Financial Samurai

The rental market has gone berzerk!  I listed my property on Craigslist and in two days, I received 36 serious inquiries.  I purposefully didn’t list the address because I wanted to weed out the looky-loos and those who don’t read and follow instructions.  I also didn’t want any psycho-killers.  As a result of the demand, I decided to have an additional open house on Saturday, instead of just Sunday.

Surprisingly, 10 out of 10 interested parties who said they’d come Saturday came.  The world is full of flakers, and I was expecting at least 30% of them to not show up.  Maybe penguins can fly.

The rental market is very competitive thanks to the number of firms such as Twitter, Zynga, and Google moving into San Francisco.  People are still scared of buying and some are probably unable to qualify for loans given stricter lending standards.  I worry about the sustainability of this rental market, but for now, landlords should be taking advantage by raising prices.

For those renters out there who keep missing out, here are some thoughts from a landlord’s perspective of what worked, and what raised red flags during the open house.

STRATEGIES FOR RENTERS DURING A HOT RENTAL MARKET

* Do not bring your girlfriend or boyfriend if they are not going to be on the lease.  There were two one year out, male MBA students who make roughly $290,000 in combined income.  One of the guys brought his girlfriend.  Although the two guys were nice, all I could think about was the girlfriend staying over, and the place being occupied by three people instead of two.  As I questioned them further, the boyfriend finally admitted that his girlfriend visits for 2 months several times a year from Europe, and that she will stay with him until end of November.  Those guys are not getting the apartment. Read more…

At first, I was pissed at the Berkeley College Republicans when the SF Chronicle highlighted a story about the BCR hosting a pastry sale to promote racial awareness. The University of California is considering implementing “SB185″, a law that would allow the school to use race and gender in the admissions process.

The article was poorly written, making it at first sound like the “White Pastries” for $2 and the “Black Pastries” for 75 cents are indeed white colored pastries and black colored pastries that reflect the respective races.  The author made it seem like White people are superior over Black people, therefore, White colored pastries should sell for a 130% premium.

What the author N. Asimov should have made clear is that all pastries are the same, and that if you are White, you have to pay $2, but if you are Black, you only have to pay 75 cents for the same pastry.  The pastry sale is trying to demonstrate that Caucasians and Asians need to score much better on your SAT’s and get higher GPA’s than other races (ie pay more) in order to get into UC Berkeley.  With this realization, my anger subsided to heavy disappointment.

Yet, I wonder.  If Asians make up 46% of UC Berkeley’s student population, yet only represent 14% of the California population, shouldn’t the price of pastries for Asians cost $5, since it’s that much tougher to get into given the 3.5X over-representation?  You have to wonder what the group of students were thinking.  You might already know.

If the UC school system did discriminate based on race, the racial make-up of UC Berkeley’s student body would limit the percentage of Asians to 14% instead of currently 46%, and increase the percentage of Caucasians to 40% from 30% to mirror California’s overall racial distribution.

The whole problem with this entire pastry sale is that offends, discredits, and hurts minorities because it makes fun of their achievements.  That’s not right.

WE LIVE IN A FREE WORLD WITH UNEQUAL OPPORTUNITIES Read more…

Imagine a tennis court.

Now, imagine a cube with sides that are slightly shorter than the length of a tennis court. No, this isn’t some sort of New Age meditation. This is, in fact, a way to visualize all the gold that has ever been mined since the beginning of time.

Most people are shocked to discover the relatively small amount of gold that exists above ground. Indeed, if all that gold was evenly divided between each person on Earth, each individual would only be entitled to a mere 23 grams.

Let’s examine some of the best reasons to purchase this rare chemical element that has captivated humans for thousands of years.

The Economy Hedge

You don’t need to be a financial expert to know that we are currently at the brink of a recession that is bringing the world to its knees. The U.S. debt-ceiling debacle led to the country’s first-ever credit downgrade, while smaller countries like Greece have found their debt so unmanageable that their economy is about to enter the Death Star.

Gold is known for being relatively dependable in the darkest of times, with the price of gold still up over 30% in 2011 despite the recent pullback.  The S&P 500 meanwhile, is down about 10% and the US dollar continues to be weak.

Reduce Volatility & Protect From Inflation Read more…

Debt and bankruptcy are two words most people frown upon.  After all, debt is usually the cause of bankruptcy followed by an excuse of a lack of income.  I look at debt as a key motivator.  Debt is something that has driven me to work harder.  Without debt, I would ironically feel a little empty making money because it doesn’t take much to make me happy.  Before buying rental properties 10 years ago, I sometimes questioned the point of working one’s entire life away.  It felt pointless logging onto a computer screen just to see your savings go up.

When you are single, you really don’t need that much money to survive.  Even in big cities like San Francisco, Manhattan, London, and Tokyo, $45,000 is enough to live a happy life as a single person.  There’s only so many fancy meals you can eat a year before you start getting sick of eating out.  Your Macbook and gigantic big screen LED TV should last you at least 4 years.  Meanwhile, the ladies love guys with bus passes since it shows that we are enviro-friendly and keep it real! A black Porsche 911 Turbo is so 2007.

So how does one go from a happy life to utter financial ruin?  Getting obnoxiously way over our heads in debt, that’s what.

BE CAREFUL WITH DEBT, IT MAY GET YOU DRUNK Read more…

We have a culture of blaming others for our problems and Main Street is now on a tear with this “Occupy Wall Street” movement that’s gathering steam.  The thesis is that financial institutions and anybody who has anything to deal with financial institutions are bad.  The government and the media help fuel the fire against Wall Street and make them scapegoats for the economic decline.  That way, they’ll hopefully deflect the blame away from themselves.

One man from one Wall Street firm stood up and had enough.  In 2010, he penned this letter below which started slowly circulating the web until it finally caught my eye.  The letter is just as appropriate today as it was last year.  He probably had nothing specifically to do with credit default swaps and other exotic instruments that helped cause our decline.  “Wall Street” is a catch-all phrase that leads to a lot of unwarranted stereotypes.

Just because you work at Bank of America as a teller doesn’t mean that you are to blame for Ken Lewis’ empire building when he bought Countrywide Financial and Merrill Lynch for prices nobody in their right mind would pay, which is now leading to massive layoffs.  Just because someone is a Latin America investment banker at Goldman Sachs doesn’t mean they are responsible for you buying 3 condos with minimal money down in Florida to try and get rich.  No, the guy buying the 3 condos is responsible………… or is he?

Just because you have massive student loans and can’t find a job, that doesn’t mean the US economist working at JP Morgan had anything to do with your situation.  Maybe it’s because you borrowed more than you could afford?  Or maybe it’s because you didn’t do well enough in school or go to a better school for that matter.  Why protest an irrelevant economist when you could protest right at your very own school!

If you are a raging populist, who is easily offended, and complains a lot, perhaps you shouldn’t have a read.  But, if you’re a normal rational person who likes to see both viewpoints, take a look and let’s discuss!  Remember, this letter is a retort against the media and the protesters who’ve attacked him, his family and his industry for months.

“WE ARE WALL STREET” EMAIL Read more…

Confession. I’ve been a bad boy for a long time.  It all started when my parents gave me 5 bucks to exchange for quarters at the arcade when I was 8 years old.  This was the most amount of money I ever held in my entire life.  My parents figured it was enough money to hold me over for a couple hours as they went to lunch.

I was with my buddy and we took turns playing various games such as Pacman, Galaga, DigDug, Zaxxon, BurgerTime, and Frogger.  About 45 minutes in, I had spent $4 of my $5 dollars and was worried my remaining $1 wouldn’t be enough to last me until my parents came back.

At this moment, my buddy bragged a lot about how good he was at my all-time favorite game 1942; the one where you fly a 1942 war plane and do 360 flips to avoid gun-fire.  I let him keep talking about how great he was until I challenged him to a bet to see who could last longer for my last 4 quarters.  He obliged, and I not only won $1, but won another $2 as he doubled down.

Little did he know that I had just finished the entire game last week and had been practicing for months on end before.  Ever since that day, I’ve developed a system to increase my betting odds and make plenty of side money.  This is an unusual post for me, since my tag-line is “Honorable Personal Finance.”  As you read on, you’ll realize that perhaps winning money off willing participants who have big heads is not so bad, especially if the proceeds go to charity.

HOW TO DRASTICALLY INCREASE YOUR BETTING ODDS AND MAKE LOTS OF MONEY Read more…

Imagine waking up one morning to see a Genie at the foot of your bed with milk and cookies.  She grants you the wish of converting your future earnings or current illiquid net worth into $250,000 cash.

For example, say you were to work for 20 more years and earn a median income of $60,000 a year before taxes.  Instead of methodically saving 20% for the next two decades, you can get all that money right now.  Would you take it?  I bet most would say “yes” since it’s your money and the present value of a buck is greater now than later.

The big question is, what are you going to do with the $250,000?  The stock market is volatile, bonds are bubbliscious, and savings interest rates are less than 0.2%!  Perhaps you’ll use some of the money to pay off your debts, further your education, and help out your loved ones.  Or maybe you’ll invest the money in your start-up company and watch it grow into the multi-millions.

Finally, maybe you’ll do absolutely nothing with the $250,000 and just keep it liquid for a rainy day.  The political landscape is pretty horrific as there’s no way the Jobs Act Bill will get passed since it attacks charities and municipal bonds which fund state construction.  Massive layoffs are imminent before the holidays despite cashed up corporate balance sheets because demand is uncertain.  You might very well be in for rough times, and that $250,000 + $1,600/month in unemployment insurance will help you get through!

Genies are appearing in front of many homeowner’s beds thanks to Ben Bernanke and the Fed’s low interest rate policy.  Few people would have ever expected the 10-year yield to drop below 2%, but it has.  Cash-out mortgage refinances are tempting people night and day now, but the party can’t last forever.  Ben’s nickname is “Helicopter Ben” for making it rain money.  I prefer to call him “Bengenie.”

WHAT I’D DO WITH $250,000 OF MY OWN MONEY (REMEMBER, IT’S NOT FREE MONEY!)

* Look for attractive 8%+ yielding 2 bedroom, 2 bathroom rental properties.

* Decide which municipal bond ETFs to buy.  Examples: CMF, CXA, HYMB, INY, ITM, PVI, NYF, PWZ, PWA, SHM, SMB, SFI.

* Invest $10-20,000 into the Yakezie Network for better user experience, interface, etc.

* Look for offshore high yielding, but stable assets given the USD will likely continue to remain weak or depreciate.

* Send $15,000 to my parents to help contribute to their home remodeling project.  Good luck guys!

* Do absolutely nothing with all leftover funds and wait for a potential recession to come when Obama gets re-elected.  There could be much better opportunities in the stock markets as a result.

Readers, what are some of the considerations before accepting the Genie’s wish? 

What would you do with an extra $250,000?

Regards,

Sam

View: You should defer or shield as much income as comfortably possible until retirement to minimize your present tax bill.  The odds of your retirement income equaling your working income is slim-to-none.  Therefore, your retirement tax rate will be much lower.

In the process of refinancing my primary residence mortgage down to around 3% for a 5/1 ARM, it dawned on me to also check what the rates are for my conforming rental mortgage.  I just refinanced my rental property last year from a 30-year fixed at 5.25% down to a 5/1 ARM at 4% because I took a stance that rates weren’t going anywhere, and that I would pay off the loan in 5-6 years time.

It turns out that I can refinance my rental property mortgage down to 3.375% from 4% with no out of pocket costs.  At 3.375%, all the costs are baked into the rate.   Conventional wisdom says to refinance your mortgage whenever you see rates 50bps (0.5%) lower than your existing loan, with a break even period of 12 months or less.  With a break even period of 0 months, and 75bps lower, refinancing now is a no-brainer!

My net income from this particular rental is around $1,000 a month.  That’s after HOA dues, mortgage interest, maintenance, depreciation and property taxes.  Not huge, but better than a poke in the eye.  If I had no mortgage at all, the net income would be closer to $2,400 a month at today’s rent, which is an income stream I’ve been planning for since first purchase.  Unfortunately, I pay about a 30-33% effective tax rate (federal + state) on the rental income thanks to the progressive nature of our income tax system.

Then a light bulb went on………….

HOW TO LOWER YOUR TAXES BY DOING A CASH-OUT REFI Read more…