The Bush Brothers

It’s the first day since my new-found enthusiasm.  This evening after the kids went to bed, my wife and I filed for $420.72 worth of Flexible Spending Account reimbursements.  This represents some Explanations of benefits dated as far back as February 2005.  Given that we haven’t missed the money, we decided that we’d contribute that toward our first million dollars.

It is my intent to open up an ING Direct account into which we’ll start plopping our earnings on the way to one million dollars.  When I do, if I can, I’ll post a link by which you can open an account of your own and credit me with a referral bonus to help me reach my goal

$420 dollars isn’t bad for 2 1/2 hour’s work but technically, that money was already mine, I just didn’t claim it too quickly.  Nevertheless, my objective is to have one million dollars in cash reserves or equitable assets by January 24th, 2007.  $420.72 gets me 0.042072% toward my goal.  I’m pleased with tonight’s efforts.  Unfortunately, $420 is the “slow” part of the race even though it’s more than I typically earn in a day.  With that, I need to contribute $2,746.10 per day for the last 364 days of my million dollar year, ending at 11:59pm on January 24, 2007.

It’s nearly that time now so I need to recharge my earning power for more tomorrow.  I have some irons in the fire…

Here on January 24, my wife’s birthday, I sit with a lot of excitement.  We had dinner with some of our friends this evening and we had a really nice time.  Our children enjoyed each other’s company and our adult conversation was fun, too - albeit abbreviated because of children’s bedtime requirements.

I sat and thought how nice it was and if it hadn’t been a work night, I might have celebrated a little more.  What’s a worknight?  Is that a night where you have to get up early the next day for work?  What defines one?  Who says that working between 6am-4pm is best?  Why 5 days/week?  Why 40 hours?  Why not 6 hours, 7 days/week?  Or 12 hours 3 days/week?  Imagine if you could choose.  I say we can and I plan to.

Please don’t get me wrong.  I have a day job and I like it.  I’m good at it.  I’m not unhappy when I’m there.  Still, the irrepressible urge to “non-conform” is driving!  My family comes first.  That’s natural for most of us.  Anyway, this is not the place for philosophy.  If you want that, check out some of the other categories or just look at our recent posts from other categories and you’ll find plenty.

From here on, I’ll be reporting on progress (and, occasionally lack, thereof).

I’ve been dabbling in “free” lately.  http://freecycle.org/ is a large group of people that post items online that they do not want.  Items must be free.  Members of FreeCycle can also post when there’s something they want for free.  When an item is taken, the offeror posts as much.  It’s really quite simple.  I was unable to find anywhere in the rules that says you can’t sell that which you receive for free - you just can’t sell things on the website that offers them for free.  They also like you to offer items of your own so that you’re not just “taking.”  I can do that, right?  Well, I began “taking” things.  I now have a wooden table made of pressboard and laminate, a phone stand that wobbles more than Weebles, and four antique chairs, three of which I wouldn’t trust to hold me up.  Oh - the other thing about FreeCycle is, they don’t take too kindly to “shoppers.”  If you say you’ll take it, it’s advisable to take it.  Otherwise, I might have left most of the above upon seeing it.

My plan for all this stuff was to take it to the auction and sell it but I have a couple of reservations:  1) I think the concept of FreeCycle is sort of “One man’s trash is another man’s treasure” but I don’t believe they mean “after converted to gold.”  2)  I know that I’d feel funny running into the previous owner of something that I got for free under the guise of using it myself.  I’m more likely to hand them “their” money and apologize!  That said, I’m not throwing the idea away.  I don’t think it’s immoral - just a little deceptive if you can have one without the other.  I will take my items to the auction and see if they fetch me a penny or two.

A penny saved is a penny earned - but a penny earned earns many.  I think Ben Franklin’s credited with the first part of that even though he probably took it from a Babylonian.  The second part of that is all mine

Happy earning.

As you may have discovered by now, I’ve spent much of my working life wanting and wondering how to stop spending my life working.  I’ve read books about how to get rich quick.  I’ve read books about how to get rich slow.  Once, I even read a book about How to Want What You Have, just hoping - just wishing, that I could shake my undeniable quest for independence.

Often times I’ve felt like I should be able to do it.  I’m smart enough.  I’m college-educated.  I know it’s in my blood.  Then, in a matter of weeks, or months if I really mean it this time, I go back to being thankful, but ashamed for settling on, the blessings that have become mine:  Income for a job that is not bad if I have to do it - even stimulating at times, two awesome children, Joshua (4 1/2) and Jacob (almost 3), my always-more-beautiful wife of almost 10 years, Carol, friends that accept me with all of my quirks, too many to list by name for the risk that I’ll exclude some, an opportunity to live a brisk 5 minute walk away from my brother Michael and his wife and daughter, a short one-hour drive or less to any of my immediate family members’ homes, less than a day’s drive to my in-laws’ families who’ve most graciously and unconditionally accepted me, just to name a few

This morning, Jacob came in our room and climbed into bed with us.  He laid there quietly for about five minutes before starting to complain for his thirst, and the downstairs that needed him, and before long, he would need a snack.  I roled over to see if I could get a little more sleep while Carol lovingly endured Jacob’s picking and whining - but Jacob saw me!  I could play dead no longer.  His attention immediately shifted to my side of the bed.  I was his new hope for salvation this morning.  Here he’s thinking, “Maybe Daddy will get up with me.”

He started out very peacefully.  He put his soft two year-old hand on my neck and whispered something, audible only to him in his mind.  Still, I could hear loud and clear.  I want to experience that every morning until he’s no longer interested.  Minutes earlier, I laid in bed thinking of how we were going to turn this blog into something that interested readers and into a place where others might experience the same feelings of desire and want - so that we might motivate each other in ways planned and unplanned.  There was my motivation.  What’s yours?  I plan to live that experience, or to take my kids to school, or to go get my haircut with them when they get theirs cut.  I plan to have lunch with Carol on days when she’s not busy with her own endeavors.  I intend to go on every field trip with my kids until it’s no longer fun for them to have me tagging along.  I plan to write, here and elsewhere, for as long as it pleases me.  All these things are mine to enjoy.  If I just choose to enjoy them.

How will I do these things?  That’s not nearly so important as my will to do them.  I intend to make it so and the how comes to me in opportunities that I create.  But please stay tuned, for I will share my journey with you.  For one thing, I’ll be signing on to Steve Pavlina’s Million Dollar Experiment.  I plan to increase my earnings through this dedication and people like him serve to motivate me, without hesitation or reservation.

This time it’s different.  I don’t know if I’ve said that before or not but this time, I declare it’s true.  I declare independence from that rat race that binds most families to society’s expectation of 9-5, five days a week.  From hereon, I shall use the generous income that I earn 5 days a week as the means to live while I pave another road for us.  Like many of my role models, I’m destined for a different life and I believe in my big heart that a previous lack of confidence is all that stood between me and prosperity.  Now, confidence is mine and so shall be the life I’ve been longing for.  I will generate passive income with ease.  I will do so morally, helping as many others as I can along the way.  Creativity abounds within me and ideas never imagined flow through me like water in a river.  I can no longer be satisfied spending more waking hours with colleagues than with those I love most.  In one year’s time, if independence is not yet mine, it’s light will shine brighter than ever and my drive toward it will be faster and more glorious than today I can imagine.

Here’s a concern:

When are housing prices too high? Like many other areas in the United States, the Washington, D.C. area has experienced a tremendous amount of price appreciation over the past few years. In my suburban neighborhood, I’ve witnessed housing prices double in 2 -3 years. I’ve been fortunate enough to have enjoyed some of this appreciation. Unfortunately, I’ve also passed up opportunities to buy homes over the last couple of years because I was concerned that the prices were simply too high and thought that the proverbial “bubble” would soon pop! To my surprise, the prices continued to climb. The buying frenzy continued as people opted for 40 years mortgages instead of 30 years and fixed interest rate loans shifted to adjustable rate loans with low “teaser rates”. People selected interest only loans to simply freeze the escalating prices of a humble abode. Some folks even resorted to negative amortization interest only loans! These people are not buying their house and their loan balance climbs during this introductory rate period (I’ve seen 1% interest only loans for the first year). With money being so cheap and a never ending supply of creative ways to keep your “monthly payment” down, I’ve wondered how far the prices can continue to climb?

After giving this some thought, I started to realize that there are a lot of moving parts associated with this question. For example, I recently received my new property tax assessment. Up 70%! Ouch! That’s going to hit my wallet every month. I realized that there’s yet another component applying downward price pressure. I’m sure that there are many, many factors that play a role in limiting the rate at which housing prices climb, but I’ve taken a few minutes to put some of the down in no particular order.

1) I’m thinking that the most significant price factor is the “supply” : “demand” ratio as with anything else.

2) Then there is the cost of money factor (interest rates). This is not independent of other factors. The cost of money is less relevant in a market that has “undervalued” homes. The designation of “undervalued” takes into consideration market salaries, cost of living, etc…

3) Then there is the gap between the haves and have-nots. This is probably best measured by the “sales price” : “rental income” ratio. If the prices of homes escalate to the too far beyond a positive cash flow scenario with a sizeable down payment (say 20%), then the supply of apartments dry up for the people who rent. This probably applies a positive price pressure on the rental market (from a land lord’s perspective), but as with home loans, the front ratio applies (~30% of your income on your housing) and limits the renter’s ability to pay rent at higher and higher prices. Renters are not subject to the fluctuating cost of money since their money comes from the earned income.

4) There’s another factor that plays a role in limiting or reducing housing prices in a market experiencing “irrational exuberance”. As I mentioned earlier, as property values increase so do there assessed tax values. This is something that is probably overlooked by most investors when they perform a cash flow analysis on an investment prospect. As I have experienced a 70%+ increase in assessed value, the landlord sees his/her cash flow diminishing by that much at the phase in rate. Here in Maryland, there is no phase in rate protection of 10% / year if it’s not your primary residence (“Homestead Credit”). That means the landlord essentially has a diminishing asset thanks to the somewhat artificial (or cyclical) appreciation of their property.

5) There’s the factor of locale “friendliness” to land-lording. This is tax rates and laws that assess additional operating costs to landlords. A couple examples that I’m heard of are Texas and Hawaii. Texas is a great place to earn income. No income tax. But the local governments assess significantly higher property taxes to make up the difference. In Texas you pay ~3% property tax annually compared to our 0.91 % here in suburbs of Washington, D.C.. Great for your renters, but 3% annual property tax adds a large contribution to expenses each month. In Hawaii, there is a higher tax rate assessed to non-primary residences. Additionally, there is a requirement (by law) that you have an on-island property manager to represent you at all times if you are an absentee property owner. This law was enacted to protect tenants by giving them a local point of contact for problem resolution. Finally - If you are in the vacation rental business, you’ll have be levied the ~11% “hotel tax” for vacation rentals in Hawaii. All of these different costs may or may not be present or may vary in amount from location to location, but all have an impact on cash flow (investment viability).

6) Location, Location, Location - People like to live in places where the weather is nice, the crime rate is low, and shopping is nearby. People would like their children to receive a decent education. My guess is you won’t Love Canal, New York in Money Magazine’s Best Place to Live anytime soon. Having nearby recreation is a plus too. Not too close to the airport and not too far from work. Perhaps location is really a variable that strongly influences demand (factor 1).

7) Lurking variables - I’m sure that there are many other factors involved price pressures (both positive and negative). Some unknowns may be insignificant contributors to the price pressure and others may be the gotchyas! But I can firmly grasp and quantify these key factors that I’ve spelled out.

My brother David recently asked me if I thought we could possibly identify what markets might be experiencing appreciation, which ones are going sideways, and which ones are poised to depreciate. I think that we can.

We can probably quantify key ratios and then couple that information with the expected trending of variables influencing each of these factors and empirically derive expectations for each market analyzed. There are always caveats to forecasting anything, but the analysis could provide some level of certainty with a probability attached to it.

Here are some questions you could ask when trying to identify housing markets before the steep ascent of prices:

1) Supply & Demand:
What is the current vacancy rates for rentals?
How many homes are on the market for sale?
What is the average DOM (days on market)?
What is the current unemployment rate?
What is the anticipated unemployment rate (any industry or other investment coming to town…?)?
etc…

2) Interest Rates:
What are they?
Where are they trending?
What is the “typical” current front-end ratio of owners?
What percentage of the front-end ratio is made up of interest payments?

3) Sales Price : Annual Rental Income Ratio:
What is the current ratio?
Does this ratio allow positive cash flow with a reasonable down payment (requires consideration of the other factors - i.e. cost of cash, tax rates, rental rates, etc…)?
What is the “typical” current front-end ratio of renters? This can tell us if this ratio has room to grow.
* Our area’s price:rent ratio seems to be in the low 20s. With the current cost of money, taxes, etc… the market can only support a ratio of ~15

4) Tax Values:
What is the current property tax assessment?
When are the properties scheduled to be assessed next?
What is the “typical” current front-end ratio of owners?
What percentage of the front-end ratio is made up of tax payments?

5) Locale Friendliness to Land-lording:
Are there additional taxes placed on homes that are not used as a primary residence (higher tax rates, other taxes, etc…)?
Are there legal requirements for absentee ownership (incurring property management fees)?

6) Desirability of Location:
Is the weather desirable?
Is there crime rate low?
Is the commute to major employers reasonable?
Is there recreation nearby?
Are the homes fairly modern (no functionally obsolete like a 4 bedroom one bath house)?
Is shopping close by?
Is the school system decent?

7) Lurking variables:
Is the location more susceptible to natural disasters?
Is the location more susceptible to man made disasters?
Is the location supported by a single point of failure (i.e. one major employer)?
Is there any planned development that might make the area less attractive to live (i.e. train tracks, highways, nuclear plants)?
Is there any previously existing environmental concerns (i.e. Love Canal, buried fuel tanks, etc…)?
Is there an Ancient Burial Ground underneath the location?
etc…

* Some of the ratio questions imply that you know the average household incomes for the market.

I think that this could be compressed by being more concise, but my day job gets in the way…

This is not an expert analysis by any means, but this is where my current knowledge base takes my thoughts.

Cheers,

Michael

Let’s agree on a period of time - I’m thinking 3 months from your acceptance, during which we seek to generate income for the purpose of satisfying our own immediate, intermediate, and long-term goals.  Yours will be different than mine because I’m looking for more income now and passive income for the future.  You’ll probably focus more heavily on the passive income immediately since you’re not hurting for money right now.

Rules:
- Partner with anyone or noone, use resources you have already or those that you generate by borrowing, earning, etc. - the point of this exercise is to improve our position, financially (and maybe to write a book)*
- All activities must be reasonably (not necessarily) sustainable and not “one time” to win the challenge.
- All activities must be ethical
- Sign a contract to participate and agree to Journal entries at least 3 times weekly with whatever you want to write about (”no activities”, successes, failures, boredom, each other, etc. are all allowable for entries)

After the challenge period ends, we collaborate on a letter to many admired authors or moguls (Kiyosaki - rich dad, Robert G. Allen - One Minute Millionaire, David Bach - finish rich, others?) and some poor dads, and other family members - especially your successful in-laws, and ask them to critique our efforts.  After three months waiting for feedback (and we can even tell our letter recipients how long we will wait for a response), we decide who won.

The prize? a trophy-like bottle of dirt. (I’ll entertain an alternative)

Make no mistake, this is a real challenge.  Barring that, what do you think of these ideas?  Ideas that popped into my head just from this email:  1) My Letter to Robert Kiyosaki book that documents the creation of this game and becomes part of the Rich Dad series - 2) a game that starts with one person like you or me sending out prefabbed invitations to participate in this game to friends, family, co-workers at investment firms [certainly people that should practice what they preach but don’t], and others.

I’m making you a no-lose offer to be my partner by not necessarily being my partner.  If you want to change, you can’t reject this offer.  You can only decide when to accept it.  One dollar earned can be a success by measurable standards and if you don’t play this game, what will get you started?

I was thinking about proposing that we start on January 1 but I’ll be no less busy.  I’ll still be working on my basement, being a dad and husband, going to the dentist, dr., etc.  There’s no time like the present to step out and do something different.  Finally, as you’re well aware, if you do what you’ve always done, you’ll get what you’ve always gotten.  How about it?

I finally finished Moby Dick.  “Huh?  Why does David keep talking about Moby Dick?”  For a couple of reasons.  For one, it’s a blog and I can write about whatever I want, right?  Seriously, though - Whenever I read anything, I try to draw a correlation between it and my life.  Yes, even fiction.  And it’s true, I’m 34 years old and just read the book.

In the case of Moby Dick, throughout much of the book I imagined that the elusive whale might have been fictitious.  Maybe Captain Ahab didn’t really lose his leg to a whale and he only made it up because it sounded better than, “I got an in-grown toenail that infected my entire foot so they cut it off.”  I was thinking then, that the good Captain was living a lie.  Perhaps he was like many of the people today that drive nice cars, live in nice houses, and always seem so perfect.  On the interior, many of them are one paycheck away from disaster.

Later, I saw that Moby Dick was real.  The whale was unhappily hunted but actually didn’t seem antagonistic.  He was provoked.  Anyway, Capt. Ahab had Fedellah, an apparent prophet of sorts who predicted the death of Ahab.  Capt. Ahab genuinely believed that he would beat Moby Dick but he never prepared properly and he also couldn’t leave well-enough alone.  How does this relate to my life?  I can’t leave well-enough alone, either.  I’m persistant, to a point - Just not a fine enough point as of yet.  People warned Ahab, including his right-hand man, a prophet, other crewmembers, and even passing ships, but to know avail.  I admired Ahab for pressing on, forsaking the naysayers (the Yabotts as One Minute Millionaire refers to them), pursuing his goal of Moby Dick’s demise - even though, in real-life, I don’t think revenge is necessarily a good motive to succeed.

In the end, he succombed to the prophet’s vision.  Fedellah told Capt. Ahab that first, Ahab would see Fedellah die, then he would see two coffins, followed by a hearse and lastly before Ahab died, he’d see Fedellah (dead as he was) again.  I forgot what the first coffin was but the second coffin turned out to be Ahab’s ship going down with men in it (albeit, Ahab was on a little boat, off the main ship).  That got Ahab thinking maybe Fedellah was right.  I think he shrugged it off but then he saw Fedellah - half of him anyway!  The poor man was wrapped up in lines that were unsucessfully used for corralling Moby Dick.  These lines were tangled around Moby Dick, the hearse.  Ahab witnessed these things and and I believe self-doubt finally took over.

In my world, self-doubt has corralled me into a nice secure J.O.B. with the Government.  From a young age, I’ve been conditioned to believe that was all-important.  I even had people telling me that private industry jobs were not secure enough.  Unlike Ahab, I listened from the start.

Something inside of me is burning to set new rules - to claim my independence from the “conventional work-week.”  Who ever made it 5 days, anyway?  While he was driven from the start and finally came undone, I believe I started undone but now, the drive is alive.

All of this leads me to one more thought - a topic that I’ll just leave as questions, for now.  Ahab was wildly obsessed with his mission to defeat Moby Dick.  Some would also argue that he was a little bit “crazy.”  Was he?  Must one be a little bit “crazy” to take the risk of independence?

This story will grow, I’m sure of it.  I just want to share that I’ve been turned on to Steve Pavlina’s blog, thanks to brother Michael.  This happened because the other day I told Michael I needed a blog to document my progress in Asset Challenge 2006.  Still no documentation there but where I’ve been over the past 3 days personally is fascinating.  I don’t expect everyone to understand but I know some of you do and more of you will, over time.

I’ve been turned on to self improvement for many years - intellectually, financially, emotionally.  My wife, Carol (God bless her!), often thinks I’m crazy but I sure need her to keep me grounded.  Since she’s known me, I’ve gone through a few career choices and way more possibilities.  I’ll be grateful to her for my whole life.  When I read Steve Pavalina’s blog post on polyphasic sleep, I was fascinated.  For one reason, I’ve often thought that sleep was overrated and underproductive.  In college I could back that up with proof (sort of) but as recently as three weeks ago, I was reminded that without it, I get sick, unpleasant, and uncomfortable in general.  Anyway, the more I read about Steve Pavalina, the more motivated I’ve become to be more of myself.  That polyphasic sleep is really cool, though

There’s a couple of other thoughts following this writing that I just wanted to ramble about but the point of this post, right now, is that tears came to my eyes when I read the end of Steve’s wife’s post about his exploits with polyphasic sleep and in general.  I wanted to tell the world how thankful I am for the support of my own wife.  Thank you, Carol.

I’ve been a deep thinker for most of my life.  I didn’t realize it until I was in college but even now in my mid-thirties, I think back to my days in grade school, sometimes staring in the mirror at my image, actually willing myself to change who was inside of me.  Once I had a problem with tattle-tailing.  That’s when I’d say, “Jane [my dear step-mom and the source of much of my confidence], Michael hit me!”  I gathered after a while that she didn’t care too much.  As long as I was conscious and so was Michael, we were doing just fine.  With three boys, a baby girl, classes, and a husband with dreams as big as Alaska, who had time for petty problems?  I wanted to handle my own problems and I set out to do so.  Eventually, I stopped tattle-tailing.  Sometimes, I’d find a way to hit Michael back but more often than not, I’d do what I could to avoid conflict in the first place.  At that age, I’m thinking 8 years old, maybe, I think I was ahead of my time.  I’ve always been sensitive to others’ feelings, often to a detriment but that too goes with deep thinking.

Enough for now.  More to come all over this site, for sure!  Thanks for reading.

I just thought new readers might like to know a little about my reading habits.  It’s mostly non-fiction and to some it’s rather boring.  I’m enthralled.  Currently, I’m finishing up Moby Dick.  That’s written by a man named Herman Melville (of course I’m kidding - as if you’ve never heard of him [unless you haven’t, then I’m serious].  A wild imagination, had he - or did he?  I understand he really did spend some time at sea.  Anyway, last year I picked it up thinking other than my first full novel, Catcher in the Rye, that’s probably a must read.  After Moby Dick, I’m going to finish up Cash Flow Quadrant by Robert Kiyosaki.  There’s a man with a pretty good head on his shoulders (I think).  Then, on to The Richest Man in Babylon.  All of the financial books I’ve read always quote it and praise it.  The other two I just ordered were from a recommended list by a lady named Kim Snider.  She has this investing strategy that she doesn’t share unless you pay her a lot of money.  I’m dying to know what she’s up to without paying it.  She said of The Great Mutual Fund Trap: An Investment Recovery Plan, “If I wrote a book, this is exactly what it would say.”  Fooled by Randomness : The Hidden Role of Chance in Life and in the Markets appeals to me on many levels.  I’m often astonished by my good fortune of “random” events.  Once I heard that “Success is where preparation meets opportunity” and I wonder if I’m just exceptionally prepared sometimes or if a higher being is at work, here.  That’s a conversation for another day   In the year 2005, I read many books (for me, anyway).  I read The One Minute Millionaire: The Enlightened Way to Wealth by Robert G. Allen and Mark Victor Hansen, the guy that started Chicken Soup for the Soul.  Anyway, that was an outstanding book!  I loved it and most people that take the time to read it should love it as well.  I read Rich Dad Poor Dad by Robert Kiyosaki.  That was entertaining and helpful to see money in a perspective different from any that I’d learned in the past.  It inspired me to teach my children about money since the public won’t do it for whatever reason.  It even makes me want to teach other children about money.  Credit my brother for his gift of the “Investomatic Piggybank,” whenever my older son gets a gift of money or finds some, he wants to “invest it” and he wants me to “match [his] my contribution.”  I read Start Late Finish Rich by David Bach.  This is meant to inspire one to cut out “the Latte Factor” and quit spending money where you don’t need to - quite fascinating, really.  He doesn’t chastise the late starter for starting late, but he does an outstanding job of helping those in their 20s and 30s to see that the early one starts, the better!  Early in the year, I read Money for Life by Stephen B. Smith.  This is a book that teaches the art of budgeting through the use of a spending plan and shares stories of fictitious people and how they put this practice to work (and some that don’t but should).  They have an accompanying workbook out as well which I bought.  I have to admit that I didn’t fill in the workbook as religiously as I read the book but I can’t emphasize the importance of the book enough - if you’ve ever had trouble with a spending plan or simply don’t have one, please read the book!  I also read a book called The Five Love Languages by Gary Chapman.  This book is one that I should read about twice a year, given my propensity to forget how to relate to folks in ANY  Love Language.  I actually bought this book for my wife but come to think of it, I might need my own copy   Of course, I also read countless Family Handyman magazines and articles online…  Anyone that knows me should be impressed by my late-blossoming embrace of written words.  I got a 440 on my Verbal SAT scores and that’s the second time I took it  !  Re-reading this, I’m impressed myself.  That’s a count of five different books in one year!  I might even be forgetting a few.