This is a reminder that I’m now posting at http://www.four-pillars.ca (thanks for updating any links you have from http://cheapcanuck.wordpress.com to http://www.four-pillars.ca).
I finally (lazy Mr. Cheap) moved my archives over to Four Pillars, so everything of value should be there now.
Mike and I got talking some time ago about the limited number of Canadian PF blogs that post 5 days a week and are able to keep going for any extended period of time (they’re very rare). He and I thought that it might be a worthwhile approach to write on one blog, focus on keeping quality posts Monday-Friday instead of potentially burning out on our own.
To this end, I’m going to start writing on http://www.four-pillars.ca. I’ll probably put a few more reminder posts here, then eventually just redirect to that address.
We’ll eventually probably merge the archives at some point, but we can deal with that down the road.
I’m gearing up to do a new real estate investment (being a silent partner in the purchase of a mixed use building in small town Ontario). I kept thinking about doing a post iterating all the types of real estate investmenting I can think of and the pros and cons of each, so this seems like as good a time as any.
Speculation - this is anyone who buys a house hoping it’ll go up in value, whether they live in it, rent it out or leaving it sitting vacant (such as buying land). If you hope it’ll be worth X% more in the future, and the bulk of your profit will come from selling at that future time, you’re speculating.
Pros:
-Very easy and fun (pick an area, listen to the reasons its “hot” and put your money down!)
-Mixed benefit, if you’re renting it out you get some income, perhaps you live in it and get to enjoy the property
Cons:
-No way to reliably pick the next hot area, you’re basically gambling
Land-Lording - This is where you buy a property that’s cheap relative to the rent it can command, find tenants, and make income from the difference between their rent and your costs. You can rent a single unit, a small building, or a 400 unit monster as you learn more and make more money.
Pros:
-VERY well established technique (perhaps the oldest on this list)
-All sorts of data you can use to reduce your risk (i.e. average rental price in an area, vacancy rates, etc).
Cons:
-May have to fix toilets in the middle of the night
-Many laws are very tenant friendly
Wholesaling - This is what the “I buy houses” signs you see mean. Basically you search for “motivated sellers”, quickly buy their properties for cheap, then turn around and sell them for market rate.
Pros:
-If you’re buying at a steep enough discount its a fairly safe way to make money
-Fast return, if you can sell the property you get your money back and are on to the next property
Cons:
-You might feel bad profiting from people who have had some bad luck (or made some bad decisions)
-You need to learn to accurately appraise what a house will sell for
-You need to be able to quickly close, so you’ll either need lots of cash or great credit
Lending - This includes funding mortgages and being a silent partner. Basically you provide the cash, someone else does the work, and you split the profits.
Pros:
-Its great to make money while someone else does the work
-Some security on your investment if your name goes on the deed
Cons:
-Some risk, if the person managing the property messes things up (or takes advantage of you)
-Since you’re not on site checking things out, the property may get into trouble or be under-performing and you wouldn’t know about it
Bird Dogging - Often pitched as the way for people with no money to get into real estate, you look for deals, then sell them to other investors who have money.
Pros:
-No cash risked
-Put as much or as little time into it as you want
-Learn while you earn
Cons:
-I believe this is illegal in Canada and some states.
-Pays quite poorly
-Requires expertise, but is often performed by newbies. People who can properly evaluate a deal to determine if its good or not, can probably pull together the money to buy it themselves.
Flipping - Based on the idea that a house in good repair is worth or then the same house in bad repair minus the cost of repairs (e.g. its worth money to have everything already done).
Pros:
-Great way to capitalize on skills you may have (if you’re handy)
-Not very risky if you can properly appraise property and get the repairs done quickly (before a market shift)
-Fun (according to the home improvement shows)
Cons:
-Very competitive, so it doesn’t pay very well these days (many people are doing it)
-Takes a lot out of your hide (you could have just worked your ass off at work and collected tons of overtime)
-Not fun (according to the reality of having to fix up a crappy house then not even get to live in it).
Any other ideas for big approaches to investing in real estate? Any ideas about more pros and cons? Telly has been good enough to offer to write up a guest post about investing in student housing, which I’m very excited about.
To pull a “Canadian Dream“, big news on Monday! And no, I’m not going to announce that I’m going to be a father (I’m not as far as I know…)
I’ve had a bit of an odd idea that I’ve been developing for a while. I’ve bounced it off of M.D.s, teachers, engineers, and psychologists and each of them hums and haws, can’t point out anything SPECIFIC they disagree with, but are cautious about agreeing with it. This makes me suspicious that this might be a somewhat unique idea (or at least not a particularly well known idea) and perhaps its true (since no one immediately debunked it as people enthusiastically do with most of my ideas).
The basic gist is that all knowledge (not skills, but knowledge) is vocabulary. When two surgeons are having an argument and they throws lots of big words at each other, reach a consensus and then move on with a new plan of action, its very easy to say “wow, those guys are smart, I could never understand what they do”. I’m suspicious that you could. Basically their specialized vocabulary lets them have a high level discussion in a short time, because they don’t have to explain the meaning of words to each other. If you tape recorded the conversation, then sat down with one of them, over the course of a couple of hours he could probably explain what each part of the conversation meant, in terms you’d understand. The benefit of their years of training and experience is they don’t need to explain all the background to each other, they can quickly have a conversation that focuses on the new elements of the situation and get to a decision.
Computer nerds love to do the same thing. I realize when I geek out with a fellow nerd that someone overhearing our conversation will be scratching their head in confusion. Its a very specialized vocabulary, but none of the concepts are particularly difficult (if you were willing to stop a patient nerd and get him to explain in detail what he’s talking about, I think anyone could follow the entire conversation).
When I started my master’s, meetings blew me away as people were throwing around terms I’d never heard before and I couldn’t follow the conversations to save my life. The best suggestion I got, right at the beginning of my grad work, was to keep a notebook, write down any new words or terms I heard, then figure out what they were later on. Once I had the vocabulary to interact with the rest of the group, it became quite simple to follow the conversation, identify the areas that were still up for debate, and throw in my two-cents on the subject in terms that the rest of the group could follow.
I don’t pretend that you can learn ANYTHING this way (just all knowledge). If you wanted to learn how to sail, you’re going to have to get out on a boat (learning all the vocabulary involved isn’t going to cut it). HOWEVER, I’m convinced that if you learned all the vocabulary first (port, starboard, trim, cut, etc, etc) you’d be in a position to learn the practical skills MUCH more quickly.
This leads to a simple approach to learning in a new environment.
1) Find a piece of information from that domain, such as:
2) From that piece of information, ask yourself if you understand it. If you don’t understand it, identify the words you don’t understand. Go and find out what they mean. You may have to do this recursively (a computer science term), which in this context means that some of the words and terms used may be defined using other terms and words you don’t understand: keep looking up the unknown elements until you’ve defined them in terms you already understand.
3) Return to the original statement and see if it now makes sense. If it does, you’ve extended your understanding of this domain of knowledge. If it doesn’t, find someone who is knowledgeable in the area, explain your understand of the terms. Explain how given that understanding the piece of information doesn’t make sense, and ask them to explain what your misunderstanding is (even people with no teaching skills whatsoever should be able to see what you’ve misunderstood and point you in the right direction - the trick sometimes is to get them to shut up and listen to what you’re saying rather then letting them babble).
4) Find another piece of information, and repeat this process. You increasingly become an expert as its more difficult to find information you don’t understand.
I understand that words and terms can have nuanced meanings that are contextually determined and that people who are “experts” in an area will have a deeper understanding of these. Nevertheless, I believe that understanding is just a richer vocabulary (defined by how extensive your understanding of each term is, as well the number of terms known).
I’m in my second week of the new job, and in spite of the lower salary, things have been going quite well so far. I’m definitely feeling like there’s more for me to do, and that the work is more interesting then my previous contract gig. The people are nice too, which is a definite plus.
I also had two dividend payments come through: $211.50 from Rothmans, and $71.55 from Russel Metals.
Happy days!
I was recently up at my condo (there have been problems with the fusebox, the dryer keeps blowing out fuses) and I got talking to one of the neighbours I’ve seen up there a few times. He was quite interested in what I’d paid for the condo and has told me repeatedly that he wants to sell his 3 bedroom condo (and usually says he wants to sell it to me and tries to get an offer from me).
I’ve avoided the subject in the past, and have just reminded him that I got a really good deal on the condo I bought (which is why I bought it) and that prices in the building aren’t going up quickly (he paid $174K for his 3 bedroom years ago and there are similar units in the building being listed for that now). I mentioned this to him and warned him that it’d be tough to get a lot more then he paid for it from his unit.
Finally he managed to wear me down and I admitted to him that I’d run the number and if I was putting an offer in on a 3 bedroom condo in that area it would probably be for about $140K. At which point, of course, he looked shocked and offended and said “if there was a unit selling for that in the building *I’D* buy it!”.
The joke is, there WAS a unit selling for such a deep discount and it was his neighbour’s! of course, he didn’t put an offer in (I did and bought it).
People often seem to fall in love with one form of valuation and decide that its gospel. If your neighbour got a certain price for their property, by golly that’s what you should get too! Or if an appraiser says your property is worth $X, then $X is the MINIMUM you should accept (even if your property has been sitting on the market for 8 months with no offers).
The way I evaluate a property is much like the violent acres post, I take the rent and work backwards, deducting expenses until I figure out how much cash is available for a mortgage, work out how much mortgage that could afford in the current environment, and hope to get the property for less than that. I understand however, that just because my valuation technique says a 3 bedroom condo in that area is worth $140K, people may or may not accept it.
Ultimately something is only worth what someone else will pay for it (and what someone will sell if for). Given, that people overpay (or sell too cheaply) all the time, even this isn’t even an perfect valuation technique.
People getting locked into the view that there is only one approach to valuation (and they’re angry at anyone who doesn’t use it) makes me scratch my head.
I recently got my first margin call from E*Trade for about $3K. It scared the hell out of me, not because I could pay (I had the money sitting in a cash account and just transferred it over), but the call was unexpected and I was worried that I misunderstood the system to the degree that I had triggered it.
The day after the call, I got on the phone to E*Trade and admitted that I’d had a margin call, told them that it was no problem paying it (and I’d already transferred the funds), but that I didn’t understand what had put me into a margin call situation. The man on the phone didn’t apologise, but it turns out that the problem was on E*Trades end and they considered a bunch of “safe” stocks (which they’ll loan 70% of the stock value on) as “riskier” stocks (which they’ll loan 50% on). He told me the call wouldn’t be enforced, and after checking my account assured me I was fine (even if I hadn’t transferred the cash in).
I used the situation to get more details about margin calls and what would have happened if it had been a real call. Apparently the speed on which they’ll sell your stocks depends how far over the line you are (he said they’ll give you 3 or 4 days if you’re just a little over, bit will sell immediately if you’re significantly past your limit). I asked him for good customers with a conservative portfolio if they ever will waive a margin call or increase their loaned %, and it turns out that its actually a law how much they can allow people to buy on credit (so short answer, no).
In the end I was happy to have my understanding of the margin account challenged (and happy that it was a problem on their end and not in my understanding). I learned some new things about my account, which is always a good thing.
Finanical Blogger posted a link to a great article in his monthly round up for August. While I respect what the original poster is getting at, I’m not sure I totally agree with her.
She talks about how being “thrifty” when you’re at a fast-food restaurant and sharing a drink (with free refills) between the whole family is more likely to teach your children that stealing is ok rather then the value of saving a dollar. Thankfully she follows this up by admissions of similar situations where she does the same thing (sneaking in food or getting in free as her daughter is an employee). I don’t buy her justification that her actions are “thrifty” while the actions of others are thievery.
My guiding principle in situations like this is that “bending the rules” is morally permissible when you’re not causing a business or individual a measurable lose. I don’t buy the argument that its theft when you deny them potential sales. Shoplifting is clearly wrong, as the Roots store has one less leather handbag to sell if you take it, and you’ve clearly hurt them. At a fast food restaurant, the fountain drinks cost them next to nothing (probably about the same amount as napkins and condiments which they give away free), therefore how you’re really hurting them by sharing is that you aren’t buying multiple drinks. You might have come in and just bought food (and no drinks), in which case they’d be in the same situation, so how have they really lost out on anything other than POTENTIAL revenue? I never feel I owe a business the amount of sales they figure I should buy.
Downloading music is similar. Sure, the artist doesn’t get paid (or, more importantly, the distribution company), when you download “Hit me baby one more time”. Britney doesn’t lose a thing (except the hope that you may have bought her CD).
The movie theatre seat that Grace sits in would have sat empty during the movie, so her being there without paying an admission doesn’t hurt them in any measurable way.
I can understand why business WANT to be able to collect more money, and I certainly support them in trying to limit cheap-o activities (like people sharing drinks, sneaking into the theatre and pirating movies). I think in each situation, the business is already policing it as much as its worth to them to prevent customer “abuses”, and if the odd person spends a day “theatre hopping”, good for them in the opinion of Mr. Cheap.
Observant readers may notice that there’s been a new addition to my website at the top of the sidebar, namely a sponsor.
I debated for quite some time, and discussed with Mike a few times, about advertising on the blog. Ultimately my feeling was that for the slim amount of money I’d get paid for doing Google Ads or something, it wasn’t worth putting it on my site (it wouldn’t be worth the mental horsepower setting everything up for $5 / month). I was also somewhat concerned that it might change my focus. Up-to-now (and hopefully into the far future), my primary goal has been to get smart people (like you, yes YOU!) to read my ideas and provide feedback. Like anyone (and especially PF bloggers), I’d love to get some extra cash coming in, but I think the way to make money (through advertising) by blogging is to write about Paris Hilton’s personal failings rather than debating whether its better to rent or buy or whether yield or growth is more important to dividends.
I’d been using Dividend Investors for some time, enjoyed the freely available info on their site (they provide yields that are current as of the last market close and provide 5 years worth of dividend info). I’ve posted repeatedly trying to get info from further back, but there doesn’t seem to be any freely available. I wanted to get access to the older data, but didn’t want to pay for it ($24.99 / month or $249.90). I contacted them, and proposed placing a image and link to their site in exchange for a membership, they accepted and the results are here!
I’m looking forward to getting into their “members only” section and will post a write up about how it compares to their free info in the near future. I understand that any info I provide about dividend investors.ca (or any other stock info site) is now biased, but I think it would be fair to say I’m independantly a fan of their service (since that’s the only thing I’m being paid in). If a sports figure got paid exclusively in footwear from the company for advertising their brand, it’d probably be fair to say he actually does like their product.
Have a look at their site, feel free to comment (good or bad) and let me know your thoughts.
So, clearly the answer to the question “Is Mr. Cheap for sale?” is a resounding YES! (and he isn’t too expensive either ;-).
I often get into “deep conversations” with people. I’m not opposed to small talk, but if there’s an opening in the conversation to talk about religion, justice or politics I go for it (and often often end up antagonizing the person I’m chatting with). One Christmas party I went to with quietrose I ended up have an extended discussion about the re-rehabilitation and appropriate justice-perspective for pedophiles (although, to be honest, even I felt that this wasn’t the best venue for that conversation afterwards).
Often when I get into “big chats” with people there will be something that bugs me, and for the longest time I couldn’t put my finger on it. I have *NO* problem with people disagreeing with me (its a short conversation otherwise and I don’t have much of a chance to learn anything). What bothers me is when people provide their conclusions rather than their reasoning.
“Vanilla is the best flavour of ice cream.” Is this true? I don’t know, clearly its an opinion, which is fine, but what I’m interested in is WHY the person feels that way.
“The minimum wage should be raised.” Is this true? Again, its an opinion. If you ask people way, they’d probably say “People can’t live in today’s society earning $7.75 / hour“. Is this true? It seems like another opinion. If someone showed me a very frugal budget, and the weekly costs couldn’t be met by $7.75 * 40, I might find this convincing. If you try to dig deeper than this (such as wanting to see such a budget), people get upset. Many economists have shown that a minimum wage hurts the population its supposed to help (by making small businesses re-evaluate their labour needs and potentially down-size - e.g. its better to have a job at $7.75/hr than no job at $8 / hr).
People will get upset with this point, flippantly say something like (”any business that’s willing to pay someone $7.75 can afford to pay them $8″), then re-iterate their conclusion that minimum wage should be raised.
At this point I usually start thinking I should have been hitting on the host’s cute niece rather than getting myself into this, but there’s no way out at that point.
I’m always at pains in my posts to explain my REASONING for what I believe. Sometimes in an on-line “discussion” someone writes “well, I disagree”, which is well and fine, but it doesn’t really add anything. Either the points I raise don’t lead to the conclusion I think they do (in which case its best to point out the faulty reasoning), or one of the points my conclusion is based on is faulty (which obviously undermines the entire argument). Sometimes I’ll give a litany of reasons, someone will pick out a semantic point with one of them, then feels they’ve demolished the entire argument. However, arguments sometimes stand on more then one leg.
I suspect that either people haven’t really thought out their position on a topic, so they CAN’T provide their reasoning, or they realize that an opinion is far easier to defend than an argument. The goal of an “argument” off-line (or a flame-war on-line) is sadly often to win, not to discover the truth).
I met a guy in university who had been in a debate club (I wish my high school had had a debate club), and his style of argument was pretty irritating as well (it mostly consisted of insulting the other person). His response to my assertion that OAC had value for high school students going to university was to laugh in my face.
Perhaps academia is the best place to have such extended, in depth investigations. Papers take time to write and publish, so almost like making an offer on a piece of real estate: when you write down (publish) your ideas they’re far more grounded then flippantly making an offer.
What do you think is the best forum for discussions where the goal is to honestly illuminate the topic of conversation and to get to the truth of the matter?
