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Russ Whitney' first fortune by John T. Reed 2 Address 335-337 Hulett Street, Schenectady, NY Purchase date 11/15/79 Type two 3-unit buildings Co-owners favorite Realtor'® Type title deed Puchase price and terms $15,300, $2,000 down, $13,300 seller mortgage plus HUD Title I improvement second mortgage for $14,100. Sold to favorite Realtor'® Sale date 12/15/80 Sale price and terms $1,000 for Whitney' equity Net profit or loss Zero (Whitney says he and the Realtor'® each pocketed $5,000 of the improvement loan money. That is arguably illegal. See my article on Whitney' improvement loan "overfinancing" techniques.) Comments Whitney says the $4,100 he and the Realtor'® spent on the improvements added a unit to 335 Hulett. That is not the minor cosmetic rehab Whitney advocates. It is the sort of structural rehab that I say is generally the only profitable rehab. Address 813 & 819 Lincoln Avenue, Schenectady, NY Purchase date 6/8/81 Type 2-family each Co-owners wife Type title deed Puchase price and terms $15,000, $1,000 down, $14,000 mortgage to seller Sold to two construction workers who are named on page 75 of Whitney' book Building Wealth"”they were his partners in owning Mumford Avenue and Schenectady Street Sale date 6/8/81 (same day as purchase) Sale price and terms On p.24 of Overcoming"¦ Whitney claims he made $5,000. I cannot see evidence of that in the clerk' records. They show $16.50 of transfer tax paid on the deed to Whitney and $1.10 paid on the deed from Whitney. Net profit or loss $5,000 cash Comments We"re taking Whitney' word for this. Whitney was involved with four Schenectady area properties years after he left New York for Florida. Address Lot 187 Mumford Street, Schenectady, NY Lot 79 Schenectady Street, Schenectady, NY Lot 77 Schenectady Street, Schenectady, NY Purchase date 5/13/85 Type unknown unknown Unknown Co-owners two construction workers who are named on page 75 of Whitney' book Building Wealth, his favorite Realtor'®, and the guy who moved to FL with him Type title deed Puchase price and terms Unknown, $33,000 seller mortgage Sold to Unknown Sale date Unknown Sale price and

 terms Unknown Net profit or loss Unknown Comments A $13,514 mortgage from the construction workers to Whitney and his move-to-FL friend was recorded on 2/4/87. Mortgage discharges of that mortgage and the $33,000 seller mortgage were recorded 4/30/87. Also on 2/4/87, the two construction workers gave a mortgage to Whitney' favorite Realtor'® for $6,757, which is precisely half the amount given to Whitney and his FL friend. I do not know what this deal is about and I do not recall Whitney talking about it in any of his books. It seems to be the only Schenectady deal that he does not mention. Address 904 Lincoln Avenue, Schenectady, NY Purchase date 3/27/85 Type 1-family house Co-owners two construction workers who are named on page 75 of Whitney' book Building Wealth, his favorite Realtor'®, and the guy who moved to FL with him Type title deed Puchase price and terms Unknown, 7/10/85 $5,900 mortgage to Dime Savings Bank Sold to man from Albany Sale date 12/10/86 Sale price and terms unknown Net profit or loss unknown Comments I could not find any mention of this property or deal is Whitney' books. He sold it to a stranger, but he bought it from three of the guys who co-owned it with him. In orther words, before Whitney and his Florida friend, this was owned by the two construction workers who are named on page 75 of Whitney' book Building Wealth and his favorite Realtor'®. Those three simply added the names of Whitney and his FL friend to the deed. Net improvement in cash after five years: MINUS $126.42 The total cash gain on the above deals is -$4,728 - $1,252.41 + $7,353.99 + $5,500 + $5,000 = $11,873.58. He also left with wraparound land contracts of $36,500 + $4,950 = $41,450. This was from buying, renovating, managing, and selling property over a five-year period. Had he continued working at the "slaughterhouse," he would have made $15,600 x 5 = $78,000 over the same period. Whitney claims to have had some positive cash flow from these properties. That is hard to verify and unlikely. His high leverage would require extraordinarily high mortgage payments. Various documents in the County Clerk' office indicate trouble with creditors, non-payment of property taxes, and housing code violations. In addition, Whitney' own books tell of severe fire damage at one property, embezzlement by a property manager, and inability to rent his house because of a nonfunctioning well. If he had negative cash flow, his net for the five years in Schenectady would be lower than the $11,874.58 in cash and $41,450 in wrap contracts (IOUs) above. Whitney also invested in the Confederation of Organized Purchasers at the time and says he lost $12,000 cash in the process, so his net cash improvement in five years of investing in upstate New York was $11,873.58 - $12,000 = -$126.42. Whitney said he made his "first fortune" in upstate New York. In fact, he appears to have made less than he would have had he remained in his union job at Tobin Packing Co. I cannot imagine anyone agreeing that -$126.42 in cash and $41,450 in land contract installment notes was "a fortune." If he had resold the $41,450 in land contracts for cash, he would have gotten much less than $41,450 for them. That is the real test of what they are worth, not their face value of $41,450. Additionally, Whitney hit a pedestrian with his pickup truck and lost a million dollar suit to that pedestrian. He got out of paying most of it by threatening to file bankruptcy in 1988. The pedestrian' attorney said he believed Whitney gave his client a couple of mortgages and some cash. That sounds like the two wraparound land contracts totaling $41,450"”the only assets Whitney still had in the state where the judgment had been awarded by the jury. (The $13,514 mortgage on the Mumford and Schenectady Street properties had been discharged or paid off on 4/30/87.) Timing could not have been worse Whitney' timing could not have been worse. He started investing in the late seventies. Real estate prices were higher than ever then because of the unprcedented inflation during the Carter Administration. Year Inflation rate Mortgage interest rates 1977 6.5% 9% 1978 7.7% 9.7% 1979 11.3% 11.16% 1980 13.5% 13.95% 1981 10.4% 16.55% 1982 6.1% 15.82% Whitney bought in 1977, 1978, and 1979, tried to sell in 1981, and sold in 1982. When he was trying to sell, interest rates were higher than ever, which makes it very hard to sell because it lowers how much mortgage home buyers can qualify for and reduces the cash flow of rental properties. No arms-length deals Oddly, every sale Whitney made was to an associate of some sort except for one, and that one was bought from associates. Arms-length sales between strangers are generally considered to be at fair market value. But when a property is bought from or sold to an associate, friend, or relative, the question should arise as to whether there is additional consideration going in one direction that is not evident in the paperwork. For example, Whitney says the buyer of 812 Grant above did work for him for free on other properties in return for getting this property. It may be that all of the other above sales are at market value, but the lack of any arms-length deals, which is highly unusual for so many sales, must be noted. It looks like Whitney claimed to have made a "fortune" in upstate New York because he assumed no one would ever check. Until he sued me for libel, that assumption was correct. Copyright 2002, 2003 by John T. Reed Last update 4/29/03 John T. Reed, a.k.a. John Reed, Jack Reed, 342 Bryan Drive, Alam o, CA 94507, Voice: 925-820-7262, Fax: 925-820-1259, www.johntreed.com

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