Monthly Archives: February 2009

The Lazy Real Estate Investor’s System for Record Keeping

The lazy investors way of record keeping for rental properties

The lazy investors way of record keeping for rental properties

For the first time in my eight years as a real estate investor I am very ashamed of my record keeping.

I’ve got lots of excuses as to why I let my record keeping slide for a full 12 months: we got married last year, went on a honeymoon, started training for adventure races (which took up 10 – 20 hours a week for nearly half the year!), and were super busy working on our Rev N You website and our Real Estate Millionaire: The Essential Starter Course program.

I think they are all good excuses, but the reality is that I did the exact thing I tell other investors not to do: I let the entire year of receipts, expenses and records pile up without recording any of them! So I just finished three painful hours of entering expenses and income numbers into an Excel spreadsheet for one of our rental properties. Let’s not think about all of the others that still have to get done.

Thankfully Dave and I actually have a really good system in place – so entering the entire year of receipts for this three unit property actually went quickly and easily considering it’s been a year since I did anything. Here’s what we do to make things easy on ourselves when it comes to record keeping for our rental properties:

5 Step Record Keeping System for the Lazy Real Estate Investor:

  1. Open a separate bank account for EVERY property you own. ONLY use this account for income and expenses related to this particular property. To me this is ABSOLUTELY essential when you have partners involved, but it’s smart to do even if you only own one rental property. It keeps your records clean and simple, and you always know whether your property is making money or costing you money because there is either money in the account or there isn’t!
  2. When you spend money out of your own pocket, get a receipt and write on that receipt the address of the property, the specific unit (if applicable) and the REASON for that expense. Don’t expect to remember why you have a Home Depot receipt for $42.31 later on. Even if you end up with 15 receipts in your wallet for different properties, if you write on them in the store before you put it in your wallet, you will have no problem tracking and recording that expense.  This also goes for coffee or dinner with your partners. If you have a meeting about your investments, record on that receipt who was there, the specific address or addresses of the properties you own with the partner(s) and what specifically you talked about. Write all of this on the receipt before you put it in your wallet.
  3. Weekly – review your mail and pay the bills. If you only have one rental property you might be able to do this less often, but with a bunch of properties, you’ll need to set aside a bit of time each week to review the bills. You could hire a bookkeeper to do this, but then you’ll want to have monthly reports sent to you about the bills that are being paid so that you know when expenses are climbing unexpectedly. So, you’ll still need a bit of time to review your report.
  4. After you’ve reviewed and paid the bills, you COULD be keen and enter them into your property income and expense spreadsheet right then and there, but we never do. There’s plenty of reasons why we don’t, but the biggest reason is that it takes extra time and focus to do this, and well, we’re busy. And, sometimes honestly, we’d rather watch Heroes! So, we have a set of stacking drawers – one drawer for each property – and we throw everything that comes in related to that property into that drawer. This includes notices, bank statements, tenant communications and any receipts or bills.
  5. <Here’s where I fell apart in 2008> Once every 2 – 3 months, take out everything you have for that property and enter it into an income and expense tracking spreadsheet (or fancy software program if you use that).  Our income and expense spreadsheet has categories for every major expense and income item, and sums up those expenses and revenue sources at the bottom. It makes it easy for us to see when a specific expense is increasing or decreasing, and it makes it really easy for us to send our accountants the information they need to do our taxes each year.

If you follow the system from 1 through 4, and you get lazy on Step 5, you will curse yourself when you have to sit down and catch up (like I did today), but you will be confident that you aren’t missing receipts or losing track of money you spent or earned!

What’s your system? We’d love to hear how you make recording keeping simple!

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Article Featured in the Carnival of Real Estate #130

Finding motivated sellers has been a bit of a theme around Rev N You lately, and it continues this week, as our article Finding Good Motivated Sellers was one of the featured articles in this week’s Carnival of Real Estate.

Check out Carnival of Real Estate #130 over at vFlyer for a fantastic assortment of useful and interesting articles.

And – next week’s Carnival of Real Estate is going to be hosted by Rev N You! Yep – right here you’ll find the best submissions of the Carnival of Real Estate #131. For more details on submitting an article to an upcoming carnival or on hosting please head on over to the Carnival of Real Estate site: http://www.carnivalofrealestate.com/.

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READER MAIL: Outline for producing $20,000/month passive income in the next 5 – 7 years

This week we did a very soft launch of our new real estate investing course. We wanted to extend our absolute best offer to the readers of our email newsletter in order to show our gratitude for their support AND to allow us the chance to iron out any kinks there may be in the ordering and distribution process. And,  some of our readers asked us questions that opened things up nicely for the launch. Here’s one:

Hello Dave and Julie

I have recently signed up on your website and enjoy your fresh attitude of helpfulness.  It is just a breath of fresh air.  I have been looking to augment my income like most and like the idea of investing in real estate.  I am wanting to produce a passive income of $20,000/month in the next 5-7 years.  Can you outline how I might get there?

Thanks again for your insight.
Joe

Here’s my response:

Thanks for your great email Joe – and for your compliments!

It’s pretty much impossible for us to outline a plan for you without knowing your current financial situation, your risk tolerance, the types of properties you’d be willing and able to invest in, and so much more!

We’re happy to tell you that $20,000 per month in passive income is very achievable with real estate in 5 – 7 years, even if you are starting out today with very little money. HOWEVER the price you will have to pay for that today may be higher than you’d like to hear. You will need to devote a lot of time and energy to getting there. And, unless you have lots of cash to play with now, you’ll need to use sweat equity and lots of research to find the best deals, attract partners and generate cash to continue your investments. It’s a tough, uphill battle. This may be fine for you – but for us, we’ve found that steady and low stress real estate investing is more our style.

What’s that mean? Well, following the program we’ve created for our Rev N You readers (The Real Estate Millionaire: The Essential Starter Course), conservatively, you could get to $5,000/month in positive income from simple real estate investments within 6 years. It’s the sure and steady way to building your wealth and your income. Start our process today, and within 6 months you can be painting the walls on your first rental property. 12 months later you’ll be posting “For Rent” signs on your second property … and every six months you’ll add another property to your portfolio. After only 6 years, you can be depositing almost $5,000 a month into your bank account after all the expenses and mortgages have been paid on your properties!

You’ll add the properties slowly to ensure they stabilize and run themselves – and your investing stays part time and low maintenance.

It won’t be glamorous – but if it feels boring then you’re doing it right!! When real estate is full of thrills and excitement it often means you are taking big risks … and we’ve learned that big risks can lead to BIG BILLS and SLEEPLESS NIGHTS.

Joe, you’ll find a little spreadsheet attached showing our steady approach to real estate investing. You can play with it and see how finding properties with more positive cash flow will get you to your goal quicker. You can also change the numbers to see how your monthly income will increase or decrease AND how your total wealth will be growing.  If you want to get to $20,000 in positive income, you can quickly see how many properties you’ll need to buy (or how much cash flow each property will need to generate) to get you to your goal.

Thanks for your email. And, thanks for being a Rev N You with Real Estate reader!
Regards,
Dave

PLEASE NOTE: This spreadsheet is a simple and conservative example of income and wealth accumulation using real estate. We’ve kept it basic so you can only change a couple of variables – but keep in mind that there are MANY variables that can increase your cashflow, and build your wealth quicker (like lower interest rates, larger down payments, reduced expenses, higher rents, etc.). We’ve also made many assumptions (which are listed) to simplify things for illustrative purposes.

We haven’t taken into account the tax benefits of real estate ownership and we’ve also estimated a 2% appreciation in value for the properties purchased. While this value is conservative given historical value increases which have averages around 4-5% annually for most areas, we are seeing depreciation in most areas – so you can change the number to reflect what you think it will be in the area you are looking to invest in.

This spreadsheet is intended to be an illustration not a decision making device.  This spreadsheet can not be relied upon for expected results nor should it be used to determine what is right for YOU. This is just for demonstrative purposes.

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Finding Good Motivated Sellers

Finding Motivated Sellers can lead to special sales on properties

Finding Motivated Sellers can lead to special sales on properties

Of course, one of the best ways to get a good deal as a real estate investor is to find a property that you can buy for under market. And, most of the time, when you find a property that you can buy for a price that is lower than it’s market value, you’ve found a motivated seller.

Keeping with the theme of last week’s blog post and website article on buying rental property from motivated sellers, I thought I would make a quick list of possible reasons why someone would be willing to take a lower than market price and whether this is a property to buy or not:

  • The property is condemned and the seller has to get rid of it. The Globe and Mail had an article in it yesterday about how the City of Calgary wants grow ups cleaned up or destroyed. There are almost 100 properties that will have very motivated sellers if you were willing to buy those properties – but unless you are looking to develop the land those properties are on, that is a property you can buy for under market value that you probably don’t want!
  • The house is priced under market because it needs a new roof and new wiring and the cost of making those repairs exceeds the difference between the price you’ll pay and the market value. In other words, you can buy the house that is worth $200,000 for $180,000 but you have to spend $35,000 to make it actually worth $200,000. That kind of motivated seller is not the kind you want to buy from. If, however, the house required $35,000 in work, and you can buy the property for $160,000 AND you happen to be friendly with an electrician that can do the wiring for a lower cost, then you have found an opportunity.
  • The seller is desperate to sell because of divorce, job loss, another home purchase, or some other personal reason. We’ve already mentioned that this type of motivated seller is a good one to find. You are helping them out by buying their property from them and solving their problem – and you get a good deal on the property for coming to their rescue.
  • The resale market is terrible, and houses just aren’t moving (sound familiar to you?). The house is really worth $350,000 but the seller doesn’t want to wait until 2010 to sell it, so they will sell it to you for $320,000.

Remember, when you are looking for properties that are being sold by motivated sellers, always find out why the seller is willing to take a lower price. If you find a property that you can pick up for less than a market price, DO NOT buy it unless you are sure you know why it is priced below market! If you need a reminder about why you should do that – just look at the pictures of the property we bought in Toronto from a motivated seller that was motivated to sell their property before it totally fell apart!

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Learn the secrets to becoming a millionaire real estate investor…in your spare time.

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Reader Mail: Upset about the article “The Motivated Seller You Don’t Want to Buy From”

Once in awhile, we get a really good email that is from someone who isn’t happy with what we said. I say once in awhile because we don’t get very many emails from people that aren’t happy with us (thank goodness!), and when we do it’s usually something very random and useless to us like “This is annoying content – I’m unsubscribing”.  Okay then!

Yesterday though, we received an email from someone who was a bit upset with my article on Monday called “The Motivated Seller You Don’t Want to Buy From“.  My first reaction was to write him and apologize profusely. I don’t want to offend or hurt anyone with my articles! And, I feel really bad when I do. Then, I thought about it and reread my article.  I will share my response to him below… first, here’s our reader’s email:

Hi there Julie,
I do really enjoy reading your articles but, I was a bit hurt by this one.  I am new to investing in real estate and I feel that flipping is a great way to get some start up capital for larger buy-rent-hold properties.  I am in the construction industry myself and run my own business.  When I reno a home I do it as if I were moving in.  I also do it in up and coming neighbourhoods I pick a unloved home and make it lovable again.  I guess all I am saying is that not all of us FLIPPERS are shady characters.  I love doing what I do and I am very good at it.  It is like anything out there…some people are good at what they do(and do a good job) and others, you are right are just in it for the cash and dont care how they do it.  Anyhow I do love your articles and hope you keep up the fantastic writing!
Just Venting,
Blair
So…here’s my response:

Blair,
First of all, thank you for writing me and sharing your concerns. After I reread what I wrote, I have to admit that I did use a pretty wide brush to paint all “Flippers” as the same. That was definitely an error on my part. Not every property that gets fixed up and flipped will be done with lack of care and concern for quality.

What I should have made clear was to say that if there are things on the surface that look poorly done – then it’s nearly guaranteed that the things you CAN’T see are even worse. When the finishings and the work you CAN see is high quality, then the things you can’t see (like plumbing and electrical work) are more likely to have been done well.

If I was looking to buy a place to live in myself, I would be pleased to buy a home from someone who has done a buy, fix and flip, if the work was done well. When buying a property from someone who is passionate about the job they are doing (which, clearly you are!) and who is not going to cut corners to make a bigger profit, a renovated home can be better than a brand new home! Renovated homes can often be little gems full of character in fantastic areas that are established. And, they often sit on larger lots than new homes do!

My point was not to say that you should never buy from a flipper, nor was it to say that every flipper will do a crappy job on a renovation – my point was to say that a flipper is not likely to be the motivated seller a real estate investor is looking for.
As a real estate investor, you will find the best opportunities buried within problems. Motivated sellers have problems. They are  motivated because of their situation – and that situation is an opportunity for you to solve their problem and make a better deal because of it.

There are plenty of reasons someone might be motivated to sell their house: sickness, job loss, divorce, moving, and even too much debt, among other reasons. In these situations, you will find a motivated seller that NEEDS to sell, and will sell at a lower price just to solve their problem (or will give you better terms on the deal whether it be seller financing or longer due diligence periods etc.).

In MOST cases, someone who has purchased a property to fix and flip it, is not motivated for the reasons you want as an investor. They will NOT accept a lower price because they have costs to recover and profits to make. It doesn’t mean every fix it and flip it house is going to be a money pit – like the Toronto triplex we bought has been. It just means that as a real estate investor looking to maximize cashflow (which means minimizing the purchase price and then maximizing the rent and minimizing expenses each month), buying from a flipper is the least likely to produce the best deal. It also can result in buying a problematic property, if you aren’t careful.

I hope that makes sense – and I do apologize because I really did sensationalize the drama we went through with the triplex and blamed it on the flipper, and the poor quality of work he did. That did take away from the point of the article.

Thanks again for your email Blair. Your point was a very important one, and I am sure you weren’t the only one that I offended with the article – you were just the only one kind enough to point out my generalization. So, thank you! And thanks for continuing to be a Rev N You with Real Estate subscriber. We’re happy to have you as a reader.
Best Regards,
Julie

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Rev N You Reader Mail: Income Property & Tenants

Last week, Dave wrote an article about managing a rental property yourself vs. hiring a professional property manager. We received plenty of emails from our readers telling us stories and asking questions about property management. But, one reader’s letter really stood out to me, and I thought it was a good one to share.


Our reader from Washington had a good idea for rental property owners (it’s something we do with our Toronto properties) and an interesting story to share.

She has found herself in a tough situation with her property and current tenants, and while Dave did write her back with some comments, she has some difficult decisions that only she can make. I thought her story was interesting, and that it’s one that many landlords can relate to – let me know what you think!

Do you have a terrible property management experience to share? Or maybe you’ve been a tenant and you have a bad landlord story to share? I know it goes both ways!!

Here’s the email:

Hello!

I really enjoy your e-mails and gift “incentives” such as the calculator, and your articles relate so well to what I have experienced dealing with income property and tenants. It can be very trying.

As a suggestion, if you’re going to be your own property manager, it certainly doesn’t hurt to have one of your tenants act as “manager”. I don’t exactly tell them that, and of course, there is some trust involved, and you always take a chance with anyone you trust to help you. It also helps to line up a handy-man, or an electrician, plumber, carpet cleaner, painter, and appliance dealer, unless you can do some of this yourself. It’s easier for me to pay $150, or so, to a carpet cleaner and have it done right and fast, rather than me trying to do it. And, of course, there is the deposit you can deduct a portion of this from, if you’re lucky enough that the tenants moving out have payed their last month’s rent!

When I purchased my duplex, I took it on with the tenants already in place. The responsible couple were on a month-to-month at the end of their lease, and the other couple were just signed by the previous owner to a one-year lease. At this point, both couples are on a month-to-month after their leases expired.

I was supposed to move in to the duplex as my personal residence, but when I saw that I was stuck with a lease for the “rowdy” couple, and my only option was to ask the long-term “responsible” couple to move out, I changed my plans. They both have young kids, and they’ve both now been on a month-to-month basis for several years now.

One of my tenants is very responsible, and always pays rent on time, or sometimes even early. He keeps up the yard (as a matter of being responsible, they should do this anyway, but law says landlord needs to maintain all common areas), and he lets me know of any problems at my duplex; and if necessary, he is pretty good at fixing things – even “fixing” the rowdy neighbors. But with this, I let him know this is the reason I keep his rent down, and he appreciates it. A small price for me to pay to keep things on track.

That being said, my other tenants get drunk all the time and can get rowdy. They are also hard on things. I’ve had to replace some of the electrical because they were overloading the hot water heater, replaced the refrigerator, and I won’t be replacing the washer. Also, they now have snuck in a little dog and won’t get rid of it. I worry about having to replace the carpet, but they say it stays kenneled when they are at work.

This is a hard call to make about whether or not to start a warning and eviction process because of the dog (and rowdiness sometimes), because for the most part, they pay their rent on time. In addition, my other tenant pretty much helps keep them in line when problems arise; however, I worry about losing the “responsible” tenants, since their family is outgrowing the duplex. It’s a juggle.

I’ve considered raising the rent of the “rowdy” tenants to accommodate having the dog.

They’d either have to pay the increase, or leave (the gal gets some public assistance being a single mom). That’s the only way I can see to solve the problem for me other than evicting them which will lead to having to spend the time, effort, and money on cleaning the place, replacing stuff, advertising, interviewing, and new background checks, etc. Ugh!

I’ve been an actual property manager for an employer in the past, and I really don’t have the guts for it. (I’m quite like Julie:-) In the past, I’ve dealt with deliberately set fires, drugs, holes punched in walls, wax dripped on carpets, and nails and chalk everywhere, last month’s rent not paid, and appliances stolen. But, it certainly taught me lessons about dealing with people.

While my current situation is saving me some money for not having to pay a property manager, it is primarily because I am just got laid off from my regular job, and I also have an ARM loan that I need refinanced. It’s a mess, but I deal with it each time the first of the month rolls around.

I recently read a comment from a person who owns apartment buildings. He said, if you own income property, you have to treat it like a job and “manage” it on a constant basis, and he’s right!

Thank you for everything!

You’re doing a great job with no “fluff” and good, useful content.

Lynda

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What I learned from a FREE 2 Hour Real Estate Investing Seminar

Get rich quick real estate courses are kind of like handing a loaded gun to someone without giving them a target!

Get rich quick real estate courses are kind of like handing a loaded gun to someone without giving them a target!

It’s been several years since I have been to a ‘2 Hour Free Seminar’ put on by a well known real estate guru. You likely know the programs I am talking about. You go to the freebie seminar and get all hyped up to sign up for their course. Of course the celebrity guru is not there, and in fact even when you attend their expensive education program you still don’t meet the celebrity behind the program…

I haven’t been in a few years because I felt suckered by the first one I ever attended. We ran out of that program knowing that we didn’t know nearly enough… so we quickly signed up for their first weekend long course.  At that course we learned a lot, but we learned once again that we still didn’t know enough so we signed up for more courses!

It’s been years of drama ever since. And the lessons my wife Julie and I learned from taking those no money down – get rich quick real estate investing guru courses are why we started telling our real estate investing stories in the first place.

Just because the last guru course I took was a bit of a disaster doesn’t stop me from being curious about the techniques and information they teach.  Since the latest one to come through Vancouver was holding a lunchtime session near my office, I decided to satisfy my curiosity and sat in on it.

The guru whose name is on the program was nowhere to be found. Instead it was a guy who used to live in Canada but now resides in the U.S. who would walk us through the course for the day.

He started with a few lines like: “I’m not bragging, but I am worth about $60 million” and “I am dyslexic so if I can do it, so can you“. That would be fine if he wasn’t only saying it to set himself up as better than us.  He then went on to proclaim:  “you wouldn’t be here if you knew what you were doing” and “most of you won’t succeed in this, it’s just a fact“.

I was actually laughing! He may have even seen me laughing at the stupidity of it! I didn’t come to the lunch hour session to get scolded for, according to the presenter, “not being successful enough; why else would [I] be here“.

His whole sales technique was to make himself look brilliant and rich, and make us feel stupid and inferior and badly in need of his superior assistance!! That and creating a massive amount of fear… of course only to then assure us that their program was the answer to those fears.

Finally, after 60 minutes of beating his chest, he got to some content. Or, what they probably call content. He let us in on their Secret 10 Strategies for Finding Distressed Properties. Of course, he didn’t really tell us the true secrets, just the terminology which many people wouldn’t even know, like “reverse advertising” and “REO’s”.  Then he carried on to list a bunch of media outlets you COULD use to advertise in Vancouver, but quickly clarified that  “only about 3 of those 20 publications work, so come to the paid program and we’ll tell you the 3 successful ones“, oh and you can have access to the real estate guru’s private, student only website where you can find even more distressed properties for pennies on the dollar! But you have to come to the paid program to get that access!

He also spent a ton of time scaring the pants off of us. I am pretty seasoned when it comes to real estate investing and yet there were still times when I felt like running out of the room to call my lawyer and accountant to say “We need to reopen my corporations… I have to get the tiered corporate protection going!! I am at risk!!”. The only thing that stopped me was the fact that I had a tiered corporation and was not able to use it. AND – I know they put such a heavy emphasis on the corporate structure because at their weekend course they sell you a package to set one up.

I am not saying that there is nothing of value in what he was saying. I am also not trying to say you should never sign up for one of these courses because they don’t work. If anything, I can tell you how well they do work! I bought into something very similar 7 years ago… and I went from the free seminar, to a $2000 weekend seminar, to a $15,000 package that included 3 more seminars and a mentor and then I spent several more thousand on setting up multi-tiered corporation.

The program worked! I ran out and immediately found 2 properties in Niagara Falls, Ontario that were producing big money every month. The deals were nearly no money down and before I knew it, I was the proud owner of two crack houses! That is not just my nickname for the properties, the local Niagara Falls paper ran a little story about me and one of my crackhouses, and that was what the paper called it!

One of the lovely distressed properties I picked up

One of the lovely distressed properties I picked up

The problem with the get rich quick guru course is that it sent me down a path of investing in troublesome properties, making very high risk investments and believing that the only way to make money in real estate was through enormous amounts of positive cash flow each month. It didn’t matter what I had to do to get that cashflow… it was only about the cashflow.

For some, it’s an effective strategy and it has worked! There are people who have gotten rich off the real estate strategies these courses teach. For me, I like having a lower stress life. I like having spare time to ski, mountain bike and watch movies. And, I am ok to wait a few years to see returns on my investment as long as they don’t cost me money out of my pocket every month.

I think everyone should think about what they really need to learn and what they really want to do with real estate before they ever set foot into ANY real estate investing course. And, they really should do that before attending one of these high pressure and hyped up guru programs.

The overall message of the condescending man at the front of the room that day was a good one. Finding and buying distressed properties is a good way to make money in real estate. He conveniently left out the risk side of the strategy though – instead focusing on the risks of not having a corporate veil to protect you.

These guru’s offer some good techniques. The techniques however, are like loaded guns in the hands of someone who has no target. Most people walk into those courses knowing only their dreams of riches and easy living. They walk out excited because the course has given them a gun to shoot for their dreams… They walk out of the course holding their new loaded gun all pumped up and ready to start shooting it.  Some people will be lucky when they shoot and hit a random bulls eye, some will do varying amounts of  (financial) damage to themselves using the gun, and many will never shoot the gun at all.

These courses should spend more time on fundamentals of real estate and teaching you to figure out what your objectives are.  But, that’s hard work right? And, it’s probably not a real exciting selling proposition to tell people that the $2000 weekend course is going to build your real estate investing foundation so you can be rich in the next 5 – 10 years.

The courses sell because they promise to walk you step by step through the process to buy that distressed property, borrow the $300,000 to purchase it using a hard money lender who charges 18% and then do some work and flip it 2 months later for a $40,000 profit!  Don’t worry about selling it in this market – they have secret systems to make any house sell. It’s easy right?  You spend only 40 hours finding, buying, and renovating the property and you make $40,000!  That’s $1,000 per hour! That is the stuff this guy was trying to sell us on that day. Even in a hot market I wouldn’t buy that type of loaded gun. It sounds like sleepless nights and financial stress to me. And with the market continuing to cruise downwards, I definitely wouldn’t be trying to do that. Even with the guaranteed ways of selling properties that their course offers.

If it sounds too good to be true, it almost always is.

If you’ve been to a guru course and have an experience to share, please do. The only thing  I ask is that you do NOT name the program. We will delete any specific references to a program – good or bad.

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