Vulture Investing: Buying the Joneses Stuff at Half Price!

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I had an interesting talk with a family member yesterday regarding her neighbors — the stereotypical Mr. & Mrs. Jones – who now find themselves in a personal finance bear trap.

They’re trying to unload their 2 year old SUV because they can no longer keep up with the payments on three cars. That’s right folks – they have three cars, all of them financed. I wasn’t sure consumers of this caliber still existed, but apparently Darwinism no longer applies to financial matters in this day and age.

However, now that they think “times are tough”, they appear to have seen the light.

They’ve tried selling this SUV for months without any luck. So they’ve dropped their price to roughly 50% of the original price (what a car dealer would give them on trade in) or looking for someone to simply take over their monthly payments.

Naturally, I have my doubts about taking over the car payments because common sense tells me that they may owe more on their loan than the SUV is worth. However, the bargain hunter in me started getting curious.

In Times of Crisis… There is Opportunity!

Don’t get me wrong, I feel bad for people who were negatively affected in the financial crisis and economic meltdown we’re experiencing.

But still, the writing on the wall wasn’t written in invisible ink. The family in question here isn’t exactly a model of frugality as you can plainly see. If anyone is this severely leveraged and just now identifying the problem, it’s difficult for me to hold back the tough love in this “Keeping Up with The Joneses” case study.

Moreover, I know them fairly well and I’m almost ashamed to say the husband sort of looks like Stanley Johnson from my favorite Lending Tree commercial. I particularly love the part of “How do I do it? I’m in debt up to my eyeballs! Somebody help me!”

Since they’re in need to liquidate their assets at discounted prices, it’s not hard for me to see why those who kept sound financial discipline to swoop in and buy their assets at substantial discounts.

What Can Vulture Investors Buy at Half Price?

It might take you some legwork and bargain hunting, but the deals are out there.

Housing Market Liquidations/Foreclosures. One of my old college roommates recently bought two rental properties at 65% of their appraised value. Yes, he got financing in this bad economy. Because he found such a deal, he put no money down because the appraised value was 35% higher than the asking price. The owner was forced to sell quickly, and he jumped on the opportunity. Thus, making a sizeable profit (equity only) minus the closing costs. The best part was the rental units had occupants so they generated rental income almost immediately after closing.
Private Auto Sales. Like the example above, for sale by owner cars are a savvy buyers dream. We come in with cash on hand ready to buy, and if you find the right seller, you can come away with one heck of a bargain. I’m told this SUV sold in the high $40,000 range, so offering something in the low 20s could save you $20,000 or more just by being patient, and being an educated consumer.
Gaming Equipment. I no longer get into the video game scene, but I can recall people standing in line for days to play Halo 3 on Xbox 360. The price wasn’t cheap either, something in the neighborhood of $300 to $400. Over at Craigslist, I’m seeing Xbox 360 systems being sold for $120 and Halo 3 for $20.

I’m sure there are tons of formerly hot items that are now selling for pennies on the dollar. If you found a bargain, and want to brag about how much you saved or you just want to help some other folks save a few bucks, drop us a comment below.

Photo by eschipul

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Posted by Matt SF @ 30 January 2009 13 comments

Tags : Auto Sales , Bargain Hunting , foreclosures , Joneses , Vulture Investing

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Feb 2, 2009
5:13 pm

#1 Darwin's Finance :

You’re right on that this recession is bringing on opportunities for people who have cash on hand. I’ve been using this tack with retailers, brazenly walking up to the manager and saying, “How much can you give me that item for below sticker?”. In some cases, they cock their head and are shocked since they’ve never heard that question, but I counter, “hey, we’re in a recession and you’re not moving any inventory. how much will you discount that item for if I buy it tonight?”.

I’ve been holding some cash for a while for a real estate purchase. If this 4% mortgage rate in the stimulus package goes through, I may just have to unload a piece of real estate off someone who was overleveraged and got called as well.

While I can’t take credit for fully “shorting the financials” or unloading my 401k into money markets a year ago, I’m glad I have ample cash on hand to exploit good opportunities when they come along.

[Reply]

Feb 2, 2009
6:47 pm

#2 Matt :

@ Darwin

I like that tactic, and I’ve only tried that once. It was a Best Buy just before closing and they had a used office chair on display. Got it for about 20% off b/c it had a few scratches on it, but was perfectly fine other than the aesthetics.

I think your idea is certainly worth a few days thought if the bill gets pushed through. I’m not sure if we’re at a bottom or not, but making a few investments along the way down is probably the best way to play it.

[Reply]

Feb 10, 2009
8:11 pm

#3 SimplyForties :

Cash in hand is certainly king these days. Whether you are buying from failing retail stores or from the Joneses, there’s no reason to feel guilty. There are some great deals out there!

[Reply]

Feb 10, 2009
8:46 pm

#4 Matt :

@ SimplyForties

Amen! It’s the only good thing I can say about this whole mess. Even if I’m an unwilling shareholder of GM, Citigroup, Bank of America, at least I’m getting a deal on Mr. and Mrs. Jones’ stuff.

[Reply]

Nov 3, 2009
8:16 am

#5 Financial Samurai :

I’m actually trying to start a “Vallejo Freedom Fund” to scoop up a lot of junk properties, but only have about $1million in capital interested in investing. The problem is to buy investments, you need 30-40% down, so my leverage isn’t going to be that great.

Need big bucks to make big money, otherwise, why bother. Easy to make a lot more money just working.

[Reply]

Matt SF Reply:
November 3rd, 2009 at 10:36 am

$1M isn’t a bad start up number, but I suppose it all depends on what properties you’re going after and the annual cash flow numbers. But if you can start with 3 properties, that’s still saying something fairly substantial considering you can build cash flow and a good business rep.

I’m sure GE or Berkshire Hathaway wasn’t built in a day! ;)

[Reply]

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