My Money Matters

House Flipping In The Real World--Part 3-Fast Freddy

2008-07-16T13:47:00.001-07:00

(This blog is turning into another mini-series, this one on the joys(?) and perils of real estate investing. I repeat, that anyone can make money at real estate BUT it is not painless and not easy. To go to the beginning, scroll down.)

Went to the closing, signed a bunch of forms, and wrote very large checks to the realtor and for last years taxes. But told myself I had followed the rules--fixed the house, interviewed realtors, put the house on the market, found a qualified(?) buyer, and paid a bunch of money at closing. And was helping a young couple get a start in life. As a friend put it, let no good deed go unpunished.

But I was feeling pretty good about myself and sat back and waited for that first payment...and waited. One problem surfaced immediately--Freddy and Celia didn't have a phone, or at least not one they told me about. Called the realtor. He would try Freddy's dad. Gave me the number as well and the number for Celia's parents. Called both and got Spanish only speakers or so they said. (Phone tricks are something I've dealt with for years. I was in international finance and we had a controller in Brazil that often got phone problems when asked difficult questions. It was only after we had become friends that he admitted to crumbling typing paper next to the phone when things got too hot for him. Try it, it sounds exactly like a cell phone breaking up.) Celia finally called and said could I come by and they would have the money for the first payment. Didn't like it but ok.

This happened a couple of times and finally said, no more nice guy, mail the money order. Worked a couple of times, then more phone calls, then nothing, then a summons from the city to clean up the backyard. Called the city, said I didn't own the property but, just out of curiousity, what was in the backyard? A junkyard, the city said. Oh, great.

Then payments on schedule for a couple of months and then nothing. I started to dread the first of the month--would they or wouldn't they? Called the realtor and he called around and found out that Freddy was having cash flow problems because Freddy was in jail. Wonderful. Seems Freddy was having a mid-life crisis early, brought down by the burden of the wive and two kids. Fooling around with some buddies he got busted for something and discovered it's hard to paint houses when you are locked up.

By now about a year has gone by and I'm getting a little curious about whether they had paid property taxes. Stupid me, of course not. And they were in arrears and incurring late charges of about $100 a month. Note: The city is not a friendly creditor, don't get late on your tax payments.

I hit the ceiling and then cooled off and then did the smart thing--I abdicated. Called a lawyer I knew casually, how much to foreclose? $400 plus fees of around $100. Go for it. He said the process would take about three months. What? That's the way it goes. Ok, get cutting.

And I thought of Bill Smithburg. Smithburg was chairman and CEO of the Quaker Oats Company when I worked there early in my career. Bill was a hero for having the 'vision' to buy Gatorade and turn it into a powerhouse. A few years later he was vilified and canned for buying a tea company that I can't even remember the name of right now.

I remember Bill for sending out a memo to finance saying, roughly, don't bring me small projects or acquisitions. Bill figured out that you spend the same amount of time on a little project as a big project, sometimes more. I finally figured out that Freddy and Celia were a small problem that was taking up way too much management time and effort so I flipped it to the lawyer and said, call me when this mess is over.

Sound cruel? Perhaps. But I would soon find out that Freddy was really a nasty little person.

June 2008 Goals Update

2008-07-15T01:46:00.001-07:00

Plod and trod. Here we go. Q2 2008 closed and there’s not much to tell on the half year update.

Goal #1

Specific - Contribute to my 401k plan

Last month I wrote that I was considering bumping this up. In the meantime however, I am eligible for the Employee Stock Purchasing Plan now. So I’m still contributing to the 401k, and increasing my after-tax savings.

Grade: Pass

Goal #2

Specific - Reduce my credit card debt

Measurable - By 50% or $9,137 (rounded up to $10K)

Achievable - Monthly payments of $762

I cannot see the forest for the trees here. But examining my balances closely, I see I have not done well and realistically, I’ll only be down to about $10.5K by Christmas.

Grade: Fail, perhaps terminally.

New Goal #3:

Specific - Reduce my credit card debt on my highest balance card ~$13K

Measurable - By 50%

Achievable - ~$825 a month

I put down about $1800 on this card last month and another $850 in July. I think I can salvage this new/revised goal for the end of the year. I think I can. I think I can.

Grade: Pass

Should I get a paying job or not?

2008-07-14T13:46:00.001-07:00

We've been living here for about two months now, and I've had a couple of job interviews but haven't heard back from them, and at this point I am wondering if I should even bother with trying to get paid employment. It may not be worth the hassle. It might. If I get hired with either the company I interviewed with two weeks ago or the tax preparation firm I worked with in Virginia (surprisingly, employment is NOT as portable as they'd have you believe), I'll take the position, but I'm trying to decide if I should even try for more.

Reasons I should get a job:

Boredom! I have quite a bit of free time on my hands, and while I am engaged in volunteer activities, I could easily handle a part-time job and not sacrifice any family time or fail to accomplish any of my regular errands.
The gap in my working resume is only getting longer with every day I fail to work. Same thing with my salary history.
A supplemental source of income would provide Mr. Dimes and me with greater ability to fatten up our short-term and long-term savings (and a matched 401k would be totally awesome if I could get it). We've got the three-month emergency fund taken care of, but a car-replacement fund or home down-payment fund would be great to get started on.
My student loans, which I have earnestly been paying off with my income, are now starting to become my husband's responsibility with no earnings coming into the household from my efforts. Even earning $200/month would enable me to fully cover the loan payments.

Reasons not to get a job:

Potential lack of flexibility. I am doing hundreds of practicum hours for my AFC certification, and a full-time job would cut off my ability to do those at the pace needed to complete them on time. A part-time job is ideal, and what I'm looking for, but even some part-time schedules are unworkable with my volunteer commitment.
Interference with family planning: Mr. Dimes and I are thinking about starting a family within the next year or two. It would be difficult if I were to start a job and then immediately get pregnant, as I have no plans to work after giving birth.
Possible relocation. As I mentioned a few posts ago, we might be relocating onto base housing. Currently we live about 20 miles away from the base. If I had a job close to where we currently live, it would be just as far from our new residence as his workplace is from our current one. In that case, we'd just be trading commutes. My car gets better gas mileage than his does, but do I want to drive so far every day for supplemental income?
Allegedly, there is a lot of nepotism in this area for jobs. I've heard that a lot of people get passed over due to internal hiring decisions or choosing friends or acquaintances instead of the most qualified applicants. While this wouldn't keep me from applying for jobs in general, it would probably cause me to throw in the towel sooner than if I weren't thinking the process was rigged.

So I'm not sure. I guess another thing to keep in mind is that Christmas is coming, and a new job might keep me from being able to go and visit family in December, though I'm not sure that's necessarily a bad thing. ;-) We'll see what happens.

Positive net worth!

2008-07-10T13:46:00.001-07:00

I updated my NetWorthIQ page a day or two ago and it looks like I finally have a positive net worth! Click here to see my NetWorthIQ profile.

OK, so it's only $367 above zero, but it's a start! (Although I am currently only including my retirement contributions, not the actual value of the account, so if I used actual value it'd be about $2000 more.)

I have some pretty audacious savings goals for this year. I'm already trying to max out my retirement savings and I want to get up to a $10,000 emergency fund (right now at $4000 and change) as well as save up the money to pay off my 0% balance transfer when it comes due in December (I'll need about $4600, have about $2700 right now) so I've still got some work to do. I have some other goals to meet if I can do those, but those are the first priority.

I'm really not worried about paying off my student loan though - it's fixed at 3.9% and I'm getting 4.5% at ING, so it makes more sense to save right now than pay down the debt.

Get packing, Wesley

2008-07-09T13:46:00.001-07:00

Wesley Snipes has been granted court permission to leave the United States in order to work on a couple of films.

As blogged about here, the action film star asked for the travel OK to head to London and then Bangkok in connection with movie roles.

Snipes, just in case you've forgotten, was convicted in March of three misdemeanor counts of failing to file returns on $13.5 million in earnings. He was sentenced to three years in federal prison, but has been free on bail while appealing the conviction.

Judge William Terrell Hodges signed off on the
work travel request just before the Independence Day holiday, despite prosecution
objections to the Thailand project's open-ended return date.

Six-Word Memoir Meme

2008-07-07T13:45:00.001-07:00

A really long time ago, Maria at Cents and Sensibility tagged me for the Six-Word Memoir Meme. I've totally broken the meme, as she made her post on April 15 (guess where I was that day?), but I won't leave her hanging forever. My memoir is...

Whoops! Got distracted by something else.

My mind is a cluttered field of thoughts and ideas, and my life and household are no different. My parents and husband think I have Attention-Deficit Disorder, and maybe they're right. I'm just a little undisciplined in my thinking, and I have better things to do than to stay on top of everything all the time. I ultimately accomplish all my goals, I just don't always finish them in the order they were started. :-)

House Flipping In The Real World-Part 7-Doing The Numbers

2008-07-05T13:43:00.001-07:00

As they say at NPR, when we do the numbers we find that, well, it depends on how you do the numbers. Analysis is in the eye of the beholder. Just ask any finance guy told to justify the corporate jet. I prefer, with a few twists, to do the cash in, cash out method so here goes.

The HUD asking price was $39,900. I got it for $27,000 after some long negotiations. Dealing with HUD is tricky so a realtor that specializes in this is important. HUD picks the realtor and the realtor cannot opine on a bid but they will do so in code. "They may have an issue with this" means too low. "Perhaps in the ballpark" means you got it. Anyway, as I said before, you make money when you buy the house, not when you sell it.

Here are the cash flows (Sorry about the numbers going all over the place, programming ignorance):

Money out

Purchase Price $27,000

Maintenance/Repair 3,400

Property Taxes 3 Years 3,600

Insurance 600

Freddy and Celia Closing Costs 3,500

Foreclosure Legal Fees 750

Back Taxes and Penalties 3,000

Patricia Sale Closing Costs 500

Total Out 42,350

Money In

Rent $16,275

Freddy/Celia Mortgage Payments 7,920

Patricia Sale Proceeds 49,000

Total In 73,195

ROI = Cash In minus Cash Out divided by Cash Out=$73,195-$42,350=$30,845 divided by $42,350=72.8%. Not too shabby, at first glance. I held the property for 4.5 years so the annual return is 72.8% divided by 4.5 years equals 16.2%.

At this point, any analyst out there worth anything should be shouting "Wrong, wrong." And they would be right. You can't divide 72.8% by 4.5 years because it ignores the time value of money and a few other things but that's my story and I'm sticking to it.

There is a more glaring error. There is no expense in there for me but let's not quibble.

Let's do look at what is in there--The cost to renovate the house was only $3,400 because I did most of the work myself. It was a controllable variable. Uncontrollable variables are property taxes and penalties ($7,600), insurance ($600), closing costs ($4,000) and legal fees ($750). Actually, closing costs can be reduced significantly by avoiding real estate agents as I did with Patricia but it ain't a done deal yet so an agent still may be necessary.

What ate up a large amount of cash was FEES and you cannot avoid them but most people forget about them. If you invest in real estate, don't forget them.

BUT we still haven't come up with the most GLARING error in the analysis. The Donald and Co. would say "Don't do it this way. Use OTHER PEOPLE'S MONEY." Let's try that. You put 20% down and borrow the rest for repairs and everything else at 10%. So that is $5,400 for the downpayment and $15,350 for everything else and 4.5 years of interest payments=$31,899 plus the interest not paid you for the downpayment but let's not split hairs. Income of $73,195 minus expenses of $31,899 generates a return of $41,296 divided by $31,899 for a return of 129%, or an annual return of 29% doing it my way.

Not bad. In fact, great. The Donald is vindicated except for the fact that OPM is based on the assumption the OP are either idiots or charities because...

Who is going to lend you this money? Not HUD. Oh, there may be a government program out there that will lend you the money but I don't know about it and I wouldn't qualify. Maybe you would but I doubt it. Will a bank lend it? Lend $31,899 for a property worth currently, maybe $27,000? Remember OPM assumes you can borrow just about everything. I don't think so. Maybe Mom and Dad will lend it. Give it a try. Or private individuals may lend it but they will charge a lot more interest and take a lot more of the profits.

Please feel free to take a whack at the analysis or come up with a better one. I'm going to send this to a friend that is much better at finance than me so we will see what he has to say. For now my head is spinning and I probably made some major mistake BUT no matter how you do it you will come up with the same conclusion--yes, you can make money in real estate but it isn't as easy or painless as the guys on TV would have you believe.

Morgan Stanley Commodities Head Retires

2008-07-04T13:42:00.001-07:00

Morgan Stanley commodities chief John Shapiro has decided to follow Michael Lewis advice about what "the really shrewd people" do when times get tough on Wall Street. They "abandon the big firms for which they have happily worked for many years, and sneak off," according to Lewis.

Shapiro is stepping down from his positions as the head of Morgan Stanley's huge commodities trading desk. He's been with the firm since 1984, and gets credit for building its energy-trading business. But lately Morgan Stanley has seen a sharp decline in revenues from commodities. Shapiro's surprise retirement will inevitably be read as a signal that things haven't improved.

As the Wall Street Journal tells it:

The firm recently said a decline in commodity revenue from the first to second quarter of this year was due in part to wrong-way bets in the power sector. But a person familiar with the matter said the overall commodities business in the first half of 2008 is running on a par with the first half of the prior year.

Writing on the wall seen.

Morgan Stanley's Shapiro Resigns as Commodities Chief

Not amused

2008-07-03T13:42:00.001-07:00

So although Boyfriend's name will be on the title and mortgage of our new house, I'm pretty much handling everything. He doesn't really have the inclination to gain more knowledge about house hunting and everything that involves, so we've only seen houses I've picked out with the realtor I selected and gone to the mortgage person I contacted. Mortgage Lady seems to not be terribly on the ball though and it may have just cost us several hundred more dollars. Our offer on the house was accepted on Wednesday and our realtor sent her the contract. She called me about 2PM on Thursday to tell me that rates had gone up a little from when we saw her last Saturday (we are getting an FHA loan, and the rate at par then was 6.25%) and that we could choose to pay a half point to get it back to 6.25% or we could take 6.375% without the half point. I asked her to email me the Good Faith Estimates for both scenarios and I would discuss it with Boyfriend and get back to her. I said I would do that and call her in probably about an hour. Then I called Boyfriend and asked him to check my email in half an hour and look at the estimates. By 4:30 I still had no email so I called and left a message. She had apparently left for the day - had not bothered to call me when she didn't hear from me - and I didn't get the estimates until 8:15 this morning. I checked email at 9 after finishing force-feeding one of the guinea pigs who has some bowel issues (she of the multiple tumors) and got the estimates. Boyfriend and I gmail-chatted about them and decided to go for the 6.25% with paying the half point. This scenario wouldn't have cost us the full half point, because part of our offer is that the seller pays $3300 towards closing costs, and it was looking like the costs weren't going to be that much, so the extra would go towards paying for the half point.

So I email her back to say that we'd pay the half point, and she replies saying:

Hi Kira,
Well.......................please don't shoot the messenger. About 1/2 hour
after we talked yesterday, our rates were suspended because the market took
a bad turn for mortgage rates and are still suspended this morning. I will
have new rates around 11:00 then I'll call you as soon as I know we still
have that, ok? Keep your fingers crossed that Friday the 13th will be a
good day and I'll lock you in at a good rate.

Ok, now why exactly didn't she say that when she sent me the estimates at 8:15? When she ALREADY knew that these estimates were no longer valid because she had no idea if we could get the rates or not? (Note: she works for a quasi mortgage broker place, they use internal funds on some loans and then sell all of them off. So I assume she means their internal bank's rates, or something.) I looked on Bankrate and the national average is already up to 6.29%, which means we probably will be quoted 6.5% or worse.

Now if she'd sent the emails on time yesterday, we could have locked in already and not had this rigmarole.. she already had issues sending things to Boyfriend by email because she didn't listen when I spelled it for her and tried to send it to juno.com and not gmail.com. So I'm thinking maybe we need a new mortgage broker.. and it would have to be fast, because the closing is scheduled for July 8th. But also, at this point, the rates have already gone up, and I don't know if anyone else could get us a better rate anyway. Grr.

Oh, and for the wildly curious, our offer was full price minus $3300 in closing costs, for closing July 8th and the tenants moved out by July 15th. They accepted with only minor revisions (the realtor asked for home and gasline warranties to be purchased, but they already have them.) The house has students in it and is owned by one of the students' parents, so they are flexible on the whole tenants-rights issues, although we have always given 24 hour notice and are giving 30 days notice for them to move out, plus allowing a week after closing (in case it doesn't happen.)

Boyfriend is understandably pissed. I would not be surprised if he wants to vote with his feet and we go to someone else.

Construction Update

2008-07-02T01:42:00.001-07:00

The main part of the construction is finally done. There’s one minor problem to fix, but it still renders my apartment unusable at the moment. (Sort of.)

I asked my contractor to retain my original tub because of an art deco detailing that matches the building’s exterior. I had him reglaze the surface so I could keep it. Doing that costs about $400 whereas a new tub would have been $200 + installation. To me, that’s about equivalent pricing with the added non-monetary benefit of pleasing my aesthetics.

Unfortunately, my contractor didn’t have a whole lot of experience with glazing. He hired an excellent glazer through his business partner who had used this glazer on other projects. The tub looked great when I first saw the work. It was awesome and I knew I had made the right decision.

However, my contractor told me on Tuesday that it would take 24 hours to set and then about 72 hours to cure, so I wouldn’t be able to shower in it till Friday. There were just a few more things to do like hang a towel bar and clean the work area and everything would be done. That was fine with me.

I get a call on Wednesday evening. The contractor has made a boo boo. He misunderstood the glazer. Nothing should have touched the tub for 72 hours at all. Because the contractor thought 24 hours was enough, he laid a canvas drop cloth in the tub so he could step in it and put in the plumbing fixtures. He had inadvertently marred the surface with the texture of the cloth. OOPS.

The glazer said he can’t fix this for at least a week because you can’t lay another layer of glaze down for 7 days after the first application. While I can use the tub over the weekend, it’s not perfect. So really, I’m not going to be able to move back in till June 21st after the reglazing is fully cured. YIKES. That makes it nearly 2 months since I started the project which should have taken 10-15 days.

At least I am only eating the cost of the extra labor for the surprise concrete under the waist-high tile backsplash on a spot of the walls that didn’t need tile. Yes, I went overbudget, but only by $300, less than 10% of the total estimate. And I saved a little money by buying less tile overall.

I will do an inspection over the weekend and hopefully cut a check for final payment next week. Then I will be able to move back in! YAY!

Spring Cleaning

2008-07-01T01:42:00.001-07:00

I haven't been feeling much like myself lately. I've been in a funk and stressed out for some reason - probably due to increased stress at work and some small health issues (which seem to go hand-in-hand). I've been meaning to post, but haven't had the heart to write what's on my mind. I tried to work out a bit, but don't have the energy. I've been spending weekends in, mostly sleeping or just lounging, rather than going out with my girls. And you know what? I'm sort of sick of myself.

I realized today that I've been spending more time talking about my health and nutrition issues lately than, well, anything else. And I think it's driving my family and friends crazy. I need to get back to my normal, energetic and engaging self. But how?

Well, as most of you know, I'm not an unhealthy person. I usually eat plenty of veggies and fruits, try to eat "clean," or organic/unprocessed whenever I can, avoid sodas and too much sugar and work out regularly. This isn't the cheapest or easiest, but it's how I feel my best and has worked well for me. Despite my healthy ways, about two weeks ago, my digestive system staged a protest and I ended up at the doctor's office to get some advice.

Digestive issues are nothing new for me. I've had a sensitive stomach my whole life and regularly carry around a purse full of everything from antacids to Pepto to Immodium to chamomile tea to fiber to gas tablets (sorry for the TMI!). I've tried digestive enzymes, tried going vegan, tried avoiding dairy. How I'm processing foods really just depends on the mood of my tummy on any given day.

This time around, my doc advised me to be really restrictive about what's going in, and suggested I limit my fiber, uncooked vegetables and raw fruits until I get back on track. So I've been doing that for two weeks now and I hate it. Though my body seems to be back in order, I don't have the spring in my step that I usually do. So today I've gone back on veggies, fruit and fiber. Screw the brown-rice bread, bring on the whole grains! I'm scrapping the "sensitive stomach" diet and getting myself back into shape.

Here's how I'm going to get back to normal...

1) To start, I made an appointment with a GI doc. I like my doc just fine, but she's never tested me for what starts my issues in the first place. She recommends a high-fiber diet one day, and a low-fiber diet the next.

I have no idea what the GI doc will cost, but he's in my network so it should be reasonable. For those of you wondering, I don't want to delve to much into symptoms or history. We'll leave all that to the health and nutrition bloggers out there.

2) As I noted, I'm going back to my pre-protest diet... high-fiber, good fats, yummy fruits and veggies. If I weren't going out of town all week, I'd be at Whole Foods or Trader Joe's right now, buying $80 bags of groceries.

3) I'm going to keep taking the probiotics I started last week. The kind I'm using now is about $30/month.

4) I'm going to try to take a multivitamin every day.

Hopefully this strategy will keep me running right, with the energy levels and nutrients I need, until I see the GI doc at the end of the month. Until my appointment, I'm not going to complain or wallow one minute longer. I'm going to get off the couch and start exercising and cleaning my house.

Speaking of cleaning my house (how's that for a transition?)... My vacuum cleaner has also staged a protest this week, and has decided it is no longer cleaning up cat hairs. Unfortunately for the vacuum cleaner, this means we have reached an impasse and will no longer be working together.

That said, I now need to buy a vacuum cleaner. And not just any vacuum cleaner; one that will actually clean my floor. My 5-year-old $40 Hoover probably "lost suction" about a year ago; we've been fiddling with bags and cleaning brushes, but it's progressively getting worse. So in the name of spring cleaning, I'm going to splurge and actually buy an adult vacuum [read: expensive] this time. (My family had a top-of-the-line Rainbow growing up... I still remember when the sales lady came to my family's house in the mid-80's for a demonstration and all six of my family members sat in my living room in awe as she picked up a bowling ball with only one small attachment!)

So given how I'm partial to expensive vacuum cleaners because they actually, you know, work, I have narrowed down my search to two models: the Kenmore Progressive Model 35922, rated number one for pet owners by consumer reports and retailing for about $300, and the Dyson Animal, which retails for about $550 and is rated number one by my brother, who works with inventory for Best Buy. I have read glowing reviews for both. I'm guessing the Kenmore will be the winner based on price... after all, I am still the Budgeting Babe.

OK, so I think we've covered it all today: digestive ailments, probiotics and vacuuming. I have officially become the most boring blogger ever. Oh well. If it makes me sound any more glamorous, I also bought a plane ticket to visit a friend in Elko, Nevada. They have a cowboy museum there! Don't think I was going to let the opportunity to visit a cowboy-lovin', gold-mining western town pass me by. Spring cleaning season might suck, but I'm feeling an adventurous summer just around the corner.

Saving game

2008-06-28T13:42:00.001-07:00

I generally don't do blog "tagging" games. Mostly because I could never actually figure out what they actually are. But Twiggers over at In Debt Because I Like to Have Nice Things kindly explained how it worked, and now that I've read a couple posts, it's actually pretty fun to read everyone's lessons learned.

Here's my deep and meaningful contribution:

SAVING TOTALLY BORES ME. OH WELL.

Most other memoirs were super serious so I thought I'd change it up.

Seriously, for those of you who are rock stars and love going out, saving will be a challenge. But there are some things you can do to spice it up. Like getting a cheap hobby; I've tried about 500. Knitting? Super cheap but kind of hot for the summer. Step aerobics? Dangerous... I fell off it and hurt myself. Getting a pet to keep you company? So not cheap. Eh... oh well. In the end, I've emerged a stronger, healthier, more content, less chaotic person with a lot to live for and a simple, chill life to enjoy. So call me boring. I do not mind. I'm having fun.

I'm not going to tag because I know it can be laborious sometimes to participate in these things. That said, take a quick read at these memoirs for a nice snapshot of different people in various stages of their financial journeys, and feel free to post your own so-called memoir here. It's actually pretty cool to think about.

IDBILTBNT: "You can't take it with you"

Young Broke and Fabulous: "At least you have the experience"

Beachgirl's Budget Blog: "Do what is best for you"

The Debt Hole: "Falling down. Getting up. Trying again."

Frugalista Files: "Peace, values and a decent wine."

Who else should I add up here???

Summer Poll

2008-06-28T01:42:00.001-07:00

It's the first day of the meteorological summer! So I've decided to celebrate with a random poll. Tell us: if you had an extra $50 this summer, what would you spend it on? I've listed a few options with my very unscientific poll here and I've decided to be very rigid. You can only pick one of these, so if they don't appeal to you, pick the closest. No wimpy "none of the above" options in my make-believe land of happy $50 for all. No sir.

Or you can just, you know, write it in the comments. But take the poll first, and then tell me how you'd rather spend an extra $50 if someone approached you with it right now.