Mission:Nontrivial

12 July 2006

Opportunity cost of rental property

I've been putting a lot of thought into the true "cost" of renting out our house while we're in China. Assuming we can rent it out for an amount that covers our mortgage, taxes, management fees, etc, we're still tying up a lot of money in an investment that may not appreciate much over the next few years, if at all.

First of all, it's pretty clear that we'll lose money every month, sorta. We'll be able to just barely clear interest, taxes, fees, and have a little left for maintenance, but we'll still be shelling out for much of the equity portion of the mortgage payment. So while we'll be building equity, we won't be generating income. That's fine, we've only had the house a few years.

The bigger issue is the equity that's already tied up in the house. Renting out the house may not be a good investment compared to selling and investing the equity in a guaranteed investment paying 5 or 6%. If we had the house paid off completely, the rental income and investment income (at 5%) both work out to be about the same, $30K, before taxes. After taxes, it's still about a wash, with funky tax credits being the difference.

Of course, we don't have the house paid off. Our mortgage is very close to the rental income. As a medium-term investment, we'd likely be better selling the house, and investing the equity. But that doesn't take into account two things. Houses are not fungible, and we'll have to live somewhere when we get back from China. I just hope we don't lose too much on this "investment".

For another look at this problem, My Open Wallet has a great blog entry (with comments) on just this issue.

27 June 2006

Wiki financial advice

Here's some obvious, but amusing, advice from Wiki on how to retire in your 30s. Number 3 is always good advice:

3. Lower your expenses. The #1 reason people in high paying salaried jobs are still working hard when they are fifty is because they can't keep their spending under control. To soothe their agony regarding their dull, demanding job, they placate themselves with toys that fail to make them happy: a penthouse apartment, a fancy car, a diamond ring. Resist the massive pressure to dress, eat and shop like your peers, and live a modest lifestyle. Focus on work, as your play will come later. Some keys to not spending:

* Rent a modest apartment. You will be at work all the time, so do not splash out on housing. Clean and small will do just fine.
* Don't eat fancy dinners. Unless you are a gourmet connoisseur, you have to admit that a $5 burrito tastes 90% as good as a fancy steak served on fine china.
* Keep a budget. Track your expenses. Set goals for saving and celebrate when you meet them.

Obvious, sure, but valid. It's a renter's market right now, and it's always a $5- burrito market.

26 June 2006

Worldwide Cost of Living, 2006

This year's cost of living ranking of world cities is out. Moscow is now the worlds most expensive city. Tokyo, which had won for several years, dropped to third behind Seoul. New York City, which was chosen as the "zero", with a base score of 100, tied for tenth with Oslo.

Of greatest interest to me is the ranking of Chinese vs. US cities. Hong Kong (not quite China), ranked fourth, with a score of 116.3, meaning it cost 16.3% more to live in Hong Kong than in New York. Beijing ranked 14th, with a score of 94.9. So Beijing is only 5% cheaper to live in than NYC! Shanghai, ranked 20th, with a score of 91.2. Washington DC and Boston ranked 83 and 84, with cost of living scores of 77 and 76.8.

So what does all this say to me? That this ranking is complete bunk very subjective, and dependent on an arbitrary standard of living. Based on what I saw in Shanghai, and anectdotal evidence, living in China is a LOT cheaper than living in DC, or Boston. So where are these scores from? From trying to live like a New Yorker while in China!

Parts of Shanghai were very much like New York. Expensive condos, western food, Porsche dealerships, etc. But why would you chose to live that way? By eating local food (Shanghai food was a bit greasy, but excellent), and buying things off the local economy, you can save enough to live like a king. Take taxis everywhere, have live-in help, whatever you want. Our standard of living will be higher in China than it is in DC, and it will cost less, because we won't insist on living within a pocket of DC while in China.

21 June 2006

11 deals to avoid, or not

Money.cnn.com comes through again, this time with advice on 11 financial deals one is likely to encounter. Mostly obvious stuff, but mostly good advice. An example:
Balance transfer cards

You open your mailbox to find a pre-approved offer for a credit card charging 0 percent interest on balance transfers for 12 months. Sounds tempting, especially since you're paying off a balance at a high rate on another card. Deal?

DEAL IF...you plan to do all of the following: Put only the balance on the new card, never pay late, and pay off the entire amount in 12 months. (First you'll want to find out how much the fee for the transfer is; you don't want it to cancel out the benefit.) If that much discipline makes you cringe, read on.

NO DEAL IF...you're not so diligent. This card charges 0 percent on balance transfers, but unless otherwise stated, not on new purchases. What you charge gets hit with a higher rate (sometimes 18 percent), and your payments typically go toward the zero-rate balance first.

Even if you're slowly paying down the balance, the finance charges on new purchases are piling up.

Plus, miss a payment - oops - and the rate on your balance transfer could go from 0 percent to 30 percent in a second.

Why they chose the annoying "Deal, or No Deal" format, I don't know, but at least the article doesn't have Howie Mandel.

Improper firearm handling

Today's feel-good story is short enough to quote the whole thing:
Man tests gun, shoots hole in his left hand

This one might earn an honorable mention in the Darwin Awards, Wichita police say.

A 28-year-old man wanted to see whether his girlfriend's Walther .22 handgun was loaded, so he pulled the trigger -- and blew a hole in his left hand.

For some reason, Capt. Joe Dessenberger said, the man had placed his hand in front of the barrel as he pulled the trigger on Monday in east Wichita.

The man was treated at Wesley Medical Center.

Walther .22 handgun? That's most likely a Walther P22, an excellent plinker, when used properly. The slide is so light that Stephen Hawking could work it. There's really no reason to have to discharge it into your hand to determine if it's loaded.

20 June 2006

Red Sox on TV

Since we don't pay for a cable package that includes ESPN, we only get to watch the Red Sox play in Camden Yards, or on nationally televised network games. Tonight, though, they are playing the Nationals at Fenway, and we get to see them on MASN, the Mid-Atlantic Sports Network, which our cable company provides for free.

Since MASN's existence is basically devoted to the Nationals, they are a bit biased. They are really pulling for the Nationals. It's almost as bad as Tim McCarver during Fox's broadcast of the 2004 ALCS.

Still, anything beats "watching" the game by reloading Boston.com, which I've done many times when not near a TV.

12 June 2006

Retire at 47?

Money.cnn.com is my go-to site for interesting financial stories. Today is no exception. This question and response has great rules of thumb for anyone thinking of retiring.

Just keep a few things in mind. You may end up living a lot longer than you thought (who'd have thought that would be a problem?), and don't count on any money outside of your control (pension, social security, etc.).

I'd figured we'd need about $4 Million in 2006 dollars to retire. By even the most conservative estimate generated in my last post, we'll have that by the time we're 50. At least until we're bankrupted by inflation and kids. ;)

09 June 2006

Net Worth predictions

If I could predict the future, I wouldn't need to save and invest much money. I could make a fortune speculating instead.

But, I can make an educated guess. I now have about 18 months of Net Worth data. By holding our house value constant at it's June 2005 level (I think the $650,000 value is pretty accurate. That's $40K less than the Zillow estimate, but I suspect there will be at least a slight dip), I have 12 months of data that show only the effect of our tangible assets, and decreasing debt.

In that time, our Net Worth has consistently trended upwards each month. The monthly increase has been as little as 0.47%, and as much as 3.27% (great month for stocks). The average monthly increase is 1.25%, giving an APY of 16.08%. A lot of that "yield" is due to savings and debt paydown, not just to investment returns.

So, while past performance is no guarantee of future results, that's a real number. Complex things like tax rates, stock market performance, savings, and income all come into play, but the net trend is all that matters.

Using the 1.25% monthly increase, and holding the value of the house constant, we'll be worth more than $500K in February 2008, and more than $1.0M in September of 2012. Not bad, I s'pose. Using the 90 day weighted average of our Net Worth increases, 2.01%, makes us millionaires by May of 2010. That's an APY of 27%, tough to maintain, but it makes for an ambitious goal.

More China news

How does that Warhol quote go? "In the future, everyone will go to China for 15 minutes"? The more people I tell about my pending move, the more people I find have been there, are going there, have opinions, whatever. I'm obviously not the first blogger to go to China, there are LOTS of great China Blogs. But I did think I was at least one of the first PF Bloggers. Not so.

MyMoneyBlog is on a family trip to Beijing. So why not take this opportunity to comment on his observations. After all, I've spent nearly twice as much time in China as he has. ;)
* Haggling is a pain in the butt, but makes a huge difference in the price you pay for stuff if you're a tourist. It's like picking a fight every time you want to buy a gift for somebody. In the end the vendor looks like you just said his mother was ugly, but you know in the end his profit margin was still astronomical.

Haggling is a pain in the butt? No! It's fun as shit! Perhaps is my Boston attitude, or because I read a lot of TalkTalkChina before I went there, but I found the haggling to be one of the better parts of the trip. The best method I found was to truly not want the item, and just walk away. Let the vendor do the work of chasing you down and showing you a price on their ubiquitous calculator.
* Smog. Beijing is way too smoggy. Even though they actually shut down entire factories to improve the air quality before the 2008 Olympics, everything is still a haze. Even on a perfectly clear day you can't see a blue sky. I couldn't live here.

That's great. I have two years of this to look forward to. Apparently the smog is much worse than it was a few years ago. Forget the sky, you can't even see the sun on most days, just a diffuse light blur that casts no shadows. Also, smog is too nice of a word. It doesn't fully capture the special blend of factory emissions, car exhaust, and the abrasive sand from the Gobi desert.
* Street food is pretty tasty and cheap, but I'm pretty sure I got ripped off a couple times since I can't read the signs. Ripped off is a bit harsh since at most I paid 50 cents more than a local would have.

Just like with buying gifts, you're only getting ripped off if you're paying more than what the item is worth to you. You will always get the "Chinese Price" for things (so they say). After walking out on a few transactions, you can probably figure out what the true "Chinese" price is, or at least what the lowest bai ren price is (still lower than the Japanese price, according to more than one vendor).

I hope MyMoneyBlog enjoys the rest of his trip. I certainly enjoyed mine. I'm not looking forward to the pollution, though.

05 June 2006

Networth IQ update for June

The market took a hit last month, and it reduced our net worth increase. We're still positive, and took the opportunity to invest some extra cash. Overall, we're up $3628-, or 0.91%, to $393,873-.

Interestingly, our overall "retirement" account (which totals our two active 401(k)s, and all of our IRAs, etc) is exactly the same this month as last, coming in both months at $67,779-. The money we contributed over the month exactly matched, to the dollar, the value that was lost due to the market dip.

04 June 2006

Crazy debt

Don't be Rachel.

She asks this financial question to Dave Ramsey on wnd.net:
I think I made a big mistake when I bought my car. I'm having a hard time affording the $500 a month payments because I only make minimum wage at my job and work 35 hours a week. My boyfriend, who was supposed to help me pay for it, has moved out and left me. I owe $20,000 on the car, but I know it's still worth about $19,000. What can I do? -Rachel

Rachel is spending more than half of her monthly earnings (not counting FICA) on her car. I hope there's room to sleep in the back, and she doesn't have to drive it anywhere.

31 May 2006

Interview with the Nuge

I love animals. They're delicious!

Ted Nugent is a strange dude, as is proven by this interview. For example, his thoughts on deer:

They're only interested in three things: the best place to eat, having sex and how quickly they can run away. Much like the French

Of at least equal entertainment is the commentary of the nutty interviewer. I've never seen a "Glock revolver" myself, but Ted's British interviewer has. Or perhaps he's just fixated on the Beatles.