Tuesday, October 30, 2012

The Benefits Of Living In A Smaller Home

Jessi and I are contemplating moving. Nothing is official yet, we haven't even starting looking, but it's got us thinking a lot about housing options.

The classic American Dream is to buy a small "starter" home when young, then as your family grows, along with your income, trade up to bigger and better homes using the equity in your smaller home as the down payment for the bigger home. Even our tax code supports that notion since you'll get dinged with a capital gains tax if you don't buy something of equal or greater value.

I'll admit to having this dream. It totally included a wall-size fish tank, a model train that traversed the entire home, a Lego room, a gorgeous home theater system for movies and games, and yes vertical storage containers.

Though recently, I've been re-thinking that eccentric list of wants. Perhaps I should give up some of those dreams and embrace the idea of living in a smaller home. Here are some of benefits of living in a small home:
  • Smaller houses tend to cost less, which equal smaller monthly mortgage payments, lower properties taxes, lower home insurance, and lower heating/cooling costs. Plus, you don't have to save as long for the down payment since it's smaller.
  • Homes want to be filled with stuff. The smaller the home, the less stuff you'll tend to buy. I'm not saying buying stuff is bad, but you tend to be more discerning and purposeful when space matters. A hilarious music video about buying stuff
  • Housework, one of the most loathed activities*, decreases with a smaller home since you have less space to cover and stuff to clean/maintain.

Let's not forget about some of the indirect benefits too:
  • More money and time for travel, entertainment, socializing, and giving. Which, if I had to be honest about what makes me happy, these are more important than sleeping in a big bedroom next to a gigantic fish tank.
  • You don't need to keep a higher paying job to afford it. If you do lose that job, it's not as big of an emergency.
  • You can save for retirement faster. Not only will you need less to retire, but you'll have more to contribute.
  • I'm sure it's better for the environment in some way too.

I'm sure if I looked, I could probably find a study saying that kids who have to share rooms are more emotionally healthy too. That's the claim the Mint article makes, and even though I didn't love every day sharing a room with my brother, I fully believe I am better for the experience (though my college roommates might disagree...).

Given that list of benefits, it sure seems like living in a smaller home is a more worthy dream to pursue. So, stay tuned! When we move (some time next year?) it should be to a smaller place.

For fun, I saw this video today about a Tiny House that was made on the back of a truck. I'm not talking about going this extreme (no bathroom? OK...), but it is fun to think about what you can do.

Wednesday, October 24, 2012

Apple's iPad Mini will compete on price NEXT year

Yesterday Apple released the iPad Mini. It's a 7.9" screen - the same dimensions aspect ratio as the current iPad, but smaller. It's made to compete against Google's Nexus 7 and Amazon's Kind Fire HD.

However, the biggest complaint by observers has been that Apple messed up on price by making it too expensive and missed an opportunity to kill the competition. Here's a quick table of the prices for the Nexus 7, Kindle Fire HD, and iPad Mini. Yes, I know there are tons of different flavors, but all of them cost more and this is what people are really comparing.

Nexus 7$199$249
Kindle Fire HD$199$249
iPad Mini$329$429$529

Apple's prices aren't even in the same hemisphere in terms of percentages. Relative to household income they're closer, but these tablets are targeting the cost conscious shopper. So, Apple made a tablet to compete in the low end, but it looks like it's prices are way too high to effectively compete.

But here's the deal, it's made to compete on price NEXT YEAR.

That's right Google and Amazon, you're on notice that you have one year to improve the experience on your tablets.

If you've been paying attention, when Apple releases a new iDevice they don't just discontinue the previous version. They keep the lowest storage device and drop the price by $100.

Look at the table again and imagine this iPad mini at 16gb for $229. All of the sudden it's competitive on price!

Apple came out with the iPad mini at $329 for two reasons:

  1. They can cater to people who want a premium device in a handheld size
  2. They gave themselves room to drop the price on existing models when new ones come out to cater for those looking for a cheap tablet.
The gamble Apple is taking is that Amazon and Google won't be able to improve their devices/ecosystems enough to better compete in a year. It's not a sure bet, but I tend to agree with Apple's assessment of the tablet field.


Tuesday, October 23, 2012

The Fisherman's Parable

Today I lived the Fisherman's Parable, one of my favorite stories I try to keep in mind. Here's the parable:


An American businessman was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them. The Mexican replied only a little while. The American then asked why didn't he stay out longer and catch more fish?

The Mexican said he had enough to support his family's immediate needs.

The American then asked, "But what do you do with the rest of your time?"

The Mexican fisherman said, "I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life."

The American scoffed, "I have an MBA and could help you. You should spend more time fishing and with the proceeds buy a bigger boat, with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats."

"But what then?" asked the Mexican.

"Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution.

You can then leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC where you will run your expanding enterprise!"

The Mexican fisherman asked, "How long will this all take?"

To which the American replied, "15-25 years."

"But what then?"

The American laughed and said "That's the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions."

"Millions? Really? Then what?"

The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos."


I love it for two reasons. First, it makes fun of MBAs in a way that's all too true. Second, it stands as a reminder that I might already be living "the dream". Today was that day. Allow me to brag...

  • I woke up early for a phone conference. Everyone was on schedule and producing good results. The meeting ended early. I love waking up early and meetings that end early.
  • All my other phone meetings got cancelled. I especially love it when that happens. This means I had time to wash all the dishes, which Jessi loves.
  • That also meant I got to watch the Apple iNfomercial and text about with my brother. I love learning about new technology.
  • During lunch, I raked up leaves and spread fertilizer on the lawn. I actually worked up a sweat and got to listen to my audiobook.
  • After HP work I talked with one of our tenants about dogs and kids. It was just a fun casual conversation.
  • I headed over to our new duplex, raked leaves and spread fertilizer. I easily hit my goal of 10,000 steps.
  • One of our tenants offered me some hot chocolate which I'm a sucker for, and we talked about HP and the state of the industry.
  • I also got to meet the father of our other tenant and we talked a bit about living in Albany and boating.
  • I got home and went for a short run with Vinnie. The entire time today I managed to avoid the off and on ran.
  • After I finish this post, I'm going to make dinner, enjoy the last piece of my chocolate cake, and create our monthly newsletter.
  • The only thing missing from this list is Jessi, who stayed in Corvallis all day for work and a high school girl's small group meeting.

So, clearly my dream life has a few key parts to it:
  1. I wake up early and lead a productive lifestyle.
  2. I enjoy many casual conversations.
  3. It involves getting outside and doing some form of exercise - preferably combined with a task I can count towards being productive.
  4. Chocolate gets consumed.

Notably, it doesn't involve exotic trips, luxury cars, giant homes, or fancy restaurants. Kind of surprising to me, it also didn't equal constantly using my iPhone (well... maybe since I did listen to my audiobook a lot), working on my computer all day, staying up to date with social media news, or any sort of gaming.

Thinking again about that fisherman story, I really am pretty close to attaining that thing called "The American Dream". Would building a wood pizza oven really make it better? Would buying an airplane make it better? Would owning the latest iDevice make it better? Is it worth it putting in countless hours into business ventures in the hopes of earning more money so I can one day retire? What would I do in "retirement"? More of what I did today? Perhaps the goal shouldn't be retirement, but instead lifestyle design. That sure fits with the idea of creating a conscious spending plan.

One of the things I struggle with is contentment. I always feel like I should be improving. This actually makes taking vacations mentally challenging for me. So what if we're paying off our student loans 5 TIMES faster than scheduled... I want to go faster. So what if I have a well paying job... I want to earn MORE. So what if I have a pizza stone... I want a whole oven! Outside! Which means I'll also need a deck, and a covered area since we live in Oregon. Oh yeah, and outside heaters, tables, chairs... you get the idea. A desire for "a better life" could be the very thing keeping me from it.

I also need to keep Ecclesiastes 5:10 in mind: "He who loves money will not be satisfied with money, nor he who loves wealth with his income; this also is vanity." Thanks Solomon. For me, I can easily substitute the word "stuff" or "earthly treasures" for money.

Learning to be satisfied with what I currently have, or even less, is difficult to do. But it's a worth while journey. The sooner I embrace it, the sooner I'll realized I'm already "retired" and living the lifestyle I would design if I actually had a choice.

Now if I could only figure out a way to convince Jessi to quit working...

Thursday, October 18, 2012

The Big 2-9

Never let it be said that Jessi and I don't know how to stay busy. Here's a look back over my last year of life in no particular order. It would be a massive understatement to say God has blessed my life. I truly am thankful for all our friends and experiences.

We got to go to Mexico again. We refinished the roof of this building.

 At Meat Retreat playing Buck-Buck. A fantastically hilarious/dangerous game.

The Furlo Bros Tech Podcast recently celebrated 1 year of being "on the air".

 This picture from Halloween last year is one of my favorites of Vinnie.

Remember this one? Yep. That was just last winter.

 We got to celebrate Abe's graduation last December. That included a trip to Disneyland. I love this picture.

We spent Christmas with my family last year. That's Vinnie with his paper crown and Christmas scarf. It's amazing what he puts up with.

 It also snowed last winter. Driving the Jeep in the snow was a blast.

We also enjoyed a little weekend get-away thanks to our friend Lee. That was a great time of rest and relaxation. We're already planning another fun mini-get-away for next year once our first student loan is paid off (next month!).

Furry February.

Mustache March. I get goose bumps whenever I see this picture of my brother.

I got to travel to New York for work. Looking closely, the lady in the white jacket is taking a picture of me. Awesome.

When I root, I root for the Timbers! Thanks David for letting me tag along to a game.

Jessi and I replaced the radio in our Jeep.

I built a trailer for the Jeep.

I learned the very (very!) basics of electricity. I'm going to try and leverage this success into a another project where I install a light/fan in the living room.

I also learned how to dry wall. We have another upcoming project where this skill will be put to the test.

We went backpacking this summer. It was so beautiful... when we weren't being bitten by mosquitos.

 Ha ha. I've been baldified! When I got it, the app was free. I think it's $0.99 now.

 We built a fence! And it's still standing!

Jessi and I volunteered for the Hood To Coast Relay.

We completed the Disneyland Half Marathon with my family. That was so much fun. I loved this ride. Jessi hated it, and apparently so did the two girls in the front. I think that makes it two trips to Disneyland in less than a year.

 Last month we went camping in a dog-friendly yurt.

 This was our Christmas picture last year.

Beach Olympics once again lived up to it's hype.

And finally, we bought another duplex.

Thanks everyone for the fun year! Here's to another adventure this year!

Wednesday, October 10, 2012

How YouTube Transformed Property Management

YouTube's tagline is "Broadcast yourself" and millions have done just that. But it's not just kids lip-syncing, music videos, or animals sneezing. Home improvement videos also found an audience on YouTube.

Let's back this up a step.

One of the downsides of investing in property is that you'll need to do the repairs. You could hire someone else to do it, but chances are it won't be cheap. Many people fear they won't have the skills to make proper repairs: "I'm not a handy person". I used to let them off the hook with this excuse. But no more!

Home improvement shows/stores have all created channels that show you exactly how to do something. Many individuals also upload videos showing how they did something. I still get comments on my video about installing a water back flow valve. All you need to do is search YouTube for what you're trying to accomplish.

Jessi and I didn't know how to build a fence before this summer. Did that stop us? No! We used YouTube. We searched for "how to install a fence" and watched an hour or so worth of videos. Each one showed a different angle, talked about a different tool, and gave specific tips. By the time we finished, we knew what we had to do and how to do it. We also double checked with the people at Home Depot while standing in front of the tools/materials.

With the Internet, and especially video, learning how to make property improvements is easy.

I can see how people would shy away from property management before YouTube. My dad tells stories of spending hours at the library doing research and visiting construction sites to see how the professionals installed something. That's an effort most people are unwilling to do. But now you can do research and "watch the pros" on your iPad during commercial breaks.

Oh, you don't have the tools? Let's stop this excuse too. Chances are you can find the tool you need at your local rental yard. There are many tools Jessi and I buy because we use them a lot, but a lot of them we just rent. The cool part about renting is that they show you exactly how to use the tool too. For the fence project we rented the auger to drill the post holes, for the septic tank project we rented the jack hammer, and for the re-grading project we rented the tractor. Wow - we've been busy.

YouTube is an amazing resource for home improvement projects. If you didn't want to invest in property because of the scary maintenance piece, YouTube solved that problem for you.

Monday, October 08, 2012

Now's A Good Time To Buy Property

If you've been paying attention to the news, you know that interest rates are at all-time lows right now. That means that if you buy a piece of property, you're payments are going to be less because you won't be paying as much in interest.

That alone should get you thinking about buying something. Or at the very least looking into refinancing if you already own something.

What you may not know is that property prices have bottomed out and are starting to rise again. That means that if you buy today, chances are good your property will be worth more next year and definitely in 5 years.

So, prices are affordable... Interest rates are affordable... that should really get you excited!

One resource for tracking price trends is the Federal Housing Finance Agency House Price Index. You can drill down to cities around where you live to get a feel for what the market is doing. Here are the 3 cities that surround our city. This chart shows the percent price change for Corvallis, Salem & Eugene. It's not the prettiest chart, but it'll work for what we're looking for.

You see that double dip at the very end? In finance, this signals the very bottom and a return to growth. So, that means buying now will hit as close to the bottom as possible on price. Yes, there are examples where this wasn't the case, but very often it's true. Plus, recent reports indicate that housing prices have hit the bottom. Finally, the price on our duplex has started to rise according to Zillow.com.

Again, prices are the most affordable they're going to be in a while... and interest rates are the lowest they've ever been... That should really get you excited!

Jessi & I attended a seminar put together by our real estate agent, and friend, Lee Eckroth called "Wake-Up Money". It was at this seminar that he put these facts together. The idea is that if you can afford to buy, even if you have to stretch the rubber band a little, now is the time to do it. The main focus is buying investment property, but it's still just as valid for a primary home. I think he's still putting them on. If you're interested, let me know and I'll connect you with him.

Jessi and I attended the seminar, looked at the data, liked what we saw, and started looking for funding. In this particular case we were able to fund a property purchase transferring funds from different investments accounts. We've been able to save, and invest, by making decisions to not spend money in certain areas. For example, we don't pay for cable TV, I ride my bike during the summer when running errands, and we don't eat out too often.

Back to the purchase. We decided to focus on multi-plex properties since that's what we already own, are comfortable with, and it's easier to make it cash-flow positive.

We evaluated 141 different properties in Salem, Corvallis, Philomath, Albany, and Lebanon. We narrowed it down to a couple dozen, drove by each of them, and then went inside of the one we liked the most. The property was in great shape and the price was in the range we wanted. So now we're the proud owners of two duplexes.

I want to encourage you to look into investing too! Check the rates around your city. Do prices look like they've stabilized? If so, can you find the cash for a down payment? Buying a single family home isn't too bad, especially if you're planning on moving in. Why not move in for a year, fix it up, then rent it out? You get the best interest rate and the lowest down payment. Putting down at least 20% to avoid PMI is a great goal, but depending on your situation, less might be OK.

Some possible funding sources include:

  • Savings Account: It's not earning much interest right now. Maybe you can earn a better return.
  • 401K: You can take out a loan up to half the value. The payback is 5 years, unless it's your primary residence, then it's 15 years. The interest on the loan goes back into your account.
  • IRA/Roth IRA: A little more complicated. If you have a Roth, you can take out the principle penalty free.
  • Stock Investments: You might find the property's return is higher because you can leverage it with a loan. More on this later.
  • Home Equity: You might be able to pull from your existing property using a HELOC. Rates are pretty nice right now.
  • Family: Do they have funds from any of the above sources? Maybe they'll be willing to partner with you. They'll be investing in your future and theirs.

If you're looking for a personal residence, stick with your savings as your only funding source. If you're going to buy an investment property (or move out of the one you're in and turn it into a rental), then all the other sources are great places to look.

The process to determine your best investment is to compare your rate of return (ROI) across the different investments. The calculation is easy, you only need two pieces of information: ROI = money earned / money invested.

  • The stock market: ( price gain + dividends paid ) / amount contributed. Pretty much all places that hold your money do this calculation automatically for you.
    • Example: You bought 10 stocks of Disney at $45. By the end of the year it rose to $50.
    • ( 50 - 45 ) / 45 = 11% ROI
    • Even with recent history, the stock market typically returns 7-10% on average each year.
  • Savings: They'll often state the percent you'll earn. It's not much right now.
  • Real estate: ( rent income - mortgage - taxes - insurance - utilities you pay - maintenance ) / Down payment
    • Example: You buy a Single Family Home for $100,000 with 20% down ($20,000)
    • Rent = $1,000 per month = $12,000 per year
    • Mortgage = $450 per month = 5,400 per year
    • Insurance = $300 per year
    • Tenant pays all utilities = $0
    • Maintenance = 10% of rent income = $100 per month = $1,200 per year
    • ( 12,000 - 5,400 - 300 - 0 - 1,200 ) = 5,100 annual money earned
    • 5,100 / 20,000 = 25% ROI
A couple things to note:

First, in this over simplified real estate example you get a high return because you only look at the down payment. If you put down less, your mortgage will go up, but your ROI will actually go higher since your mortgage increase will be spread over 30 years.

Second, even in this over simplified example, it's clearly more complicated to work with real estate than it is with stocks. So if you jump in, be prepared. Yes, you'll probably get a better return, but you'll also have to put in some work and be willing to do some research (Youtube is my friend for repair projects).

Third, you'll notice the real estate numbers are bigger. For only $45 you can buy a single Disney stock (well... $53 as of today) and start investing right away. For the property example, you need $20,000. This is a HUGE reason why most people invest in the stock market and not in property.

I want to pause on this for a second.

Real estate has 2 major downsides, and 3 fantastic upsides. It's really important you understand these when evaluating real estate.
  • Downside #1: It requires a big chunk of money to invest. And it's all in one place. You MUST do your research to find good places to invest in.
  • Downside #2: If you don't higher a property manager, you'll need to do the repairs, deal with tenants, and track finances. There are many tools and resources to help, but it does require you to put in the time and energy to manage it.
If you don't like the downsides of property investment. The stock market is another excellent place to invest. There are many good index funds. You literally set it and forget it. If the downsides don't bother you, read on, because if you're regularly investing money in the stock market you'll eventually have that big chunk of money.
  • Upside #1: You can leverage your money with a loan. Basically, you can multiply your returns. Had you paid all cash in the above example, your return would have been 5%. Not bad, but with a loan it's 5 TIMES higher. And now your tenants are paying back the loan for you.
  • Upside #2: There are major tax advantages because you suddenly step into the realm of owning a business. Depreciation is a common example (which I didn't include in the above example). Writing off business expenses is another. Yes, you do have to track expenses, but trust me when I say it's worth it.
  • Upside #3: You're in control of your investment. You get to decide where to buy, what improvements to make, who to let live in your dwelling, and many more choices. For a control freak like myself, this is a major perk. I hate watching stocks fall for no apparent reason. At least if my tenant stops paying I can do something about it.

OK. One last time: Prices are as low as they'll be in a while... Interest rates are ridiculously low... if you're even semi-interested in real estate, this should excite you!

Give your real estate agent a call. Or call ours, he's awesome. With your agent, run some numbers on current listings to see if investing today makes sense for your situation. That's what we did.

Monday, October 01, 2012

Vinnie Unleashed

Quite literally. Jessi thought Vinnie could handle it. I, in all honesty, didn't think he'd make it 100 feet.

I'm happy to admit I was wrong. The first part of our walk goes along a quiet street, which is perfect for a dog prone to exploring. Thankfully, he never wondered into the street, and came back to us every time we called him.

His normal behavior was to run out about twice as far as the leash would normally allow and then sniff around until we got there. Only once did he eat something super gross. He didn't even wonder that far into other people's yard, which is what I thought he would do constantly.

The nearby school, which is where these pictures are taken, was another place I thought he'd run away at because of all the different smells.


He stayed close by. Yes, he did mark every single tree, and it was nice not having to worry about the leash getting all wrapped up.

We did leash him up when we hit one of the more busy roads though. I see no reason to tempt fate against cars going 35mph.

When we hit the last section of the loop we were back on quiet streets and unleashed him again. Once again, he behaved really well. There was only one garage he bolted for. The owners laughed while he gorged himself on cat food.

It's a shame we tried this at the end of summer, but we'll probably get a couple more good walks in before the weather turns too ugly.

Way to go Vinnie!