Everybody Loves Your Money

Pretty much everyone I’ve talked to lately has a story about someone they know who is flailing their arms trying to keep their head above water. Nowhere is it easier to see than in the real estate market in your area. I’ve been watching real estate pretty closely around our area because I find it very interesting.

About 2 years ago they built an upscale neighborhood of about 25 houses a couple blocks away from my neighborhood. This neighborhood was different than ours in a number of ways. The builder subdivided the lots in to the smallest possible size. This means that the house has about 6 feet from the backdoor to the back of their yard and the front yard is just big enough to hold two average size cars in the driveway without them sticking out in the road. The houses range from about 2900-3500 feet in size and have many upgraded features in the interior. Granite counters are standard as well as hardwood floors and lots of millwork. You get the idea. They aren’t entry level homes.

It has been a very interesting experience to watch people come and go from that neighborhood. They all drive high end cars and at first glance, you’d guess they are all high level executives. (But I’ve read “The Millionaire Next Door so I’m not fooled) It turns out that many of the people aren’t highly paid executives but rather people who fell in love with a house that they couldn’t afford. Over the last year roughly 8 of the homes have changed hands. For a small neighborhood that is only two years old, it’s really kind of surprising to see so many houses with second owners and at least two of those for sale now which will lead to a third owner in the span of a little over two years. Imagine the equity losses people have experienced. What makes it even more interesting is that these houses were sold at higher prices than the general neighborhood had ever seen. The higher grade materials inside certainly played a role in that, but the tiny lots should have also been a reason to hold the prices down.

Today, when you look on Zillow, you see the valuations on those houses at $100K less than they were sold for two years ago. Even if Zillow is half wrong, it’s still a sign that the builder made out quite well, while the homeowners paid too much. The two houses that are up for sale started their asking prices at about $600k. Both of them have lowered their prices this week by almost $50K. One of them paid $614K last November so between the loss in value plus commissions and taxes, they are going to lose upwards of $100K if and when the house sells.

Have you heard of any interesting real estate stories in your area, or have you experienced something like this yourself? Leave a comment. Depending on turnout, I’ll highlight it in a subsequent post.

Here’s a shot of one of the houses:

I stumbled on to this article about Greg Lasrado. He started an internet porn business when he was young and in college. At one point he had 100,000 people worldwide paying a monthly fee to access the porn sites he ran. He bought houses, many nice cars, traveled all over the world and even held $100,000 parties in Las Vegas. He was on top of the world.

He now lives in his parent’s house and has absolutely nothing. Somehow he managed to burn through over $60 million. As I read through the article, it became pretty darned obvious how someone can burn through that much money.

Anyway, it’s well worth reading:
http://www.aol.com.au/lifestyle/story/the-rise-and-fall-of-a-porn-king/459771/index.html

So gas is getting rather expensive. I just paid $3.70 per gallon. Yeah, I know, it could be worse. People in other parts of the world are probably laughing their asses off at us Americans complaining about gas prices. That doesn’t change the fact that we’ve built our economy and way of life on the assumption that gas prices would be low indefinitely. Well, apparently indefinitely means 2008.

We’ve definitely been altering our activities to cut down on gas consumption. I wouldn’t say we’ve made any drastic changes but we also don’t drive the really large SUV’s so getting 24 mpg keeps us from feeling too much impact. The fact that I work out of the house most days has also really kept us shielded from the impact. The one place that I definitely notice the price of gas is when we drive out to the lake house. It’s costing us about $30 to get there and back. (Begin playing your imaginary violin for us now). Overall, the price of gas hasn’t really been too tough for us for a few reasons, some of which I mentioned above. Here are the things we are doing that have kept us somewhat shielded from the impact:

We do have an 850 mile trip coming up in July. In order to minimize fuel consumption we’ve decided to carpool with my mother and aunt. None of us have a car that we’d really like to drive that far so we’ve decided to share the rental cost of a minivan for the trip. I did some shopping around and was able to rent a new Dodge Caravan for $295 total. That gives us unlimited mileage and a 6 day rental. I found that Enterprise rental had the cheapest rates BY FAR. I checked a couple other companies and they wanted over $650 for a similiar rental. Anyway, by all of us sharing in the cost of the rental and gas, we’ll each save quite a bit of money as compared to driving separately. Another bonus is that we can share in the driving which should make the trip even more pleasant.

Are you feeling the impact of higher gas prices? What changes have you made?

I found this article on Slate pretty interesting. It reviews all of the Obama finances and shows that they are doing pretty well by yours or my standards but are much more humble than the other two presidential candidates.

Their holdings are pretty conservative but if I had that level of income, I think I’d probably play it pretty safe too.

Anyway, it’s pretty interesting reading:

http://www.slate.com/id/2190879/

I have to confess something. Lately my self control has been out the window. I’ve been spending too much on things I don’t really need. I have been eating more than I should and am 20 pounds overweight. And you know something that’s just crazy? I’ve found myself having some anxiety about money and my weight. You’d think the anxiety would drive better behavior but it is actually having the opposite effect.

So what am I doing about it? Well, a couple things. We are taking a much more conscious approach to our money. It doesn’t take a rocket scientist to notice that our economy is damn near in a free fall. The markets are nervous and frankly I think we are already in a recession. Yeah, I know it takes two consecutive quarters of negative growth but I think we’ll see that soon enough. With all the negative things happening in the economy I’m just hoping we don’t end up seeing worse than a recession. Okay, now you know my frame of mind. I’m just another nervous consumer/saver. We are going to be one of those households that makes it worse by saving more and spending less!

The other thing I’m doing personally is getting the weight under control. I’ve decided to start dropping weight. I’m only down about three pounds but that’s over 10% of the weight I need to lose. I’m using the Weight Watcher approach and am counting all the food I am consuming. I’ve always had the best luck with that. If I find I’m not following it tight enough I may even go join officially and sit in the meetings to force myself to do better.

It’s really kind of amazing how I can have such good control over spending (normally) and not be able to use that same skill set to manage my diet and overall health. You’d think that it would be an easy jump from managing finances successfully to managing your diet. It’s not, at least not for me.

On a completely unrelated note, my wife was officially hired by her company after over a year of being a contract employee. That means matching 401k, vacation, sick leave, holidays and a little more stability. Needless to say we are pretty excited about that!

When we purchased our lake house, we used a little bit of money from our home equity line of credit. We had never used the line of credit but had it sitting there in case we had an emergency, or a good opportunity. When we got the loan, we locked the rate at 7.49% because we didn’t want to have the fluctuating risk. Of course it was just our luck to borrow the money when the rates were at their peak.

Fast forward 1.5 years and rates have gone way down. I called my credit union and asked to have the fixed rate lowered to 5.99%. They said, no problem and mailed me a form to sign. A few days later, our rate was lowered 1.5% just from making a phone call! While that doesn’t change our payment amount, it does shave many months off of our loan.

That got me to thinking, is this possible with a primary mortgage? Has anyone ever been able to get their 30 year fixed rate mortgage lowered simply by calling and asking? The sense that I get is that it’s not possible with primary fixed rate mortgages.

QUESTION:
Do you know anyone that has lowered their primary mortgage with just a phone call, or do you always have to “refi”?

For all of those people (not unlike me) that are saving, saving, saving for retirement and always thinking about that magical day that you can retire……. Don’t forget to dance to the music along the way. (see video below)

I don’t know if you saw this article on CNN but it highlights Kent and Mysti Cope. They both worked for New Century Financial, which was the number 2 subprime lender in the country. They have both lost their jobs and have realized they have to make some tough sacrifices.

Sacrifice number 1: Trade in the Corvette for a Suburban. Huh? Wow, talk about really taking one for the team. I wonder if it was new.

Sacrifice number 2: Let the gardener go. Wow. Way to pull out all the stops there. I hope your homeowners association can tolerate your gardening skills. You certainly should have the time to keep the yard up now.

What wasn’t talked about in the article was all the sacrifices they aren’t making. I’d be interested to see a breakdown of their expenses. Clearly the largest rope around their neck is their home. The article points out that their equity line of credit, mortgage, health and life insurance equals about $10,000 a month. HOLY MOLY.

I did the math from another tidbit in the article. They say that the monthly unemployment checks of $1800 only cover about 1/8th of their expenses. That means they must be spending approximately $14,400 each month. To make matters worse, they are both dabbling in commission/sales type work. She is trying to sell jewelry and clothing online and he has gotten his realtors license. Both of those have significant delays in generating much income, let alone generating profit of over $14,400 each month. Yikes.

Check out the article:
http://money.cnn.com/2008/03/31/news/economy/copes/index.htm

I was perusing the internet and came across this video and found it very interesting, as well as a little scary:

http://www.boingboing.net/2008/03/19/documentary-examines.html

After you watch the video, take a little time and read through some of the comments on the BoingBoing page. I was quite surprised at the intelligence in the comments. (Sure, there are a few moronic ones there too). I can’t see how anyone would argue that the current path we are on is a positive one. With trillions in debt and massive consumer debt, we can’t go on like this forever. At some point foreign investors WILL lose confidence in our ability to pay it all back.

While you’re at it, take a look at this video too. It really calls in to question how “free” our markets are. I have often felt like simple investors like myself are simply getting the very small crumbs while the market “rulers” are sucking up all the money.

http://www.youtube.com/watch?v=_3H6uEyR66M

It’s that time of year when people start planning out their summer vacations and begin booking all their weekends. One of the things we have coming up is a wedding to attend in July. We live in Seattle and the wedding is in central Montana. It’s one of my last cousins to get married and we really want to go to see her get married and also visit all of our cousins and relatives back there.

Over the last week or so I’ve been checking airline flights and it looks like the cheapest flights are about $350 round trip. When you multiply that times 3 it’s over $1000 just in airline tickets for my wife, daughter and I. Add in the hotel room and we are easily heading north of $2000. Ugh. On top of the actual expense of the trip is also the lost income for my wife. Since she is a contractor, she doesn’t get paid time off. Every week day we are gone makes the trip that much more expensive. Don’t get me wrong, I wouldn’t avoid going just so my wife can keep earning income, but it’s certainly something that comes in to the equation when deciding how long of a trip to plan.

The other option that we have is to drive there. It’s about 850 miles each way and takes a couple days to drive when you have a 5 year old. (In the past I’ve always just headed out at 4:00am and done the trip in one day but I don’t think my wife is going to approve of that plan now that we have a child). If we drive we would spend somewhere around $300 on fuel. That’s a lot cheaper than flying, but we also have to calculate in some wear and tear on the car. If we use the IRS mileage rate to calculate “real” costs it would be about $850 to drive. (The 2008 IRS mileage reimbursement rate is .505 per mile.) So, even if we use the conservative IRS calculation, it’s still cheaper to drive.

I guess the big question is how much is our time worth. The flight would take about 2 hours, while the driving would take around 13-14 hours. By spending an additional $200 we would get a couple extra days in town with our relatives. Of course if we fly, we may have to rent a car to get around there. In that case, it would really be more like $500 more to have a couple extra days in town. Hmmmmmm. I guess we’ll need to sit down and really hammer this out to decide what feels right.