Holiday Shopping: Yikes!

As I write this, it is one day before Halloween, one day before North Americans jive to the Monster Mash and Time Warp, shed their standard wardrobe in favor of a scary, weird, sexy and/or funny costume, watch a horror flick or two, and feast on anything and everything sweet and tasty and completely and utterly unhealthy (except for that dentist, you know who you are, who seems to live in every neighborhood, taking perverse pleasure in handing out toothbrushes and floss and moralizing lectures to kids bent on releasing their inner hound and getting as much candy as they can while the getting’s good).

It’s a totally chilled holiday. A spirited (think ghosts and goblins and spooky pumpkins) celebration void of gifts (other than candy) and sentimentality (except for those who wake up the next morning wishing they hadn’t gorged on chocolate or generously imbibed other feel good, mind altering products; now realizing that gluttony comes with costs, i.e., morning after cymbal drum pounding headache and/or digestive system staging urgent revolt). But hey, even for those who over indulged, the body has an amazing way of righting the ship, eventually, and memory is ever so short that we do it all over again next year.

And before you’ve taken down toilet paper decorations wrapped around colorful autumn trees, and recovered from wolfing down half your kids candy while blaming missing goodies on the sleeping dog, out comes the same old jingle bell ditties, blaring over and over and over on AM radio, because up next on the Gregorian calendar is THE HOLIDAY SEASON.

You know what that means? Open up your wallet because this is make or break time for a whole lot of retail stores and there’s tremendous societal pressure on consumers to buy stuff (see, we’re not really individual people; rather, the corporate world sees consumers as pods existing to be persuaded, cajoled, encouraged, to spend, spend, SPEND whatever you have and more than you have).


Know This About Gift Cards

But now is not the time or place for rants against mindless consumerism (for those so inclined, take a peek here). Rather, this post is for those who don’t have time or energy to buy the perfect gift for everyone on their list, opting instead for a gift card.

It’s a huge, colossal, business, gift cards, with about $150 Billion spent on cards annually. And they’re convenient and almost as good as cash.

But even if you give an iTunes card to a music lover, unlike cash, there’s a decent chance that music lover will not use all of your gift. Because every year, several billion dollars worth of money spent on gift cards remains unused. And guess who gleefully pockets the unspent dough? The company issuing the card. Probably not the gift you had in mind.

Then there are those people who place the gift card in a drawer and promptly forget about it. Others lose the cards. And some wait too long before using the card, letting it expire before the feeling of shopping takes hold. Or the card balance is reduced by activation fees or other issuer fees: don’t use the card within a limited time period (usually 12 months) and the card issuer may charge a monthly inactivity fee. For the most part, store specific cards aren’t saddled with extra fees, but you typically get nickel and dimed with Visa or MasterCard branded cards (i.e., monthly service fee, cash advance fee, foreign currency conversion fee …need I continue?)

As for the card buyer, mostly with the Visa and Mastercard gift cards (essentially a debit card), you’ll be paying a privilege fee to purchase the card (anywhere from $3-$15). And if the card is lost or stolen, some issuers will replace the card for a fee, others say you’re out of luck.


The Rap

“They’re so impersonal.”

“Talk about giving no effort.”

“What if the card issuing retailer goes out of business before the card is used?”

These are common refrains surrounding gift cards, along with carping about card fees and people not using, or losing, the cards.

On the upside, gift cards allow people to buy what they want, making it more likely they will enjoy the gift; not to mention less stress for you, the purchaser, who no longer has to worry about what the heck you should buy Sandy or Thor. And for last minute mad about town shoppers, well, you can send e-cards instantly to a recipients email.

Personally, I prefer giving cash. Really. I mean, if the tackiness element has been removed from gift cards, why does it remain for cash? Is there any difference? A gift card is, essentially, cash in the form of a pretty little socially acceptable seemingly fun to receive card. And the bonus is that, other than potentially getting lost, cash doesn’t have any hangups, i.e., fees, expiry dates or restrictions on using funds at only one store.

Ya, I know, that’s just poor taste! Uh huh. And taste evolves. That’s how gift cards have come to be THE most requested gift for the holidays.

Here’s the thing: I’ve given cash and I’ve given gift cards. Why? Plain and simple: convenience and laziness. And it’s not something I’m proud of. Nope. Instead, when it comes to gift giving, what makes me feel good is giving effort. Really, just thinking about who is the recipient, understanding their wants and needs, and making an educated guess as to what they would like. And if I’m stuck, then I call them and ask: ‘hey, I want to give you a gift. What would you like?’

That’s a gift in itself, thinking well about someone else, focusing on someone else, wanting to do something nice for another person. And if you live in the same city as the recipient, you could even do something totally radical and old fashioned like, oh, I don’t know, spending time with the recipient, hanging out together, talking about life, laughing, sharing a cup of hot chocolate or whatever moves you. That’s a true gift that never goes out of style: sharing our self, our caring nature, our friendship, with another person. Sure, an outdated notion. But one that we would do well to reintroduce into our life.





Do You Feel Lucky?

A fellow investing friend of mind (let’s call him High Flyer) likes to invest in penny stocks (i.e., share value less than a buck). And though he knows I don’t touch highly speculative stocks, he still likes to share his excitement with me. Every time he does so, I remind him that he may as well be laying bets at a Vegas roulette table given the high risk nature of companies with minimal revenue, profit, and business prospects. But High Flyer comes by his name honestly: he’s a gambler and gamblers get their kicks through taking risk that us non-gambler types shy away from.

A few weeks ago, High Flyer is telling me why I should I buy a company called Petrolia Inc. (CVE:PEA). PEA is a Canadian based oil and gas exploration company. In Canada, given the outsized contribution of the energy sector to the national economy, these kinds of companies are a dime a dozen, all eagerly searching for pools of black gold.

That said, the vast majority of them do not go on to find Alaskan sized gushers. Rather, they stay small, burn through money provided by seed investors (i.e., people who fork over the initial dough necessary to get the business running) and eventually shrivel and die.

Though High Flyer was his usual buoyant self when trying to sell me on buying PEA, I listened to his harmless ramblings in stride, eventually telling him I’m not particularly fond of flushing money into a sewer. Not that I expected High Flyer to follow my lead on this one. Because his style is to go it alone.

So, in keeping with his nature, High Flyer bought a fair amount of PEA shares. And yesterday, he calls again to inquire whether I loaded up on PEA, knowing full well I didn’t.

“That’s too bad,” he says with a glint in his eye (sure it was a telephone conversation, but I swear I could hear the glint).

“Why’s that?” I ask, playing the game, knowing he desperately wants to share his good news.

“Because they just announced payment of a one time 25% special dividend. Meaning, I just earned myself a 25% return in two weeks! And this is before the shares have started to take off! See, you should have listened to me, Mr. Bigshot BuddhaMoney!”


What’s Luck Got To Do With It?

Daniel Kahneman, Princeton psychologist, recipient of the 2002 Nobel Prize in Economic Sciences, known for his work regarding the psychology of judgment and decision-making, and for playing a significant role in creating the field of behavioural economics, wrote a bestselling book titled, ‘Thinking Fast and Slow’. For anyone who manages money (that would include, um, let’s see, well … just about everyone), and for anyone who wants to learn more about the chaotic and fascinating workings of the mind, the book is an informative read.

Okay, inadvertent book plugging aside, here’s a noteworthy comment from Kahneman:

“There is general agreement among researchers that nearly all stock pickers, whether they know it or not – and few of them do – are playing a game of chance. The selection of stocks is more like rolling the dice than like playing poker.”

Kahneman doesn’t believe that ordinary investors (i.e., if you’re not Warren Buffett, you’re ordinary; okay, slight exaggeration, but not by much) are able to beat market returns.

Disagree? Think your hand picked investments can perform better than an S&P 500 index ETF over the next 5, 10, 40 years? Maybe. But not likely.

Marketwatch recently reported that a mere 1 in 20 actively managed large cap (i.e., holdings include companies like Pepsi, Ford, Google, etc.) mutual funds beat returns of the S&P 500 index over the past 15 years. And across all fund categories, more than 80% did worse than an S&P 500 index ETF.

Add to this billionaire extraordinaire all time greatest investor Warren Buffett stating that, after he’s passed on to that hallowed place where genius investors pay no heed to earthly concerns such as money, his 80 or so billion dollars should be invested as follows:

“My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)

I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”

In the end, we all roll the dice. For some, however, (i.e., Buffett) the dice are loaded in terms of knowledge and information facilitating more advantageous decision-making. Yes, these people will lose on some investments, but they win more often than not.

As for the ordinary investor, our dice rolls are governed more by the Gods of Chance, and the Gods of Chance really don’t give a hoot as to whether or not you win or lose money, whether or not your bills are paid on time or not.

So before buying your next stock instead of the safe and boring (oh, but safe and boring are the best type of investments!) index fund, ask your self: do you feel lucky? And even if you do, know that the long odds point to you losing.


“Success = talent + luck; Great Success = a little more talent + a lot of luck.”

This is another quote from Kahneman who says that luck plays a large role in every story of success. Okay, if this is true and accurate, the challenge for investors is distinguishing between one’s own skill and luck.

Unfortunately, when short term success comes our way, too many of us attribute this to skill. And when we lose? Well, naturally, that’s just bad luck.

Actually, win or lose, like Kahneman says, it’s a combination of skill (or lack thereof) and luck. And to think otherwise means you are under the spell of that little something we call greed, accompanied by a healthy side dish of delusion.

For those who truly want to evaluate their investing chops, chart your portfolio over a period of at least ten years. Then compare results to the S&P 500 performance during the same time period. If you outhit the index, only then can you count your self among those whose skill plays a larger part than luck when it comes to investing.


High Flyer Grounded

PEA looks like a winner, short term at least. Not only did High Flyer earn several thousand dollars from the company’s special dividend payment, but the company will be reverse-splitting its stock (i.e., shares are merged to form a smaller number of proportionally more valuable shares) so shares that were worth 40 cents will now be worth $4.80.

The share merger in itself doesn’t make the stock more valuable but it does remove the company from penny stock ranks. In turn, this may serve to attract more retail and institutional investors who attach more credibility to non-penny stock shares. Once again, in turn, this may serve to lay a foundation for further share price increases should the company’s business perform well.

Notice my use of the word “may”. Because there are no guarantees. High Flyer is still rolling the dice, even though these dice now appear to be slightly more advantageous.

And if PEA shares zoom, well, good for High Flyer. He could use a win. Because for every winning horse in his stable, he’s had five who’ve been taken out to pasture. That’s what happens when you roll the dice often: you win some, you lose lots.


Trust Your Real Estate Agent?

The first time I bought a home, I didn’t use a realtor’s services because I wasn’t convinced that they brought added value to the table. Granted, as a buyer, the realtor walks you through each prospective home, and provides detailed information about the home, current market conditions, and comparable sales statistics in particular neighborhoods. But realtors don’t have a lock on this kind of information; it’s widely available on a host of different websites found through a simple Google search.

As for the house walk through, I assume they mean well but I find realtors to be more nuisance than helpful. I mean, as soon as we walk in the front door, they start selling, pointing out what they see as appealing features, staying silent about the negative aspects, and offering a fix for any troubling issue mentioned. I find myself having to focus not only on inspecting the house but also trying to block out incessant sales pitches.

Most importantly, I was led to believe that ‘your’ realtor is an objective advisor, on your side, giving to you the good, bad and ugly about your potential new home, protecting you from being sucked into a bad deal, and negotiating the lowest price for you.

Just like people ‘lawyer up’ in a lawsuit, when buying a home, you ‘realtor up’ because it’s you and your realtor pitted against the seller and their realtor.

But it’s the rare realtor who’s looking out solely for your best interest. Fact is, realtors are in the sales racket. They get paid only when deals are struck. And as the person bringing a buyer to the table, their role is one of inherent conflict: buyers realtor exists to encourage buyer to buy! With the ultimate goal being consummation, you’re better off doing your own diligence if you don’t want to get f —-d.


But … ‘MY’ Agent Is Really Good!

Ask your friends, they’ll recommend a realtor. ‘Mine was so good, you have to use her.’ Or, ‘Listen, this guy’s cool, he just lets you be and doesn’t push you to buy. You’d be a fool not to use him.’

I don’t get it. Why is it common for people to get attached to their realtor?  Well, here’s my guess: it’s human nature to trust. We want to trust. We want people with whom we have relations to be trustworthy. So, we project trust onto the realtor, the person who has smilingly told us that they will take care of us, they will ensure that we get the home we’re looking for. And why shouldn’t we trust someone who holds them self out as an expert when it comes to helping folks buy and sell homes?

Now, let me be clear before continuing: I’m not anti-realtor. Just like any other profession, some realtors are ‘good’ people, some not. My point rather is to shine a light on realtors, to encourage you to recognize the bluster, the snow jobs, and see when realtors are not on your side, are not acting in your best interest.


Don’t Worry, Be Happy

First off, the intent of this heading was not to plant the song in your head. And if it’s now going round and round, the trick to getting rid of it is to think of another song. But I digress.

Realtors love you when you first meet. Visibly excited, they ask questions about you and what you’re looking for in a home. They want to be your pal, ingratiate themselves to you. And they tell you how much experience they have, and whatever area of town you’re searching, they know that area inside out. In other words, realtors know that in order to sell you a house, they first have to sell themselves to you.

The realtors goal is to have you believe that their interests are aligned with yours; that they want you to buy the ‘right’ house just as much as you want to buy the house that perfectly fits your needs and wants. So in these early days, everyone’s happy and motivated to get to work.


Grinding Out The Search

As time marches on, after you have viewed five, ten, twenty or more houses, the realtor is wearing down, calculating whether or not their effort will be financially rewarded, calculating whether or not to cut and run. But before doing so, the realtor will start banging the drum for you, buyer, to broaden your search, spend more money, and/or lower your expectations. Basically, whatever it takes to convince you to stop looking and get on with buying so they can get paid.


Found It!

Lets say you find it; the house you want to make your home. And now you’re ready to make an offer. Naturally, you defer to the realtor, the expert who has been through the process countless times. That would be a mistake. BIG MISTAKE.

Because the realtor can smell the deal closing at this point, their goal is keep you moving forward, toward signing on the dotted line. So, what happens? First, realtor will try dissuading you from negotiating. Depending on the market, you’ll be encouraged to either offer the asking price or above asking to stack your odds of sealing the deal, and avoiding any drawn out negotiations that may or may not end with a handshake.

Here’s the thing, the list price is made up. Not exactly out of thin air, but it’s the sellers agents guess as to how much someone may pay for the property. Not how much it’s worth, but how much the seller may get. If you’ve done your homework, then you have an idea as to the property’s value and this should be your opening bid.

Low Ball. If you offer less than list price, your realtor may come back with, ‘oh, if you do that the seller may take offence and not want to strike a deal with you.’ This is baloney. Buying and Selling property is a business transaction. Seller always retains the option to say no to any offer. Worst case scenario, seller says no. Then you decide whether to increase your offer.

False Conditions. A sad, common tactic is for the realtor to manufacture a false sense of urgency. You’re told that if you want a shot at the house, it’s best to draw the offer immediately because it’s a hot property and other bids no doubt will be pouring in anytime now.

Listen, this is a massive purchase for you. Don’t rush the process. Ever. Think it over, discuss the pros and cons, and only when you feel ready, then you make an offer. If you feel the slightest bit of pressure from the realtor, walk away from them, saying you’ll call when you’re ready. And in the interim, if another offer is accepted, so be it. The house wasn’t for you.



Along the trail of my first home buying experience, an offer was placed on a property that I didn’t end up buying. The offer came in slightly above list price because it was a strong sellers market and I thought the home was undervalued. The realtor I used encouraged me to offer ‘as much as I possibly can.’

Four hours later, realtor calls me. Tells me ‘You’re not going to believe this. I’ve never seen this in all my years. Someone else bid the exact same price as you. So, I think you should raise your offer.’ Oh? By how much, I ask. Again, realtor trolls out the same line, ‘as much as you can possibly afford.’

At that point, I walked away. Why? Because realtor was anything but on my side. Because who knows if there even was another offer on the table? Maybe seller’s realtor implied there was another offer, and my realtor was all too happy to read between the lines and come back to me with an urgent request to immediately increase my price. If realtor was actually on my side, they would have provided fair guidance, told me to think about it, suggested parameters for a sweetened bid, rather than hoping I would up the ante by a silly amount.

This happens. Lots. Because buyers realtor has two goals in mind: get the deal done as quick as possible, and get the highest price possible. So really, you’re negotiating against your realtor! And in any negotiation, always be willing to walk away; this is your power.


Looking Out For Number 1

In the house buying game, you are Number 1. And you’re better off looking out for yourself, educating your self about how realtors operate, and learning about the local real estate market before and during your search.

Do all realtors operate as I’ve described in this post? No, of course not. But enough do that I thought it worthwhile to share my thoughts and experience. That said, rely on your realtor to show you houses and maybe get you front of the line access to new listings. Nothing more.

As for making a decision on what property to buy and negotiating, cut the realtor out of the picture and do this on your own. Or, if you’re not comfortable on your own, hire an independent, objective third party, such as an attorney, to fill that role. Sure, it will cost you a few bucks. But the cost will be so much less than what you would have paid by relying on someone who may be working against your best interest.





Whether to Rent or Buy: Part 2

Continuing where we left off during the most recent post … several people contacted me to say that I’m wrong. Just plain wrong in stating that, “paying monthly rent is no more throwing money away than is paying mortgage interest and property taxes.” These folks insisted that rent payments are akin to flushing dough down a Texas sized sinkhole.

I thoroughly appreciate the feedback. Because a broad spectrum of opinion is always welcome. Sharing different perspectives furthers discussion, prompts us to consider alternate points of view and re-examine our own. So in the spirit of stepping back, let’s take another look-see.


Have You Considered This and That and This and That and …

Let’s go back to the starting point: should you buy or rent (to be clear, this post is referring to your primary residence)? But let’s not seek an answer just yet. I know its tough sometimes, to just sit with uncertainty. And it feels good, a sort of sense of completion or achievement, when picking a side and saying we’re either for or against.

Still, like many issues in life, this issue does not readily lend itself to an across the board, simplified black or white answer. Because any answer to the question of, ‘should you buy or rent’, is going to depend on evaluating so many factors, and these factors are entirely dependent on your particular situation.


Dig Deeper

Pay rent and it disappears.

Pay a mortgage and you’re building equity in a valuable asset that will eventually be paid off, allowing you to live mortgage free.

On the surface, no contest. Buying wins. So now it’s time to dig a little deeper.

Rent money, yes, it disappears, doesn’t go toward building worth in an asset. So is renting a lose-lose proposition? Aside from sending money into a void each month, do renters reap any financial benefits?

Short answer: yes. Longer answer: Renters don’t incur ongoing expenses such as property tax, maintenance, repairs, and mortgage interest (know that a significant portion of mortgage payments goes toward paying interest, not principal; if you have a mortgage, look at your statement. It will show exactly how much of your payment is allocated to principal, how much to interest). Nor do renters tie up a hefty lump sum in the form of a down payment. As for the building equity angle, true, renters don’t build equity in their home. But that’s no reason in itself to shun renting.

Smart renters take hold of the money saved on property tax, maintenance, repairs, and mortgage interest, and put that money to work in investments other than residential real estate.

This is where renters build their equity. And this is precisely why renting is NOT on par with being sucked into a deep space black hole. Because renting allows for the opportunity to invest and generate equal or higher returns than that generated by owning residential real estate.

Screeeech! That was the sound of a U-Turn. What if renter doesn’t pursue the opportunity to invest elsewhere? Then opportunity is lost and renter is clearly behind the financial eight ball as compared to homeowner.


Home Is An Investment

Is your primary home a good investment? After all expenses, will you come out even or ahead on the money angle when the time comes to sell?

It depends. It depends on your specific situation, how long you stay in your home, whether you bought at the top, bottom or middle of market, the bucks you spend on repairs and renovations, mortgage rate … and on and on. Oh, and really importantly, it depends on the particular piece of earth on which your home is situated.

Meaning? Historically, residential real estate is an investment that keeps pace with the rate of inflation (i.e., returning gains of 2-3%/year). So if your non-real estate investment returns exceed, say 3%/year, then you’re building more equity than the home ownership crowd.

But that’s an average. Real estate is a local game and you have to know your local real estate market. Take San Francisco. If you bought a home in San Francisco sometime in 2008 or 2009 that you still own today, the value of that home likely doubled or more. This, of course, far, far exceeds the historical average return. Heading north, a detached home in Vancouver purchased by a young family back in 2001 would have tripled or quadrupled in price according to today’s insane values. Who needs the heartburn of stock market swings when you have bricks and mortar trucking along at a healthy clip?

Screeeeech! Sure but there wasn’t much dancing in the streets in the good ole’ US of A back in 2007-09 when Wall Street shenanigans brought the red, white and blue house down. More like unbridled panic among many real estate investors, fretting alongside stock market investors. But, like the stock market, if you didn’t sell during the dark days, you’re sitting pretty now.

Okay, so play the long game and you’ll be fine, maybe double or triple or smack a home run on your house? Not likely for most of us. There will always be certain cities that ‘outperform’ others when it comes to investment returns; and there will be certain time periods that we look back on and say, ‘if only I would have bought at the market bottom’. But over the long haul, property prices are likely to conform to their historical average.

So how do we know in advance what city or time period in which to buy a home, to get the most bang for our buck? We don’t. And if you proceed on the assumption that home prices, wherever they may be, eventually regress to the mean, then you can expect (with no guarantees) a 2-3% rise in value during your ownership period.


Home Is Not An Investment

All this talk about renting vs. buying, which one is the better investment, which option costs less or more. Well, there will always be people on both sides of the discussion, convinced that one or the other is the best way to go. But because of all the variables involved, it’s not possible to provide a one size fits all answer.

Not only that but, whether or not to buy a home, a place to live and grow and find peace, is not, at its heart, an investment decision. Rather, it’s a consumption decision. And imbedded in this decision, in addition to financial means, are your values.

Because the most satisfying housing decisions are those made in alignment with our values … and our needs, goals and budget; not market trends and crystal ball gazing at investment growth down the road.




Whether to Rent or Buy: Part 1

Friends of mine (a couple I’ll call The Renters) had been renting the same home for more than seven years. They could afford to buy but chose to rent. The thinking being that renting simplifies their lives. How so? No financial responsibility for repairs, maintenance, or property taxes. No tying up a big chunk of dough for the down payment, nor paying five or six figure sums of mortgage related interest over the twenty to thirty year mortgage term.

Charged with the singular responsibility of sending payment once a month to the owner, not obligated to sink huge dollars into a home, The Renters happily invested their substantial liquid assets in stocks, bonds, and ETFs, and watched their wealth grow, on average, at about 6%/year.

Then their thinking changed. The Owner had delivered a formal notice to vacate. This despite giving his word as recently as six months ago that The Renters were welcome to stay in the house indefinitely. Apparently, owing to an overheated local real estate market, The Owner wanted to cash out while the cash was plentiful.

The Renters were disheartened by Owner’s dishonesty. The more pressing issue, however, was the hard fact that they had a meagre two months to find a new place to live.

Jane The Renter. “We should consider buying. I really don’t like that we can be kicked out of our home at any time.”

George The Renter. “Maybe. But not now. We have only two months to find a place. I don’t want to rush into a huge purchase. And the real estate market has to top out soon.”

Jane The Renter. “Who knows where the top is? Has San Francisco stopped climbing? New York? Vancouver? They’re all insanely priced, going up year after year. Let’s at least consider buying now. Because who knows if prices will continue marching higher or pull back? It’s all a guessing game.”


The Process

Does it make better financial sense to buy or rent your home? There’s no clear cut, one size fits all answer. Instead, there are a whole lot of factors that come into play, depending on your particular circumstances.

But before taking a look see at some of the nuts and bolts factors, lets talk about the most powerful influencer of all: Emotions. How we FEEL about a house, our gut instinct, is what underlies most buying decisions.

Rational considerations, money issues, these tend to fall by the proverbial wayside. Especially when Buyers find their DREAM HOME and claim to ‘FALL IN LOVE’. My advice: don’t fall in love. Ever. With a house. Because it’s not really love, and it’s dangerous to your health.

Sure, maybe I say this because I’m a guy and emotions are buried seven layers below the surface, strategically placed, and difficult to access. Regardless, when making the call to spend THAT KIND OF MONEY, I only want to deal with cold, hard facts.

I want to know all the realities of home ownership, especially all my costs not only in buying the house but, just as importantly, the cost to maintain it. How much will I sink into these four walls every year? Will I stress about mortgage payments? What’s the annual property tax? Will I have to cut spending if I buy this house?

Whatever the issues are, I want to think about them thoroughly, and carefully cost them out, well BEFORE letting anything hinting of excitement sneak its way to the surface.


Save, Save, SAVE!

Despite popular opinion, paying monthly rent is no more throwing money away than is paying mortgage interest and property taxes.

That said, owners seem to have an advantage in that mortgage payments do lead to whittling away the balance owing, and correspondingly increasing your equity (i.e., your outright ownership and financial interest) in the home. More equity translates to less debt that results in more savings, assuming the home’s value remains constant or rises.

Buy a home in your 20s or 30s with a 20, 25, or 30 year mortgage, and by the time you approach retirement, the mortgage is paid off and you’re sitting pretty in the form of a valuable asset that is yours, all yours, goodbye and good riddance to the bank.

Those in favor of renting might argue, validly, that money otherwise applied toward paying a mortgage is invested. And investments will grow at a pace equal to, or greater than, the home’s value.

Fair enough. Certainly with a well thought out investment plan, in 20 or 30 years, The Renters assets may be similar to, or even greater than, a homeowners. Still, being human, we may know what’s good for our long-term health but not necessarily take steps to make our self healthy. Meaning, will The Renters consistently contribute money to their investment account or will they be tempted to use that money to splurge on winter vacation down south each year when they’re desperate to escape cold weather?

The thing with home ownership is that you’re forced to save. Don’t pay the mortgage and you lose the home. That’s incentive to enough to make payments.


Up, Up and Away

When The Renters sold their home seven plus years ago and first started renting, they were paying $2,000/month. With the increase in home property prices, rents have also jumped, and they’re now paying close to $3,000/month for a four-bedroom house in a pleasant neighborhood.

Could rents go higher still? Yup! Conceivably, rents could rise every year even in areas with legislated rent controls (most rental control laws limit the percentage by which landlords may raise rent, but don’t prohibit annual rent increases; also, rent control laws are not written in stone – they may be watered down or disappear one day depending on the political flavor of the moment).

And the more rents rise, the less discretionary income available to The Renters, the more rent payments negatively impact their standard of living, and the more it makes sense to become a homeowner.

In buying a home, The Renters would know their exact mortgage payments for the duration of the mortgage term. If property prices continue to rise, well, The Renters – um, now presumably morphed into Homeowners – benefit from having secured their home for as long as they like; not having to worry about rising rents or being tossed out; and knowing that their home equity increases whenever property values increase.

Still, should they buy now? While I seem to have temporarily misplaced my crystal ball, I will offer that hot markets don’t stay hot forever. When the market will cool, that’s anyone’s guess. But if The Renters can be patient, then they’re more likely to avoid overpaying and rushing into a meaningful decision that is best made cautiously. Even if it ends up being their dream home.

I’ll have more to say on this topic in Part 2, to be posted in a few days.

In the meantime, if you’re in the mood to plug in some numbers and get a good feel as to the merits of buying or renting in your neighborhood, check out the NY Times calculator:





Airbnb: Read The Fine Print

I used Airbnb for the first time when traveling to northern California this past winter. The sign up process was free, fairly straightforward, and I assumed I would be paying less for decent accommodations than I would otherwise pay at a hotel. After reviewing many places together with the ‘Host’ profiles, I chose a place that also had sixty-five positive (and no negative) reviews.

Within ten minutes of arriving, I decided to leave. Because the place I booked was in the middle of a construction zone operating from 7:30 a.m. to 6:00 p.m., with a condo being built on one side and a two-story home razed on the other. And the place had a putrid odor throughout, as if the owner’s preferred air freshener was Lysol. And the windows didn’t open. And there were giant cans of Raid strategically placed in each room. I took this as a hint that I was sharing residence with a family of monster spiders that regularly consumed other large insects or small rodents.

Okay, listen, complaining isn’t my thing, and I’m sure I would have survived, maybe leaving after one week with a minor respiratory ailment or pounding headache. But I wasn’t there to survive and pop Tylenol like candy. Rather, when I’m on vacation I like to relax, leave my worries behind and, importantly, not be concerned with losing a finger tip to a hungry rat.

So I checked out of Lysol Central and into a comfortable hotel that revealed no obvious signs of endangering my health; a perfectly pleasant non-hostile environment that I have come to associate with the word ‘vacation’. And for this decision I paid a hefty financial price, having forfeited my pre-payment to Airbnb and having to cough up for hotel costs. Oh well. I placed this experience in the ‘live and learn’ category.


Pay Now and Receive Discount, or Pay Later?

When reserving a hotel room, there’s often a choice between the pay now and pay later option. Pay now and receive a small discount on total room price in exchange for your payment being non-refundable. Pay later, forgo the discount, and receive the twin benefits of being able to cancel your reservation within 24-48 hours of reservation date, and not paying for your stay until check-out time.

As a vacationing consumer, I like maximum flexibility when it comes to making payment because you never know what twist or turn life will take. So I typically forgo the room discount.

For me, paying a slightly higher rate and retaining the option to cancel my reservation is like taking out an insurance policy; I’d rather pay a bit more up front than get stuck with paying for a week’s worth of a hotel room that I didn’t use because, for one reason or another, plans changed.


Airbnb’s Awful Refund Policies

Airbnb has six different refund policies. This is ridiculous in itself. One simple policy would surely suffice. Anyway, I digress.

Back to the Lysol experience, I could have contacted Airbnb and complained and asked for my money back. Then Airbnb would have contacted the Host to request their feedback. Based on information received from the Host and myself, Airbnb would then decide whether to issue a full or partial refund.

Did I want to be involved in a drawn out bureaucratic tangle? With me being a first time ‘Guest’ on Airbnb, and the ‘Host’ having sixty-five favorable reviews, I chose to eat the loss and avoid the prolonged nonsense of petitioning for a refund.

And even if I did receive a full refund, Airbnb would keep applicable taxes. What?! That’s right. Let’s say you pay $1,000 for your stay. Taxes are 12%, which works out to $120. So your cost with taxes is $1,120. It’s established that you’re entitled to a refund of $1,000 but Airbnb will keep $120 paid toward taxes because … why???

Because they can. Because they’re a company valued at more than $30 Billion (USD) and their heft and popularity means they can set the terms.


How Airbnb Makes Money

As the facilitator, the middleman, Airbnb occupies a sweet spot, taking money from the Host and Guest.

Guest Fees. When I booked my reservation, the daily cost was $175 @ seven days for a total of $1,225. When I went to the payment page, here’s what I found:

$1,225 + $147 (Airbnb service fee) + $250 (Host cleaning fee) = $1,622. And taxes on top of that. And this is typical, with Guests paying between a 5-15% service fee to Airbnb. (note that Hosts can charge whatever the market will bear re: cleaning fees).

Hosts Fees. Hosts pay a 3% (of reservation cost, before fees and taxes) service fee for each reservation.

Currency Exchange Rate. This is one you may not know about. Let’s say you’re an American resident traveling to Europe. When you book that ever so charming Parisian pied-a-terre, your credit card will be charged in Euros. And Airbnb will determine the currency exchange rate from USD to EUR. Well, just know that you will not receive a rate of exchange beneficial to you, and Airbnb is making money off the currency conversion.

Foreign Transaction Fee. As if it’s not enough to swipe a piece from the currency exchange transaction, Airbnb charges a separate 3% currency conversion fee. Why? Absolutely no reason other than a cash grab; there are no additional costs incurred by Airbnb to accept payment via credit cards issued in different currencies.

Buried Treasure. I booked my trip to Lysol Central in October for a vacation that was to happen in March. Per their policy, Airbnb demands full payment up front so my credit card was charged immediately upon booking. But here’s the beautiful catch, as far as Airbnb is concerned: they don’t remit payment to the Host until 24 hours after the Guest checks in. Meaning, Airbnb held my money for more than five months.

What’s the big deal, you ask? In the interim, between the time that the Guest makes payment and Airbnb releases payment to the Host, Airbnb invests this money. I can’t tell you how these funds are invested or how much they make off of other peoples money because that information is held tight to the collective chest of Airbnb management. But I’ll say it’s fair to assume that, with more than 80,000 rooms booked every day (and growing) on Airbnb, and likely millions of dollars arriving daily in their accounts, they’re making some serious coin from investing your money.


Who Cares? I Love Airbnb!

‘Listen Ralph Nader, what you’re saying is all well and good and informative but, really, do I care? You’re talking about a for- profit company providing a service that I choose to take or leave.’

Correct. Oh, and I’ll take the Nader reference as a compliment. Because part of my purpose here is to inform readers, to empower them with knowledge that allows for better decision-making. And knowing how a company operates, where your money is going, and what are your choices, falls under my self-appointed mandate.

So, yes, as you may have gathered, I’m not a fan of Airbnb. Its payment policies are too restrictive, and what you see in online photos is not necessarily what you get, no matter how many fawning reviews a Host receives ( … reviews are another game – both Host and Guest want to give each other positive reviews. Host, because they want to attract more Guests. Guests, because they want Host to speak well of them so the next Host they choose will review what others have said and agree to rent their place to the Guest).

For our next vacation, if I don’t book a hotel room, I’ll be using Vacation Rental By Owner. VRBO is sooooo much easier to navigate. They don’t take full payment up front, instead asking for partial payment immediately (a deposit) and the balance sometime before arrival date. And if I have to cancel, the refund is issued by the Owner, not VRBO and, unlike Airbnb, I may actually receive a 100% refund.

But what it comes down to is this: I like to know what I’m paying for, and I prefer to give my business to companies that not only offer consumer friendly policies but also offer transparency as to how they go about conducting business. And now that I’m sufficiently informed about Airbnb, I choose to give my business to their competitor. That’s my choice and my right as a consumer.

Happy travels to you, wherever you stay!