musings on personal finance

i have a job

2012-07-05T06:27:00.001-07:00

sometimes i really dislike my job. there are a number of reasons behind that -- one is that i see myself as an entrepreneur, as a boss, as the one that calls the shots, but i work for a decent sized company and it is full of the things that bigger companies become encumbered with: slow decision making, politics, and hierarchy. one day, i'll give it a go on my own -- i think that day is quickly approaching. i've got a few irons in the fire as far as future career goes, but right now, i'm happy enough to keep slugging it out and reporting to the man. i do need to vent on occassion, however. i do that with some of my friends, or my wife, and i've come across work tirade, a site that lets you post anonymously about your work time frustrations.

2012-06-16T11:59:00.000-07:00

an interesting site that allows you to post a personal manifesto.

2 contracts, 2 deals

2011-05-25T05:44:00.000-07:00

well, we finally made some traction on two recent deals -- one is a single family and one is a condo. both are moving along and are well into financing.

the single family deal was pretty easy to get done. there was a little negotiating, but we settled in at a price that was actually lower than what i had modeled, so we should be getting some decent returns on that property.

the condo was a bit of a pain. the condo owner was an out of town owner in a different time zone, so negotiating took longer than what i'd like. in addition, his agent was really bad and didn't communicate the finer points of our offer very clearly. for example, after we made an original offer, the seller countered. well, to get to where we wanted to be, we negotiated with the agents to come down off their fee a bit and then could submit a lower offer than what we had originally submitted. the actual proceeds to the seller would be higher than our original offer. the seller saw that we had moved down and then re-countered back to the original list price! first, the listing agent should have communicated what was going on to the seller. second, once the listing agent got the counter back, he should have realized what had happened and explained it to the seller at that point. instead, he just brought the counter back to our agent. just goes to show you there are buffoons in every industry.

in any case, we are on track on both of these units. and, more are coming out of the woodwork every day.

4 contracts, no deals

2011-05-07T05:55:00.000-07:00

over the past couple of weeks, i've ferreted out 4 really good real estate deals and quickly moved to make offers. one was a sfh on the market less than 7 days, and the other 3 were condo units in a complex where we already own some units.

we lost the sfh during a short negotiation to another investor or cash buyer that was going to be able to close quickly. my guess is that two of the condo units went to buyers that are likely going to occupy the units, and were able to be pay more than we were comfortable.

we are still in negotiations on the third condo. i'm optimistic that we will arrive at the price that we want, but we are having to deal with a real bungling listing agent, who has almost lost the deal for us.

just goes to show you that sometimes you can make all the right moves and still lose -- that's how real estate go.

on the hunt today for more properties.

stay tuned . . .

how to become an investor

2011-04-24T09:41:00.000-07:00

i helped put together a small group with the intent to get more involved in real estate investing. one of the guys i approached had already been interested in investing, but was facing a lot of hurdles making the leap from being interested to being an investor. he had all sorts of questions, and i told him the main thing is that there is some level of risk involved in investing in real estate. you can find all sorts of reasons not to do it -- what if you get a bad tenant? what if you buy a bad property? what if you can't lease it?

what i told him to remedy this situation is that there are all number of reasons that you can find to stay on the sidelines. if you look with that mindset, you'll keep finding reasons. if you change your mindset, however, you'll see a great number of reasons to become an investor.

partnering up

2011-04-01T05:39:00.000-07:00

i've been talking to a few of my friends about the advantages in partnering up in real estate endeavors. the main advantage of this is that once you get to a certain size, the cash that you can generate can start funding expansion. consider this, let's say that i was 1 out of 10 individual investors, each of us operating separately. if i wanted to add another holding, i could take the income my one property is generating, let's say $5,000 a year, plus another $45,000 out of my pocket to get 20% down plus closing costs on a new property worth 200k. now, i'd be cash flowing $10,000 a year, which is great, but i had to have that $45,000 just sitting around.

consider that the 10 of us individual investors formed a partnership, then with each of us contributing nothing but the $5,000 from our investments, we could each participate in 1/10th of a $200,000 purchase that would cash flow $500. the ROI is the same (10%), but this was done without any additional infusion of capital.

of course, there are some downsides to doing this. your partnership agreement must be well drafted and you need to deal with people you know and trust. even then, there are times when folks will want to get out of the deal and take their pieces with them. you have to have all of those details sorted out. it can be messy. especially when you are talking about lots of people.

investment property search

2011-03-30T17:40:00.000-07:00

i was talking to a friend of mine the other day about investment properties. he asked for some advice and the best thing that i could tell him was that if he was really serious, he'd have to stop looking for reasons not to take the plunge. he had concerns about finding a place that would rent, or about maintenance, or bad tenants, or any number of other things.

the fact of the matter is that he's right. there are a number of things that can make purchasing a property for investment purposes go terribly wrong. it's a risk that you have to weigh against the possible returns. of course, this is the case with any investment, but with real estate, it seems like so much more could go badly. but, there are a lot of things in your control, too. you can drop your rent if your property isn't moving. you can sell your property if it's too big a hassle. you can actually live in it, if you have to.

i'm about to begin a new search for some properties to invest in, and i thought i'd chronicle my search through this site to give a view into what i look for. the most important thing, as i said, was to just make the decision that you are going to become a landlord. the next thing to do is to develop a model that outlines the costs associated with a property against the revenue that you can expect. this is pretty easy to do:

your expenses include:
principal
interest
taxes
insurance
maintenance
management
hoa

your revenues include:
rent

there will be some ancillary costs associated with leasing like utilities and rehab, or with purchasing like closing costs, appraisals, and inspections, so you want to have a sense for those, as well.

i look to put between 20% and 25% down, depending on what kind of terms i can get on a loan.

after you have a model in place, you can fairly easily troll the listings for properties that fit with your investment strategy. i look for places that cash flow. so, generally speaking, i look for properties that i can rent out monthly at or near 1% of the purchase price. so, if i find something at $150k, i'd like to see it rent at $1500. this is just a rule of thumb -- i always go back to my model to validate cash flow. in general, with this formula, i can return between 6-10% in cash on my initial investment.

i have a few geographical places that are my go to places as far as location goes. the only reason for this is that i'm knowledgeable on the market rents and sales prices. when i made my first purchase, i had to make some assumptions. but, you can get a good feel on this, again just based on trolling the listings.

the next thing (or the first thing) that i'm going to do is contact my realtor. she's able to keep an eye out for properties for me so i don't have to spend all my time looking. i'll report back on that next time.

change of plans

2011-03-30T05:31:00.000-07:00

well, after much deliberation, i decided against paying off rental property #1. the reason for this seems kind of at odds to my approach on finding good cash flow and yield on my investment. you see, the property has about 7 years left on the note, and the rent that we collect is just enough to offset all the expenses related with owning the property. if we were to pay off the property, we would easily see a positive cash flow out of the property. i took that cash flow and projected it over 7 years. it came to be roughly equivalent to the lump sum amount that we'd have to pay in order to payoff the property.

this means that by doing nothing, and leaving our money essentially just in cash or some vehicle that at least keeps up with inflation, we'd be in the exact same position in 7 years whether we pay off the property now or not (assuming no appreciation). in one situation, we'd be out that cash, but it would slowly be building back up, and in the other, we'd have that cash on hand and the property would pay itself off.

instead, if we found some other vehicle for that capital that i was going to use to pay off the property, we'd actually come out ahead (assuming that the capital retains its original value). for example, if we purchased another property, that cash would be converted to equity, and any return on that cash would actually improve our position.

this seems to be a 180 degree reversal from what i was advocating before, which was to seek out investments with good cash flow. though the cash flow would not be as good, it actually makes more sense in the longer term. after 7 years, our cash position would be less, but we'd actually be cash flowing 1.5 times what we would cash flow by paying off the property.

taxman

2011-02-06T04:55:00.000-08:00

i think we've gotten all of our documents to prepare taxes: w-2's and 1099s from our employers, 1099s from our banks, real estate tax receipts, mortgage interest statements, documents from our investment accounts for gains/losses, and the like. we will probably schedule some time with our tax person here in february to get things done.

we use someone to help with our taxes, not because we can't do them ourselves, but because we like the person that does them for us and she does a good job. we started using her when we had to fill out additional schedules apart from the 1040.

after years of consulting work and having to write a decent sized check, we changed up our withholding and now routinely get a decent sized refund. this year, my wife went part time, so it may balance out, but i'm thinking we will have to fork some money out due to some capital gains as a part of some trades that we made. i have to be honest, i never have any clue as to how much we will have to pay or how much we will be getting back from the government.

tax refunds are a mix of emotion and economics to me. while i totally understand the economics about avoiding a big refund -- it means that you've given the government an interest free loan on your money -- it's always seems nice to have that money returned to me! the opposite is true, too. while having to pay means that you've had access to money -- usually with little or no penalty, it's always a downer to have to fork over that cash.

big decisions

2011-01-29T19:51:00.000-08:00

i've been looking at our finances and looking at ways to improve our cash flow. on thing that has been jumping out at me is a rental property that we purchased about 8 years ago on a fifteen year note. the cash return on this property is pretty close to 0%, though, we obviously are increasing our equity position with tenants paying down the note each month.

in 7 years, we will own the property free and clear, and it will start returning us around $1,000 a month (after property management, hoa fees, insurance, and taxes) in cash.

we could pay this down early and start getting the benefit of this return today, though this would be a pretty big drain on capital, it's hard not to consider. the annual return would be around 12-13%, the only real concern that i have is the opportunity cost of putting all that money into play. over the long term, it's hard to refute this as the best play -- we have the money earmarked for investment, anyway. the other option would be to put that toward another property, but the cash return on that would probably be half.

it seems like a no brainer, but i'm still on the fence about it. when my wife and i got married, we joked that she is responsible for all the small decisions and i'm responsible for all the big decisions, and up to this point there haven't been any big decisions.

stay tuned . . .

property taxes

2011-01-18T05:23:00.000-08:00

because we don't have a state income tax here in texas, our property taxes are relatively high -- on the order of about 2% or more of the assessed value of the home. so, for a while, i had been escrowing that, so it was included in our monthly mortgage payment. a few years back, i thought that there was clear benefit to holding that myself. our annual property taxes are around $12,000, so i figured that i could earn some interest on that money before i had to pay it out.

mathematically, it all works out, i even set aside an estimated amount at the beginning of the year so that i won't be caught off guard. but with interest rates these days, that amounted to little more than $10 this year! i'm going to shop around a bit for a better rate, but even if i find something that pays 1%, which at a glance seems like it would be doable, that would only amount to $100.

emotionally, there are a couple of factors at play. one, it's a bit painful to write that check every year, even though the money has been set aside. two, around about june, long after the pain of writing that big check has worn off, i get a exaggerated sense of wealth, because that money is sitting around. i know it doesn't make sense, but that's the truth of the matter.

from a purely mathematical standpoint, i still don't like escrowing, but there are clearly some advantages to it. and, every once in a while, you can benefit from it, as banks will do an escrow analysis only every once in a while, you can actually have less in your escrow account than what is needed to pay your taxes. this essentially amonuts to a 0% loan from the bank. of course, the opposite is also true, so it probably balances out.

for now, i'm still going to stick with my non-escrow plan, i feel that it gives me a bit for flexibility, but definitely something to think about.

what's a net worth

2011-01-03T05:31:00.000-08:00

when i used to think about retirement, i used to think that i'd need to have a net worth of about 2 million bucks. i figured that with a 5% rate of return, that would net a cool hundred grand a year to live off of in retirement -- that a $100,000 a year would be sufficient to meet my standard of living. in reflecting on this, i realized that what i was concentrating on was income, which is something that we naturally think about. in our working lives, we try to make as much as we can. in thinking about retirement, though, i've been trying to shift my mentality. instead of thinking "i need 100k a year to retire", i've been trying to arrive at the amount that i would spend in retirement to live. if my income can cover my living expenses, that would allow me to retire. that income could come from any number of sources -- in my previous way of thinking, it was investment income of some sort off of a $2,000,000 nest egg. the realization to me here is that you don't necessarily have to have a hefty net worth to retire.

this realization has come relatively recently, even though it's quite obvious when you stop to think about it. through the years i've been pretty diligent about tracking our net worth every few months, and i'm not saying that knowing your net worth isn't a valuable thing, but it can be misleading. if you are not paying close attention to your cash flow, your net worth can quickly be eroded away. moreover, your net worth often includes real assets (like property) that can give you a sense of wealth that is imaginary, or at least very hard to tap into to cover expenses.

so, now i'm trying to concentrating on cash flow, and more specifically our monthly expenses. by tracking that and similarly tracking passive modes of income, we can see how close we are to a break even point. in my mind that break even point is the event horizon for retirement.

the escalating cost of higher education

2011-01-02T19:19:00.000-08:00

a common conversation topic when i'm talking with my friends who have kids is the price of a college education these days, and whether we as parents are intending to cover any or all of that expense for our children (and, if we are planning on doing so, when to clue the kids in).

back when i graduated from the university of houston, about 15 years ago, tuition and fees for a full course load was less than $1,000 per semester for an in state student. i remember that figure, because i had a scholarship that paid that exact amount, and i would routinely get some spending or book money when my check came in. i just checked around, and the price is now closer to $3,000 per semester -- that's a decent chunk of change to have around, when you've got two kids that are going to overlap their college careers. and, that doesn't count room and board or other living expenses, which could easily double that figure. it wouldn't make much sense for my kids to go to the university of houston, though, unless they got some scholarship money there. with our rental properties in austin, it would be almost a no brainer that heading to the university of texas would be a better bet, as their housing would be set. but, what if they want to attend a school out of state? or an ivy league school?

i was able to live at home for part of my college life, which helped with expenses, and allowed me to be in the enviable position of not having to borrow any money in pursuit of my degree. after my freshman year, i decided to get a job and live on or nearer to campus with friends and have a more complete college experience. i juggled a pretty full load of school and work pretty much throughout my years at school, which i think helped prepare me for the "real world" in a way that many of my friends did not get to experience, while trading off some of the activities that my friends were able to participate in.

as parents, i think we all want to provide as much support and assistance as we can to our kids, and many times that comes with great sacrifice on our part. as i mentioned, i feel that my college experience allowed me to be better positioned for life after school, but i don't feel that is a lesson that i'd want to force on my kids.

we've already socked away enough for our three year old to handle a little more than year of tuition at the university of texas, and our one year old might just have enough to get through a semester at this point. i'd imagine, barring a drastic decline in their rates of return, that they'd have enough to get through an in-state public school, even with the trend of tuition increases that we've seen over the past years continue. and that's what we are prepared to do for them -- put them through a public university. of course, if they choose to go out of state or attend a private university, we'll let them make up the difference.

working man

2010-12-31T08:23:00.000-08:00

in my previous post i mentioned that i am a hard worker and i make a decent wage. i suppose that's always been true, depending on the characterization of "decent". i've certainly always tried to live below my means, and save as much as i could, which sometimes has made the lower salary that i drew when i started out in IT about 15 years ago seem like more than what i bring in these days. i'm not intending the following to be a "how-to", nor do i mean for it to come across either boastful or deprecating, it just was the way that my career (and some connected parts of my life) turned out, and what is leading me on my journey to early retirement.

i started out my career in 1997, after graduating from the university of houston, working for a large defense contractor in the aerospace industry in clear lake, texas. i was pretty frugal while working there, and lived like a poor college student. in fact, i didn't have a tv or much furniture, probably for the first year there. one summer, i actually split rent with a roommate, on an apartment that we were renting for less than $350 a month. back then, with my low cost of living, i was actually able to save enough my first year to buy a new car (it was a 1997 saturn sc2, with a no-hassle sticker price of somewhere around $15,000, if i recall correctly), pretty much all in cash. i decided to finance about 1/2 the purchase to establish some credit. while i managed to save a decent amount while working there, i didn't have any concept of investment. i just socked my money away in a checking, money market, or savings account. i worked there for about 2 1/2 years, and while there, i met my then-girlfriend (now-wife), which resulted in my spending pretty much all the money i had stashed away. so, i started over with a negative net worth and a bank balance of $0.

after working there, i decided to make a move to be closer to my girlfriend, who was going to school at the university of texas in austin, texas. i found a job with a startup credit card processing company, which came with a decent raise (and some soon to be worthless stock options). i enjoyed working at this early stage company, as it gave me quite a different perspective having come from a huge, well established company. my cost of living jumped up a bit while working here, as my brother was attending the university of texas as well, so we lived together, and i picked up the rent and utilities to help out. i was able to increase my savings while working here, and started putting $1,000 a month aside to invest in stocks while starting the savings machine back up. i actually worked here for only about 6 months before a friend of mine came calling with a bigger, better opportunity.

i moved to a dallas, texas suburb in late 1999 to pursue my next opportunity, which, after having been exposed to startup life, was just too great for me to pass up. a friend of mine came calling with a job opportunity with a brand new company that had a very amorphous idea. i ended up taking the job, as employee #4, and its pay increase which included an annual bonus, and a healthy number of stock options (again, soon-to-be-worthless). the first few months of this job was a lot of brainstorming, a lot of prototyping, a lot of core library development, and what evolved was a video streaming company, along the lines of what youtube.com does today, just way too early -- at a time when broadband penetration was a fraction of what it is now. i felt sure that i would be the next dot com millionaire, which turned out not to be the case when the company folded in 2001. during my time with this company, i continued to sock away $1,000 a month into the stock market and save pretty aggressively, mostly in an s&p 500 index fund, and was fortunate enough to get out of those holdings prior to the market crash to fund the purchase of my first house.

so, in april of 2001, after my girlfriend (who moved to dallas after graduation) and i took out a mortgage and depleted much of our investment and savings, both of our companies folded up shop. now, those were some financially exciting times. i don't recall exactly how close we were to $0 in our bank account, but we were pretty darn close, though we were able to land on our feet pretty quickly . i ended up finding employment with a dallas based low fare airline, for pretty much the same salary as i was making before, and my wife found a job with a startup company where she was underpaid, but got a lot of responsibility. we were able to resume investing $1,000 per month above our normal savings at this point.

in august of that year, my girlfriend and i got married, and i decided to take another job at about the same wage, as going from startup to a big huge company was too much a shock to my system. i ended up going to a small consulting company, and to be honest, i didn't expect to be there long, i figured it would be a way for me to get out from where i was at and find something else. of course, the economy was terrible at the time and ended up at that firm for about a year and a half before jumping to my next opportunity.

in my next job, i worked as a software contractor for a company that developed software to manage thin clients, and my annualized salary was probably a bit higher than what i had been making previously. at the same time, my wife made a job change that was a good amount more than she had been making. at this point, we decided to refinance our mortgage to a fifteen year. at the same time, we had the opportunity to purchase a rental property in the west campus area of the university of texas. i didn't really have a firm grasp on the numbers when we took the plunge, but we went ahead and put 10% down on a 15 year note. we wouldn't flow cash on this, but the way i looked at it, we would have someone else pretty much paying on our note, and we would be out of pocket a hundred or two hundred a month for that privilege.

though this was at another fairly early stage company, it was without the responsibility that i had enjoyed at my other startup stints. i still enjoyed the work, it was fairly autonomous and i got some decent exposure to different technologies, and i think i made an impression on people that saw my work, but i decided to make a move about a year into that job, after seeing an org chart that did not have my name on it.

in my next stint, i took a slight pay cut to work for a fairly early stage company in the prepaid credit and prepaid long distance space. i enjoyed my work there, but it wouldn't be long lived as i would have thought, as they were an acquisition target. in fact, just before the acquisition closed, the entire development team (about 10 developers) was laid off. that was roughly a year into my tenure there.

after that, i joined a large firm that developed software for securities trading, and it too was too much culture shock. i was able to bear it only about a month or so before i returned to contracting.

i contracted for about six months for one firm before the company that acquired the prepaid card company that i worked for came calling for consulting help. i took that on and charged them quite a bit. at that point, we were able to increase our monthly investment allowance to $2,500 and also build up a proper emergency fund (outside our normal savings and checking accounts), which consisted of 12 $2,500 one year cd's, each maturing in successive months. that firm ended up offering me full-time work, but i elected to go elsewhere when a former colleague looked me up and asked me to come aboard and join his company as employee #3.

that company turned out to be short-lived (about one year) as well, as our one main customer was slow paying and ended up in a heated battle with our ceo over some fine print, and i returned to consulting for a few different firms. while out on the road consulting, another former colleague contacted me about joining an energy company that we was co-founder and cio of, as a software architect. i jumped at the chance, even though it salary was comparable to what i could command as a software contractor.

i am pleased to say, that after 4 years, i am still at that company, now heading up the enterprise architecture group. about a year after joining that firm, my wife and i moved to a new house. we had built up a decent amount of equity in our first place, since we were on a 15 year note, and we took that and some savings (this time we did not touch our investments), and put 20% down on our new house.

recently, my wife has gone part time with her firm, coincident with the birth of our second child. we continue to save aggressively, invest that same $2,500 a month, and have added a monthly contribution of $250 each toward our children's college savings through a 529 plan. we also continue to save $500 a month in a savings account, though i have rolled out of most of our cd's, since the rates are abysmally low. when she went part time, she lost the opportunity to participate in her company's 401k plan, stock purchase plan, and benefits. we have moved the family over to my company's benefits, but it's considerably more expensive than what her larger firm was able to foot.

this same year, we converted our rental property from a 2 bedroom to a 3 bedroom so that we could command a higher rent, and expect it to break even on cash flow, or come out ahead a bit. in a few more (make that 7 or so) years, it will be paid off, and i expect the cash flow to be enough probably to allow us to make a small adjustment to our careers (allow my wife to cut back her hours, etc.). in addition, i found two rental properties that i purchased with a friend, which should flow a few hundred dollars cash per month, and the goal is to add one or two properties a year.

that pretty much sums up my entire working life, and what is the foundation for my journey to retiring my my 40s.

reboot

2010-12-30T07:18:00.000-08:00

i've been purposely anonymous (not just by name, but also in not divulging my age, profession, income, etc.) in my writing on this blog from the beginning because i felt that would allow a broader audience to read my posts.

an interesting thing happened the other day that made me rethink this approach, and made me think that i should narrow my focus and write with a very specific and personal audience in mind. you see, i was having lunch with a co-worker and the topic of goals, retirement, and the like came up. now, here's a guy i respect very much, who is about the same age as i am, about the same income level, and for all practical considerations, we could be practically twins on paper.

when the talk moved to retirement, i shared with him that my goal is to retire or semi-retire by the time i am 45 years old. i am currently 36. he was a bit shocked, and floated a big question my way: "what's your secret?"

i was perfectly honest with him. i don't have any secrets. for the most part, i am a pretty normal guy. i have not had any big windfalls occur in my life. i have not made a ton of money in stocks or real estate. i did not come into any family money by birth or inheritance. i am not an entrepreneur. i do not own my own company. i am a hard worker and make a decent wage.

there might be some small things that may separate me from my co-worker. i have never carried any credit card debt. i did not take out any student loans. the only debt that i have ever carried is mortgage and car loans. i have been an aggressive saver most of my working life.

i am married and my wife and i were dual income / no kids for about 7 years. my wife is now part time and we have 2 kids -- a one year old and a three year old. we live in the suburbs some 20 miles north of dallas, texas, in what is for most respects our "dream house".

i used to think that i'd need 2 million dollars to retire, but these days i feel like retirement or semi-retirement can be accomplished with far less. i could be dead wrong. but, this is what i am going to write about.

investment properties 2 and 3

2009-12-12T16:28:00.000-08:00

went out a few weeks ago with my realtor and found a great deal and a property that i thought we could get done. one was a foreclosure and we made an offer that day, but we were a bit slow. it had been on the market less than a week and it was snapped up. the other property happened to be the exact same floor plan as the other, and after several rounds of negotiations, i still couldn't get the sellers to move to the where the deal would make sense for me.

investment property #1 follow up

2009-10-18T07:38:00.000-07:00

well, we moved too slow. after seeing investment property #1, we slept on it one night, and the following day i contacted our realtor to start putting an offer together. as she was putting it together, we came to find out that the owner had received another offer and accepted it the previous day.

i'm not too broken up about this -- we're looking for a deal and want to make sure we're comfortable buying what we buy. in so doing, we will miss out on some and we will close others. the most important thing is that when we do, that we're comfortable that we're making a sound financial decision, and not buying for the sake of buying.

investment property #1

2009-10-05T19:12:00.001-07:00

after weeks of looking and looking, i think we finally found a "deal". over the course of the past couple weeks and dozens and dozens of house that we looked at, we saw homes that were mainly overpriced. even some that were in a terrible state of disrepair were asking for a pretty penny.

then, this sunday, everything changed. we looked at two homes, and we liked both of them! one was a foreclosure and would need a good amount of work to get it into a habitable state, but it was at least priced right. the other had been sitting on the market for a while and had just dropped the price about 12%.

this second one was in pretty good condition and had been upgraded a fair bit. and, the listing agent was offering that the seller was "motivated". we'll see just how motivated he/she is as we'll be making an offer at a discount of another 7% of the list price.

my my figures, based strictly on cash flow and making some assumptions about the cost of maintenance, occupancy rates, etc. i'm guessing that we can make about 4.5% on money that we are putting in. that's based strictly on cash flowing from rent, over the long term, even assuming that the value of the property stays put, the return actually moves to 11-12% when you take the build up in equity over the course of the mortgage.

now, i'm a novice at this, so i may be way too optimistic with my models and assumptions, but i'm going to give it a try and i'll report back on the details.

investment properties

2009-09-12T09:33:00.000-07:00

though the stock market has made a great run the past several months, i started looking into some other vehicles for investment these past few weeks. after running some numbers and putting everything together, i arrived at looking into purchasing some investment (rental) properties.

there are a few different approaches to investment properties, and they have both short and long term strategies. one of the most obvious is flipping, in which you buy a place, put in some remodel/rehab work increasing it's value, and put it right back on the market and pocket the profits. to me, this is -- like many short term strategies -- high in risk and potentially high in reward. this is also not my strong suit. i'd have to be able to evaluate and see potential in properties and put in time, work, and money that i think would multiply in returns.

instead, i'm looking at buying for the long term and leasing the properties out. this comes with it's own headaches, of course. you have to deal with "customers" -- in this case tenants and the problems that customers always bring. by my math, by managing the property myself (collecting rent, taking customer calls, etc.), i can flow some cash out of the deal and build equity in the property. not accounting for the fluctuating value of the property, and making some assumptions about maintenance costs, and occupancy, i figured that i could make a decent return on this investment.

we've already looked at several properties with our realtor, based strictly on cash flow analysis. most of these have needed more work than i am willing to put in. am now looking at the next tier of properties, which would flow less cash, but after fix-ups to the first, may end up flowing similar cash.

emergency fund

2009-03-12T21:35:00.000-07:00

this week has been a real killer at work. i've been getting online at about 7 each morning and doing an hour or so of work before heading into the office. i've been arriving to work at about 9 and work until 7 and then get back online at 9 and work til 12. hopefully, i'll just lock down the computer and not touch it this weekend, but it's never that easy for me.

look, i'm in IT and am used to some crunch time hours, but this time around, there's to big release or anything of that nature. just getting hit with a few requests late in the day or trying to catch up or just getting caught up in something or another. it's easy for me to fall into this routine.

so, today my boss rattled one of my direct reports. he expects that we essentially produce defect-free code. now, i certainly strive for that, but there are some things that just don't happen and i just don't know how to straighten the guy out. anyway, that led to drama with my employee about how he doesn't need to be treated like that -- and you know what? he doesn't -- and him trying to decide what to do with his future with my company. you know, it's 90% good and 10% bad here, and one day the 10% will just be bad enough to chase some folks out of here. we get this all the time -- my boss just doesn't react well to mistakes -- and one day it's going to be the day that my report walks. and then one day it'll be my turn.

and, that'll be the day that i'll walk out with no worries because i've got a well funded emergency fund. or, what i refer to on some days as a "go to hell" fund. now, you talk to 10 people about an emergency fund and you'll get 10 answers as to how much you need to keep. for me, right now, it's real easy for me to keep about a years salary in my emergency fund. why? well, where else am i going to put it? my 2% in savings and cd's is totally outperforming anything else right now.

financial advisor

2009-01-13T20:22:00.000-08:00

i never thought that i would meet with any type of financial advisor or planner, but i caught up with a buddy of mine who just happens to be in that line of work today. so, over coffee and numbers out of my head, we talked about my plan in the 3-5 year timeframe, 10 year timeframe, and beyond.

i have to say that it all seemed pretty worthwhile. not only was i exchanging ideas with someone supposedly in the know, but he's in the no-fee business, which means that he gets paid by the people he refers me to. now, i know what you're thinking, he's no more than a headhunter for insurance, mutual fund, retirement, etc. companies.

well, that may be so, but i'm willing to listen. there's a couple of reasons that i believe this guy. one, my wife has known him for more than ten years and if he decides to simply make money by passing us around, we'll call his parents. two, for him to be successful, and i again believe that he is, he should be building long term relationships. there's no point in selling me something this year for a few hundred bucks profit if i'm just going to kick you to the door next year. you see, time is on his side -- if he's got clients in their 20s and 30s, chances are that he has 30-40+ years to make a little money from us year after year.

anyway, after our first meeting, he's going to build a report for us to consider where we have holes and what we can do to fill them. stay tuned.

more p2p lending

2009-01-03T08:56:00.000-08:00

so, i just signed up on the trading platform that lending club offers. this allows you to trade debt. instead of being a lender, you turn into a trader and can buy and sell debt (at discounted rates) and thereby instantly monetize your investment.

p2p lending

2008-12-28T07:02:00.000-08:00

i had been experimenting with prosper for some time, but they've been essentially closed to new funding due to some sec quiet period, so i've just signed up with lending club. the two are fundamentally the same, but here's an interesting thing to note with lending club -- you can fund your loans via credit card! that's just amazing if you ask me.

anyway, if you are interested in signing up and want to take advantage of a $25 bonus, click here.

end of the year tax moves

2008-12-28T06:20:00.000-08:00

it's time to say goodbye to 2008 and time to make some last minute moves to help soften any tax burdens for the year. there are a few easy things that i'm going to do this year . . .

take some investment losses. i got into some financials at the beginning of the year that looked good and were paying a good dividend (c, aig). these stocks are at historic lows, now unfortunately. by realizing these loses, i can take that right out of my bottom line and pay less in taxes. now, i don't generally suggest spending a dollar to save twenty-five cents, but in this case, there is a key advantage to selling now. if i believe that these stocks are going to come back, i can sell now and get back in after a 30 day wait (wash rule), if i think the stock is poised to go back up. that way, i can take the losses and benefit from a longer term holding strategy.

make donations. i've got hundreds of dollars of baby gear that my kid has outgrown. a few trips to the local goodwill will take those right off my bottom line.

ira contributions. you've actually have some more time to make these contributions (until the april tax filing deadline), but nonetheless, making an ira contribution reduces your taxable income by the amount of your contribution (with certain income and contibution limits). so, if you're stashing away money for retirement, you might as well plunk it down in your ira.

well, that should do it. that'll take a few grand off my taxable income without any real measurable effect to my real holdings.

mortgage rates at historic lows

2008-12-27T06:45:00.001-08:00

now that rates are at all-time lows (well, at least -- to borrow a sports term -- in the modern era -- since 1971), i decided to pull the trigger on a refi at 4.75%. we were at a pretty attractive rate of 6% before, but by getting a 1.25% discount, we will be saving a good deal of money in both the short and long term. a number of online calculators indicated that it would take less than 6 months for us to break even, our monthly payments would be a couple hundred bucks lower, and we'd end up saving tens of thousands in interest payments.

it was a no brainer!

now, the only question is, what do we do with the extra cash? spend it? invest it? save it? put it back into the mortgage?