Sunday, December 31, 2006

25 Rules to Grow Rich By

To ring in the New Year, CNN Money has posted 25 Rules to Grow Rich By. They include nuggets like which home upgrades pay for themselves, how to select the right deductible for your insurance, and how much money you'll need to retire.

Rule # 26: Feel free to end your article title in a preposition if the title is otherwise snappy and will generate site traffic and the accompanying advertising dollars.

Expense vs. Waste

I just re-read Andrew Tobias' My Vast Fortune. This book isn't nearly as good as his seminal The Only Investment Guide You'll Ever Need (it really is), but it still contains some interesting nuggets. It was the first book that helped me understand that if the US government maintained a budget deficit every year from now until eternity, it did not necessarily mean we'd eventually go bankrupt (as long as the GDP grows at a faster percentage rate than the deficit).

Anywho, the interesting nugget yesterday was Tobias' view on waste. Getting a parking ticket, says he, is not a waste. You're just transferring money from your account to the government's but that money doesn't disappear and the government will spend it on something (probably something wasteful, but that's not his point). So really, you can't feel too bad about a parking ticket. Think of it as a forced donation to charity. Digging for gold, however, is a waste. The world already has all of the gold that it requires for industrial uses, and it's value for other uses depends upon it's scarcity as a precious metal. Digging for gold expends resources (fuel, labor, parts) and reduces the scarcity of the existing gold, hence it is wasteful.

And I guess by that logic, I was incredibly wasteful on Friday when I ate three quarters of a pizza, and subsequently worked out for 45 minutes in a fit of remorse.

Tuesday, December 26, 2006

More on Commercial Real Estate

I posted recently about the potential for commercial real estate in Bentonville, Arkansas. Today, a free article from the Wall Street Journal on real estate investors switching into commercial or multi-unit residential investing. The reason is that cash flow is now trumping anticipated appreciation as the key component of the investment. Commercial and multi-unit residentials offer much better cash flow, because they don't have the same speculative inflation priced in. This makes sense, since land appreciates much faster than the buildings themselves (since land is scarce, but buildings can be, well, built).

One notable nugget in the article:

The situation is bleaker for those buying homes and condos as an investment, says Mr. Liang. "They should have very limited expectations on appreciation going forward -- probably 0% to 3% annually for the next five years," he says.

That speaks to why I love real estate as a long term investment. Say properties appreciate 2% per year. If you bought the property on a 90% mortgage (you put 10% down), you're getting a 20% return on your invested money (before expenses, which can be significant). Has there ever been a significant period of time where real estate didn't appreciate a few percent a year? If you ride it out, it provides what I think are higher and safer returns than other types of investments. And in the long term, you can get some great periods of appreciation, like we've had recently. Get someone else to pay your mortgage, and the appreciation will come eventually, turning your $20,000 investment into $200,000 of equity.

The Joy of Refi

The heyday of mortgage refinance may be waning, but it isn't gone. About a year and a half ago, with mortgage rates at historic lows, I refinanced a rental property I own. This is significant: since it used to be owner occupied, I had a pretty good rate relative to the none-owner occupied mortgages that were available to me after I moved out. When I refinanced, rates had finally dropped enough to where the non-owner occupied refi rates would beat my original owner-occupied rate. In order to ensure that I was getting a good deal (it's difficult to make an apples to apples comparison when you're restarting your 30 year clock after a number of years) I took a "no closing costs mortgage", so then I only needed to ensure that the rate offered was lower than my previous 7% rate. As an added bonus, I got the Private Mortgage Insurance (PMI) eliminated at the same time.

The result was that I have several hundred dollars a month back in my pocket, which makes life a lot easier and made it easier for me to finance the monthly payments on my new residential property.

While rates are going up, mortgage refinancing still presents opportunities to save money. For example, a lot of people took adjustable rate mortgages a few years ago that could be getting ready to sting them. If they've gained some appreciation on their property, they could lose the PMI and lock in a rate that, while not the best ever, could beat the heck out of adjustable rates kicking in. If you took an ARM with the expectation that you'd be selling, and have changed your mind, refi could be a real life-saver.

Your Money Is Not Safe at Washington Mutual

Yes, it's a dramatic title for a post. Got your attention? Good.

I'm currently in the process of taking all of my money out of Washington Mutual and moving it to Chase. This is actually a pretty difficult process... with auto billpay, direct deposit, and what not, there is a significant transactional friction involved in changing banks. But I'm still ending my 10 year relationship with Washington Mutual based on what happened to my boss. It's important to note this didn't happen to me... but I was present for parts of it from the beginning, and I absolutely believe that it happened as told to my by my boss.

A couple months ago, my boss ("G") noticed that there was a $2,000 withdrawal from his bank account that he didn't recall having made. By chance, he caught it within a day or two of the withdrawal having been made. After some time discussing it with his wife, he realized that the only explanation was that it was a fraudulent withdrawal. He called Washington Mutual and headed down there with his wife the following morning, by which point another fraudulent withdrawal had been made from second account he had with Washington Mutual. The bank explained that in most cases of identity theft, it was a family member, so he should check around to see if it could be a family member in this case. In the meantime, he asked Washington Mutual to put a hold on ALL his accounts, and they said they would.

Later that morning, I accompanied G to the police station to file a report. There was a lot to find out, but at least he caught it early. Then something happened that caused me, him, and everyone who was aware of what was going on, lose faith in Washington Mutual. Later that day, there was an additional withdrawal. He called and screamed at the bank because they had promised to put a hold, or a flag, or something that should prevent the fraudulent withdrawals from continuing. A day later... another withdrawal. At this point, he had no choice but to close his accounts and withdraw his money, because he had been hit for five figures, and it was clear that Washington Mutual wasn't interested in protecting the money.

After yelling at the bank manager again, it came out that they didn't want to put a hold on the account because they figured it was probably a family member/forgotten withdrawal. They explained that holds are very inconvenient for the customer, so they decided not to implement it. Because they basically did not believe him about the fraud, the losses from his accounts were far greater than if they had acted when they said they would.

Will he get the money back from WaMu? Surely he will. But having 5 figures disappear from your accounts for even a short time is a major inconvenience at best, and could have severe financial consequences (late mortgage payments, etc) at worst. WaMu basically treated him like he was the criminal, and showed an appalling lack of concern for the security of his money.

Given that WaMu has a crappy network and crappy interest rates, the ONLY reason to use them is their supposedly superior customer service. Without that, they're worthless. I'm going with Chase because I like the international presence, but there are plenty of other banking options that are more convenient than WaMu for various reasons.

Get it together, WaMu. Identity theft is no joke.

Tuesday, December 19, 2006

Skate to Where the Puck is Going

One of the greatest real estate booms in the last twenty years has to have been in Orange County, a big part of which is occupied by the Vietnamese community. Immigrants want to live near each other, and as they've gained prosperity (through their entrepreneurial culture, mostly) they've driven prices in Little Saigon and the surrounding areas ever higher. I've got my eyes open for the next great immigrant influx.

In the meantime, The V Train was in Bentonville, AR last week and noted that the not-exactly-new trend of companies stationing employees, either temporarily or permanently, near WalMart headquarters was yielding some interesting and predictable effects. Yes, a whole slew of new hotel developments and corporate housing have started to go up in this once small town. But there are still no big-city type amenities (restaurants open late, e.g.) catering to the army of business travelers that shows up there every Monday.

You could capitalize on this by moving there and opening a business yourself, or you could invest in some commercial real-estate and take advantage of the "pull-marketing" effect to attract lessees.

Since I don't know jack about Bentonville or commercial real-estate, you can have that little golden nugget for free.