Casey Serin: Poster boy for US Housing 'Bubble'?

If you haven't heard of who Casey Serin is yet, from http://www.iamfacingforeclosure.com/, you probably will.

The story is disturbing yet strangely fascinating... I'm sure you've heard of the "US Housing Meltdown" all over the press, it is an economic cause of major concern right now in the United States. Without going into too much detail about it, there's a major correction underway in several major cities and, well, in almost all states in the US across the board real estate prices in United States are really getting hit hard.

The overwhelming sentiment in Canada is that although we've yet to see a national correction at this time, many people think we're going to receive an ugly spillover from this US housing softening. We may or may not, that will only be revealed in the future. I personally don't think we'll be affected, but even if we are, I don't believe we would see the same magnitude the US is currently experiencing (mostly because of our much more conservative and regulated lending practices as compared to the US). Time will tell though.

Anyways, some cities more that others are getting hit harder in the US right now. Some areas are flat lining where others are outright crashing. Casey, a 24 year old real estate "investor" from Sacramento, CA is in one of those areas suffering tremendously.

Casey Serin went to a number of real estate guru seminars, got all fired up and went on a spending spree. I'm not talking about venturing into the local Walmart and impulsively blowing a few hundred bucks on things he really didn't need. The guy went berserk and accumulated 8 houses in 8 months and set-out to flip these properties by putting a little work into them. He is now $2.2 million in debt and can't find a buyer....anywhere.

You read that correctly. Casey Serin, at the young age of 24 is $2.2 million in debt. Actually, more specifically, the debt is backed by houses that have lost a ton of value. He bought with "nothing down" techniques taught by the gurus and the properties declined. Declined BIG TIME. When/if Casey finds a buyer and liquidates his real estate holdings, he will be in the hole and on the hook to creditors for more than $600,000 reportedly. The value of his properties at this time is only $1.6 million, versus the $2.2 million he owes. If that's not bad enough, Casey is also over $140,000 in credit card debt and each month that rolls around, Casey owes more than $20,000 a month in payments to creditors. He is in the foreclosure process with his properties and is being personally harassed by creditors on a daily basis. And there's no certainty the market will go back up and bail him out anytime soon.

Oh, did I mention Casey doesn't have a job? He quit his full-time employment to pursue his real estate investing "career". So that doesn't really help his $20,000 a month payment problem either.

I encourage you to check out his site, it is an interesting take on the dark side of investing using leverage. Leverage cuts both ways: It magnifies investment gains and it magnifies investment loss. Everything is openly documented on Casey's blog, including the actual properties currently in foreclosure looking for any buyer.

Some say that it is so ridiculous that it must be a scam or some kind of hoax, much like the notorious blog "lonelygirl15" you've likely heard about. I don't know. But at the very least it is educational. The consensus out there is that Casey will be going to jail as he committed mortgage fraud by saying he was "owner occupying" all these places, amongst other legal issues. He outright publishes his fraud/potential fraud (its still being debated if he really did commit mortgage fraud) and writes of his fear of going to jail. The comments on Casey's blog range from daily support, to downright hatred.

Everyone has an opinion on it and most opinions are quite colourful. Like the one comment on his blog that says, "Casey must possess the "fecal finger." Unlike King Midas, everything Casey touches turns to you know what."

Why he is being considered "the poster boy for the US Bubble bursting"? (He's been interviewed in USA Today and all other mainstream media. The USA mainstream media can't make an example out of Casey quickly enough. It's a story gathering momentum quickly).

Probably because the overall agreement is that guys like Casey Serin over-inflated the bubbly US market with their rampant speculation. And that makes a lot of people angry... Especially the people who were -and still are- locked out of the opportunity to purchase a family home because of the high price tag of US housing affordability. Their anger is at that the speculative actions of people like 24yr old Casey. I guess they believe people like him contributed to driving their local real estate market higher. So Casey is fast becoming the "poster boy" of the US housing bubble & those angry can now rejoce in his pain I suppose.

Here is his caption on his blog:

Casey Serin: I'm a 24 yr old real estate investor from Sacramento CA. After going to a few seminars I bought 8 houses in 8 months in 4 states with no money down looking to fix 'n flip. I made some mistakes and fell flat on my face with millions in debt and facing foreclosure. Trying to avoid foreclosure, sell quickly, repay everyone.

I'm going to weigh in here and point out a very common misunderstanding when it comes to real estate "investing" as Casey calls it. First and foremost, fix'n'flip is not "investing" it is instead speculating. There's nothing wrong with that if you know what you are doing but it certainly entails a great amount of risk. I have some friends who are incredibly skilled in this arena and have put those skills to work to the tune of several hundred thousands of dollars profit. No joke. But they are experienced, understand the downside risk, and they have a plan in place in case the market turns unsuspectingly on them. Again, they are incredibly skilled and experienced and understand the risks involved. I don't know if we can say the same about Casey.

I don't possess this fix'n'flip skill and I realize that. Instead, I subscribe to the vastly different landlording route with regards to real estate. I hold properties for the long haul instead (many years), being careful to purchase correctly with respects to fundamentals right from the start. I don't believe in really ever selling, but that's getting away from the point of this post.

The point is Casey speculated on housing and gambled on it - not only his money but also other people's money (OPM). He wasn't "investing". Investing is different. If I invest $100 in an asset of some sort and I have a contract to receive $10 a month, that's an investment. In 10 months, I'd have my $100 back. Furthermore, that $10 a month income is free from that point on, & I can move on and apply my original $100 elsewhere. That in a nutshell would be investing. What Casey did/does is buy something and wait for the capital gain appreciation on the property. Remember tech stocks in late 1999? Same strategy.

Casey made a bet, a very large bet for over 2 million dollars, that prices would keep going up. There was no other choice: The properties absolutely HAD to go up for the bet to workout for Casey. If he had a mind for investing and purchased with responsible tenants paying rent, or even knew that the possibility of rental income covering all the property expenses could be implemented if trouble ever occurred, then he would be better able to weather the possible storm IF a downturn occurred. And whatever the upside entails, well, he could happily let that take care of itself.

There was no upside however & as for Casey's adventure, we know the properties fell in value. When they didn't keep going up and to Casey's horror and dismay reversed downward (they don't talk much about that very real possibility in those expensive real estate seminars much now do they?) Casey didn't have a plan except to keep praying a buyer for his price would come along and save the day.

Probably his biggest mistake is he never respected the payment amounts from the start. He took on risky high interest mortgages with massive payments. He didn't even try renting the empty properties to cover his monthly expenses. Why not? I guess because he didn't care about that aspect because he assumed he would have only needed to hold the place for a month or two max. Short, quick timeframe: The house would be sold & the property price appreciation and realized profit would be much more than the short term costs.

The problem with inexperienced "speculating" is that your downside isn't protected. Because Casey jumped right into purchasing without respecting fundamentals, he is now bleeding $20,000 of cash monthly and apparently, because he bought at such inflated prices, the market rent doesn't even come close to covering all costs involved. Until a buyer comes along, Casey's problems will continue to compound. So unless I all of a sudden wake up one morning with new fix'n'flip skills, I'll continue to favour the more conservative rental property approach utilizing leverage, ensuring cashflow covers expenses, as a business plan as descibed here.

The Casey Serin saga still makes for an interesting story though. Even if it is a hoax.