Credit Card Debt
I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn 4-5% interest (much less recently), and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am mostly waiting on existing offers to end. My credit score remains high enough that I haven’t seen any negative actions.
Retirement and Brokerage accounts
Markets most went sideways this past month. 401k contributions are still going regularly, and I want to make my 2009 non-deductible IRA contributions soon. I still think the best thing to do is to keep investing regularly, although it is quite boring to watch.
Cash Savings and Emergency Funds
We still have a year’s worth of expenses in our emergency fund, and it is still growing. Possible uses for extra cash might include capital improvements to the house, including a solar hot-water system to reduce electricity bills, or a photovoltaic system to possibly eliminate them! I love the idea of selling electricity back to the city.
Home Equity
Using four different internet valuation tools – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) – I took the average and took off 5% to be conservative and 6% for real estate agent commissions.
We remain “underwater”, with our outstanding mortgage balance greater than what we probably would net after selling our home. Home equity variations continue to dwarf all other activity, which is somewhat annoying since it’s not that important. Just gotta shrink that mortgage!
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Thanks for the update. Is the solar system due to saving money or being self sufficient and off the grid? I have been looking at ways to do this also. The 30% tax credit also helps.
Well, in general and based on my local and federal tax credits, a solar water heater system seems to pay for itself in about 2-3 years. After that we just sit back and save money.
However, a PV system will take 5-10 years to pay for itself. So you really have to have a commitment to stay in the house, or be confident a buyer will see the value in having the system.
I’m not necessarily going off the grid, more like selling excess power TO the grid during daytime, and buying the power back at night, to make a net zero monthly bill. To actually be totally self-sufficient, I imagine I would have to invest in some pricey batteries.
Was interested in why you have a non-deductible IRA. I’m am studying for my CPA and have come to the realization that there is no benefit to doing a non-deductible IRA versus a Roth unless you are a very wealthy individual. Is your AGI quite high leaving you stuck doing the non-deductible IRA since you can’t do roth?
I would caution you when you use those calculators to calcualte the value of your home. I have found Zillow less than reliable. I would suggest for you to look at what homes around you have sold for and what they are currently listed for. Also look at your tax records for your county and see what they say.
Just my .02
Wow! It’s incredible that your home value lost almost 20K in one month!
I’d like to see a post detailing the solar water heater or PV system paying for themselves in the timeline you’ve mentioned. I have a friend who owns a solar company and even he seems to say unless you are rich and want to help the environment that solar on a home won’t pay for itself anytime soon. Sometime like 20 years and then you have to think of all the maintainence of 20 year old hardware exposed to the elements. Of course with new Obama credits maybe the picture has changed. Our power bill on our little 1000sqft place in SoCal averages $22/month so I can’t imagine a solar setup ever paying for itself.
20k loss on house in 1 month? I thought the bay area was holding up.
Guy installed solar on his roof last year, he talked about his experience 1 year later
http://www.extremetech.com/article2/0,2845,2349171,00.asp
Have you considered doing a rolling average of the past several months for your home value rather than just the current month? I think this was brought up last month in the comments. I think it still gives a good valuation of the house’s value but puts gives the changes more time to be realized. Using that method a $10k swing in actual value may only appear as a $3k change in the rolling average method. If the next month is still as low, you realize a bit more of that $10k.
Frankie – $22/mo for power? Yikes, mine has ranged from $104-$202 this year with our June bill at $186 for a 2600 sq ft house. I would love to get a bill < $50/mo.
Jonathan – I agree – I think your house value writedowns may be too drastic and no longer reflect the intrinstic value of your assets.
You have a large savings,would it make sense to pay down your mortgage with it?Are you getting a higher rate for your savings then you pay in mortgage interest?
Dave(GA) – Yes, our income is (likely) going to be too high for Roth, so non-deductible is the only way to go. Hoping to convert non-deductibles to Roth in 2010.
LM – I know, it’s a problem. I think Zillow et al have a lag time as well.
Ian – That’s a good idea, but then why not just do rolling average of net worth as well? If I had a huge stock portfolio, there would be a lot of swings as well. I guess that’s leverage for ya.
Tommy – Yes, I am trying to get myself to do it, but I’m having a hard time letting go of the liquidity of cash or other investments!
Frankie – Good idea. See Jason’s link too.
Jason – Thanks for the article. That’s both a higher cost and higher energy consumption than I was estimating.
“The eternal question of price/performance always crops up. Clearly, I’m saving money, but I also sank around $38,000 into the system. At $3,000 per year in savings (which assumes a constant rate for power cost and the same power usage pattern), that’s a 12.5 year payback. “
Your net worth info seems to be out of date in comparison with whats posted here, perhaps you could update that page, and post a more sophisticated graph.
https://www.mymoneyblog.com/my-net-worth-history
Your “My Net Worth History” page seems to be out of date. Can you update the content as well as make a more sophisticated graph.
Solar Panels would be an interesting topic. I also see a lot of what appear to be DIY scams out there advertising do it yourself for $200! http://www.earth4energy.com/index3.php
I too am planning to convert my non-deductible IRAs to Roths in 2010. Let’s hope that rule doesn’t change before then!
Has your lending institute any legal rights to take possession of your house now that you are “underwater”?
@ Jonathan “The eternal question of price/performance always crops up. Clearly, I’m saving money, but I also sank around $38,000 into the system. At $3,000 per year in savings (which assumes a constant rate for power cost and the same power usage pattern), that’s a 12.5 year payback. “
Maybe you should take interest payments/inflation into account. That 38K investment may have been a 60K investment when “it’s payed back”.
How to value the house and how to look at it when saving long term? I think this is a good question to ask. When I look at the CHANGE in my net worth I leave out the house. Showing the monthly changes including the house is interesting, but it isn’t necessarily relevant. If you have to sell for whatever reason, or want to sell, or if you want to challenge your real estate taxes, then the current market value of the house is very relevant. What if you aren’t going to sell for 5, 10, 15 or more years. The market for the house isn’t as liquid as it is for things like stocks; so, you don’t necessarily have a very accurate figure month to month. When I look at my net worth, I say I’m worth $X plus my house. On Zillow my house peaked at $476k and is now $371k. If the change in my net worth from my house’s peak value of till now is $0, it would say that I haven’t changed anything. Does the change in the house value from $476k to $371k really offset the $105,000 in increase in value of cash and stocks? In the long term view, I don’t think so. Ok, so if the value of the house is left out, then Jonathan’s net worth is negative. Yes, but I’m more interested in the monthly change in net worth. If the change in net worth from last month is rising when I include my house, but falling if the house is excluded, then I might really be losing ground because the month to month value of the house isn’t very accurate.
down 6.1% in one month, that has got to hurt.
How did you take money from credit cards at 0% apr and where are you earning 4-5% interest nowadays? How and when will you be paying your full balance???
I always love how people try to rationalize putting in solar systems to feed their current usage. It makes WAY WAY WAY more sense to go through the house and reduce your usage BEFORE you put in that solar system as it is always more cost effective to conserve. Swap all those light bulbs to cfl’s, put everything on power strips so it doesn’t use power when it’s not in use and don’t leave lights burning when you are not using them. You will spend some money on those new bulbs and such, but they cost WAY less than a single panel would.
But saying that, it made perfectly good sense for me to put in a 100% solar system. My current house sits on a 3 acre lot, far from the road in a subdivision that didn’t pay to have the electric utility run lines, so now we end up having to pay for them when you connect. Just to get the local utility to get the ball rolling would be $8000 for me, plus $3000 per pole and they require 3 poles to reach my house. Instead I spent $2700 in solar equipment (panels, charge controllers, batteries) and $400 for an inverter. My only utilities are phone and internet, everything else is either solar or propane. Propane because trying to run a stove on batteries is rediculous. I didn’t pay 30 to 40 thousand on a system, more like 1/10th that.
Yes, I live pretty simply and would probably recommend double the panels for other people, but for myself and my 2 kids it is more than adequate. I only run a gas powered generator to charge the batteries twice maybe 3 times a month (and only for half a gallon of gas as that’s all it holds, that honda EU1000i generator was a great investment) and that is usually because the kids have friends over that keep all the electronics running or it has been really stormy that week.
Oh, when you do put in your system, don’t let the sales guy convince you to buy small panels, get the biggest ones your controller can handle as the cost per watt is SO much less on the big ones (well, except the very newest panels of course), not to mention all the savings from the extra hardware (mounting, wiring, etc).
I’m stunned that you wouldn’t take a portion of your savings and purchase (read: steal) a second home. This is one of the best buying opportunities in over 40 years, yet you cling to the feel-good notion of having that year’s savings.
My wealthy dentist and I talk often about real estate. He is very conservative, not a “risk taker” or even greedy. Just smart. Knowing very well the area that he lives in, he simply always keeps his eyes open for excellent deals. Case in point: he’s bought several houses for about $29-$35k in not the greatest areas, but not the absolute hood either. These are usually foreclosures, though sometimes are short sales. Because of the scale of the deal, it is nearly impossible for him to lose. Renting it out even modestly will at the worst, even assuming some months w/o renters, will certainly cover taxes and insurance. Even assuming the worst case, because he has so little invested, the house will be paid off very quickly anyways – at that point it’s just another nugget in his retirement.
Sounds difficult perhaps, but it’s not. A transplant from Chicago, he and his wife have made “more money in real estate than Dentistry”.
That’s just the tip of the iceberg. You make the point of Warren Buffett buying when everyone is selling.
Another saying: In the middle of difficulty lies opportunity.
That’s a valid suggestion, Charles. Two hurdles are that “cheap houses” are 290-350k around where I live, not 29-35, and they still won’t cash-flow positive. To get there, I’d have to be a long-distance landlord with a prop manager, which carries additional risks. But I am open to more specific suggestions if you have an area in mind.
This conversation got interesting…
You need to look for a bargain not in how much it costs but what % discount you are getting. If you buy a house 40%, 50%, 60% discount – that’s a bargain. I just got done “flipping” a house that I bought for 40 cents on the dollar: bought it for $60k sold it for $145k IN THIS MARKET.
So I caution you first of all that landlording is not the only way to make money in real estate investing. Second, if the discount is deep enough (which in this market is possible to do) then it should cashflow. Third, if your investments is $290-350 then your profit should be commesurate with the investment.
You can see how I did it on my first investment property here: http://www.wealth-steps.com/Buying-foreclosures.html
I live in South Florida. My dentist lives in Fort Lauderdale and I in Miami. Not sure where you live but rest assured, there are plenty of uber-expensive (or over-priced even) houses and condos down here – even now. You have Coral Gables, easily one of the most prestigious planned cities in America – right next to crappy homes. Same with Coconut Grove, downtown, Miami Lakes, etc. The issue is loLOCATION and/or DEAL. One or the other or, ideally, both. Like LM commented, one doesn’t need to necessarily rent the home, though that is and should be an option. The deal just has to make sense is all.
Take the $29k-$35k homes I mentioned. This is in Fort Lauderdale, not even two miles from the beach and the crowning jewel, Las Olas Blvd. and it’s surrounding neighborhoods (Victoria Park, Rio Vista). You’re not from here so these names probably mean very little. But understand that you are buying homes very close to these high-end areas (whose values EASILY exceed those $290-$350k prices you mentioned). Also (and important) you are not buying IN the hood. Virtually every town has their hood. Of course you are probably buying CLOSE to the hood – usually areas that intersect an awful part of town with a nicer, more respectable part. Think “lower middle class” or “upper lower class” and you have the right idea. Yet that is why the location is so important. YOU may not want to live there, but if it is in an area that is reasonable enough that other poorer but upstanding citizens may want to, then that’s a good sign. Of course you can always get good DEALS in excellent areas (LOCATION). The deal will be great but you will, naturally be paying more money – no matter how great the deal.
Also, gentrification is a good thing. Down here, you can have whole demographics seperated by a single street or block. Well, the prices get ridiculous enough and a few forward-thinking guys start buying in the “bad” neighborhoods. Get enough of these guys and the neighborhood itself begins to change. A case in point is Miami’s Design District downtown, which includes Buena Vista East (Wikipidea for more info.). What was once the slum of downtown and South Little Haiti has changed dramatically, with uber-design firms eventually landing there, including high-end Driade – it’s ONLY U.S. location (read: not NY or San Francisco). Point being: you may not want to wait 10 years for this, but if you select a decent location, all things considered (whether you rent, sell quickly or several years out), you will be o.k. Of course, if you plant a seed in the wrong area, one of those that is getting continually worse and worse, or simply showing no signs of gentrification, then the loss of gain is yours as well.
The areas I refer to are “in between”. Highly regular ranch houses, some need a tiny bit of TLC. Adjacent to good areas AND bad areas. At the end of the day though it’s regular folks just paying the bills who would rent there (or buy). This is what I mean in reference to location. And nobody knows your area (at least on this forum) better than you. You know what’s workable and not. Yea, YOU may not want to live there, but that’s not what we’re talking about.
LM makes a great comment too regarding DEAL. It’s location and/or deal. Period. Nothing else. If you buy a home that was sold for $275k in June of 2006…well, does that mean anything today? What about if you bought a home that was sold (and surrounded by similiar houses with similiar prices) at $110k in June 1999 – before the irrational exuberance hit the moon? What if that same house is being sold today (asking price) for $88k? Is that a DEAL? Obviously there are hundreds of variables (condition of house, location, etc.). But assuming it’s a “normal” house in an o.k. area (only you can determine that) then all that is needed is a little research. It’s typical in the above scenario that you could walk w/ that house for about $70k. Maybe $75k. Is that a deal? You’ll know…
I go to MiamiDade.gov to find out the taxes, selling price (of the house and others around it) and other pertinent info. You can go to your own county web site. Oftentimes you’ll find out on the tax memorandum that Mellon Bank of NY, for example, was sent the taxes. If I haven’t figured it out from the listing agent or my own hypothesis, that tells me 9/10 times that this is either a short sale or foreclosure – assuming there is a strong indication of value differential. Could also be that the bank is simply paying the escrow. Yet if all signs indicate it’s cheaper than what it should be, in your estimate/research, chances are that the house is in trouble. I’ve found that about 90% of the time you can guess what houses are in hot water with your own research and w/o going to lame foreclosure paying sites.
I also use Google streets to size up the street view. This is a major help as well, as you will often discover factors you never dreamed of while just looking a single picture and a road map. (Wow. There’s a sewage plant across the street!)
Probably my bread-and-butter though is Realtor.com. You can view by zip code, city name, by a map layout (extremely helpful) or other other criteria. Go ahead and put your city name in, select single family home (if that’s what you want), delete condos, etc. and search and then select MAP VIEW. O.K. You know what are the good streets, the bad, the parts of town that are starting to get a new vibe, etc. You can zoom in and out and move all over town. If you selected a price range of, say, $65000 max., then that’s all you get. Chances are you will be surprised at what you find. And I must warn you that it can get addictive.
I usually put in dollar amount higher that what I want only because I know these are only asking prices. Because we are in the middle of some crazy crap right now, the rules are off. I just spoke to a 25-year old kid who bought a great house in an UNbelievable neighborhood in downtown Miami, on the good side of the street for $104k. Was bought for $295k two years ago. He had to sign 9 different contracts before agreeing on the price. And every story is different. Miami may have the highest foreclosures (and fraud) in the nation, but your city will have it’s woes as well. It’s up to you to do some leg work and find the gems….
FYI: There are simply no rules with this market. If a house is in foreclosure (or even is a short-sale), they may list the price at, for example, $105k. Even though you just looked up that that property sold for $259k a year and a half ago, you can not assume that “these guys are taking a major loss already, and this MUST be the price b/c it’s so much lower than what it sold for”. EVERYTHING is just an asking price. I know guys who wound up paying MORE for a home b/c it turned out that 3 other guys submitted bids and the bank decided to play let’s-see-who’ll-pay-the-most; they were all sent a two-page “Best Price” addendum. Pretty much it’s an auction at that point. I also know others who have been led to believe this was happening, with a Best Price offer sent after their contract was submitted. They stuck to their guns by about $1000 and got the house -WAY, way below true value. I also know that there are some banks who routinely offer 20% below their own investment – and they stick to their guns. Conversely, other banks will allow a 40% deviation. Couple that with policies and procedures routinely being torn up seemingly on a weekly basis and you might just be a little confused…
What to do? Look for some homes in a price range you are considering. Factor in the possibility of renting or holding and selling – or just immediately selling, as LM pointed out. Do some research. And some more research. (When I feel pretty good about a house, I’ll visit the house at mid-night on a Saturday to get a REAL feel for the area). Make an offer. Get your financing in order. Make a bid – no matter how low. (Warning: if you get super-ridiculous, like putting a $25k bid on a $125k house…well, you might not even get a reply. Be aggressive but not punatively ridiculous.) Put whatever stipulations you want on the contract. 6% seller concesions, all back taxes paid by seller, etc. Keep in mind that banks love cash. If you agree to buy with cash and another guy sends in an offer w/ financing for about the same price, chances are you’ll get the house. That shouldn’t deter you if you are not paying w/ cash. The whole point of this is you simply WON’T KNOW how all of this will turn out (are you the only bidder, will the bank accept such a low offer, etc.?) until you try.
Banks are desperate to get out of this situation. Some people swear that it’s location, location, location. And it’s generally true that it’s better to buy the worst house in the best neighborhood than the other way around. My attitude is, if you’ve lived in one area for a while, & you tend to pay attention to the local area and values, etc., you will simply know what’s a good deal or not. My attitude also is, if you’re in doubt, then leave it out. If it’s not a good enough deal to you, ALL things considered, then leave it out. Should be damn close to a GREAT deal. If you’re scratching your head with “I don’t know….”, then look for something more positively reassuring – a true great deal.
Finally, you should really look into at least talking with a very knowledgeable and patient mortgage broker. The underwriting guidelines are changing nearly every day. And for second homes it’s not exactly Christmas out there. But don’t fret. A lot of that depends on how much you are putting down and your scores. For good people who have cash, the rates couldn’t be better today! Don’t forget that there are some excellent government programs for buying and fixing a home too. FHA gives like $35k to fix up a home, etc. Some are neighborhood deals. Buy in this neighborhood and we’ll help you out w/ such-and-such. A lot of this you can research on your own. But a good broker is invaluable. Since you have lots of cash, you can find several promising homes at great prices, submit bids w/ deadlines, agree to put around 30% down or so, and see what happens.
You might be surprised at all the deals around you.
LOCATION and/or DEAL.
(I bet you can find at least two painfully obvious deals in your own immediate area…..try me!)
I feel sorry about your house value…