Friday, March 29, 2019

Thoughts on Apple Card

On Monday Apple announced Apple Card. It's a physical credit card tied to Apple Pay/Cash. Here are the features:
  • Pretty receipts that provide information, such as the location, about your purchase. They'll also categorize the type of spending for you.
  • You get 3% cash back on Apple purchases. 2% back on purchases made using Apple Pay. 1% on purchases made using the physical card.
  • You get the cash back to your Apple Cash account each day.
  • No fees. No annual, cash‑advance, over-the-limit, or late fees.
  • Interest rates that are comparable to the lowest in the industry.
  • It shows how much interest you pay if you do the minimum, pay off the balance, and in between.
  • The card itself is made of titanium and is a clean white. Doesn't show a card number, just your name at the Apple Logo. The number is stored on your iPhone in case you need to look it up.
  • It uses the same security as Apple Pay with dynamic security codes for each purchase and authentication via Face/Touch ID.
  • Customer Service happens via iMessage.
  • Goldman Sachs is the issuing bank of the card.
Wow! That seems like a lot.

The Good

From what I can gather, each of those individual features is available, in parts, from other services. Want pretty spending reports with categories? Mint has you covered. What cash back? CapitalOne is one of hundred examples, also with no fees. Want a titanium card? Mastercard offers one, and I bet there's more.

For the record, I'm not a credit rewards points hacker. I don't spend hours on nerdwallet trying to optimize my points so my family can fly for free. Maybe once my kids are old enough to appreciate a trip I'll change my mind... Once I see the price of four seats! For now, I have a "regular" credit card that I pay off each month. In this regard, I consider myself average.

To me, the compelling case for the card is all the features coming together. This is especially true if security is important to you. Again, no feature alone is enough to make me ditch my current go-to card, but putting them all together starts to make the case.

I do wonder if the card will eventually bend to the shape of my body since 99% of the time I'll be sitting on it.

The Perception Problem

When I read reviews, most of them are "meh."

This confused me for a while. Sure, there's no killer feature, and it's a non-starter for credit hackers/optimizers, but for the average person, it's fine. Why all the hate?

I think it's because Apple continues to use over-the-top superlatives to describe their products: "The most significant change to the credit card experience in 50 years." was Tim Cook's final statement about Apple Card.

That's quite the statement. It's probably true, but they didn't show me any distinctive feature that proves it.

Post Jobs era, Apple chooses to focus on checking all the required boxes instead of figuring out, and focusing on, what could indeed set it apart. For example, when iPhone launched there wasn't copy and paste. BUT, when you scrolled there was a rubber band bounce effect that made it seem like the content on the screen had "weight," which matched your feeling of friction on the phone. It felt different and significant even if technically it was a UI trick that didn't depend on the touch screen.

Apple Card includes the equivalent of copy and paste but doesn't have any fun scrolling effects, so it feels boring despite actually being more functional and complete out the gate.

Hence the scoffing at "the most significant change to the credit card experience in 50 years."


BTW, Apple Watch appears to struggle from the same perception issue. It's a great watch! But they hyped it up so much, it couldn't live up to those expectations, especially when the 3rd app thing didn't really work out. Here's an idea: Scrap 3rd party apps and make them complications only. Then open up an API to create and sell watch faces via an app store with all the same reviews as the current App Store. It seems so obvious. What am I missing?


Back to Apple Card.

One option to solve the perception problem is to under promise and over deliver, but underpromising isn't in Apple's DNA.

The other option is to keep iterating on the product until you find that "significant" feature. Here are two ideas, for free.

Show Me Colors

Just one color? Why not 6 like the iPhone XR? White, black (or space gray for you Pro users out there), blue, yellow, coral, and (PRODUCT)RED. Like the iPhone and Apple Watch, the card is personal and letting me make a color choice makes it feel personal. I suspect this will be a future option if the card sells well.

Psychology is weird. People want to feel in control; that they're in charge and making the decision. So when you offer one product option, only one choice, people take control by deciding if they're going to get it or not. However, and this is where it's weird, if you offer them 2 or 3 product offerings, they're willing to take control by choosing which one they want. Notice, they were happy to give up the power on whether or not to purchase as long as they got to decide something.

This works great for kids. Don't tell them to put on their shoes, ask them which pair they want to put on. This works for adults too. I use this technique when working with tenants. This is one reason why offering different colors, payment plans, memory sizes, and product bundles work so well.

Dynamic Numbers

If you've used Apple Pay, you know that there's a default card, but you can change cards on the fly right before paying.

Why not offer the same option with the physical card? Apple Card could be a dumb piece of titanium that can stand in for any card held in the Apple Wallet. Now, this would be a game changer! You have to authenticate the transaction no matter what, so give me the option to change cards on the fly.

Clearly, there's a lot of caveats, and the exact way it would need to work is likely different than I just described, but the general idea is sound: let one physical card stand in for all your credit cards.

I'm sure there's some sort of technical and fraud hurdles to overcome, but that's the hallmark of Apple: figuring out how to bring software and hardware (and services apparently) together in ways previously thought impossible.

Had Apple come out with this, and forgone the pretty reports, daily cash back or any cash back (!), this card would be the talk of the industry solely for its ability to consolidate.

I think Apple was hoping that the slick looking titanium would be enough, but it's not. It doesn't make my life appreciably better. Instead, it feels like Apple figured out a way to make money via credit card interest fees and choose to hype it up a little too much.

Monday, March 18, 2019

Raising Private Capital To Purchase Real Estate

Getting started in rental real estate is rather simple at a high level:
  1. Find a property that provides a "good" return.
  2. Fund the purchase, and sometimes rehab, of the property.
  3. Rent it out by screening for "good" tenants.
  4. Keep up with regular maintenance, rent collection, bookkeeping.

Of course, there's lots of nuance to each step, but that's it in general. And lots of people are able to buy one rental every couple of years following this simple formula:
  1. Spend less than you earn and save some cash for a down payment.
  2. Find a property on the MLS to buy.
  3. Purchase the property using your cash for the down payment, and finance the rest through a bank by leveraging the property as collateral and your job for reassurance of payments.
  4. Rent it out
  5. Either manage it yourself or hire someone else to do it.
  6. Plus an optional step at retirement: drop your lowest performing asset(s) and use the proceeds to pay down debt on higher performing assets. Or, trade up to a larger property someone else manages.

Depending on how fast you save, you could buy a property every 2 to 3 years and at the end of a career have a nice rental portfolio for retirement. Lots of people do this, and you can too!

But what if you want to grow your rental portfolio faster?

Running Out Of Cash To Fund Properties Stops People From Further Building Their Rental Portfolio

The number one problem people experience when growing their rental portfolio is running out of cash to fund purchases. Thankfully, there are a couple ways to overcome this problem:

First, you can live in each rental for a year. Since you're living there, the bank thinks there's less risk and allows you to contribute a much smaller downpayment (like 5% down instead of 25% down).

For our 1st, 3rd, and 5th property that's what we did. We lived in each for a while and then moved. Of course, we love our 5th property and have no intention to move. So that method is out for us. It's also difficult to find a property that will still provide positive cash flow given the high leverage, but it can be done.

Second, find a property that's significantly undervalued. Once you buy it, then you improve the value by fixing it up. Here's a simple example. Let's say you find a house for sale for $50K, but it needs $25K of work. BUT, if you do that work, it'll be worth $100K (which you know because the house across the street, of a similar type, just sold for that much). You buy it, fix it, and then refinance with a loan of 75% the new value (called the ARV: After Repair Value). Boom. You just got your money back and you still own the property. Or, perhaps you decide to sell it and earn ~$25K for your efforts (minus any holding and transaction costs)

If you could do that over and over, you can make a decent living and own a lot of property in a short amount of time.

But where did the $50K and $25K come from? Where did you find such a diamond in rough?

To find such a deal, you typically are finding properties NOT listed on the MLS. You're finding people who want to sell quickly or own a piece property in such bad shape it won't qualify for traditional financing.

To fund the purchase and rehab, you might need to pay with cash.

Raising Private Capital

That's where the book "Raising Private Capital" by Matt Faircloth comes in. His book describes how to raise money from other people (private individuals) to help fund that initial purchase and rehab. They provide you with cash as either a loan where they earn interest or as a part owner where they earn or a portion of the property's overall return.

Faircloth describes the two roles: The Deal Provider and the Cash Provider.

"The Deal Provider is the one who goes out and finds opportunities such as fix-and-flips, rental rehabs, and other real estate investments that require an investment using private capital."


"The Cash Provider is the investor or lender of the private capital for the project. Most of the time, Cash Providers are passive investors making a return on their money."

As I described above, you typically start out with playing both roles. But to grow faster you can pool funds from other people. What makes a good cash provider?
"Cash Providers who are a good fit understand that their role is to properly vet out you and the deals you bring them, make a decision, and then trust that you will make the right call on their behalf. They will produce the funds for the project when they say they will, and they won’t get cold feet and back out on you at the last second after they have made a decision to go with your deal. They will want regular updates on how you are doing with their investment but will not want to meddle in the day-to-day activities."
What I found interesting was all the different places people have money, and they may not even know it!

Source 1: A self-direct individual retirement account (SDIRA).
This is exactly like an IRA or Roth IRA you might have with Vanguard (with all the same tax benefits), except you can invest directly in anything (with some exceptions. For example, you or a family member cannot benefit financially from the asset or its derivatives. That means you can't manage the property yourself).

What I found interesting is that you can't use a 401(k), but after you leave a job you can roll it over into an IRA, which could be an SDIRA. So his advice is to chat with people who were at one company for a while and recently changed jobs. They might have a nest egg available to loan.

I personally haven't converted or helped someone convert a 401(k) or IRA into an SDIRA, but it sounds like it's fairly straightforward once you identify the right company to be the custodian of the account.

Source 2: Real Estate Equity
"In this case, the real estate equity I am referring to is the difference in the market value of a home and what the homeowner’s current mortgage balance is. If the mortgage balance is less than 50 percent of the home’s value, there is potential to unlock some of that equity."
If you have more than 50% equity in a home, it could be earning you interest from an investment. In general, I advocate avoiding the use of debt, especially if your primary house is your biggest asset. But, if you're already saving at least 10%-15% of your income for retirement, lived in your current house at least 15 years, or have a second property, this could be a viable option.

The way you'd free up that equity is by refinancing to get a new, larger mortgage or a home equity line of credit (HELOC).

Source 3: Cash
The third source, cash, can come from an inheritance, from saving, savvy investors, and high-income earners. The problem is that these types of people (especially the savers) can be difficult to learn about, but Faircloth goes into how to meet them.

He also goes into the types of deals that work with each source of funding and the advantages real estate offers (such as tax benefits like depreciation). It felt comprehensive and I felt like I could have a productive conversation with someone after reading this section.

Creating The Deal

The second half of the book is about preparing the deal so Cash Providers can easily assess if the deal is right for them. He even details what to do during investor meetings. He has chapters dedicated to structuring private loan deals and private equity deals. Again, it felt comprehensive and did a good job of breakdown each step the Deal Provider must take to successfully raise private capital.

The Start of a Master Class

The book feels like the beginning of a "master class". I mean that in the sense that does a good job of describing the steps but could go deeper with examples and templates. He does say that each deal is different, which is true, but he could still go down the path of "here's how we do it 80% of the time."

For example, he doesn't provide any resources for converting an IRA into an SDIRA. He also talks a little bit about creating a sample deal packet but doesn't give an example of the elements to include. For investor meetings, you get the sense he's sharing investor questions off the top of his head instead of tracking the number of times he actually gets asked them and sharing his responses and why he gives them.

I get it, you're not going to have that much detail in a book, which is why it feels like it needs a companion website or a $2,000 master class which includes some Q&A. He does have a youtube channel he regularly posts to where perhaps he covers more specifics.

At the very least, I now have the vocabulary and principles to go learn the detailed specifics I still have questions about it.

Next Steps

While reading the book, I sent out ~800 letters to multifamily property owners offering to buy their property if they were looking to sell. The day after finishing the book I got a property under contract to buy. And it just so happened that I had enough of my own cash on hand to purchase it the traditional way (25% down, a loan for the remaining 75%). So I didn't need to use the strategies I learned in this purchase.

But, I'm going to once again run into the number one reason people stop buying: I won't have any more cash.

Since I won't send out letters again for a few months, that gives me time to put together a sample deal package using a previous deal, learn how to convert accounts to an SDIRA, and put together a holistic strategy for raising private capital. Or, even decide if I want to go down this route at all. Buy a property every 2-3 years seems to be working pretty well at the moment.

If you're an investor in a similar situation of wanting to grow faster, I recommend reading the book. Then send me a message and let's talk. Perhaps we can learn together.

Monday, March 04, 2019

If you have 19 different priorities in life. You don't have any priority.

Photo by Jo Szczepanska on Unsplash
I initially saw this tweet by @dutch726 on Twitter. I like it because it's something I struggle with daily, especially with a full-time job, a small business, a startup, and a family. Oh yeah, and I care about my physical, mental, and spiritual health.

Despite that list, I feel like I'm able to balance each priority. Here's what I do, which isn't perfect, but it works for me.

Reduce the Number of Priorities With an Audit

Twice a year Jessi and I sit in front of a whiteboard and list out all the things we participate in. Then we cut a couple of them out. It really hurt the first couple of times, because we had to make a lot of cuts. I was busy almost every night doing something. Today I only have something regularly scheduled on Thursday nights.

We still do our twice a year check-in because I have a habit of saying yes to most things, and priorities do shift over time.

Create Times of Focus

I find it helpful to split my day and week into times of focus. That way, despite having multiple priorities, I only focus on one at a time. For example, from 6-8am I focus on me: my physical, mental, and spiritual health by reading, praying, journaling and running.

On weekdays I shift focus to my fulltime job. If it's Saturday, I focus on the startup.

From 5pm-8:30pm I focus on my family.

In the evenings, I focus on either my small business or the startup.

It's not always that clean, but it works most of the time.

The point isn't the amount of time, but deciding - for whatever the period of time - that I'm only going to focus on one thing. And since I know I have other times dedicated to other activities, I'm able to focus.

Take Action

Do you feel like you have too many priorities?

  1. Take an audit of what you're currently doing? You don't need a whiteboard. Sticky notes or a single sheet of paper also work.
  2. Make the hard decision to cut a few things.
  3. For the remaining items, schedule time when you can focus on each one.

Good luck!