The Stuff that Makes Madoff Snicker

  • Posted: March 6, 2014

Bernie Madoff surely got a kick outta this one.

1-14_financialsAs we’ve all heard, in December we had a laughable $38,461 in reserves. Imagine! And less than month later the Board did that little sleight-of-hand thing. While paying off one loan (whose present balance is approximately $1M), the Board infused the reserves with $262,505.51 from another loan. By definition, that’s called “funny money.” It’s hilarious.

Okay, for those not tracking here, to really get to the unadulterated guffaw part, ya gotta appreciate the nuances.

The joke from a home owner’s perspective:

  • Your single largest asset appreciates a meager 2.5% per year (liberal estimate). What a riot.
  • As the above financing scheme is propped up by increased assessments, what you actually get for your assessments diminishes.
  • And you’re stuck! Unless you’re counting on stupid buyers with stupid money, we’re a bag-of-debt and then some. Perception is reality. That lowers the value of your unit and simultaneously lowers demand. We were long in the tooth. And now we’ve got a dentist giving us gas to mask a painful cavity.
  • That inability to sell without taking a bath leads to more rentals which only further devaluates the property further. It’s a vicious cycle. Regrettably, a topic the Board is NOT willing to address.
  • And that leads to a downward spiral as the higher rentals and poor finances turn off lending institutions.

Bahahaha!

The joke from an investor’s perspective is even better:

  • The above scenario, i.e. creating more rentals, lowers what you can ask for in rents. Simple supply and demand.
  • It also lengthens the time it takes to rent if there’s turnover. Not to mention the perpetual increase in assessments. There goes any profit potential.
  • And your stock here languishes while other opportunities locally are seeing increases of 14 plus percent.

Okay, maybe it’s not that funny at all. Maybe the joke is actually on you. BUT, that slight-of-hand with the debt-funded reserves sure made Bernie Madoff snicker.

Something to think about seriously in the coming elections.

1 Comment

  1. Vince Scott · March 6, 2014 Reply

    Website looks good.

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