell, especially those who bought using interest only, adjustable rate, or sub-prime loans. But the biggest losers are the financial institutions who caused the mess. They are awash in foreclosures and there is no letup in sight.

Here’s a tip! Forget all the negatives you hear about investing in real estate, it’s still the surest way to wealth. If you’re an investor or want to get started investing in real estate, now is the best time I’ve seen in my lifetime. Forget about appraisals or asking prices. Determine a property’s value based on the income it can produce after all expenses are considered. That’s the money with which you’re going to pay for the property, so structure your offers so the net operating income, not the rent, will cover your payments. If you plan to pay cash, divide the annual NOI by your desired rate of return and that will determine what you can pay.

Even if you’re buying a home in which to live, the market is so flooded with inventory and there are so many speculators in trouble, you should have no trouble finding a good deal on a house you like, especially if you will think and make offers the way an investor would. Assume you might need to rent the house in a few years. If you determine its value based on the amount of income it can produce, you won’t get in trouble.

Stick to your determination of value and don’t let seller dissatisfaction deter you from making offers. Wholesale offers offend some sellers! This is understandable, because most sellers base their asking prices on appraisals or optimistic estimates of value by real estate agents. Many also attach sentimental values that mean something to them, but have no value to a buyer. Just remember when making offers that a low offer is better than no offer. You don’t know what sellers will do until you ask and the way to ask is with a written offer.

When a teenager is given a car as soon as they become old enough to drive, it denies that young adult the opportunity to learn the value of patience and it takes away that feeling of exhilaration that comes when you finally get something you want very badly, but have had to wait and work to get. Schools can’t keep parents from overindulging their children, but they can teach the young people about the cost of ownership and I’m not just talking about making the payments.

With a car, comes the cost of fuel, tires, maintenance, inspection, insurance, depreciation etc. If it’s financed, add the cost of interest, which buys nothing but time. The economic lesson not being taught by our schools is that all assets have a cost of ownership. Individuals own homes, cars, boats, recreational vehicles and other assets. Governments own schools, office buildings, roads, bridges, airports, ferries, and numerous other assets that like a teenager’s car must be serviced and maintained. When young people fail to learn about the cost of ownership, how can we expect them to understand the cost of owning a home or car or be savvy enough to elect officials who will be concerned about the cost of government initiatives?

Granted, we live in the most prosperous nation on earth. Our standard of living is the highest mankind has ever known. We are the envy of the world. But what nation wouldn’t be after running up more than $17 trillion in personal, city, county, state and federal debt. Shouldn’t educating our children about the effects of all this debt be mandatory in our public schools? Imagine what our standard of living would be if we suddenly had to pay off the debt? Why do we keep running up consumer debt and urging government to spend more to make our lives even better?

During this election year you can bet candidates will be promising all sorts of perks to entice you to vote for them. I doubt this tactic would work so well if voters realized that nearly every function of government has an ongoing cost that has to be paid sooner or later. Teaching teenagers about the cost of owning a car could be a good way for them to start learning this lesson. Mom and dad aren’t going to be around forever to help pay the expenses. When things come too easily they lose value. We’ll never wean ourselves from debt as long as we live a lifestyle that’s above our means and saddle our children with the bills.

As I said in the beginning, it’s a huge problem that threatens the economic well being of the nation. It’s a much larger problem than can be addressed in a short article like this, or even in a hundred more articles for that matter. But there is a solution. That solution lies with you and me and our children and our children’s children. We must bring common sense fundamentals of consumer finance back to our individual households and demand the same from government.

Our problem as a nation didn’t happen overnight. The massive federal debt has grown the same way an individual’s credit card debt grows a little at a time over a period of years. State and local government debt has done the same. A new program here, an expanded department there, new laws that must be administered, social programs that frequently destroy initiative and create economic cripples are a few examples. We have to learn say no to things we might want but can’t afford. In our households, we cut back on spending when our finances get out of control or we aren’t able to build a nest egg for the future. Government needs to do the same and we need to demand it.

Here’s a tip! Whether it’s an individual household, a city, county, state or the nation, you can’t borrow your way to lasting prosperity. Thomas Jefferson said, “I place economy among the first and most important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt.” Today, the federal debt alone is a staggering $14,000,000,000,000 plus and growing rapidly. It takes over $400,000,000,000 annually just to pay the interest, money which buys us nothing. Think about it! Shouldn’t we be educating our children about this threat to their future, or are we afraid it might expose how we have enhanced our lives at their expense?

A very unusual part of this visit occurred on our way to be seated. We were taken on a tour through the kitchen so we could see how our food would be prepared. Then we were led to a dining room section that contained seating for about 40 people where we were directed to a large booth that could easily seat six people. As you can imagine, after a hard day of training, we were ready for little refreshment and a good meal. When I turned to look for a server, Pat suddenly appeared from just behind my left shoulder.

Before I continue with this story, let me say that Pat, although attractive, was not a youngster working her way through school. She very efficiently took our drink orders, told us about a couple of specials and invited us to look over the menus while she got our drinks. Before she left, she made it a point to let us know that after bringing our drinks, she would leave us for another couple of minutes while she checked on her other tables, but would be ready to take our orders when she returned. I was amazed at the way she assured us of good service while tactfully letting us know she had other customers to serve as well.

I watched as she turned in our drink orders, and then methodically moved through the dining room checking to see if anyone at the other tables needed anything. Without back tracking or wasting a single step worked her way back to server’s station just in time to pick up our beverages. She arrived at our table with our drinks on her tray and a smile on her face. As she was placing the drinks on our table, she asked if we had dined at Buca di Beppo before. We told her we had not, so she proceeded to give us a brief but informative history of the place along with her assurance that it would be an experience to remember. Then she was off to make rounds to the other tables as she had told us she would do.

We looked at each other and I said, “Wow, that woman is good!” A conversation ensued about what it takes to be a great server and even though the evening was just beginning, we knew we had one. In the ten minutes or so that we had been seated, we hadn’t seen another server come in or out of the room. When she returned to take our order, I asked Pat how many other servers were helping her in the room. I told her that I hadn’t seen anyone but her since we sat down.

“Honey, I’m it,” she said. “This is my section and I take care of everyone.”
“How do you do it,” I asked, because in most restaurants there would be three to five servers handling that many tables.

“I’ve been doing this for years,” she replied. “I don’t need help from a bunch of these youngsters who make three trips to do what can easily be accomplished with one. They just get in my way. Please let me know if you find anything lacking in my service.” I knew immediately there wouldn’t be.

We watched Pat work the entire section without anyone, including us, having to flag her down or wait for service. She was like a finely tuned and well oiled machine as she anticipated every need and responded without having to be asked. There was no comparison between Pat’s service and the service I had received the evening before at another restaurant. When I left a tip that was about 50 percent of the price of the meal, Pat thanked me profusely and said, “I’ll bet you understand what T.I.P.S stands for, don’t you?” I said, “To Insure Proper Service,” and she just smiled and thanked us again for allowing her to serve us.

Here’s a tip! It doesn’t matter whether you’re building houses, working in a factory or waiting tables in a restaurant, if you strive for excellence and your performance delivers it, you will be rewarded. After watching her work the room, seeing her interact with customers and observing the pleasure they were receiving from her service, it wouldn’t surprise me if Pat makes more in T.I.P.S. than the restaurant manager makes in salary. She was a marvel to behold.

Here’s another tip! If you want a fine meal, the most awesome service you will ever get, and an opportunity to see what perfection and performance is all about, visit Buca di Beppo in Orlando, Florida and be sure to ask to be seated Pat’s section.