Flipping homes in a hot market does not make you a real estate mogul!
Mr. NY Fed head who I had an email exchange with in late 2005 and early 2006 who claimed I was an idiot for not realizing this boom was "built on fundamentals and would not stop anytime soon", step out of your ivory tower during the next speculative mania and maybe you might find out what is really going on!
From the NY Times:
At 32, with just one semester of community college, he owned a BMW, a Corvette and a 5,000-square-foot house worth $1.2 million. He was a creation of the boom. “I was on top of the world,” Mr. Haupt said recently.
Then, last May, the real estate market stopped booming.
Now Mr. Haupt’s house is in the hands of his creditors, as are the cars, three small office buildings and 89 lots he bought in a subdivision in neighboring Lincoln County.
He owes about $6 million in personal and business debt, and as Mr. Haupt’s fortunes soured, so have those of plumbers, electricians, framers, landscapers, supply stores and others that relied on his business, which he estimated at $300,000 per month.
He now rents a small house for $1,275 a month. He became a born-again Christian in February, after his business and his marriage collapsed.
Bill Gephardt continues his series of special investigations into the business of questionable real estate deals. This isn’t just about one or two cases. This is about dozens of people pushed to the brink of financial ruin.
Dave Ormsbee has never been inside this Draper home, which he now owns. Dave says it was his good credit alone that bought a home in Draper and a house in St. George, both with no money out of his pocket.
Now at the age of 27, Dave owes more than a million dollars in mortgage loans. Sounds like he makes a lot of money, but quite the opposite is true. Dave is a college student and waits tables after school.
He makes maybe $11,000 a year, yet he bought the Draper house for more than $700,000. ‘You’re a server at a restaurant. How can you afford a $719,000 house? I can’t,’ says Dave.
Despite that, Dave was given mortgage loans on not just one but both of the homes. But how could a college student making $11,000 a year convince any lender to give him a million dollars in mortgages? Take a closer look at Dave Ormsbee’s loan application. It shows him as the owner of his own company, Ormsbee Graphic Design.
But there is no such physical company, it’s all created on paper, he says. ‘That’s
the company that they had me make up,’ says David.
And the loan documents show David doesn’t make $11,000 per year, but $18,500 a month. ‘Do you make $18,500 a month? Nope. I don’t make that a year,’ says David.
Dave says he didn’t fill-out the documents. He admits he made the mistake of never looking at what he was signing. ‘There just so much signing going on that you just don’t care what you’re signing after a while,’ says Dave.