Lazy Man and Money

Starting Your Kids on a Financial Independence Path

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Everyone is a product of where they focus their time and energy, right? As you can tell from this blog, much of my focus is on personal finance, especially financial independence. In my personal life, much of my focus is parenting two boys, ages 5 and 6.

Kids-Financial-Independence

Getting them started on a path of financial independence is inevitable. Given their age, we are working with simple things like chore charts and saving money for special toys.

One of my biggest concerns is the changes in the world. When I growing up in the 80s, I knew programing a computer was the future. Nowadays, retail stores and newspapers are closing. The automotive industry may nearly disappear as robot, on-demand cars may mean car ownership and driver jobs are a thing of the past. Artificial intelligence promises to disrupt more markets.

I know that most people think new jobs will be created. That’s probably true, but who knows if enough good jobs will be created. It seems that the current trend is replacing journalist jobs with influencer jobs. That should concern us all.

We can’t change where the world is going, but we can help prepare my kids. Here are a few things that we’re doing:

Teach Core Life Skills

This is a no-brainer. Some skills never grow old and can directly influence your bottom line. Here are the first two skills that came to mind. If you can think of more, I’d appreciate it if you could please drop me a line in the comments.

1. Cooking

Food is often one of people’s largest expenses. It doesn’t have to be. Eating out at restaurants is expensive. If you know the basics of cooking, going out to eat is less appealing.

We’ve got the kids enrolled in an after-school cooking class. They might not be learning much. (I’m still waiting to be served breakfast in bed.) However, they are learning and enjoying it. Those are the important things at this age.

In conjunction with learning cooking, I hope to teach the boys how to shop to save money. This will include updated versions of the following articles:

Being able to manage and limit one of their largest expenses can only help their financial bottom line in the future.

2. Handyman

I’m not handy at all. I can’t fix anything. I can barely work a screwdriver. If something breaks, I have to write a check.

That’s not good, especially for landlords like us. If you are good at fixing things and home improvement in general, you can create a lot of real estate opportunities with just sweat equity. You can fix up the house and move repeating the process over and over. You may even be able to keep the money tax-free when you sell. It may be a long time before artificial intelligence replaces carpenters and plumbers.

Perhaps someday, one of their jobs could be a managing our real estate “empire” and we could pass money and equity to them over time. I haven’t figured out exactly how this arrangement would work, but in theory there’s an opportunity there.

For now, I just want my kids to be better than I am with any handyman stuff. Home Depot has “kid workshops” once a month, but we haven’t had a chance to get to one yet. They also have workshops for adults, so maybe it’s not too late for me to learn a thing or two to pass on.

Personal Finance

I don’t think I’ll have to focus on teaching them too much about personal finance. I half suspect that they’ll learn it from osmosis perhaps like I did from my mother. However, I can give them a couple of boosts.

If they don’t master personal finance from osmosis, they can fill in the gaps with my Ultimate Guide to Financial Freedom. I’m hopeful that when they are older they’ll give their old man 10-15 minutes to read the Cliff’s Notes to financial success.

As a practical matter, I recently wrote about their kid Roth IRAs which will give them a head start in saving for retirement.

Education

Education is one of the foundations for a high-earning career. We’re investing a lot in private school now in hopes that it will set them on a great path for the future.

I’m still not sure that’s an optimal investment. For example, an episode of Teen Titans Go! (one of my favorite kid shows) brings up the idea that investing in a rental property is better than college. I don’t agree, but it’s an interesting topic. Of course, the Teen Titans teach a lot of personal finance.

Finally, it’s helpful that the the best financial independence book is actually a kids book.

Final Thoughts

One of things that I’m hoping to balance is giving an opportunity versus handing them too much. That’s why they are earning their kid Roth IRAs by picking up dog poop. That’s also why I think they would have to be property managers before they reap the benefits of the rental properties.

Buying a Home? You May Need a $100,000 Salary.

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Today, I’m picking some low-lying fruit of the “newsy” variety. It comes straight from the top of my email inbox courtesy of Zillow’s Media Room.

I know the title gave it away. (I’m terrible with clickbait.) Zillow’s research found More Than a Third of Home Buyers Now Make More Than $100,000.

Before we break apart that title, let’s do a little commonsense math check. That means that nearly two thirds of home buyers make less than $100,000. You still have a better than average chance of buying a home if you make less than $100,000.

When I first read the article, I was thinking that it was a comparison of haves (home owners) and have-nots (renters). However, it’s really three groups: The getting (home buyers), the haves (already home owners, and the have-nots (renters). Usually the home buyers and home owners make similar household incomes, but lately it’s changed so that home buyers actually make a little more… an average of ~$80,000 vs. an average of $75,000.

The press release does a little analysis, but it’s a little confusing. It seems that maybe first time home buyers need to make a little more a year so that they can save a little more for a down payment. In other words, there’s nothing too surprising.

The renter income numbers were a little more interesting to look at. The average household income there was $38,300 or about half of the home buyers/home owners. Zillow points out that young and single people are more likely to rent (makes complete sense). Who would have guessed that a single person with one income might choose to rent, but change his/her mind if they pair up with a partner creating a second income? (That’s sarcasm.)

I think I takeaway two things from the article:

  1. A rule of thumb to buying a home might be to have a household income of around $75K-80K.
  2. As with all rules of thumb, the individual situation matters greatly. In this case, Zillow breaks down the numbers for some of the largest metros.

That second point is most likely the most useful information in this report. In Pittsburgh and Tampa, buyers are getting in ~$65,000. In New York or Boston, buyers are getting in at ~$120K. You can use the chart to see what your area average is. Of course few people buy an exactly average home, but at least it’s at least a number you use.

If you are an investor, you can even crunch the numbers a different way. It didn’t take me long to notice that Tampa’s earners are one of the lowest, but it’s renter earns nearly the national average. The renter makes 57% as much of the buyer. Maybe it makes to buy a property in Tampa and rent it out? They’ll likely be able to pay their bills since it supports a higher rent.

On the other end of the spectrum, Philadelphia’s first time buyers earn $98,000 (well above average) and the renters earn a below average $35,300. Their renters are making as much money as even Tampa and it looks like a tougher market to buy into in the first place. Spending more on an investment property if renters aren’t likely to pay as much doesn’t seem like a smart plan.

Zillow’s chart made it extremely to put in a spreadsheet and pull out these numbers. It was literally almost a full 60 seconds. Since it was so easy, I’ll leave it as an exercise for the reader (it’ll take me longer to upload it).

So what do you think? Did you find anything useful or interesting in this data? Let me know in the comments.

Should You Invest in Condo Hotels?

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Happy Beach Dog
Beach Dog Says: I love my new condo hotel home!

I started writing Lazy Man and Money in 2006 due to a unique wake up call: My fiancé was going to retire at age 43, with a military pension due to 20 years of service.

Who wants to work another 22 years after their spouse retires? At the age of 30, I could look to retire in about 12 years with her, or work 3 times as long and retire at 66.

My mission: Explore and build income streams.

I didn’t know you could make money with a blog, but I did know that it could help you connect with like-minded people. (This was when social media was defined by MySpace.)

Around that time I had read that investing in hotel rooms was a hot new market. This isn’t just buying shares in publicly traded hotel company. This is buying something called a condo hotel.

What is a Condo Hotel?

A condo hotel is exactly what you may imagine it is: a combination between a condo and a hotel. Basically it works like this: You buy the hotel room as if it’s a condo. You can stay in that room whenever you want (it’s your room after all). Alternatively, you can release the room back to the hotel for a split of the proceeds when it’s occupied (the hotel gets money for managing it). The rules seem to be different for each property, but that’s the gist.

It’s legally managed like a condominium, but the operated as a hotel. When I first heard of this back in 2006, it seemed like a crazy, but cool idea. Nowadays, it makes more sense to think of it as a condo that you buy with the intention of turning it into an AirBnB.

Sounds like an exciting investment right?

Why I seriously considered buying a Condo Hotel

I find that often get enamored by the best case scenario.

Even if I had to pay fees for maintenance, at $150 a night is over $50,000 a year. This was also around the time that Paris Hilton was starring in the Simple Life. Not everyone is able to start or buy a whole chain of hotels. However, one room? That’s something that an individual investor might be able to do.

Around the same time that I was reading the article above, I had heard that the The W in Las Vegas was looking for investors. The main big investors were in place, but they were looking for individuals to buy in. That helps with their building costs too, right?

I was definitely attracted by four things:

  1. It’s tempting to be a landlord and an hotel owner without having to do any of the maintenance, right? (Of course I’d still be paying for the maintenance, it’s just great not to get those 3AM calls about a broken water heater.)
  2. The premium W brand and quality. At the time, I had a friend who traveled a lot for business and he really loved the W brand.
  3. The premium tourist location – Las Vegas. When I think of people vacationing in Las Vegas, I presume that a certain large number have a lot of disposable income. I like the combination of people with a lot of money looking to spend it on a luxury experience.
  4. The pre-construction pricing, which I presumed would be the best rates. While this is not always true, it feels like the early bird should get the worm, right?

Ultimately, I decided not to buy into the W condo hotel opportunity. If you’ve read the Wikipedia write-up that I linked above, you know I made the right decision. It sounds like it was an unmitigated disaster.

Why I didn’t buy a Condo Hotel

One of the easiest ways not to buy something is to literally not have the money. I might have been able to make some terrible financial decisions like sell off some retirement accounts (absorbing a big penalty) and leveraging a mortgage. That’s not a good idea for almost any investment scenario.

Let’s pretend that wasn’t an obstacle. When I reached out to the the organization planning it, I found that it was impossible to get all the numbers. For one, they didn’t know what vacancy rates might be. They certainly had a better idea than me as they were in the business and familiar with the area. I was working with no knowledge. If the place has a high vacancy rate, there’s not going to be a lot of profit for me to sell my room. (I’m not ready to buy a white lounge lizard suit so I would have needed it to be rented.)

However, even if they had good vacancy and nightly cost estimates, they couldn’t give them to me. If they give out that information, the condo hotel qualifies as a security to the SEC and gets regulated much more rigorously.

Where Can I find a Condo Hotel?

Typically condo hotels are in resort places like Orlando or Miami in Florida and, of course, Las Vegas.

I wish I knew some reputable companies to work with. This is why I felt a little better working with a big trusted brand. I don’t think I would have given my business to Joe’s Condo Hotel Sales ‘R Us. If you know a trusted, household name that works in this area, I’d love for you to leave a comment with that corporation’s name.

Lessons Learned from My Condo Hotel Experience

When I decided to do this review, I wanted to pluck out all my nose-hairs for even considering it in the first place. However, I as I reflect more about it, I am taking a more balanced view. I’m not sure if all condo hotels are a bad idea. Perhaps it could work for some people in some situations. I’m trying not to make a blanket judgment based on one ill-suited (to me) condo hotel that seemed to have difficulty.

After all, this condo hotel example is precisely why I started this blog. I wanted to share ideas to sort out which are good and and which are not so good.

I did find one example of someone who did find a condo hotel that works great for them. My friend J$ did the heavy lifting in an < href="http://www.budgetsaresexy.com/we-bought-hotel-room-called-condotel-live-in-it/">interview with someone who lives in a condo hotel.

I hoped that readers would help me by keeping me grounded from bad ideas. Along the same lines, I wanted to help others where I can as well.

It’s always great to have discussion around a topic. That why I am begging you to leave comments at the end. If there’s one topic that needs more discussion, it’s condo hotels. I rarely see anyone talking about them.

Your Life or Your Home

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Quick House Keeping Note: It’s a busy time in our home. I refer to these two weeks as the “summer hole.” (I need to come up with a better name.) It’s the time when our kids are out of school and camps haven’t started yet. We’re in year two, so at least we were prepared this summer. We scheduled a little vacation and some other activities. In other words, expect the writing to be a little limited until the 18th or so.

I suspect that most of my readers are at least familiar with the title of a book called, Your Money or Your Life. It is widely considered the best personal finance book. (I haven’t finished reading it, but so far it hasn’t met my extremely high expectations. That’s not to say it is poor in any way.)

One of the main ideas of that book is that you trade your life for money. By limiting consumerism, your money goes further, you can retire early (if you choose) and get your life back. That’s really the core of the FIRE (Financial Independent/Retire Early) movement.

I’m going to piggyback on that to share a concept that I like to call, Your Home or Your Life. For most people, their home is their largest expense. So, by proxy, keeping housing expenses low will save you money to get you to FIRE quicker. In 2007, I called it Get Rich by Thinking Small. (I miss the days when a 350-word article and a well-placed George Carlin joke would get 26 comments.)

Today, there’s a lot more focus on tiny houses or even living in trailer. I get excited when I watch a tiny house television show because it seems like everything is amazingly efficient. I’m not sure how practical living in a tiny house would be. Sometimes things that sound great don’t pan out in real life and this may be one of those things.

Big Closet
Does anyone’s closet really look like this one from NEHomeLife.com?

Last month I picked up a free magazine, New England Home Life. The closet on the cover caught my attention. It is bigger than most best bedrooms and seems to have very few clothes. It was so ridiculously not like any normal closet that I had to pick it up. Surprisingly, there was an article in there that was the exact opposite of the cover, Tiny Home Living, by Mary Hullett. I wish I could share it with you, but it isn’t available online from what I can tell.

The article does a good job of painting a picture. In Japan the average apartment is 250-300 square feet, while the Americans move to bigger and bigger houses. It then explains that the tiny house movement began due to environmental and financial concerns. That’s where it gets interesting with this quote:

“For most Americans 1/3 to 1/2 of their income is dedicated to the roof over their heads; this translates to 15 years of working over your lifetime.

I was just about to start to go into all the math behind that, when I realized that it really isn’t that complicated. I think we can presume that a typical working career is typically 45 years (age 22 to 67). A lot of things vary, but that’s exiting college until retirement, which gets extended a couple of years as people live longer. So 1/3rd of your income is 15 years of working. If you spend half of your money on your home, it’s 22 years.

For me, that drove home the true cost of a home. Of course, the alternative of not having a home isn’t a good plan. That’s where a tiny house comes into the picture. I’ve seen them starting at around $40,000. That’s the kind of mortgage that many people could pay off in less than 10 years. It’s like getting a decade (or more) of financial freedom.

I ran some numbers on how much of our income our own regular-size house is. Because my income varies a lot from year to year, it’s impossible to get an exact number. It is around 20% and it would be less if we had a typical 30-year mortgage instead of a 15-year one. Look like we are in good shape.

There’s one more thing that I can’t help but think about. We have 3 rental properties (condos) that mostly pay for themselves. Two are them are very similar as they are in the same complex. They should be paid off by the time our kids are 15 years old. There’s a very real option that they’ll have the choice of a free home. (Or we may decide to keep it to support ourselves.) It’s hard to imagine the financial challenges more than 10 years from now, but I think that having that home will be the kindling for their own FIRE.

We have an affiliate relationship with one or more of the companies linked in this article.

Real Estate Roads Not Taken

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“Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.” – Robert Frost

I don’t have a lot of rules in life, but one of them is: If I can quote a famous Massachusetts person born on March 26, I will. Since half my life’s in books written pages, I’ll do what I want :-).*

This past weekend my mother brought me a postcard that she got in the mail. It was from real estate agent announcing the selling of this home. I’m sure you’ve gotten similar mail, right?

What makes this special is that I had seriously considered buying a condo in the same complex in 2004. I dug up an old spreadsheet that I had from that time. It’s hard to be 100% sure because I used MLS numbers instead of addresses, but it looks like the owners were asking $324K at the time. From this we can infer that condos that building have roughly appreciated 55K or 17%. (That’s assuming this isn’t an outlier.)

I decided against buying in that building. I don’t remember the exact reasons why, but it was very close to where I grew up, had no yard, and no pool. Instead, I opted to buy a place that was a little further with those things. It was closer to my job and a little further from Boston.

I paid $278K and now it is worth around $250K. In 13 years, it’s depreciated by 28K or around 10%.

I’m going to make a huge oversimplification here. I’m going to ignore that the former property would have stretched my finances. I’ve rented the later property a lot longer than I lived in it with the rent covering most of those expenses. Viewed through that lens the cost of the property is minimized. With all that pushed to the side, the road not taken would have netted $85,000 in equity (turning a 28K loss into a 57K gain).

Flash forward a couple of years to 2006…

My wife and I are living in Silicon Valley. A coworker and I have an interesting conversation. He makes the point that buying a home in Silicon Valley is always a good investment.

That sounds crazy to me. At the time a 1000 sq. foot home that should be torn down was going around $650,000. We were able to rent for a fraction of what it cost to buy. It was one of the few places in the world where the buy vs. rent equation was far in favor of renting. It wasn’t even worth thinking about.

In hindsight the prices in Silicon Valley just kept going up. I haven’t looked up the pricing in the last few years, but I’m sure that $650,000 house is around a million now.

It’s no use crying over spilled milk, but I found it interesting. There’s a lot of truth to the big purchases making a huge difference in your financial life. For every negative, there’s a positive though. We did buy two properties in 2011 and 2012 near the bottom of the market. We’ve been able to build a lot of equity that way.

Do you ever stop to reflect on financial decisions you have made (or didn’t make)?

* I’m quoting Steven Tyler who was born on March 26th for those who didn’t catch that reference.

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