Sunday, April 29, 2007

CO2 Levels rise after temperatures increase

One of the "lies" exposed in "An Inconvenient Truth" was that carbon dioxide levels throughout time have risen after temperatures start to rise. Another prominent meteorologist, Martin Herzberg, reveals the same data here. He also has the same scepticism as I do about computer models.

Meanwhile the religious environmentalists are buying indulgences for their high carbon generation sins.

Friday, April 27, 2007

Progress on House Rehab

Well, I found out this week that I will be travelling for work one week a month for the next 4 months, so I decided I better kick up my rehab work schedule. So I will take off all next week to see if we can finish the house in Cheektowaga that has been going on since February. The roof went on this week, the painting is done, new windows and bedroom doors are in. The main to do is the flooring and then we can reinstall bathroom fixtures.

I have someone coming in Monday to put in vinyl flooring. It's a new type of flooring I'm not familiar with - free floating - like the laminate floors. It's a little thicker than glue down vinyl and softer feeling. I'll have to see how it works. The main project I'll be working on next week is refinishing the hardwood floors. There are 3 bedrooms and the family room. This will be my first attempt at refinishing floors, so hopefully I won't screw it up. By week's end I hope to have the house 99% done.

Got some good news on the wholesale flip I am doing. I've got a purchase contract for $17,500. I got the offer through a Realtor after using a flat listing MLS service. Not sure the flat listing was worth it since the Realtor demanded 6% - so with the flat fee cost plus the commission my selling expense will be 7.4%. Anyway, I'm happy to have a buyer. And a cash buyer at that.

I'm still getting a steady stream of callers from our foreclosure mailings, but so far have not had luck with the banks. One bank came withing $5k of my offer but I felt my profit margin would be too thin. I will have some down time if I don't get an offer accepted soon.

Thursday, April 26, 2007

Why Life isn't Fair and Predicting the Future is Impossible

There's an interesting article at OpinionJournal called Shattering the Bell Curve. If you've ever wondered why 1% of the population produces most of the income this article can help explain it. We are conditioned to think about random distributions like the Bell Curve where data is normally distributed. This works for finding the average weight or height of people, but lacks when measuring wealth or predicting future events. We will "never meet someone 14 feet tall, but... we might witness a market crash twice as big as October 1987".

The author (Shaywitz) claims that most changes in our society are unpredictable because change is not normally distributed. Things like the development of the Internet are only obvious in hindsight. This is why I wrote the post on Straight Line Projections.

Shaywitz points to 4 reasons why predicting who will be rich or what the future holds is contrary to our very nature:
  • confirmation bias - our tendency to reaffirm our beliefs rather than contradict them (the rich get rich by stealing from the poor)
  • narrative fallacy - our weakness for compelling stories (the media uses this to reaffirm a poor economy when the facts are contrary)
  • ludic fallacy - our willingness to oversimplify and take models too seriously (think global warming)
  • epistemic arrogance - our habit of overestimating our knowledge and underestimating our ignorance (global warming again)

One statement that rings so true to me is this:

"What is surprising is not so much the magnitude of our forecast errors, but our absence of awareness of it. we tend to fail miserably at predicting the future, but such failure is little noted nor long remembered."

Tuesday, April 24, 2007

Environmental Trade-offs

The current hype among environmentalists is global warming but over the years they have hyped one non-sequitor after another- Alar, DDT, power lines, overpopulation, ice ages, famine, GMO's, ozone, ad nauseum. It's always an apocalypse for these people (which is why I think it's closer to religion than science).

Any solution to an environmental problem involves trade-offs. These could be economic trade-offs or environmental trade-off. The replacement of the horse with the horseless carriage eliminated the problem of manure in the streets and disease carrying flies but created a new set of problems. I wrote about the large environmental impact the Prius has. Here's another post about the impact of the new fluorescent lights. Some clamor for use of wind power while others fear impact of windmills on birds. The banning of DDT helped save some birds at the cost of millions of dead children in Africa.

There is no free lunch. The only good alternative to fossil fuels creates (a small amount of) hazardous radioactive waste. It seems the only solution the environmentalist really believe in is population reduction.

Exxon and Carbon Based Fuels

There's an interesting article at CNNMoney on ExxonMobil. I was offered a job by Exxon when I got my BS but decided to go to grad school instead. I was quite impressed with the company but as the article indicates "it is not a fun place to work". Exxon is the epitome of capitalism in my mind - the most profitable company in the world. Some call their attitude ruthless or arrogant, but it is just no-nonsense business. I would trust their assessment of the future far more than anything I read from outside "experts".
  • Exxon doesn't think we are running out of carbon based fuels. They expect that even by 2100 carbon based fuels will account for 80% of our energy consumption. I think this is right on. Since 1973 the scarcity crowd had been warning we were running out of oil or that "peak oil" was occurring, yet each year new discoveries are made and new technology allows us to utilize more carbon based fuels.
  • Exxon doesn't invest in the "popular" alternatives because they are not cost effective. This is one that the environmentalist just don't get. Further, the hypocrisy of not supporting nuclear power plants (the only viable alternative to carbon fuels and cleanest) forestalls a switch away from carbon based fuels. And even though my company is putting its future into bio-based fuels these will remain non-competitive with carbon based fuels and inflate food prices.
  • Exxon sees the bigger risk that the price of a barrel of oil will drop, not that the price will go high and make alternative fuels competitive. The price of oil right now has nothing to do with the amount in the ground. It's all based on the political situation in the Middle East and the environmentalists ability to restrict domestic supply sources. The NIMBY attitude towards building refineries also contributes to the high cost of gasoline.

I had one commenter state that I was a "shill" for big oil. I have always been impressed by people or companies that create wealth for society. Even though I don't like to shop at Walmart, I am impressed by what they have done to create billions in wealth for our society and make route to market more efficient. Improved productivity helps us all lead better lives. Likewise, Exxon is so efficient that they keep the price of gas at lowest levels possible given the political situation. I have never been impressed by the critics that spend their time yapping about successful people and companies and failing to create wealth for society.

Monday, April 23, 2007

Real Estate Vs Stocks - Again

Many posts have been written in response to this CNNMoney article Stocks Vs Real Estate. Stocks come out the winner in this article - obviously written by a non-real estate investor (I don't consider a homeowner a real estate investor in the same sense one is a stock market investor). I also don't regard people who buy real estate on hopes it will appreciate rapidly as investors - these are more properly called speculators.

Here's the list and my comments:

  1. Performance - yes stocks win, but the price is risk. The author ignores this very important fact. Individual stocks are a high risk gamble because of No.5 on this list. Mutual funds can reduce this risk, but year to year it remains high. What if you invested between 1965 and 1982?
  2. Leverage - hands down winner for real estate here
  3. Cost - certainly real estate has higher transaction costs
  4. Taxes- the author only mentions the advantages of home ownership. She ignores the extraordinary tax advantages of having your own business. You can also use a self-directed IRA to grow your real estate investments tax free. A double win for real estate here.
  5. Transparency - a big win for real estate. I don't have a clue what is going on in the company I work for, much less the Enron's and WorldComm's of the world. You can hire inspectors to check out your property pretty easily.
  6. Effort - if you are a real stock investor, you need to do a lot of homework to investigate the companies you are investing in. She ignores this small caveat
  7. Volatility - real estate is much less volatile. Not everyone lives in California.
  8. Diversification - yes you can diversify in real estate without being Donald Trump. Single family homes, duplexes, different geographical areas, different demographics (why not invest in property geared to baby boomers or first time buyers?)

I only count 2-3 clear cut winners for stocks. In addition, I think there are a couple of other advantages for real estate I wrote about here.

  1. The inefficiencies in the real estate market allow you to buy below market value. You cannot do this in the stock market very well.
  2. You have control over your real estates value. I can't do much to change the direction of the companies I invest in.
  3. You can pull money out of real estate tax free by refinancing.

I still invest in stocks, but in my mind real estate is the better investment.

Spouses in Business Together

There's been a lot written about the pro's and con's of starting a business together with your spouse. Sometimes the articles seem written by "professionals" with theory's, sometimes by actual participants in such a venture. Here's a few of my thoughts and experiences:
  • Who makes the decisions? This is probably the most important decision of all when starting a business with a spouse. Often you read something like "we talk about it then decide together". Well, of course, for many decisions this is true, but in real life it doesn't always work out so easily. Sometimes you just cannot agree on something. This may be due to a different point of view, different belief systems, or one spouse may have an appreciation for certain business aspects. For example, I handle the money and worry about making a profit, while my spouse is more concerned about the appeal of the house to potential buyers. My spouse also has a belief that if you are going to do a job "do it right" while I want to do it cheaply. So this often creates stress and one of us has to give in to the other. One thing I have learned is that she gets upset if I make a decision without consulting her.
  • How does work get split? This can create lots of stress if one spouse perceives that the other is not carrying their share of the load. We split our work based on who is more interested and skilled in the nature of the work. Sometimes it is not straight forward. My wife was an accountant in China and I thought she would do the accounting. I bought QuickBooks in December, but she has yet to enter our data. I don't have a clue when it comes to accounting and she does not want to pay to hire an accountant. Nagging doesn't work, so now I just have to wait to see how this plays out.
  • How do you deal with your relationship? If all you do is work together is that sufficient to ensure a good marriage? I don't think so, but time is a big problem (especially when one spouse is still working full time). Last night my wife wanted to take a long walk, but I felt so pressured to get more done that I stopped short and she felt upset that I was making her a low priority.
  • How do you deal with the stress and pressure of time and money? Sometimes I feel myself being very impatient about a particular task or with my wife. It may seem unrelated but inevitably boils down to a fear of loss - losing money or time to spend doing other things (for example, my kids spend only every other weekend with me and I end up spending all my time on the business and not with my kids). I find myself losing my temper more frequently than before we started the business (normally I am very mild mannered). We have been pouring out cash for 4 months now and have yet to see a cent of profit. I often find myself waking up at 4 am and being overwhelmed with anxiety about our finances and unable to sleep.

Starting a business is itself a very stressful undertaking. Starting a business with a spouse can add substantially to that. However, for many people, it is not an option due to the financial aspects of having to hire someone to replace your spouse. In the beginning my wife was thrilled to be working alongside me, I'm not so sure that thrill is still there. Is it worth it? Some say that the if you weather the storms together you will have a stronger marriage, some say you will end up divorced. For now, the final chapters have yet to be written

Carnival of Homeowners

A new carnival - Carnival of Homeowners is up. A post I did on Lock Bumping leads off the carnival.

Several interesting posts to check out - including this amusing one

Thursday, April 19, 2007

Rehabbing Houses - breaking the rules

We purchased a house in February through a short sale and have spent 95% of my spare time renovating it since. Like most of the houses in foreclosure I look at, it was a wreck and full of stuff, so lots of things were hidden (and there was 2 feet of snow on the roof). I also just flat out missed some things (like an old hot water boiler). So after the the owners moved out and we started renovating we have discovered lots of additional items that need to be replaced - roof, boiler, windows, bedroom doors & frames. We also decided we needed to cover the ugly tub colors.

My original estimate for repairs was $5k for flooring and paint. Now it looks like we will spend about $12k. Fortunately, due the fact that we decided to do nearly all the work ourselves and the cost savings tips we got from Pete Youngs about contractor discounts we probably saved about $10k over what we would have spent for all the additional work.

The additional spending has really thrown off my economics based on a selling price of $185k I had estimated. Guessing at what the house could sell for has been a real challenge. There have been only 3 sales in the past 2 years within the neighborhood. One was the exact same size and style house which sold for $175k, another was a house with 900 sq ft more area that sold for $210k. The previous owners of our house had purchased it a year and a half ago for $182k. Similar houses 1/2 mile to the north in Amherst sell for $300k, while houses 1 mile to the west in Buffalo sell for $12k. Our house is located in a really nice neighborhood identical to the Amherst area, but a rotten Buffalo zip code (even though it is physically in Cheektowaga).

The "rules" of rehabbing indicate that you should not try to have the most expensive house in the neighborhood, and that you should buy a lousy house in a nice neighborhood. Well, we will have the nicest house in the neighborhood, in a bad zip code and need to sell it near the highest price ever sold. This will mean additional risk since our monthly payment of $1780 will eat up profits pretty quickly.

This looked like a great deal when we bought it, but could turn into a bad decision. We are hoping that someone will see a "move-in condition house that will make them willing to buy in this area. The house is nearly 2800 sq ft Colonial built in 1955 and would be a bargain at $200k anywhere else in the country (except for the $8000 annual tax bill!). Were it not for the school district we would move in ourselves.

Wednesday, April 18, 2007

Climate Change with Steven Hayward

Here's a link to an interesting video by Steven Hayward-part 2 was most interesting to me. Here is part 1.

Few people understand the difference between correlation and cause and effect. It's amazing how few know that rises in CO2 levels have historically preceded temperature increases. It's also amusing that Gore leaves out nuclear power as an answer to reducing CO2.

Where to Service Your Car

The Digerati Life has an interesting post discussing costs of owning a car and in particular the costs of a recent maintenance service. Some of her points regarding financing (I don't), depreciation (I buy when the car is nearly fully depreciated) and insurance (no collision for me), I have discussed in the linked posts.

One point I have not discussed is car servicing. One of the mechanical engineers I work with does all his own service. I don't have the time nor patience to work on cars. My first car was a 1968 Impala with a straight 6 cylinder. There was so much space under the hood that I could literally sit beside the engine! Today's cars are so crowded under the hood that just doing any work requires removal of other components. I owned a 1998 Intrepid that was a pleasure to drive and had great interior room, but servicing it was a nightmare. The front end had to be removed to change the drive belt and a tire and wheel well had to be removed to change the battery!

So when choosing someone to service your car who do you turn to? Most people just use their new car dealership (since they buy new cars. they think that it is to their advantage to to this). But my experience with servicing at a car dealership has been less than stellar. The typical modus operandi of the dealerships here is to comb the car for every imperfection and then try to "sell" me on why these repairs are needed. Since I have some knowledge of cars, I typically know when they are bluffing and when the repair is really needed. But I have found that their tactics border on the high pressure technique's that we dread from the proverbial used car salesman. Typically, I have found that it will cost me twice what I was anticipating whenever I have used a dealership.

My strategy has been to seek out local car repair shops with a good mechanic in charge. The shop I use now gives me a free loaner whenever they work on my car. They advise me about repairs that might be needed but don't pressure me to have work done that day. For example, I was advised during the annual inspection that I would need new brakes soon. But the mechanic stated that I would need new rotors so I should drive the car an additional 5k miles before changing the brakes. In another situation, there was a leak in an air intake manifold that would cost $500 to replace, but they found a way to patch it that worked.

This is not a unique situation for me. I have had several mechanics in different States who are honest and provide good service at a reasonable price. I would recommend that you explore alternatives to dealerships.

Chinese and Hugs

One of the culture shocks my wife had to undergo when she arrived in the US was our compulsion to hug each other as a form of greeting. I'm not sure if her experience is pervasive throughout China, but she has never seen people hug each other like they do here. In fact, she has never hugged either of her parents nor her brother. She remembers that there was a strong taboo against men touching their daughters when she was young to the point that she never remembers even touching her fathers hand!

We've all read numerous articles about how human contact is necessary but it certainly does not seem to be part of Chinese culture, so I wonder how true it really is. I've seen young Chinese girls hold hands when I've been in China and people in the city often spend a lot of time "touching" each other when trying to get onto mass transit systems. In the Chinese countryside, the likelihood of accidental touching is remote due to less crowded conditions.

So are Chinese mentally unhealthy because they do not hug? My wife is continually shocked (and scared for her daughter) when we get the annual update of sexual predators that live in our town. We have erased a lot of things that are taboo in China but from her standpoint we are the unhealthy society.

As I've learned since meeting my wife, there are many preconceived ideas that we have that we believe are true and right, but an opposite view seems to work just as well in China.

Monday, April 16, 2007

Carnival of Money Stories

The Carnival of Money Stories has my post on Retiring with a Mortgage. Check out all the posts.

My favorite was 10 Biggest Mistakes Poor People Make. There's been a lot of debate about the reasons for the rise in foreclosures. Few people blame the borrowers, but I know every one of the people that I have contacted who are in foreclosure have violated 8+ of the 10 reasons given for remaining poor.

Take Down of Conspiracy Kooks

Last week I had written about Rosie O'Donnell and the conspiracy kooks she represents. I found a great post today at a site called EjectEjectEject that takes down several of the prominent conspiracies including the 9/11 "hoax". The author says that these people are "too stupid to know they are stupid".

To a certain degree this is true, but it goes beyond that. I feel that people that buy into this type of crap (after being given the chance to hear the truth) must have some kind of mental dysfunction. For whatever reason they have given up all their personal power and attribute the government with unimaginable power to control the truth. In order for this to be true the government must have the power to control and silence millions of people who witness events. Even George Orwell's 1984 government did not have that much power and omniscience.

So why would a sane person give such god-like powers to an institution that is by its nature inefficient and incompetent? Only a god (or Satan) could pull off the hoaxes the conspiracy theorists attribute to the government. Have these people created in their mind a god out of government? If they dismiss logic and reason in favor of giving government god-like powers then I can only conclude, not as a put down but as a concern, that they suffer from some kind of mental illness.

It really troubles me that such a large portion of the population is beginning to buy into large conspiracy theories. I'm sure some is just ignorance, but too many reject reason altogether and bodes ill for the mental health of this country.

Financial Self-discipline

My wife and I have been looking at homes since we got married a year and a half ago. I had bought our present home before she came to the US. I bought it primarily as an investment because I was able to buy it well below its appraised value. My wife never has liked the house, so she has been unhappy living here. The primary reason I started my real estate business was a desire to have the financial where-with-all to buy her a nice home.

Most of the houses we look at are out of our financial reach at the moment. There are few homes in our school district that are both affordable and meet her desires. We find houses from time to time that come on the market that look great to her, but so far all are about $40-80k more than I think we can afford. So, inevitably her spirits are crushed after she gets excited about a house we have seen and I fail to match her excitement because all I can think about is the high price.

One of my financial weaknesses throughout my life has been making decisions on large money investments (usually homes) before we were financially ready. Until just this year I never had an emergency fund and used lines of credit to fund the odd emergency. I have usually been torn between living with an unhappy spouse or going further into debt (Before marriage we males used "If you loved me you'd have sex; after marriage I've often heard "If you loved me you would buy me a ..." - but, that's a subject for anther post). Usually I have chosen to go into debt for the short term payoff of a happy spouse. But in my view purchasing things hasn't led to long term happiness.

When a couple has a large divergence on financial matters it creates lots of friction. I've often read (but don't have data to confirm) that a large portion of marriages fail due to financial disagreements. My ex constantly complained that I was too "controlling" with regards to our finances. We were in constant financial difficulties thatI thought were due to her overspending. In my mind the proof came after our divorce when we were both able to live on half my income and maintain our lifestyles.

Buying a house right now would crush our ability to fund our new real estate business. I just hope that I have the self-discipline to keep the "must have a new house to be happy" outlook at bay.

Friday, April 13, 2007

The Hypocrisy of Global Warming Alarmists

Now that we have achieved "consensus" on Global Warming what will the environmental activists force down our throat? No doubt it will be something to hurt our economic growth and reduce our lifestyle. Few are advocates for nuclear energy and many even oppose windmills (like the Kennedy's off the shore of Martha's Vineyard). I don't see many screaming about the coal fired plants that China will build (expected to be double the number that the US has by 2011), even though China is already one of the prime emitters of CO2.

I have speculated that environmentalists are irreligious people that have adopted love of the earth as their new religion. But maybe:

  • they are anti-capitalist Marxists who are bent on the destruction of the US economy because we consume "too much" of the worlds resources (even though we produce much of the worlds goods). Many just plain hate the US.
  • they are naive and ignorant do-gooders who have no idea of the economics involved in reducing carbon emissions (gee, if we all replace our light bulbs that will solve the problem)
  • they are radicals who advocate massive reduction of human population and a return of the earth to its "natural" state (i.e. the animals rule) [Don't think these people are that uncommon - my son's 9th grade science teacher was preaching this during his classes all last year]
  • they are people that wish for a return to an agrarian society where each individual uses solar or wind power to generates power for their own needs and we grow our own food so there's no need to drive (in this case we better hope for global warming or we'll all have to move further south)

Here's a post with lots of interesting discussion on the topic. I'm not sure if all environmentalists can be lumped together, but most have one thing in common - hypocrisy. Al Gore flying around the planet and consuming 10x the normal household consumption of electricity, while his movie asks for you to sacrifice, is one prime example. Few actually live the minimalist lifestyle and often their actions create more pollution (e.g. Prius owners are worse polluters than Hummer owners)

I've written numerous posts about global warming. My opinions:

  • There is not enough statistical data to determine if the planet is warming or not
  • Even if the planet is warming, there is no evidence that the cause is man-made
  • Even if the planet is warming and the cause is man-made, there is nothing we could do to change the trend. CO2 does will not go away and our contribution is but a small fraction of the whole.
  • There is no evidence that a warmer planet is a bad thing. Temperatures during the Medieval Warming were higher and the population was better off

The reality is that carbon based fuels are abundant beyond what we will consume for the next hundred years and for transportation are the only source available for the foreseeable future. For electrical generation nuclear is the best alternative. Nobody has died in a nuclear power plant accident in the US, while hundreds have died in refinery explosions. Our fear of nuclear energy is irrational and counterproductive.

There's only one thing you can do if you are really worried about global warming; stop building your beach house so close to the ocean.

More great predictions

Here's another article detailing predictions that I remember clearly (and even joined in the chorus) - Dogs that didn't bark. A reminder that we know little and can predict almost nothing about the future

Rutgers Vs Duke and racial slurs

There were two stories this week that highlight the racial divide in this country. One that received the most attention was the remarks of Imus regarding the Rutgers women's basketball team. The second was the dismissal of all charges against the Duke Lacrosse players.

The Rutgers women's team's feelings were hurt by Imus' remarks. I find Imus repulsive and don't enjoy listening to angry people vent, so I have no concern about him being fired. On the other hand, the story where real harm was caused is being largely ignored. Those 3 Duke Lacrosse players have had their lives irreparably harmed by racism far greater than anything that Imus did. Their names will live forever on the Internet in infamy and they have over $3M in legal fees to pay off. Yet the press sees racism only in the Rutgers story.

I dated a black woman in college and when I later married, my ex and I adopted a black daughter and a Hispanic son. During the last 35 years I have never been subjected to racial remarks from whites, yet have been subjected to lots of racial slurs from blacks in regards to dating a black woman or adopting a black child (and by the way these remarks have come from the "tolerant" Northeast - not while I lived in the "racist" South).

The worst of the bigots in my mind is Al Sharpton of Tawana Brawley fame, with Jesse Jackson a close second. Sharpton inflamed the whole Duke episode and while demanding Imus' firing, has yet to apologize to the Duke players. And he never will, because there is a double standard for race in this country at the moment. No doubt in my mind that prior to the 1960's blacks were discriminated against, wrongly jailed and despised by many whites. But the pendulum has swung far past center at the moment and white males are paying the price today.

There is still lots of racial imbalance today but I believe, as does Bill Cosby and others, that it has more to do with black culture than white racism. A culture that celebrates gangsta rappers who denigrate women as "ho's" and refers to other blacks as "niggas" keeps blacks suppressed far more than what any white person is doing today. The Bible teaches us that "we are what we think about" and if the typical black male teenager is regarding women as ho's, it' no surprise that 70% of black women are single and that the same percentage of black children are born out of wedlock.

I don't believe in the whole victim culture that is gaining ground in our society. Everybody wants to be a victim and few want to take responsibility for their words or actions. No group plays the victim role better than American born blacks today (black immigrants don't - think Colin Powell). I'm often criticized by blacks because my daughter is not exposed to black culture. But the truth is black culture right now is sick and whites are complicit in enabling this sickness. It reminds me of alcoholics and co-dependents. Race relations in this country will only get healthy when both sides are able to speak and act truthfully about all of the problems - not just white racism.

Thursday, April 12, 2007

Becoming a Jack of all Trades

I work with many PhD's that constantly tell me that they are not "handy" and just totally inept at fixing things in their homes. I don't buy it, I think they are just lazy - both mentally and physically.

I've owned real estate as an investment for about 11 years all together and have done just about every job imaginable in fixing the properties up. Before that I renovated 2 homes. I did not grow up as a skilled tradesman. My father went to school nights or worked and I spent most of my youth either babysitting for my 7 younger siblings or studying. (I attended a Prep school, so we did not have any shop or tech classes.) So I never did nor learned how to do any work that involved manual labor in regards to fixing houses.

These are the skills that I possess today:

  • electrical - any kind of wiring
  • plumbing - done it all
  • furnaces - installed them and the duct work
  • painting
  • kitchens - installed complete kitchens starting from 4 empty walls
  • replacement windows - piece of cake now :)
  • installing insulation
  • carpentry work
  • drywall and mud work
  • gutting - my favorite!

I could go on, but you get the idea. So how did I learn to do all these jobs? I remember the first house I bought. It needed an exterior paint job. After, wearing myself out scrapping old paint, I read about using heat guns to remove the old paint. I ended up catching the house on fire (the insulation under the siding caught on fire). Now I could have given up at that point and hired someone to paint all my houses, declaring myself as not "handy". But I persisted and learned how to do the job.

The same has been true with every job I have done since. In the early years of learning plumbing I constantly started fires when I sweat pipes together in tight quarter. And I am still making mistakes!! I have screwed up more jobs then most people have even tried. Then I fix it. (I see a lot of poor work that homeowners have done that they never bother to fix)

I think that the main difference between me and my colleagues that are not "handy" has to do with a willingness to figure out how to do something and to persist until I learn how to do it well. And this is a lesson for anything in life that I preach to my kids. You've got to be willing to do something poorly until you learn to do it well.

Flipping Houses

I found a new blog yesterday by an individual that works full time and is buying, renovating and flipping homes in his spare time - Flipthyhouse is his website. He provides lots of details about his activities, costs and financing. Hope that as he continues he will have lots more information.

As far as my own efforts go, I am in the 7th week of the renovation of a home I purchased in February and the punch list of items to do seems as long as when we started. I had originally budgeted about $7000 for repairs and planned on having contractors do a lot of the work. After the homeowners moved out and the 2 feet of snow melted I found lots of additional items that I had either overlooked or were hidden:
  • the roof is at least 20+ years old and will be an obvious negative
  • the hot water heat boiler must be the original from 1955, so I think I need to replace this. I'm debating whether to put in an 80% efficient furnace @ $1100 or a 95% efficient furnace which costs $3300. Will a homeowner pay for the high efficiency boiler?
  • the windows were shot and leaking badly. I've written about my experiences replacing them here and here.
  • The bedroom doors were full of holes and needed to be replaced. Iordered replacement doors from Lowes but after I started installing them I noticed they were wrong. So there is a 3 week delay here. Lowes will not be on my list of purchasing "special orders" in the future.

So we have been doing most of the work ourselves and it is taking a long time. The house is the largest one I have rehabbed at 2880 sq ft, so just painting everything has taken most our time. We are nearly done with the painting. Fortunately, with the techniques I learned from Pete Youngs, my costs to do jobs (like windows) are far below my estimates. However, I expect I will spend $10,000 on rehab which is over my budget.

On the other hand, I feel that we may be able to sell the house for more than the $182K that the sellers paid last year. Unfortunately, I don't have any good market data to support this. There has been only one sale in this neighborhood for more than $182k and that house had 3400 sq ft of living area. The house is in a really nice neighborhood, but a really bad zip code.

Last night I was utterly exhausted. I was painting ceilings the last 2 nights which is literally a pain in the neck. We have been working until 11pm for 5 straight nights. I need to get up at 6:20am every day for my day job. Maybe this evening I can take a night off and watch the Sabres play some hockey.

Wednesday, April 11, 2007

Future Predictions

In 1954 Popular Mechanics showed this picture predicting what the home computer of 2004 would look like. Dead on - like most future predictions of the future :) As I talked about in Straight Line Thinking people seem unable to think about the future in anyway that is different from the past experiences that we have. People are innately creative and solutions to "problems" that face us today are not obvious to us at all. That's why all of the horror stories about global warming make me laugh. In 1900 the "realists" predicted streets full of horse manure, causing disease and death. I'm still waiting for the Skycar to be commercial - it's been over 20 years since scientists told me that it was nearly ready for sale.

Tuesday, April 10, 2007

Retiring with a mortgage

One of the prospects that I have pondered is the fact that when I want to retire, it's likely that I will have a home mortgage payment to make still. In fact my wife is wanting to buy a bigger house now, so I could be making house payments until I'm in my 80's!!

That's why I found this article at Liz Strauss' blog quite interesting - Two myths that get in our way. His advice re-inforces exactly the path that I have decided to follow. I took out a HELOC and bought some real estate and have continued that strategy to pyramid my net worth during the past year. My goal is to accumulate over $1M in net worth in real estate before I retire from my engineering job. I also am on a path to have nearly $1M in my 401k if I work until I am 66, so the prospect of 20 more years of mortgage payments after retirement doesn't seem as daunting.

I love this quote:

"Would you rather retire with $12,000 a month income and a $2,500 house payment? – OR $3,000 a month income with a free and clear home?

The answer to that question is the path you’ll be on for the rest of your life. "

Short Sales and the FHA

I've been buying property this year using short sales on property that is in foreclosure. All of the banks I have been successful with have been happy to know that no Realtor fees were involved (saved them money). Today I ran into my first FHA loan. The FHA requires that the property be listed with a Realtor for at least 90 days. This presents a couple of problems for the seller.

First, by the time the seller decides to act, there is often less than 90 days left before the foreclosure auction on the home. People in foreclosure are in a great deal of denial about their ability to save their home. Until they get the lis pendens they often feel that somehow they can catch up on back payments (and the bank is encouraging them to do so). The reason they act at all is that I tell them I can stop the foreclosure process and they do not have to pay anything at closing. So they are not thinking at all about listing their homes for sale.

Second, the seller owes more than the house is worth. I'm not a Realtor and don't know the ethical obligations, but I assume that if you list your property for $X and someone brings you an offer for $X, the Realtor might get upset if you don't sell it. And why wouldn't you sell? Unless you (the seller) are familiar with a short sale process, you probably don't want to sell at a price at which you have to come up with a lot of out of pocket dollars to close. After all, if you had the money, you would just catch up on your mortgage payments and avoid foreclosure. And even if the seller were familiar with short sales and accepted an offer for less than they owed, there is no guarantee that the bank will accept it. Will a normal buyer even make an offer under these conditions?

This an other government rule that makes sense from the governments perspective (and probably to the Realtors association) but makes no sense to a seller. Sellers in foreclosure that owe 100% or more of what their house is worth are not going to list their homes. Closing costs plus the Realtor commission will add to their costs to sell. By the time a seller is in foreclosure interest plus fees that the bank has added to the amount due increase the financial obligation by 10% over the loan principal, so altogether the seller must get an offer about 20% over the homes value to break even.

Putting together a short sale package for the FHA is the most complicated of any that I have dealt with. Are Realtors familiar with short sales? If so, are they will to put in the effort to put together the short sale package and negotiate with the bank? I know the government is trying to protect the public from us dishonest business people, but in the end creates a situation in which the property will go to auction and the seller will have a foreclosure on their record.

Festival of Frugality

The Festival of Frugality is being hosted by one of my favorite blogs - the DigeratiLife. It features me post on Car Saving Tips. I don't think of my self as a frugal person but I guess by most peoples definition, I am.

There's a post that caught my eye - Always Ask for a Discount. Often people will think of asking for a discount at hotels, but not other areas. Here's a tip I learned - if you have a business you can get contractor discounts. When you are remodeling a home, for example, you can often get prices below Home Depot or Lowes by going to a local wholesale supply store and buying material as a contractor. For example, I saved about $15oo off of Lowes price on replacement windows I bought for a house I am remodeling.

Monday, April 9, 2007

Is the Will to Live losing out?

My daughter was watching a show last night (on Discovery Channel I think) about 3 British climbers who were trying to scale Mt McKinley and got caught in a storm (I think the show was called "I shouldn't be alive" or something similar). It was incredible to watch the degree of suffering these climbers were willing to endure to reach the summit. In the end they could not and tried to descend the mountain to save the life of one of the 3. When the incapacitated climber couldn't go on, one of the 3 tried to descend by himself. He fell over 2000 feet and broke both legs in multiple places, and cut some blood vessels which caused lots of blood loss.

Cold, in intense pain, suffering from blood loss and disoriented, the fallen climber willed himself to go on. It is incredible to realize that the will to live is so strong that most people will endure anything to live. This seems to me to be an evolutionary attribute that all humans should possess.

This is what puzzles me most about the Pacifists movement and Gandhi's letter urging the Jews to commit mass suicide in WWII. The will to live seems pretty innate in human beings. It is only when people have completely given up hope. So I wonder, have people in the pacifist movement given up hope? I would believe that this group is the same one that is committing slow suicide by not reproducing.

So is a large part of the West losing the will to live? Have we as a society given up hope?

The Faithful Respond

Saturday, April 7, 2007

Carnival of Life, Happiness and Meaning

I found this new Carnival of Life, Happiness and Meaning interesting. They linked to my post on Fear Keeps you from Living a Longer and Happier Life - check it out.

I also noticed the Digerati Life linked to my post on Car Saving Tips.
I enjoy the Digerati Life quite a bit- that couple seems to have a similar background to mine and are trying to start a business - so we have similar challenges and perspectives on many things.

Friday, April 6, 2007

Update to Networth

I've updated my net worth on Networth IQ and the graphic to the right. My net increased by $22k last quarter or 6%. My assets increased by 27% ($206) primarily as a result of real estate purchases while my debt grew by 43% ($102k) for the same reason. I've put the 2 new houses I purchased at "as is"value and increased my short term debt mainly as a result of borrowing to finance rehabbing costs. My 401k grew by 6% as well- combination of 9.8% growth plus savings. Hopefully, next quarter will reflect profits from the sale of one or more properties.

Thursday, April 5, 2007

Challenges of a Business startup

The DigeratiLife has a great list of challenges to work through when starting up a new business. I can attest to every one of these items she talks about. We live on a Spartan budget and I have worked extremely hard to have adequate cash reserves to fund unexpected expenses and start up costs. I've also worked on lots of methods to get hold of OPM. Even though I have a full time job we also live with lots of uncertainty. Real estate is not very liquid and the time line between purchase, renovation and re-sale is very unpredictable. So far we have bought 3 houses and haven't sold any.

One area that she did not discuss was how to balance work and family. I have 4 teenagers actively involved in after school sports. I am working 14+ hours per day between my job and business. I used to be able to exercise or do yoga but have dropped all of that. I try to spend a little time attending my kids sports events but that is difficult. The most time I get to spend with my kids is when I can get them to work for me while we are rehabbing. Having my spouse working beside me while we are rehabbing allows me to spend time with her, but I find that is not really the same as going out on a "date".

At some point I hope we can achieve more balance, but until there is adequate cash flow, I see no way to avoid an unbalanced life.

Lock Bumping

Have you heard of lock bumping? I had not until just today. My company sent us a video of the process by which thieves can cut a key and using a simple tap, open 90% of the locks that secure our homes. You can even find a video of how to make a bump key at Wikepedia and a link to buy bump keys!

I guess we use locks only to fool ourselves into thinking we are secure. Determined thieves seem to be one step ahead of the naive public.

Wednesday, April 4, 2007

Rosie - the conspiracy theorists become the norm

By now many people have seen the video of Rosie O'Donnell waxing philosophically about the collapse of World Trade Center Tower 7. Her statement that for "the first time in history, steel was melted by fire" is pretty funny to anyone who's had any education (or maybe they stopped teaching about how steel is made in high school). Popular Mechanics debunked all the 9-11 myths long ago and responds to Rosie's allegations.

It's amazing to me that 30% of Americans seem to share her views. Most reasonable people do not spend their time convinced that conspirators are contriving plots to manipulate the world, yet the number seems to be growing. I'm not sure if it's because our educational system is failing to properly educate people or people feel powerless and want to attribute anything bad to a plot by their "enemies". Maybe this is all about politics. Hatred for Bush seems to drive many to irrational beliefs.

Funny thing is people want to hear this to confirm their own irrational beliefs. Why else would papers like National Enquirer do so well and why else could Rosie command a $40 million contract?

Update: Looks like the sinking of the Titanic was a government conspiracy as well - thanks to Andrew for enlightening me!

Tuesday, April 3, 2007

Car cost saving tip

I had written before about buying a new car Vs an old one. There are a couple of cost savings measures that I did not mention in my car buying strategy. The first has to do with collision insurance. I do not carry any - this saves me quite a bit of money each year. Even when I was forced to carry collision in the days that I used car loans, I always had a $1000 deductible. This can pay for itself quite quickly. Many people look at $1000 as a large sum, but it is the incremental $500 that you should be thinking about. You often pay quite a premium for that extra $500 of coverage. But it is better to avoid collision insurance altogether. If you are a really bad driver and get into lots of accidents, your insurance rates are going to be jacked up anyway, so you will be paying twice for this coverage. Since I buy cars that cost less than $4000, collision insurance makes no sense economically.

The other cost savings thing I do with cars is use synthetic motor oil. As a chemical engineer, I'm quite familiar with synthetics and lots of myths about them. I have my oil changed about every 12-15k miles at a quick change shop. I buy a 5 qt container at Walmart for under $20, so it costs me $37 per year for an oil change Vs ~$100 using conventional change intervals. In addition to the obvious cost savings Vs changing oil every 3500 miles, I get about 10% better gas mileage, better cold starts, less engine wear and reduce my environmental footprint. I've driven every one of my 12 cars over 200k miles and never had an engine problem.

Synthetic oil is used exclusively in high performance applications and has the following benefits:
  • better low and high temperature properties
  • better fuel economy
  • resistance to build up of sludge and engine deposits
  • there are no "natural" compounds (like sulfur which breaks down into sulfuric acid) to damage your engine
  • extended change intervals
I've bought used cars with 100k miles and switched to synthetics and driven the cars another 100k miles, so I see no reason to think you shouldn't do this.

Monday, April 2, 2007

Big Traders Manipulate Market

I've been a critic of investing in individual stocks and wrote of how following investment newsletters will give you a negative return. I've also blogged about how risky individual stock market investing can be here.

Yesterday I read of a trader that routinely manipulates markets to drive prices up and down. It seems that Jim Cramer has a secret about what the pros are doing while you are deluding yourself into thinking you can outsmart the market. Hedge fund managers have tremendous influence on the market. Remember this the next time you get a hot tip.

Private Money and Real Estate Goals

One of the goals for my business was to find sources of private money for financing real estate purchases. I had put on a seminar and made a presentation to a few people but didn't get much interest. I had gotten a little discouraged by this since one of my weaknesses is approaching people one on one and asking them for something (one of the reasons I was not successful at Amway). However, on a whim, I called one of the people that had responded to my ad, but didn't attend the seminar. The gentleman asked if I could meet with him personally and I did last week. Friday he called and decided to provide $75k in funding from his IRA to houses I might buy.

So now I have well in excess of $900k in funds available to me for real estate purchases. I posted about the other funding here.

Looking at my real estate goals for the year, I seem pretty well on track. We have 2 houses purchased (A third home under contract is looking less and less likely to close due to an IRS lien). But after one quarter, I feel good about our progress.

Keeping goals in front of you all the time certainly helps you to stay focused.

The April Fools Joke is on me

Previously I had posted on installing replacement windows in one of the properties I am rehabbing. It was my first venture into installing windows and I had measured the vertical dimension incorrectly, requiring me to trim 1/8" from every window.

After installing 21 windows, I had a system down pat to install them and was getting full of myself thinking how good I was getting at this job ( I can put a window in in under 25 minutes now!)

Sunday I got ready to install the last 3 windows in the living room. I cut the windows down, hauled them into the house and opened the curtain - only to see 2 wide windows!!!

I spent the night beating myself up - I have no idea how I ordered 3 narrow windows where 2 wide windows sit. I know I measured the vertical dimension because these are the tallest windows (66"). Somehow I thought that every window in the house was the same width (the other 21 were) and just assumed the same for these. So I made a $400 mistake and feel like a fool. The old adage about assuming something (When you assume something you make an ass of u and me) certainly applies to me and I have been eating humble pie that last few hours.