Moneyjibe Blog

I found a really good blog with a lot of useful money saving tips and articles, on a site called Moneyjibe. The blog is at blog.moneyjibe.com.

Fixing Houses

I have been trying to find a way to buy and fix up old houses and sell them at a higher price, to make money. This is not a simple thing to do. The first step is the hardest, finding a property that has the "right things wrong with it," that I can fix up without costing too much money, so that I can make a profit when I sell it.

There are many costs related to buying selling property. The biggest one is the 6% fee the realtor charges the seller. There's fees related to a lender lending me the money to buy the place, since I don't have enough money to buy it with all-cash. Then there's insurance. Plus let's not forget the cost of repairing the place - time and materials. The labor generally costs more than the materials -I try to do as much as I can myself; it saves a lot of money.

I'm learning what kinds of things I'm good at, and what things I really want someone else to come in and do. I like to repair electrical wiring outlets fans, spackling/caulking, painting, cleaning, weeding, moving junk out of the yard, etc. I don't like working on heaters, air-conditioning units, plumbing, roofing.

Repairing houses is fun - but can I make money at it? The problem is, once I see a listing in the newspaper for a "fixer upper", the owner is usually asking too much money. If I buy it anywhere near the asking price, I cannot make any money. The owner is already trying to milk it for as much as they can get for it.

No, the trick is to find property owned by a motivated seller. Someone who really wants the place sold, now, and is willing to accept less money for it because it's in disrepair. Why would anyone sell it for less than it's worth? There are many reasons. A person may need a bunch of cash, fast. They may be moving out of town, bought another place, and the old one hasn't sold yet; they have to sell NOW so they don't have to pay 2 mortgages. Or it could be a rental unit where the old tenants smashed up the place, and the current owner is sick of managing the rental property themselves. It could be connected to a divorce battle, or an inheritance to a bunch of grown up kids who don't care about the place, they just want to sell it and split up the money ASAP.

Whatever the reason, you have to look long and hard to find these places, from what I'm seeing. I'm new to the business, and I haven't found anything yet that will work for my numbers. But that's the most important thing - I did my research to learn what costs are associated, so I can tell the maximum (roughly) that I could pay for a place and still turn a profit, once I fix it up.

Think about it this way: If you can estimate the price it will sell for once it's fully restored, and subtract all the known fees and costs, the price you end up with is the MAXIMUM, the break-even point. I better buy it for less than that if I want to make some money on it.

I bought a book that's very interesting, talking all about fixing fixer-upper properties and keeping them for cashflow and/or selling them for a profit. The problem is, the book was written 3 years ago, before the prices of houses went thru the roof (so to speak). All the examples are like, "you buy a 3 bedroom 2 bath house for $100,000..." which is nearly ridiculous in the Phoenix Arizona metro area where I live today. In all those examples, it's easy to make cashflow from normal rents - the rent pays for the mortgage, and then some. That's just not true today.

I came close with one property. It was a 630 sq ft house (tiny!) on a normal size lot, in a neighborhood where every other house was 1100-2000 sq ft in size. It was a corner lot, great location. But the place was an absolute mess. It would have to be torn down and started all over again, including repouring a bigger foundation. Repairing this property would be more costly than starting with a bare plot of land - you'd have to tear down what's there and haul it away to the dump, paying for trucks workers dumping fees... it just would not be worth it.

So, I'm still looking, still trying to figure out how to make this work.

If you have any ideas, I'd love to hear it!

technorati tags: property, flipping, house, investment, phoenix, fixerupper

Truth about "The Man"

Did you grow up in a poor or middle income family? When things happened that hurt your family in some way, either financially or legally, did you see people blaming it on "the man"? It's easy to feel that there is some conscious being out there intentionally trying to harm you, or hold you down, in this world. Some people feel like the laws are against them, or even the police are. Maybe the manager of an apartment you lived in had you kicked out for not paying rent for 2 weeks. It's painful to have the Sheriff's dept forcibly escort you and all your belongings out of the building. Or maybe the bank forclosed on your house because you couldn't make the payments. Or maybe you're just irritated that you have to pay 35% income taxes on the money you make, while you hear people around you saying the mega-corporations do not pay a dime in taxes!

These kind of things can really depress you, even though you know that the letter of the law is being enforced in each circumstance. You might even feel like the law itself is against you. And, in a way, you'd be right.

Laws That Protect

The laws were designed to protect someone - but not you, as long as you stay a middle-income or poor citizen. Once you climb over the fence and live on the other side, the rich-thinking side, those very same laws work to your advantage - and rightly so. They protect your money and investments, which you worked so hard to create!

Consider the house forclosure example. Put your current life aside for a moment, and pretend you're the bank. You are in charge of a company holding a lot of money, which you don't want sitting around in bank accounts slowly dwindling away as the cost of living and gas prices go up. You want to make this money work for you, to make even more money, much of which you will pay out to yourself and your employees in the form of Income. You're happy to finally be in a position of offering people jobs - very nice people, who deserve to work at a nice bank like yours. They each have their own lives, family, cars and houses to pay for, etc. They're going to need raises every year, most likely. Your bank, which is a just a kind of company, must make more money over time with the money it has, or you and your employees will be in trouble.

Your bank often loans money to people. Middle income people who want to buy expensive things they can't otherwise afford: a nice house for their family, a second car, that vacation cruise they so desperately need, and so on. Without banks like yours, there would be no way for these people to afford these things - something that makes our society as great as it is. You're providing a useful service to the community, and being paid for it as well. What a deal!

What if they don't pay?

Except, there's a problem. What's the motivation for someone to pay you back all the money you loaned them? In fact, you make them sign a contract where they agree to pay back not only all the money they borrowed, but a little extra (the interest). But even with a signed contract, really, what is their motivation not to screw you and steal half the money, if not all of it? Especially if they get to the point where they can no longer afford to pay you, say, after 5 years of faithfully making payments.

Even if "most" people pay you back but a few don't, your whole company is screwed. Let's say 9 people out of 10 pay you back everything they owe you, including interest. That 1 deadbeat person's loan was for $240,000; all the money of which is now gone. Can you imagine how many more successfully paid back loans you now must acquire, in order to make up for a loss of $240,000? And among all THOSE, at least one will skip out on paying you; basically, you'll never be successful this way; the bank, as a company, will have to declare bankruptcy, as will every other bank because the same problem will occur everywhere across the country - now, where would we be without any banks at all?

No, this cannot be allowed to happen. The government must do something to make sure this never happens. In fact, our goverment has done exactly that. The concept of a "credit rating" exists, which is a great encouragement for the working middle class to keep paying their bills faithfully. Theft and fraud related to money is one of the most heavily punished crimes, in most countries. And so it should be! America, for one, has established insurance agencies that guarantee customer's money in banks, in the event that the bank company goes under (that's what the FDIC does). Your checking and savings accounts are insured up to $100,000 maximum per account. And, if the bank ever has trouble with someone not paying their loans, there are many laws and clear procedures to follow, to encourage the person to continue payments; or if they don't, to take possession of the item they purchased with the money (the collateral), if they can't make the payments. This way the bank company is protected no matter what the customer does; life goes on sanely, properly, as we know it.

This makes total sense, when you're the bank, doesn't it. You want these laws on your side. If someone can't make house payments any more, you, the bank, deserve to acquire their house and try to get your remaining money out of it by selling it thru Foreclosure. You have far more assets invested in the community than any of your customers, and you're giving back so much to the community on top of it.

Be the Bank

OK, you say, you know all this already! What's it to you?

My point here is: stop thinking like a borrower, you need to become the lender. Stop thinking middle-class, you need to be thinking like the rich. You need to begin building more money than you need to live, and with that extra money, begin investing it so it produces more money for you.

By creating real working businesses and investing more and more money, you're participating in the real American dream. You have many others working for you (people, and the very money itself). Before this, you were not truly part of the financial part of our society, and life was kicking you and pressing on you until you squirmed. Your parents couldn't figure it out, but you're smarter than them - you have a chance.

When you're rich, "the man" is suddenly on your side. Learn to think rich.

Wealthy Some Day

Once the monthly return from your investments exceeds what you need to live, for each month, guess what - you're wealthy! No need to work any more. ....Unless you really want to, that is.

Why Invest?

Investing is when you take your excess money and put it to work, to make more money for you. If you end up with a stream of income every month from investments, that's called cash flow. As you can imagine, cash flow is a good thing. :)
So, why should you invest? There are many reasons besides the obvious.

• Making money thru the right investments takes less time than working a normal job; as your investments grow, eventually you'll only have to work part-time (when investments provide half your required income); and later on maybe you'll even quit your job entirely, and still have the same income.
• Social Security is not going to be as great for you as it was for your parents. In fact, it may not exist at all for you. Even today, Social Security is not providing enough money for retirees to live as comfortably as *I* want to when I retire. And I'm sure the payout is not going to increase any time soon. Your company's pension plan? Many companies are reducing or cutting pension plans completely. There are stories of companies that screwed many employees out of a pension by laying them off months before retirement.
  
• Your financial future rests more firmly in your own hands with investing - rather than being at the mercy of an employer, the government, and other organizations.
• Your expenses will only go up over time, sometimes by things out of your control. The cost of living is going up. If your income doesn't also go up, you'll suffer for it. Investing can produce a nice extra income.
  
• Once you understand investing, it's fun!

Excess Money?!
Did you say "yeah, right," at the part where I said "excess money"? If you're like most middle-class people (like me), you spend all the money you get every month, saving maybe a couple thousand dollars for emergencies. You've run up a credit debt that's sort of high, but it's no problem because you're able to pay the minimums on your credit card bills every month.
If that's you, my friend, you're in a trap. The Middle Class trap. Your way of thinking has trapped you, like so many people around you, and you're going to pay for it dearly at retirement.
I strongly recommend everyone read the book Rich Dad, Poor Dad. Absorb the wisdom that Kiyosaki teaches in there. He explains how rich people think, which is extremely different than how middle class and poor people think. A lightning bolt went off in my head when I read that book. I am trying hard to think like the rich, from now on.

There's a few things you need to do before you can reliably have any excess money for investing. You need to truly identify your monthly income and expenses, and make sure you're not spending more than you're making each month. There are many people who spend more than they make, every month, and don't realize it because their credit cards hide that fact. Don't be one of them - it's a trap.
Next, you need to trim down your expenses to be lower than your income. Lower than they are now. Any money left over after expenses, per month, is available to you for investing.
Now, that's not exactly what Kiyosaki says, this is my interpretation. Remember I've only been investing properly for nearly 1 year now; I'm still new to it, but I'm learning more all the time.
Remember, any expenses you can eliminate, or lower, is extra money in the bank. Rather than spending it (and thus destroying it), you can invest it and possibly make more money with it over time. Even if that money is put in a "bad" investment, it was a good thing - you learned something (possibly what not to do in the future :) ). The old way, the money would be spent and lost completely anyway; this way you used the money to build your future - increasing your knowledge, if nothing else.

Eliminate Credit Card Debt
Credit card debt is a blight upon your budget. The percentage rates are annoyingly high, and it's all for things you've already gotten enjoyment out of; now it's time to pay the piper. The "minimum payment" is calculated to keep you in debt for a long time, and pay the company way more interest than you probably imagine. That interest you're paying is simply money you can't spend on yourself and your family. It's wasted money.
A lot of investment books I've read say not to get too heavy into investing until you've eliminated your credit card debt completely. That sounds pretty extreme, but it's a smart thing to do - because it shows you are in control of your budget and spending, something that's vitally important as you get deeper into investing. So let's look at this for a moment.

Here's 3 important things to getting rid of credit card debt:

• never buy anything with a credit card that you can't pay off completely the next month;
• when you get the bill each month, pay off 100% of any new charges PLUS the minimum monthly payment;
• whenever you can, pay off more than that.
  

There are other tricks you should do right away to reduce the amount of money you're wasting on interest payments to your creditors; for example, consolidating all your debt onto one card helps reduce the monthly minimum, so you can pay more towards the actual debt itself. If you can't do that, then at least pay off the card with the largest interest rate first. Some people say it's good to pay off the smallest-balance card first, to eliminate one whole monthly bill; then you can funnel that money towards the other cards, to pay them off quicker.
Oh, I almost forgot! You can call your credit card company and ask them to lower your APR! Get up the courage, and give them a call. I do that on all my credit cards about once every 6 months; sometimes they will do it, and sometimes they won't. It's worth a try, right? Ask them to raise the limit of your lowest interest rate card, so you can do some balance-transfers from the other cards to that one. Anything to reduce the amount of money you're paying in interest, so that more of what you pay can to towards the real debt - so you can get out from under that weight as soon as possible!
Once you've paid off a whole credit card, congratulations! It feels really good, doesn't it. But whatever you do, DO NOT CLOSE THAT CREDIT CARD ACCOUNT. Your credit rating is based partly on how much total credit you have that's unused - how much spending room you have. So don't damage your credit rating by closing any cards! See the vision: you are going to have 3 or 4 credit cards (or more), with NO balances on any of them.
Remember that most debit cards can be used anywhere credit cards can (mine's a Visa card); the money comes directly out of your checking account either way.
Once you've paid off all your credit cards, it's time for a celebration! I'm going to be at that point myself later this year; probably in August. Once they're paid off, that's about $250 a month more I can throw at investments; I will have freed up a juicy $3000 per year of my income for investing! (I have a lot more than $3000 in credit card debt right now, but I expect to get certain extra chunks of money this year that I will throw at it to pay it off by August).

Saving that Extra Money
There are many ways to save money. One is your basic savings account. Seems simple enough. The main point is to make sure it's a different account than the one you normally spend from like your checking account.
I have 1 personal savings account, and 1 personal checking account. But, I have 5 different "funds" in my savings account! It's just mental gymnastics - I created a spreadsheet with different columns for the different funds such as Emergency Fund, Christmas Fund, Hawaiian Vacation Fund, etc. Each column has its own total at the bottom, using the Sum feature of the spreadsheet. Then, anytime I deposit money there, I have to decide how to divide it up across the funds, and enter the numbers into the spreadsheet. I even have a "Total Total", which Sums horizontally the Totals at the bottom - that's the amount of money actually sitting in my bank account, according to the spreadsheet (so I can check it against my bank statements).
Ask your bank for the highest paying savings account, like a high-yield money market account. Often, if you keep a reasonable balance, they can boost the percentage rate they pay you for the money sitting there. It's nothing like the returns you'll get from real investments, but hey, every dollar helps.

technorati tags: retirement, investing, cashflow, saving, social security

Definition of Wealth

Some day I want to be wealthy. But what does that mean? The best definition of Wealth I've seen comes from the book Rich Dad, Poor Dad, by Robert Kiyosaki. Wealth is when your passive income exceeds your expenses.

Passive income is money you get every month from investments that basically run themselves, from your point of view; they require very little interaction from you to continue making money. For example, if you own a rental property, the tenants pay rents to you every month. Any money left over after property expenses and paying the mortgage is yours to keep. The property made the money, not you; you didn't have to work "per hour" at a "job" to get it. But, you get to keep it! That's passive income.

So think about this. When you have so much investment property that the passive income totals more than your total cost of living for that month, guess what - you don't have to work at a "job" anymore! Your Passive Income exceeded your Expenses.

You have a lot more freedom, then. You're Wealthy.

technorati tags: wealth, money, investing, freedom

Welcome

This weblog is dedicated to my thoughts on investing, money, and wealth. I've learned a lot in the past year that I have been interested in this subject; before that I was more of a spend-everything single male engineer. That's fine, however, in this day and age, you have to plan your retirement a little bit better than our parents did, because Social Security won't be for us what it was for them.

I'm going to post some very interesting things here, in the coming weeks; you should stop back and read them.