Archives for March 2008

Links: Rental Nightmares, Housing Cares, Buffett Shares, and More

Posted on March 10, 2008 // 14 Comments

Here are some posts I found useful while reading my fellow financial bloggers and more:

SingleGuyMoney shares some of his rental property issues. Apparently even buying a home warranty from American Home Shield won’t ease all repair headaches, as it doesn’t cover pre-existing problems (even if they were unknown).

PaidTwice shares why she doesn’t care what her house is worth. I agree in that my housing payment is pretty much set for the foreseeable future. If anything, I want prices to go down. Because that means that my friends might be able to afford a house, and then I can perhaps get a good deal on a second property.

Canadian Capitalist shares his notes from the 2007 Berkshire Hathaway Annual Report. It’s actually pretty fun to read, although I do admit I usually get bored after a few pages and have to read it in parts.

The Honest Dollar advises us to avoid the recency bias. Seriously. Can we finally admit that we can’t see 3 years ahead? Just a few years ago the “experts” were saying how the economy is so resilient and earnings are solid and blah blah blah. Now it’s all “recession-proof your portfolio!”. Tune out all this noise!! Nowhere in my asset allocation decision process is there a factor of “does the market look gloomy?”

Jim at Blueprint For Financial Prosperity talks about the Airborne class action lawsuit. High school teacher who “got sick a lot” doesn’t make wonder drug? Shocker!

JD of GetRichSlowly points out another reason to be wary of gift cards. If you have some Sharper Image gift cards – congratulations! They’re useless.

A co-worker sent me this Couch-to-5K Running Plan. Seems like a good guide to get off your tush and finish a 5K if you’ve never done one before. If I was clever I’d find some parallels with personal finance.

Filed Under: General //

Reasons All Homeowners Should Get A HELOC? (Home Equity Line of Credit)

Posted on March 10, 2008 // 46 Comments

With my new fat mortgage, I’m considering whether to also take out a Home Equity Line of Credit (HELoC). This is not a home equity loan where you take out a lump sum at a fixed rate, but is a line of credit usually at a variable rate. I think of it as a credit card that is secured by my house (!). I don’t plan on actually using it, but I think it might nice to have around as long as the upfront costs to me are minimal. Here’s why:

Safety Net / Emergency Funds
Although having adequate emergency funds in cash is always preferable, it is nice to know that you have a HELOC as a backup in case of prolonged job loss or health problems. It’s always better to line up credit ahead of time while you have good credit rather than when you are already desperate. Using a HELOC can be preferable over paying sky-high credit card interest or falling behind bills (late fees, damaged credit score). Ironically, you might even use it to temporarily keep current on your mortgage to avoid penalties or even foreclosure. Let’s hope not.

Cheap and Flexible
The nice thing about a HELOC with no fees is that if you don’t take any money out, you don’t pay anything. And because the money is secured by your home, this assurance makes your interest rate relatively low. The rate is usually close to the WSJ Prime rate, which is currently 6% APR. On top of that, your interest paid might even be tax-deductible.

The interest is accrued daily, which makes it good for quick loans. So if you do need to take out $10,000 on short notice and you don’t have the cash on hand, using a HELOC might be the most economical way to do it. At 6%, your interest owed on $10,000 is only $1.64 a a day. Of course, for many folks this convenience might just provide too much temptation. All debt can turn into a double-edged sword. Know thyself, is all I can say.

Tool for Credit Card Profit Games
Here’s a trick to go along with making money with 0% balance transfers that is a good example of that flexibility. With certain credit card issuers it can be difficult to turn your balance transfer into cash in your pocket, especially when you have no existing balances. But here’s an example of how to use your HELOC to extract $10,000:

  1. Request a balance transfer from your 0% APR credit card for $10,000 directly to your HELOC. Since this is loan they won’t mind at all.
  2. Shortly before the balance transfer is scheduled to arrive, write a check for $10,000 from the HELOC to your interest-bearing bank account. Now you have created a temporary $10,000 debt at 6% and $10,000 bank balance earning ~4% (minus some possible lost days of interest).
  3. When the balance transfer payment arrives a fews days to a week later, your HELOC debt will be paid off.
  4. A week’s worth of interest at 6% APR ion $10,000 is only $11.50. And that is partially countered by interest earned in your savings account.
  5. Voila! For around ten bucks, you now have $10,000 at 0% APR in your bank account to do as you wish. 😉

Finding a HELOC – What To Look Out For
Now, I don’t want a home equity line if it’s going to cost me a bundle. Here’s a quick rundown of important factors when looking for a HELOC, based on an article by the Mortgage Professor.

  • Introductory rate and period. Temporary teaser rate to suck you in.
  • Margin. This is usually how your non-teaser interest rate is determined, relative to the Prime rate.
  • Minimum draw. How long can you take money out?
  • Required average balance. Do you have to take some money out?
  • Upfront lender fees. These days, you should be able to eliminate these.
  • Upfront third party fees. Harder to get waived, but try.
  • Annual fee. Just say no, again. Sometimes only waived for first year.
  • Cancellation fee. Many have these, I guess so you don’t bail and go to another bank. This is especially the case if they waive all the upfront costs above, since they are losing money on you so far. As long as you can keep your balance at $0 with no fees, just keep it open and don’t use it.

I see a lot of competition out there now that rates are low, so definitely shop around. As a data point, I just saw a special offer from Bank of America for a no closing cost, no application fee, no annual fee HELOC. Don’t forget to try your local credit unions as well.

Filed Under: Credit Cards, Real Estate //

America’s Test Kitchen: Frugal Ideas On Cookware And More

Posted on March 9, 2008 // 15 Comments

I’m sure the foodies already know about this site, but I just learned about it recently so I figured I’d throw it out there for discussion… America’s Test Kitchen is a very popular PBS show that shares carefully tested recipes, review cooking gear, and even taste-test supermarket products. I figured this would fit in with the frugal theme since they can help you get the best value when buying knives, pots, pans, and even olive oil. I would describe it as a food-focused Consumer Reports.

You can access their recent reviews and articles online for free, but you must provide an e-mail and mailing address. They say they won’t sell your e-mail, but they will force you subscribe to their newsletter and try to get you to sign up for a subscription of Cook’s Illustrated. Let’s just say both can be fake, and you can still gain access… Note that many of the older articles are archived into a paid-only area that costs $24.95 annually.

Now, the most expensive models do often end up being rated the best. However, sometimes there is a surprise and the $30 pan matches or beats out the $100 pan. If not, there is usually a model that ranks nearly as well but is also significantly cheaper. Here’s a sampling of articles I found interesting. Note that these direct links will only work after you have logged in.

  • Inexpensive Knife Sets. Scroll to the bottom to find their recommendation for how to build your own cheap but high-quality knife set for under $100. They really like the R .H. Forschner by Victorinox brank of knives (the Swiss Army knives people).
  • The Little Nonstick Saucepan That Could: “You can spend $100 on a 2-quart nonstick saucepan–but should you?” I’m glad to see my Calphalon pans rated pretty well.
  • Inexpensive Dutch Ovens. “Our favorite Dutch ovens cost more than $200. Ouch! Is there a cheaper version that performs almost as well? Yes. It costs $40.” I don’t own one of these, but I like how the Target brand kept up with fancy-pants Le Creuset. 🙂
  • Drip Coffee Makers. “Does an Inexpensive Model Have to Feel Cheap?”
  • Commuter Coffee Mugs. “We didn’t find perfection, but we came close.”

I can’t wait until Spring and we can grill in our own new backyard. Bobby Flay, watch out!

Filed Under: Frugal Living //

Up to $100 For New Accounts at Bank of America and Chase Bank

Posted on March 7, 2008 // 12 Comments

Bank of America is offering a $75 bonus for new customers opening a personal checking account with them by April 30th. If you open online, you will probably get a hard credit check. If you open in a branch, you should be able to avoid this. Use offer code AOU26020.

Offer expires 04/30/2008 and is available through our online application or in any Bank of America banking center. Offer does not apply to second or multiple checking accounts and/or existing checking customers. This minimum deposit required to open a new, personal checking account and receive the $75 offer is $100.

BofA also has a $100 bonus for a business checking account.

Offer applies to any new business checking account opened with a Visa® Business Check Card before March 31, 2008. Limit one $100 incentive per business every 6 months. If opening the account online, you must enter the code BTB0100 to ensure you receive the bonus. If opening your account in a Bank of America banking center, you must provide the coupon to receive the bonus.

Chase Bank is offering a $100 bonus for opening a Free Checking Account with direct deposit by March 31st. You must actually go to a branch, I’m not sure if they check your credit there. I’d hope not.

To qualify for the $100 reward you must open a new checking account and initiate a repeating direct deposit such as payroll, pension or Social Security. The first direct deposit must be completed within 60 calendar days of account opening.

Chase is also offering a $200 bonus for opening a business checking account. (Thanks Susie)

Open a Chase BusinessClassicSM, BusinessPlus® or Chase Advanced Business CheckingSM Checking account and deposit a minimum of $500 or more within 30 days of account opening with funds not currently on deposit with Chase.

Filed Under: Banking, Deals & Offers //

Housing Search Trade-Off: Price vs. Commute Time

Posted on March 6, 2008 // 61 Comments

From Washington, D.C. to New York City, from Atlanta to Portland, a huge part of finding a house is balancing the desire to have a shorter commute to work and the higher price tag that inevitably comes with it. Some people live farther away to spend less, while others simply want more house for the same price. I know people who commute 2 hours each way, every day. They are not alone – According to the NY Times, the Census Bureau states that nearly 18 percent of New Jersey workers leave their homes before 6:30 a.m. every day. Nationwide, over 3.4 million workers take more than 1.5 hours to get to work one-way. That’s a 95% increase since 1990.

altext

How do you strike a balance? It’s easy to measure how the housing prices drop the farther you go out. Just look at the MLS listings. As one quote puts it – “Keep driving until you can afford it.” However, it’s harder to measure the many costs of a longer commute.

Increased Car Costs: Gas, Depreciation, Repairs, and Maintenance
The more you drive, the more all these costs add up. Let’s say I want to move 20 miles further out. If I get 25 miles/gallon in commuter traffic and gas costs $3.50 a gallon, and I work 22 weekdays per month, that works out to an extra $120 per month in gas alone.

That also amounts to an extra 10,600 miles of driving each year. So more oil changes, more frequent repairs and other maintenance. Your car might depreciate faster by an extra $1,000 per year. That could work out easily at least another $100-$150 per month.

Treating Commute Time As Unpaid Work Time
Now what if we convert that commute time to actual paid working time. If you earned $30 per hour x extra 2 hours commuting per weekday x 22 weekdays per month x 12 months = $16,000 per year (essentially 25% more). Even if you don’t get paid hourly, there is some value involved. Imagine if you used that time to perform better at work and impress your boss, or if you used it to start a business of your own.

Let’s use the very rough multiplier that you can afford a mortgage that costs 3 times your gross income. Saving an extra $270 per month in car costs would let you theoretically buy $10,000 more house by living closer. Earning another $16,000 more per year would let you theoretically buy $48,000 more house. Earn $60 per hour, and that’d be $96,000. I just pulled some numbers from the air here, but the idea is simply that there hard costs involved with that longer commute.

Effect of Fatigue On Work, Family, and Happiness
Forget the extra wear and tear on your car, what about the extra wear and tear on you. If I had just spent two hours in traffic, by the time I get to work I’d be tired and ready for a break. My work quality would suffer. Then instead of arriving back home by 6 or 7 pm, now you’re looking at 8 or 9 pm. You don’t have time to cook, so you buy take-out. It costs more and is less nutritious for your family. You have less time to exercise, less time to play, less time to relax. You get the picture.

From the BusinessWeek article Extreme Commuting:

This is what economists call “the commuting paradox.” Most people travel long distances with the idea that they’ll accept the burden for something better, be it a house, salary, or school. They presume the trade-off is worth the agony. But studies show that commuters are on average much less satisfied with their lives than noncommuters. A commuter who travels one hour, one way, would have to make 40% more than his current salary to be as fully satisfied with his life as a noncommuter, say economists Bruno S. Frey and Alois Stutzer of the University of Zurich’s Institute for Empirical Research in Economics. People usually overestimate the value of the things they’ll obtain by commuting — more money, more material goods, more prestige — and underestimate the benefit of what they are losing: social connections, hobbies, and health. “Commuting is a stress that doesn’t pay off,” says Stutzer.

Got Public Transportation?
While not a complete solution, all of this gets reduced if you have decent public transportation. The costs are most likely lower than driving, you might get some work done en route, or at least you’ll arrive less stressed. I’ve already noticed that housing near good public transportation commands a premium, and it should.

Our Experience
We really wanted to have a short commute, but we still ended up with a compromise like many others. We looked at houses that were 15 minutes from work and play, but they simply cost too much. So, we moved farther out where the houses were newer and cheaper. But thankfully not too far. Our commute is still about 45 minutes each way if we had to drive during rush hour. However, whenever we can we try to shift our hours earlier or later to make it more like 20-25 minutes. My main worry is that as time goes on the commute will only become longer and longer.

Filed Under: Family, Real Estate //

Maxed Out: Movie About Credit Cards – My Cynical Review

Posted on March 5, 2008 // 50 Comments

The big McMansion picture in my last post reminded me that I had to finish watching Maxed Out, a film about the credit card industry. You can watch it for free (albeit in low quality) on Google Video [90 minutes long]. The very first scene includes a real estate agent selling homes with crazy stuff like elevators, two dishwashers, and wine caves.

My Twisted Review
The purpose of the film was to “raise awareness of how credit and lending issues are affecting society.” I think this is a admirable purpose. However, as someone who is familiar with credit card companies and all their practices, my primary thought on this film was “duh”. Please watch out for large amounts of sarcasm and cynicism ahead.

Gasp! Credit card companies target the stupid, the poor, the rich, and everyone in between. They charge huge fees and enormous interest rates if you pay late. They will even offer credit to those who just filed bankruptcy recently, because they know (1) they can’t file bankruptcy again for several years and (2) they are already shown an inability to handle their spending. You could be dead or fictional and still be receiving card applications in the mail.

However, too often in the movie I heard phrases like “Yeah, I did sign it without reading…” or “I figured if they offered me money, it meant I could handle it” or “I never talked my kids about credit cards before sending them off to college” or “I know, I know, I should have read the fine print”. Don’t make it so easy for them, please…

[Read more…]

Filed Under: Credit Cards //

About Our Home-Buying Process: Index of Posts

Posted on March 4, 2008 // 17 Comments
image credit: governing.typepad.com

I’m trying to build a coherent series on the home-buying process, so to help me organize here is an index of posts that I’ve already written so far. Those with no links are outlines for future posts. If you think something is missing or want me to cover a specific topic, just leave a comment. Thanks!

Should I Buy A House?
Buying a house isn’t necessarily the best choice for everyone. There are lots of different pros and cons.

Finding a Real Estate Agent

Finding and Choosing A Home
If you do want to buy a house, what do you look for in a home?

Mortgage Basics: Choosing Loan Types
You found a home, so how are you going to pay for it?

Mortgage Practicalities: Choosing A Specific Lender & Interest Rate/Points

Making An Offer, Inspections, Escrow, and Closing

  • Making and reading the offer contract
  • Ordering Inspections, Asking For Concessioins
  • Snags and Delays
  • Signing Day

Housing-Related Humor
Buying a house is a serious and stressful endeavor. Watching these videos is not. 😀

Filed Under: Real Estate //

March 2008 Financial Status / Net Worth Update

Posted on March 3, 2008 // 60 Comments

Net Worth Chart March 2008

“Good” Credit Card Debt
If you’re a new reader, you may have some concerns about my high levels of credit card debt. I’m actually taking money from 0% APR balance transfer offers and instead of spending it, I am placing it in high-yield savings accounts that actually earn me 4% interest or more, and keeping the difference as profit! :D Along with other deals that I blog about, this helps me earn extra side income of thousands of dollars a year. Recently I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the balances off, I choose not to.

Cash Savings, Home Purchase
If my posting has been a bit light lately, it has been because I’ve been bogged down by a combination of illness, travel, and the home-buying process. Also, I didn’t want to do it in real-time because there were some snags along the way… but we’ve finally closed!! I have lots of house-related posts coming about mortgages, inspections, and so on… but first here are a few details that will help explain this net worth update.

Purchase price $600,000
Down payment (20%) $120,000
Discount points paid (1%) $6,000
Buyer’s agent rebate (1.5%) $9,000
Closing Costs ~$3,000 (rest paid by lender)

Our purchase price of $600,000 was more than the $500,000 we estimated we wanted to spend a couple years ago, but we are now in a 4-bedroom single-family home that we can see ourselves living in forever. In addition, we didn’t stretch too far as we can handle the mortgage payment on either one of our incomes.

We believe we got a good deal even though the short-term market looks bad, and the house has tons of potential. We’re even going to rent out a room to a relative. Our home appraisal actually came in at $640,000 – we’ve been told an appraisal coming in higher than purchase price doesn’t happen very much in this scared housing market. Using this value would actually leave our home equity at $160,000 instead of just the down payment of $120,000. However, I’m just going to be conservative and leave it at $120,000 for now.

As you can see, our 50% buyer’s agent rebate helped offset our closing costs and the points on the loan. Of course, mentally we are using the $9,000 rebate towards all the home improvement projects we have brewing. 😉 Finally, adding back in the $5,000 earnest deposit that I had marked as spent last month makes the numbers look a lot better than they really were.

Emergency Fund?
Our net cash balances have taken a big hit to less than $10,000, and that makes me nervous given that our monthly expenses just shot up drastically. Our foreseeable mid-term goal will definitely need to be to build up a proper emergency fund, which we’ve never officially had since we basically treated our downpayment funds as such. Visiting Brazil and Australia will have to be placed on the backburners for now…

Retirement and Brokerage accounts
February is the fourth month is a row that our IRAs and 401k/403bs have dropped by 3%. We may need to start setting up some regular monthly investments in order to help force ourselves to keep investing.

It’s been a wild month! You can see our previous net worth updates here.

Filed Under: Goals, Investing, Real Estate, Retirement //

GrandCentral Phone Service: No Invitation Code Needed

Posted on March 1, 2008 // 212 Comments

The virtual phone service GrandCentral has been invite-only beta for several months. But now the blog service Blogger (also owned by Google) is offering users free memberships. But hey, the special sign-up link works for everyone! 🙂 Not really a loophole, since Blogger accounts are also free, but it does mean that it is now effectively open to everyone to wants to try it out.

To quickly summarize, GrandCentral offers you a free local US phone number from 47 states which can forward to any other US number. You also get free voicemail along with several other nifty features. I tried to explore the many possible uses of GrandCentral in this post. Here are a few of them:

  1. Have one permanent, central number for everything.
  2. Create an extra number for your side business, for any other reason you might think of.
  3. Avoid long distance charges, by getting a new number in a new area code.
  4. Combine with T-Mobile MyFaves or AllTel Circle for more free calling.
  5. Use it to allow people to call you via your website, without revealing your phone number.

Again, details are here. I’ve still been using GrandCentral as a separate business line. Although it doesn’t get used heavily, it does give me the ability to pre-screen calls to my business, or simply forward to a professional voicemail recording.

Filed Under: Deals & Offers, Entrepreneurial //

FISN Bank CDs Paying Over 8% Interest: Being FDIC-Insured Isn’t Enough

Posted on March 1, 2008 // 21 Comments

I’ve already written about Millennium Bank – the offshore bank offering 8% certificates of deposit that are not FDIC-Insured, let alone highly regulated. More recently, a group called the Federally Insured Savings Network (FISN) has been advertising FDIC-insured Certificates of Deposit Paying Over 8%”. What’s the deal?

It definitely looks too good to be true, but let’s look at the fine print and see what we can find. I’ll just focus on the highlighted CDs paying a 8% and 8.25% APR to save some time.

These Are Long-Term Investments With Very Limited Liquidity
The maximum terms for these CDs are for 15 or 20 years! If you wish to withdraw early, you can be sure it will be with a fat penalty. However, it may not even be possible to re-sell them at all. From the disclosure: “Lack of Liquidity. The CDs will not be listed on an organized securities exchange. JPMSI may offer to purchase the CDs upon terms and conditions acceptable to it, but is not required to do so.” This could be worse than even taking money out of your IRA or 401(k).

High Minimum Investments
In this case, you need $25,000 to invest with FISN as your broker to JPMorgan Chase Bank.

They Are Callable, And That’s Not Good
A callable CD means that the bank can say “I found a better deal elsewhere, so I no longer want to pay you this much interest anymore. Bye!” You’ll get your principal plus interest earned up to that point, but this usually happens when interest rates fall, leaving you stuck with alternative paying a lot less than you were getting before.

On the other hand, you the depositor have no such flexibility. You’re still stuck for as long as the bank wishes. Again – up to 20 years! Put another way: Heads, the bank wins; Tails, you lose.

Not A Fixed Rate CD – 8% Rate Isn’t Guaranteed
When talking about a bank CD, you’re usually referring to a fixed rate CD. However with this investment, you may or may not get paid any interest based on the following criteria:

Interest is paid quarterly for every day the 30Yr Constant Maturity Swap (CMS) Rate is greater than the 10Yr Constant Maturity Swap Rate (Positive Yield Curve). If the 10Yr CMS Rate is greater than the 30Yr CMS Rate on any day (Negative Yield Curve) no interest is accrued for that day. Full 8.00% rate guaranteed for first year.

Trying to figure out exactly what CMS rates were made my head hurt. But very generally, if the long-term interest rates are higher than short-term interest rates (positive yield curve) you’ll get paid your fraction of 8% annual interest that day. However, if the curve goes negative, which it has for extended periods in the last few years, you don’t get paid any interest that day. So 8% is basically a best-case scenario. Over a 15-year period, I highly doubt you’ll be getting the full 8% each year. Earning 0% is the worst-case scenario.

I’m Not Interested
So yes, technically these are FDIC-insured to the extent that your principal is safe. But your money could be stuck sitting around earning nothing while inflation eats away at the actual value. And the bank will only keep paying the interest if it remains profitable for them. These seem to be sophisticated investments being marketed at the unsophisticated public. Buyer beware!

Filed Under: Banking, Investing //
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