New Design Coming

Hi folks,

My blogging will be somewhat sporadic until the new site design arrives in the coming weeks. I’m looking forward to it!

Much more to come…

Just Out of College? How About Living With Your Parents?

Just when you thought you finally had all the freedom with a livable paycheck! Anyone that has the chance to live with their parents while they are getting started with their career should seriously consider it (of course, assuming there’s a healthy environment at home.) The amount you can save on rent, utilities, food etc. can add up to a nice down payment in just one or two years.

Sarah, a friend from my old office, lived in an apartment with a roommate for a year after college in the same city as her parents, and thought it was getting too expensive. She decided to move in with her parents for the time being as they offered free rent and home-cooked food. Because she had more funds freed up she spent more on dining out, entertainment and clothes, and wondered why she didn’t have any savings.

Life before saving:
Sarah makes $1950 per month after taxes. Living in an in-city apartment she was spending monthly:
$950 Rent and Utilities
$250 Car Expenses
$550 Dining Out and Groceries
$150 Student Loan Payment
$450 Clothes, Entertainment, Travel etc.
Total: $2350

Of course, it started to build up on her credit card.

Now, that Sarah was living with her parents – the question was how to make saving work for her. She was still spending all she earned, and she wanted to buy a home. For someone that likes and is used to spending more than she has, forced saving had to be the answer.

Getting to Savings:
She finally sliced her credit card and asked her parents to open a separate ING savings account for her. Every month, Sarah gives her parents a $1200 check for “rent” or forced savings. They will only deposit it in this account, where Sarah can’t access it until she’s ready to move out and buy a home. The only caveat was it should pay off her credit card balance first before being saved. If she earns a raise, the increase will added to her “rent” check.

Life with savings:
After 3 months, she has paid off her credit card balance, and is now spending the next 18 months saving up almost $22,000. What a great down payment for a home! Her monthly spending now looks like this:
$300 Car Expenses (she now lives a little farther from work/friends)
$150 Dining out and Entertainment (she now takes her lunch to work everyday)
$150 Student Loan Payment
$50 Clothes and Miscellaneous
$50 Local Travel (including camping and a short road trip)
Total: $700

She has even made a game of seeing how little she can spend each month, with some of her friends helping her find free activities to do together. After all, it helps them too.

Her parents also feel great because they wanted to help her buy a home, but don’t have the savings to offer. They are giving her what they can: A place to live and eat for free in order for her to save. Sarah’s decision to live at home is of course a compromise in privacy and living under her parents rules, but she knows this is temporary – there’s a definite end date. She is committed to it, and at the end of her year and a half of saving, she will be able to buy something of her own. Also, she’s now trained herself to spend much less and make lifestyle changes for her big goal of having her own place!

As Sarah mentioned, spending those 12 or 24 months with your parents, might just ensure that you’ll never need to live with them again.

Choose Properties For the Scarce Times

The Seattle real estate market continues to rise. Seattle, Portland, and Dallas seem to be the last urban markets standing in the Lower 48 housing boom. I, of course, want it to continue for years, but I can see the increases slowing down. The thing is…there’s just not much inventory right now in Seattle, so that won’t encourage prices to level off. Right now, the market looks good.

Unlike cities like Atlanta or Dallas, Seattle is built between two bodies of water – Puget Sound and Lake Washington. In some places, I believe there’s only about 35 or 40 blocks between them. This means there’s a relatively small, finite number of lots available “in-city” and it’s not growing. When you rent or sell, a lot here will probably be more desirable than farther out. Sure, there are many suburbs across the waters and North and South of the city, but the farther you go, the less you live in Seattle and the less a buyer (or a tenant) will pay for it.

When you hold rental property for the long term, you have to be able to weather the scarce times, even though that may be a little difficult to see during the good times. When there aren’t enough tenants and too many For Rent signs, tenants in Seattle tend to choose a place close to the city (preferably in that 35 block range,) even if they work across the water. They also tend to choose a house rather than a condo or apartment – because they can suddenly afford the lowered rents and the extra private space.

Another key factor – space for a dog to safely be outside. This means either a fenced-in yard or a lot close to one of the many public dog parks. Yes, it’s important. I heard somewhere that 40% of Seattle households have a dog, so it’s better to be open to that market.

I love a city that loves dogs.

Assuming there will be a time in the future with wide availability of both apartments and houses in and around Seattle, my goal is to find a property that falls into a desirable category that tenants would choose first. This careful approach and preparation pays off in the long term when I have less stress about finding tenants during the harder times. Of course there are other important factors in choosing a lot, and I will be writing more about them soon.

May Day is Lei Day in Hawaii

There are a couple of reasons to miss living in the islands besides the normal ones (family, beaches, wearing tank tops in warm evening air.) May Day is one of those strictly non-religious holidays that is all about flowers and dancing. It’s the week of many kids’ May Day Pageants that feature classic Hawaiian music and a whole court of hula dancers representing each of the Hawaiian Islands and yes, LOTS of flowers and leis.

Punahou parents and teachers go nuts trying to be sure they have enough flowers in their yards and on campus to make all the leis and tie all the flowers in kids’ hair. There’s even little leis for their ankles. All the first graders have been practicing their “Pearly Shells” hand motions for months, and third graders display their spry ukulele skills for the “Ukulele Lady” song.

I think May Day is really just a good reason to end the hula training season each year, but hey, it’s feel-good fun.

Photos from the Punahou website.

Seattle Rental Houses Become Scarce and Expensive

Rental houses are becoming harder to find. This article may be good news for rental property owners…I am linking to Tim’s Seattle Bubble for the article as I think his comments are an interesting explanation for what this means to those planning to buy a first house right now. His message: renting may still be the better way to go.

Be Ready For the Long Haul Before Buying Rental Property

If you know you’d like to be a landlord, rental property may be a long term investment path for you. Investments in rental property should be viewed as longer term. The money you sink into a down payment should be funds that you would otherwise put into long term funds, so don’t sweat the smaller ups and downs in property value. Yes, with the real estate market rise in the last decade, many people have done well in the short term, but you can’t count on that to repeat or to continue. Here’s one view of Seattle’s property value timeline.

If you buy now and must wait seven years for that property value to rise, it’s okay! You aren’t supposed to touch that money until you retire anyway. Say you put down $15,000 on a $150,000 property (10% down.) Assuming the rent (or use of it) covers your mortgage and monthly expenses without a significant profit, your main financial concern then is probably the selling price.

If the market value falls to $130,000 2 years after your purchase date, you’re not really affected because you’re not selling it yet. (Hopefully your property taxes went down too.)

If the market value then spends the next 5 years rising to $190,000, you may be ready to sell. This would mean a $40,000 increase from your original purchase price, which if you had paid cash (100%) would have been about 3% rate of return over seven years. Not great.

However, you put down 10% not 100%, so based on a $15,000 investment, you took away $55,000 ($190,000 – $135,000 mortgage). That’s an over 18% rate of return over seven years plus possible tax deductions along the way. You leveraged your $15,000 with a mortgage, giving you a better chance of a high rate of return, and helping weather the time through lower market value periods.

You have to be ready to be in it for the long haul. As long as you only use money earmarked for long term investments or retirement, and leverage your down payment at a rate with which you are comfortable, rental property may be a great idea for you.

My disclaimer: This, of course, doesn’t take into account certain aspects like real estate commissions, closing costs, periods without rent, paid mortgage principal etc. This is just a very general illustration of how to think long term about rental property investment and the power of leveraging your investment dollars. Every investor needs to carefully analyze the property for rental potential and that’s a whole other series of posts. Please consult a professional for advice.

What is Your Magical Number?

Zillow is one of those real estate resources you hear in daily conversation with your friends. Even if they aren’t planning to buy or sell a home, they have usually looked up a few spots out of curiosity. It’s popular because the site gives an estimate (or “Zestimate“) for every property, on the market or not.

There’s always one in every neighborhood: A monster house with huge gaudy Christmas decorations that suck up all the electricity in the area; a place where you never see anyone, but the neighbors try to guess what kind of people live there. This morning I saw this house in our neighborhood had a “Make Me Move” price offered on Zillow.

Zillow describes this price designation:

Make Me Move is a free and easy way to tell others the price you’d be willing to sell your home for, without actually putting it on the market. It’s that magical number you just can’t refuse.

It was high for the current market, I think, but that tells me it would take a good amount of money for them to move from it. Of course, it also made me think of what it would take for us to move from our house, what would that number be? Something based on the market value? Or maybe based on the cost of the next house we would choose? Everyone has a price, right?

We love our street and our neighborhood. If we encouraged our friends and neighbors on this street to enter a “Make Me Move” price for their houses, I think we would find prices much higher than current market value. Does this say anything about our street?

If you saw Apple street on Zillow with lots of “Make Me Move” prices that were double or triple market value compared to Orange street with “Make Me Move” prices close to market, would you think Apple street was a more desirable place to live? Or are Apple street homeowners being ridiculous and you would want to live on Orange anyway because the neighbors will at least be reasonable and realistic?

Is it better *not* to enter a “Make Me Move” price if you’re not planning to move anytime soon? Or should every homeowner do it, because…why not? It’s your magical number.

Should Great Service At a County Government Office Be Surprising?

I spent the morning at the county Land Use department. I know – you’re hooked already! I had several questions about a piece of property we’re looking at purchasing. Having only been to the county records building – with a somewhat scary old fluorescent lit interior with a humming snack machine – walking into this much newer building was a very pleasant surprise. The warmly lit lobby with a digital directory, Starbucks, and very helpful security guard was almost as nice as the service in the Land Use Transportation office. I couldn’t believe this was a county office. They spent time with me, answered my questions clearly without sending me anywhere else and offered extra assistance with a smile. Wow.

I wonder if the housing and construction boom has changed the office’s perspective a bit, or if they were always such a competent and helpful group. Or maybe I need to change my expectations? The county records crew doesn’t show any change, so I don’t think it has been a successful county-wide initiative. Kudos to the transportation office! This property will probably lead me to more government offices -  I’m crossing my fingers for it to continue to be this easy!

Video: RSS in Plain English

Lee and I created this video for our Common Craft site. We call the style Paperwork. Enjoy!

Lee says: We made this video for our friends (and yours) that haven’t yet felt the power of our friend the RSS reader. We want to convert people… if you know someone who would love RSS and hasn’t yet tried it, point them here for 3.5 minutes of RSS in Plain English.

Store Brands – Just As Good?

Free Money Finance today described a promotion by Publix stores in Florida to convince shoppers that store brand products are just as good as the national brand. They matched up Welch’s grape juice and Kelloggs Raisin Bran Crunch with their sister store brand products: Buy the national brand and you will receive the store brand product as well to compare.  Apparently, so many people switched to the store brand that they are moving the promotion to all of its 900 stores. Is there longevity to the profits some national brands are banking on?

I’m not a huge fan of cold cereal in the morning, but a bowl of Honey Bunches of Oats for lunch sometimes sounds perfect. I always aim for the $2.00 big box. About half the time, I can find Safeway’s brand – Oats n More – at that price, and I’m sure to buy enough to last me through the non-sale times. Honey Bunches only hits that price 3 or 4 times a year from its regular $4.59 price, but I think I’m actually liking Oats n More better.

The article above also mentions chain stores like Publix moving to better quality products to better the store brands’ image and keep the consumer hooked on the store brand. Good move.

Post Cereals, or better yet, Kraft Foods – $5 for a box of cereal? You will have to do better than that.