Author: Mr. Cheap

Categories
Opinion

Saying No Is Hard To Do

A comment John T. Reed makes is that if you’re unable to look a grown adult in the eye, listen to them passionately argue why you should do something, then say “No” to them, you shouldn’t be a real estate investor. It’s an easy thing to hypothetically say “sure, I’d just say no”, but the reality can be much harder.

Beyond real estate, this holds true for almost all investments. My grandmother got pulled into mutual funds when she got talking to an investment advisor years ago. No one in the family believes for a second that she understood what she was purchasing. We’re all happy that they worked out OK for her (although she had one fund that’s been averaging about 0.5% for the last 5 years), but she invested because she couldn’t say “No” to the guy trying to sell to her. NOT because she thought it was a good investment.

Some time ago I rented a room from a friend of the family. He and I got talking when I mentioned that I was interested in learning about real estate and would like to take him out for a beer and pick his brain sometime. One thing lead to another, and once he’d figured out I had some cash, he wanted me to loan it to him. Hesitantly I told him I’d consider it if he provided me with full details about his financial situation and credit history (including his credit report) and let me discuss it with a friend who was a banker. A period of time went by and one day he left me a message saying his lawyer would contact me to arrange the money transfer. After I couldn’t get in touch with him, eventually the lawyer called me and I told him I hadn’t been given the paperwork I needed for the loan. Things heated up when my landlord demanded the loan, threatened to end our “friendship” if I didn’t go through with the deal (without any of the paperwork he’d promised to provide) and eventually he evicted me. This actually created a conflict with the family member I knew him through and we no longer talk (my family member or the landlord friend).

Saying “No” can be tough, especially if you have a sweet, sensitive soul like Mr. Cheap.

Multi-level marketing schemes (such as Amway) are built on it being hard to say “No”. People pressure their friends, who join and get indoctrinated into pressuring more people to join. Most people wouldn’t be interested in the “opportunity”, but having a friend or family member passionately trying to convince us, it takes a strong heart to listen to them out, smile and say “No thanks”. When someone you care about starts getting angry that you aren’t agreeing with them, a little voice in the back of your head always seems to chime in “why not just go along with them?”.

A blog post I read sometime back (can’t remember the site or I’d link to it) detailed the difficulty the blogger had in being the heavy and telling her tenants that they couldn’t have a party. This is part of being a landlord, and if you can’t hack it, stick to ETFs.

I love to learn about new investments and business ideas, but it’s tough to talk to someone about it for a while than say “thanks for the info, but I’m not interested”. I’ve had people get quite upset with me when I wasn’t interested in being a part of their business venture (and they got even more upset when they pushed and I explained the problems with their business and why I wasn’t interested). Venture capitalists love to say to people that they “aren’t ready to invest right away but they’d love to talk to the principals when they get the business more developed”. Newbies don’t realize this is a nice way of saying “No”.

Most of the bad financial situations I’ve gotten into in life, I had a bad feeling going into it, but just found it too hard to tell the person “No”.

What have you said “Yes” to and immediately regretted? Has anyone gone from being a “Yes (wo)man” to a “No (wo)man” and how did you do it?

Categories
Frugal

You Deserve It

I’m often perplexed when, to comfort someone else, friends suggest to do something “because you deserve it” or reassure them that “good things are coming your way, you deserve it!”. I understand in situations where someone gets to make choices for us where deserving may come into play. Apparently when Apple was taking off, Steve Wozniak felt that the programmers who had been there deserved more money so he gave them a share of his stock options. He looked at the reward system in place, sacrificed some of his personal property in order to compensate people he felt were entitled to more. I understand this.

When someone encourages us to buy an expensive new coat saying “you deserve it!” what does this mean? We all have finite funds to make purchasing decisions with, so what is it that could possibly entitle us to the coat? We can either afford it or we can’t, right? Is it just saying “You’ve had a rough time recently, so you should increase the proportion of your entertainment spending to make yourself feel better”?

With random events, this is even more perplexing. I’m always hearing women say they’re holding out for a first rate man “because I deserve it”. What does this mean? I usually move on to greener pastures at this point since, as Mike’s wife assures me, I’m at best a third or fourth rate man ;-).

The only explanation I can make for this is that people feel like God or karma is going to “compensate” them for their good deeds or recent suffering. I’ve heard people who aren’t religious or spiritual make the same assurances and I can never quite figure it out. Unless there’s an all-powerful Woz to reward us for our life choices, where does this expectation come from?

If you’re not religious or spiritual, and you feel like people “deserve” things, where does this belief come from? Are you surprised when people don’t get what they “deserve”?

Categories
Investing

Low Level Venture Capital

For those not familiar with it, venture capital is typically a firm that provides early stage funding for new companies (Paul Graham has extensive ideas about funding startups). Think of the TV show “Dragon’s Den” if you’ve seen it. Venture capital firms like to “swing for the fences” and would rather have a small chance of owning part of the next Google instead of a good chance of owning part of a moderately profitable company (which is at odds with the perspective of most founders).

A while back I wondered if there was a way to invest in something like this at a lower level. Instead of trying to fund the next Google, might an interesting investment be helping people start small, traditional businesses (like launching a McDonald’s franchise or opening a bed-and-breakfast) in exchange for shared ownership (instead of a straight loan).

I’m not talking about something like Kiva, this would be an investment, not a donation. Instead of being paid back, the investor would retain ownership of a percentage of the company and collect that percentage of the profits.

I’d be shocked if people aren’t already doing something like this, but I haven’t heard of it if they are. Arguably I’m doing this with the building I’m a silent partner in, but I’m more thinking of a person or organization who does MANY deals like this every year, not just a one-off with a friend. Basically you come to me (an investor with money), show me your plans for the business and convince me you’ve thought this through and are making a commitment to launch. We both put money in (ideally) and work out some sort of shared ownership of the resulting enterprise.

A while back I bounced around the idea of starting a Subway franchise. It seems like most franchisees save or get a bank loan to purchase the franchise, apply to head office and then carry through with launching. For someone who couldn’t qualify for a bank loan but nevertheless had the interest and abilities to start it, it seems to me that friends and family would be their only choice to raise the cash.

The obvious downsides for the investor would be that the business owner might not be able to profitably run the business or that they might lose interest before it got to the point where it was making money. The downside for the owner is that they would obviously pay out the investor far more in shared profits than they would have paid on a loan (since the investor should be compensated for the extra risk).

What would you do if you wanted to start a business, needed money, and were turned down by banks, friends and family? Is there anyone or anywhere that you think you could present a business case to them, show them the figures and get funding in exchange for shared ownership? Do most communities just have rich, old guys that fund stuff like this? Is it hard to get money out of local, rich, old guys? If you met some young go-getter who wanted to start a busines, would you want to the a rich, old (wo)man and fund them?

Categories
Real Estate

Higher Than Normal Rent Scam

With scams the best defense is often to discuss them and let people who haven’t run into them know how they work. Unfortunately, talking about scams can seem like a “how to” for scam artists, which IS NOT my intention here. I always love reading about scams and cons, in part to protect myself, and in part out of amazement at how devious people can be when they’re trying to part us from our cash. Depending on the level of interest, I may occasionally post more scams I’ve encountered, what the person was trying to pull and what might have happened if someone fell for it.

Some people starting with real estate investing, buy into the guru hype and will run around trying to buy stuff as quickly as possible. One scam that preys on this group is what I call the “Higher Than Normal Rent Scam”.

How it works is you find a piece of property that’s already tenanted, and it seems to be a great price for the rent it commands (say it costs $200K and is earning a rent of $2500 / month). You plug the numbers into your “get-rich-quick fast-calculations (patent pending) calculator” and decide this is exactly what the guru ordered. Talking to the seller, he encourages you, saying he’s selling to buy bigger investments himself and that this one will make you tons of cash. There’s only 1 month left on the tenant’s lease, but “he’s going to stay forever” you’re assured.

Soon after closing, the tenant contacts you and reluctantly informs you that he’s been moved elsewhere and won’t be renewing his lease. You wish him the best of luck (plotting not to return his security deposit depending on which guru low life you’ve been listening to) and decide to raise the rent and make it even more cash-flow positive (“this is how the rich think” you say to yourself, patting your own back).

The next month no one is interested in renting your place for $2700 / month (even though it would help you be cash flow positive, the nerve of these tenants!). You reluctantly drop it down to $2500. Still no takers. Time goes on, and finally you manage to rent it out to a shifty looking guy who has “lost his ID” and promises to get you a first-and-last month deposit “real soon” if you let him move in now.

Depending on who you are you may be thinking:

1) Can’t wait until the new tenant pays me! I’m on the fast track!!! Someone who says this doesn’t know it yet, but they’ve got a long, hard life ahead of them.

2) I guess I’m not a entrepreneur yet, I better hire a mentor for $200 / hour. Maybe I can hire that nice man who sold me the place to show me how he was able to get so much rent!

3) I guess the market has changed, I’m so unlucky. I’d best tell everyone how the world is against me and nothing is my fault.

4) Real estate is for suckers, I’ll never rent a property again and will sell this one as cheap as possible as soon as possible.

5) I’ll look into what comparable units are renting for. Then when I’ve found out they’re renting for $1200 / month, I’ll set my rent according to the market rate and screen tenants carefully. Looking into comparable properties, it seems like I paid 50% more for the property than I should have. Since it seems very suspicious that someone would have happily been paying more than double the going rate (sadly there aren’t a whole lot of dumb, rich people running around), I may begin to wonder if the lease was set up to justify an expensive property value and sucker me into over paying. Perhaps the seller and the former tenants weren’t the perfect strangers they pretended to be.

It’s easy to read a scam over and say “how could anyone be so dumb as to fall for that”. Clearly scams exists because people DO fall for them. I came across this one here in lovely Toronto. New real estate buyers may skip the step of determining FOR THEMSELVES what market rates are for a property they’re considering buying, and trust that nice seller who was so friendly and split a beer with them.

If you’re reading this thinking “good idea, I should try that next time I’m selling!” you’re scum. Sadly, there are bad people in this world and you’re one of them.

What scams have you encountered or, if it’s not too painful to discuss, fallen for?

Categories
Frugal

Travelling Cheap

After my second year of university I did the cliche “tour of Europe”. I managed to spend 4 months on the continent for $5K, including airfare (and saw 23 countries or so in a whirlwind tour). The cost of travel always seems to be dropping, and it seems to be one of those things that, if you don’t keep up with it, it’s really easy to overpay on.

A little over a year ago I went down to Cuba with my then girlfriend. We went in November (not high season) and we got a return flight from Toronto, a shuttle to the resort, all inclusive meals and booze for $600 each for a week. I still have no idea how they can provide this for that price. My only theory is that they have spare capacity during low season, and its best for them to “get what they can” on it.

If you’re thinking about a get-away and are willing to go at non-high-time, I’d suggest having a look at Escapes.ca, www.redtag.ca/vacations.php, http://www.flightcentre.ca/, and old faithfuls expedia and travelocity. Note: We don’t have any relationship with any of these sites, I just list them as they’re where I’d look if I was thinking about taking a trip.

One thing to beware of, they separate out the taxes and the price, so expect the quoted price to jump 50% or so (who do they think they’re fooling?). Flight Center had a trip offered at $94.05. When you clicked on it, it turned in to $94.05 + $298.00 taxes & fees = $392.05. Who do they think they’re fooling? Three times the price in “taxes and fees”? If a budget travel site DIDN’T do this (and just listed the actual prices of the trips), they’d get all my business. When I see a few “deals” jump like this, I often just leave the site in disgust.

I’m not sure the best “lead time” to book before your trip. One school of thought is you get the best deal booking well in advance, the other is that you get the best deal last minute (when they’re afraid the room and seat on the airplane will go empty).

What has everyone’s experience been (good or bad) with budget travel? Any suggestions on other places to find good deals?

Categories
Personal Finance

January Networth

Now that the last of the paychecks have come in, the reality of not working has hit. Holiday excess added up as well (I was “off the wagon” with food and money over the holidays). I was up to 172 lbs, and am now back on a more controlled diet (pistachios and gingerbread men got the better of me). I also dropped a fair bit networth wise (although the market is as much to blame as I am 🙂 ).

Mortgage: $91,951.09
E-Trade: $20,232.88
Cash: $5,015.93
Condo: $143,500.00
Building: $12,553.50

Networth: $89,351.22

This is a cash drop of a little over $1K, and a networth drop of a little over $5K. As Kurt Vonnegut would say “so it goes”.

All the applications are in for PhD work, so now it’s just a waiting game. I’m cautiously optimistic, and expect to be starting in either May or September.

If I had cash to spare right now, I’d still be looking at US and Canadian banks (probably BAC in the US, any of the big 5 here in Canada). Real estate wise, I’m always impressed when I look at what Windsor multiplexes are selling for (an 18% vacancy rates leads to good deals on property).

My passive income is up a bit at $319.96. This isn’t even close to enough to live off of, but it should “cushion the blow” in the coming months when there won’t be a lot of cash coming in. This will drop once Washington Mutual “officially” cuts their dividend (those dirty rats).

Categories
Real Estate

How to Save Money on Property Taxes

When I bought my condo, I got the property tax info, and found out it had been assessed at $155K (and I’d bought it for $126K). When you’re in a situation where the assessed value is clearly higher than the true value of a property, it’s well worth your time getting the assessment lowered (which will bring down the property taxes).

For residential properties, you pay $75 for a formal hearing about the reassessment. Before that happens though, you’re encouraged to contact www.mpac.ca and resolve it informally with them. I got on the phone with the woman assigned to me, sent her info about the purchase and the property. She offered to lower the assessment to $145K, but after I argued some more (and sent photos showing the rough condition of the property) she lowered it to $140K.

I think I could have gotten a lower assessment if I’d gone through the formal process, but it wasn’t worth the extra investment. As it is it took me a couple of e-mails and a couple of phones calls and is saving me about $100 / year (until the next assessment occurs).

If you think you could argue that your property is worth less than its assessed value, I’d encourage you to try to get the assessment reduced.

Categories
Business Ideas

How To Start a Business

The Baglady recently mused about setting her blog up as a business and earning income from it. A number of bloggers who have typically been employees and are thinking about trying to earn some cash running a business probably go through this thought process and don’t know what to do.

When I was starting a business years ago, I kept thinking “I’ve got to make sure I do the paperwork right or the business police are going to come and throw me in jail”. Or charge me outrageous late fees. Or something else bad that I hadn’t thought of yet.

Often you can see the strength of an economy by how much the government keeps its nose OUT of private business. The easier it is to start a business, the stronger the economy. Countries that limp along economically often have convoluted, bureaucratic processes required to “hang your shingle” on your door and start running a business (and they suffer, in part, because of this).

In Canada (and most Western countries), all you have to do to “start” a business is start making money. You report this on your tax return in the appropriate place. Say you have a garage sale and sell $200 of your old junk, congratulations, you’re in business! Its considered a “sole proprietorship” and from a legal perspective you are the business. Revenue Canada couldn’t care less as long as you report (and pay taxes on) what you earn.

No one will show up in the middle of the night and beat you up. Isn’t it great to be a Canadian?

The “threshold” when you have to do more is once you are forced to start collecting GST. Until you earn $30,000 in a year, you’re considered a “small provider” and you don’t have to collect or charge GST unless you want to. Once you earn $30K over the previous 4 quarters (or immediately if you earn $30k in a single quarter), you are required to get a GST number and begin charging and passing along tax collected to the government. This is a very easy process, requiring about 15 minutes at this website.

There are obviously reasons why you might consider incorporating, forming a partnership, or other business structures. However, if you’re just starting out and testing the waters with a new venture all you have to do is keep track of your revenue (and pay taxes on it), and drink a toast to capitalism!

What has your experience, if any, been starting a business in Canada or other countries?