Archive for June, 2008

Here are some more things I have learned when taking a look at real estate:

  1. Places that are advertised for $40,000 are in home parks.  The parks are nice but you can’t sublet, that is, if you buy it you have to live in it.  In order to make money there I’d have to buy the entire park.  Yeah, that ain’t happening.
  2. Mortgage rates fluctuate up and down all the time but the timing of a good rate isn’t all that critical unless I wait forever.  BTW, rates in the western US are quite a bit higher than in central Canada.
  3. If you really want to check out a property, you actually have to physically inspect it.  Look at the cars of the people in the parking lots.  Nice cars?  Or junk?
  4. Kirkland has some really nice places.  In fact, lots of suburbs do but I plan to stick to the east side of Seattle.
  5. Watch your costs.  A low-priced home can still be expensive if the cost per square foot is unreasonable.  The very first place I ever checked out turned out to be twice as expensive as the average place I check out because it was a small place.  In addition, most of the time, HOA dues turn out to be a great equalizer.  I will consider a place with far lower HOA dues at a higher cost-per-square-foot because those HOA dues add such a high cost to the price of the apartment.
  6. Perhaps the most critical component is to watch your total costs and make sure you can carry it.  Let’s say I spend my entire capital on one place and I have to rent it out or flip it or sell it again.  Can I afford to carry it while I wait for a renter/buyer?  Thus, my plan is that while I could afford to buy a more expensive place I need to make sure that in case something goes wrong I can afford to carry the place over the short term so that I am able to make it to the long term. 

    In investing, you have to think long term, but you need to be able to survive over the short term.

Those are the main ones.  I have made an offer on a place in Kirkland this past weekend.  Let’s see how it works out.

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Following on from my previous post, I have spent a long time (about 2 and a half months) hunting down real estate.  In order of most importance, here are the three things to look for:

  1. Price
  2. Location
  3. Condition of the property

I have also discovered that the Seattle housing market is overpriced and expensive.  However, being a believer in free markets it is difficult for me to say that it is actually overpriced because if that is what the market is willing to pay, then that is what it is worth.  having said that, there are a number of things I have learned:

  1. Homeowner Association Dues add a significant chunk of payment to the monthly mortgage.  For places in Redmond, Bellevue and Kirkland they can add 20-30% extra per month.  Ergo, searching for property with low HOA dues is paramount (criteria 1).
  2. At a 30-year mortgage at 6.25%, an extra $500 per month is about $80,000 onto the purchase price.  That is, the mortgage payment on a $100,000 place is $500/month less than a $180,000 place.  An extra $100 per month extra is about $17,000 tacked onto the purchase price.  Knowing the rough equivalents to purchase price lets me evaluate properties quickly when counting in the HOA dues.
  3. Seniors get exemptions on property taxes.  When a property is advertised and it says they paid $100 per year in property taxes, the advertisement isn’t lying but it’s not exactly telling you the truth.  Regular people like you and me pay ~ $1300-$1700 per year.
  4. For most places, it’s nearly impossible to find a place with a cost structure such that the renter will pay the mortgage, HOA dues, taxes and insurance.  Creative financing goes a long way, but the tax benefits make up the rest of the difference.  That is, I may lose money on the property but the tax write-offs make up for such that I come out ahead.
  5. There are basically no good deals in Redmond.  There are few good deals in Bellevue, but there’s quite a bit more in Kirkland which is puzzling because it’s more metropolitan, I think.

More in a future post.

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About two and a half months ago, I decided that now was the time to start investing in real estate.  Let me tell you about my journey and what led to this decision.

For about 4 years, I have been investing in stocks.  For 2 years before that I was learning about the market.  I have made a lot of stock trades over the years.  I believe that I have the ability to consistently make money over the long term.  What I do is identify stocks with strong fundamentals and technicals and buy them.  Over the short term I sometimes loose money but over the long term almost every stock I have ever picked has made money; this doesn’t mean that I have made money every time because sometimes I sell at a loss and then months down the road the stock turns around.  Had I held I would have been profitable.

This means I have amended my trading style.  Rather than buy and sell stocks and hold them for 3-6 months, I now hold them for 6-12 months.  In other words, my trading frequency has decreased tremendously.  I almost size my positions such that I am never too exposed in one position and a catastrophic loss in one will hurt me but won’t break me.  I also like to buy stocks that pay dividends so at least I get paid to hold them.  Not every stock pays dividends but if they do, it’s a bonus.

To that end, that means that my trading frequency has gone down so I have more time to do other investments.  That naturally leads to real estate.  The US real estate market is in a funk; foreclosures are at all time highs and public psychology is very negative.  Being the contrarian that I am, this suggests to me that it is a great time to buy.  Everyone always says to buy low and sell high.  This is easier said than done because when prices go low, the great fear is that prices will go lower yet and so most investors are paralyzed.  As for me, I’ve decided that I have to move forward to buy some real estate because an opportunity like this doesn’t come along every day.  I am as anxious as the next person but the historical reality is that bull markets always follow bear markets.  This weakness will pass and when it does I want to capitalize on it.

More in the next post.

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A funny picture

Came across this picture on the internet.  Pretty much sums up the current state of the market.


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Yesterday I went miniature golfing with some friends.  This was a really good mini-golf course because each hole was very long.  I estimate the entire course was 2.5 times longer than the average mini-golf course as each hold had loops and inclines, as well as descents.  I’d definitely go back there again.

It was the 18th hole and I had a couple stroke lead going into it.  The final hole was a long one.  It had to descents so you putted the ball and it dropped, and then it dropped again and then it had to roll towards the end of the green to sink into the hole at the end.  But, there was a catch.  Right before each decline there were some rocks.  You had to hit the ball between the rocks; if you didn’t your ball would bounce back at you.  There were two spaces between the rocks, a narrow space and a narrower space.  Each decline had the rock hazard.

I lined up to take my shot.  I putted… and hit the rocks and it bounced back.  "Great," I thought.  My ball bounced such that I had to hit it between the narrower opening.  I took my next shot and the ball… bounced back again.  "Argh!" I exclaimed.  I had wasted two shots.  I lined up for my third shot and hit it between the narrower opening and it went down.  It then went to the second decline and hit the rocks again and bounced around.  "Gasp!" I gasped.  It bounced on the rocks… "Gasp!" I gasped.  After bouncing for a freaking eternity it finally settled down on the final part of the green.  It was 25 feet from the hole.  I was now at 3 strokes.

My nearest opponent had already sunk his in two strokes.  That meant that in order to win, I had to sink this shot from 25 freaking feet oot.  It was going to require a miracle.  I looked up at everyone and said "Hey, what will you give me if I sink this shot?"  Everyone laughed because it was more or less impossible.  I was a couple of inches off the rocks (meaning I couldn’t do much back swing).

I said to myself "I’ll try my best."  Just then I heard a voice in the back of my head.  "No!  Try not.  Do, or do not.  There is no try!"  I looked around and there was no one behind me.  I took a deep breath and took a swing and pushed the ball forward.  Immediately I saw that I had hit it wide right.  "Aw, crap," I said, I was going to require another stroke.

But then it started to break to the left.  "What the?" I said.  It continued to roll forward and break gently left… and rolled forward with a gentle break… and it went into the hole!  I sunk the putt from 25 feet out!  I had salvaged 3 perfectly bad shots with a miracle shot and I won the game by a single stroke!  It was a miracle and the best part is that there were people around to witness it!  I jumped and shouted "Yes!" and collected a round of high-fives from all the people who were watching.

Ah, miniature golf, what a great game.

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A certain organization, whose membership consisted of gagwriters only, was having its annual dinner at a swank hotel in New York City. One of the membership rules of the organization was that the members would never actually tell a joke or a gag to each other. They had memorized all the standard gags by
numbers, and instead of telling the joke, they would save time by simply calling the number of that particular one.

During the dinner, as a situation would present itself, and any of the comedy writers thought of a gag to fit the situation, he would call the number, and shouts of laughter would invariably go up. "Number 148," called one—peals of laughter. "Number 204," shouted another—more laughter. Towards the end of the
dinner, one of the new members shouted "Number 212," and was greeted by a loud silence. Whereupon his neighbor turned to him and said, "You’ll soon learn, my friend, that it’s not the joke that’s important, but the way you tell it!"

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A few years ago, I purchased a trick created by one of my favorite magicians, Guy Hollingworth.  Hollingworth is one of the performers whom I model myself after.  The trick I bought is called Once Upon a Time.  It is a trick that is a deck of cards that is not a regular deck, it is a deck with words on one side (all the same words), and on the other is a series of pictures.  There are three stories: The Three Bears, Cinderella, and Jack and the Beanstalk.  The one I liked the most was Jack and the Beanstalk.  The trick is essentially a children’s story but it also plays well for adults.  What you do is tell the classic children’s story with cards, doing magic effects in the mean time.


One of the things I have learned in magic recently, after reading Strong Magic by Darwin Ortiz, is that if you are performing a trick and telling a story, cast yourself as the hero of the story.  In addition, it is useful to have a villain because this creates tension and conflict.  At the end, the hero should win.  That’s how good Hollywood movies are made, that’s how good tricks should work.  In this story I don’t cast myself as the hero, Jack is the hero.  However, the giant is the villain and in the end, Jack wins.

The problem I had with the story of Jack and the Beanstalk is that in the classic tale, Jack himself is ethically challenged.  He climbs the beanstalk and steals the giant’s bag of gold simply because he needs it.  He then steals the golden goose and then the magical harp.  Basically, Jack is a thief.  When the giant comes after Jack to retrieve what is rightfully his (in the story, the harp cries out to the giant that it is being stolen) Jack chops down the beanstalk to kill the giant.  By stealing what is not his based solely on his need, Jack is basically a socialist.

I had to modify the story.  I flipped things around a bit to make Jack appear more moral.  The reason they are poor is because the giant is terrorizing the town.  Before Jack steals the bag of gold, the giant announces that he himself has stolen it — from some orphans.  Before Jack steals the golden goose, the giant announces that he stole it from one of the members of the audience.  Before Jack steals the harp, I point out that the giant killed the town doctor for no good reason and was now going to destroy the harp which has the powers to cure people.  My modifications were designed to make the giant a true villain and make Jack’s actions look like an act of divine vengeance.  At the end, the townsfolk live happily ever after because Jack has vanquished the evil giant.

I think my version works much better.  In the end, the hero has won and the villain is defeated.  There is true conflict and it is resolved at the end.  I think I can refine it a little more but this will do for now.


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The most common question I receive, when I tell others that I am getting into real estate investing, is why don’t I simply buy my own place larger than I need and rent out a room to someone?  That way, I’m building equity instead of simply throwing away rent and I can live in the place at a reduced rate.  This question is the one I get the most, and it’s often rephrased such that people instead are giving me advice, that is, this is a better way to do it than looking for an investment to generate cash flow.

The answer to the question is that buying my own place and renting out a room does not solve the larger issue of generating investment income through real estate.  While buying your own place does make financial sense, it is not the most efficient way to invest in real estate.

To begin with, everyone has to live somewhere.  That includes me.  So, no matter what I do, I’m going to have to live some place.  At the moment, I like living where I am living.  I’m in a 1-bedroom that is right off the freeway, close to everything I want to be close by to.  Thus, I am quite fond of my location and don’t want to leave it.  Secondly, I’m not sure I really want a roommate.  I’m quite happy living alone, I get all the privacy I want.  Third, my rent is not breaking me.  I got a good deal last September and I can afford it.  Thus, the issue of me living some place vs investing in real estate are somewhat related but they are not dependent on one another.  I have to invest in real estate regardless of where I live.

Next, real estate investing is to generate liquid income.  If I buy a property and rent it out, or flip it, then I am using someone else’s money to build equity.  I can buy a place and pay in equity, but if I buy a place and someone else puts in equity then they are doing all of the work for me.  Accessing that equity later on means I have more leverage; the money that they put in I can put to use later on.  I still own the property but the tenant is still making the mortgage payments. 

Next, real estate investing lets me buy multiple properties.  If I buy two or three properties, I can rent out each one separately and let the tenants build my equity and pay me a little bit of money each month.  I can’t buy two or three of my own houses and live in each one of them.  So, I’m not looking to buy a single property, I want to buy a chain of them so I have to invest in real estate anyhow.

Finally, later on, the properties will likely accrue in value (especially in Seattle).  Some time down the road I’ll be able to refinance, or sell a property and use the proceeds to buy a house that I would like to live in.  In other words, I can use the leverage of multiple properties to get me the things that I like.

So you see, buying a place and renting out a room doesn’t see the bigger picture.  I am building equity, but I can’t really access it for years down the road.  Later on down the road, I will have some flexibility with it, but if flexibility with equity is what I am after, why not simply buy a bunch of investment properties right now?

That’s the way I see things.

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One of the restaurants that I quite like here in Redmond is called "Desert Fire."  The reason I like it is that while the food is perfectly fine, they give you free breadsticks.

I am a big fan of any restaurant that gives you free bread.  I cannot emphasize it enough, I like free bread.  Back in Winnipeg, the Old Spaghetti Factory at the Forks served free bread before your meal and I liked their bread (food was also okay).  But I always looked forward to going there.  Thus, if you’re a restaurant and you serve free bread, I’m your guy.  I just like bread.

Desert Fire has great breadsticks.  They are warm and they have a type of butter mixed with salsa (not the dance, the condiment).  It’s really good.  Whenever I go there, I can’t wait for the breadsticks.  But today, I went there with a bunch of friends.  They took our orders… but our bread never came.  What the heck?

We asked where it was, and they told us it was coming.  I was soundly disappointed.  I like this place but I love the bread.  I am a big fan of bread in general, and the fact that I didn’t get it deeply disturbed me.  The breadsticks did eventually arrive during our meal, but it wasn’t the same.  You see, breadsticks are best consumed prior to the meal, not during the meal.  I mean, come on.  So while I did get my free breadsticks, I must admit that the experience wasn’t the same.


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As I mentioned in my previous post, I picked up a new talent in 2007 and 2008.  All in all, I can do reasonably well or enough to get by a dance with one partner (two would be boring because I’m doing the same thing over and over).

The following are the ones I can do:

  1. Argentine tango – The first dance I learned.  This is one of the more difficult ones to lead and I started off with it.  It is an intense dance, but there aren’t too many follows there that can do it.
  2. Night-club Two-Step – I know a handful of moves but I like this one because it’s easy to do.  Not only that, it is an enjoyable dance and is nice slow dance.
  3. West Coast Swing – My best dance, I have been taking formal lessons for this for five months.  This is one of the better dances to learn because there are so many songs to dance it to.
  4. Samba – the first dance I learned on an open dance session.  This is one of the faster Latin dances but also one of the more difficult ones because of its speed.  I actually don’t find it too difficult, however.
  5. Rumba – a slower, smooth dance.  This is one of my better ones because it is slower, I can think about the moves I am going to do.
  6. Cha cha – this is one of my mediocre ones.  Of all the dances I do, this one is the hardest to find the rhythm.  I know limited moves for this, but the ones I know are pretty cool.
  7. East Coast Swing – East Coast is one of my poorer dances of the ones I say that I can do.  The reason is that I know only a few moves and I do them over and over but there are many more I could do.  I need to take some lessons.
  8. Waltz – One of my favorites.  I found waltz very difficult to do at first because I couldn’t get the foot timing at all.  I could do the basic step (Left-Right-Left, Right-Left-Right) but I couldn’t repeat the sequence.  I have since corrected that and I now I really like it.
  9. Salsa – This is one that I have picked up ad hoc.  I haven’t taken lessons, people have shown me stuff on the floor.  I now know 8 moves, I think if I can add 4-8 more I will be set.

This should not be interpreted to mean that I consider myself a skilled dancer.  On the contrary, I realize that I am still a novice and I try my best to improve each and every time.  I am grateful my follows are so patient with me as I attempt to make progress each week I come out to practice.  I do have fun doing it, and hopefully my follows do as well.

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Last year, in September 2007, I decided I was going to learn a new skill: I was going to learn how to dance.  The reason is I was tired of going to public events where people would dance and I was always feeling rather foolish about joining in because I didn’t really know what I was doing.

So, in the fall of 2007, I started taking Tango lessons. The style that I originally learned was the 8th style, which is done as a close embrace.  It is the Argentine Tango that is literally done in a close embrace (ie, partners dance chest-to-chest leaning on each other).  Dancing that close has its positives and negatives.  From the positive side I find it quite easy to lead because my follow can literally feel my lead through my chest.  On the negative side it’s more difficult to do moves because with less room between the two of us, there is less room to maneuver and execute moves gracefully.

I then moved onto a different instructor and learned Argentine Tango – Open Embrace.  This dance I originally found much more difficult to lead but now I actually find it easier because I have gotten used to is with other dance styles.

Since learning Tango, I have picked up a few other dance steps.  I go down to a dance studio on Fridays where they have an open dance session for an hour and teach a few moves from a series of other dances.  I find I have to go to at least two of these open dance sessions in order to learn a dance sufficiently well if I want to keep a dance from getting boring.  So, for the past five and a half months, that’s what I have been doing on Friday evenings – trying to learn a new couple of moves in order to improve my skills on the dance floor.

I’ve come to the realization that I am not an athlete (not a good one, anyhow, though I’m getting better at badminton), but maybe I can be a decent dancer.  At least that skill shouldn’t diminish with age.

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This past Saturday, there was a Seattle version of the Amazing Race.  Myself and a friend signed up for it for Seattle and it happened today.  We took along a lot of supplies like an extra jacket (Seattle isn’t all that warm even in June), water, some snacks, laptop, phone… and so forth.  We were well prepared.  That preparation would come back to haunt us a little later on because it was a pain carrying around those heavy backpacks.

We got down there and my friend and I decided to pair up with another team to work together.  We managed to find a pair and my friend wanted to ask them right away.  I said "Wait" and suggested we take a look around to evaluate all of our options.  I’m like that; I always want to see what my options are before I commit to something even if the first selection looks good.  We took a look around and while there were several options, we ended up coming back to the original pair (actually, the second pair — my friend offered to pair up with the first couple that showed up after we did but they rejected our offer.  I wouldn’t have offered right away, you never swing at the first pitch).

So there we were, we had two teams of two.  We waited until 12 pm to get the instructions, opened up the clues and were off.  We could only take public transit or travel by foot.  We went around to various places and took pictures of ourselves on the scavenger hunt.  We didn’t scavenge all over town, only the downtown for the most part.  But without taking public transit we would have had to walk everywhere which easily would have increased our time by 50%-100%.

Working together with the other team worked out positively.  They solved a couple of clues that we didn’t get though maybe could have, but my friend knew the city of Seattle pretty well (and I am no slouch either) and so we could map our directions and plan our trips better than they could have.  Still, the symbiotic relationship was a bonus.

Except at the end.  We were wandering through the Seattle Center (near the Space Needle) and there was the final clue: each team has to take a picture of each team member sliding down a large, inflatable slide.  So, we climb up the slide and then the other takes a picture.  Ourselves and our team-up team each got to do it, and since the slides were side-by-side we could both conceivably finish at the same time (one team member climbs the slide, slides down, takes the picture and then the other does the same thing).  But here’s the problem: when my teammate was sliding down the slide, I couldn’t get his camera to snap and take the picture!  I had to instruct him to slide down again.  It was then my turn to do the same thing, but again when I slid down his camera didn’t snap and I had to do it again.  By the time we got finished, our other team had long since bolted.  I estimate that we lost at least 45-60 seconds redoing the sliding.  The other team ended up finishing ahead of us.  I can’t say I blame them, we would have done the same thing in their position.

Still, when all was said and done, out of 150 teams, my team (the two of us) came in 15th.  That’s good enough to finish in the top 10%.  There were prizes for the top 3, and the top 25 teams qualify for the national championships (!) in Las Vegas in November.  So, my friend and I both figure that we’re going to head to Vegas this November.  We’re planning to try Portland this September in order to practice in a city in which neither of us is familiar.

That’s my Amazing Race story.


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