Jacob's other journal

Where are you and where are you going?
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jennypenny
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Post by jennypenny »

>>From what I've seen, the need for a lawyer is influenced by the state that you live in?

Very true. In Pennsylvania, most people don't use lawyers. In NJ people always use lawyers. Escrows are not required here either. I think part of the reason it's hard to give real estate advice is because the customs and fees are so varied from state to state. Another reason is because you have to factor in all of the taxes within a state. My brother always rides me about how much I pay in real estate taxes compared to him (in NJ), but we pay MUCH lower taxes on everything else so I still think we come out ahead, but you have to factor it all into your decision.


jacob
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Post by jacob »

Every month those flashy ads you see in the sidebar pays me about $100 which goes to paypal. Since I'm loath to pay an n% fee to convert paypal money into real money; and since eBay is the only place I spend paypal money; and since I had some eBay bucks due to previously having spent money on eBay...I obviously "have to be" penny wise and pound foolish, so I made some acquisitions.
1) After the 10th (or so) attempt I "won" a vitamix. This was a long time want pending the previous blender giving up the ghost---which it did a couple of months ago. Wow! That's definitely a qualitative difference. No need to precut before blending and chew after blending. To preserve minimalist karma, we're getting rid of the breadmachine and the foodprocessor.
2) I also got a Kurt Road Machine (bicycle trainer). I'm not enough of a martial artist to commit 90 minutes of commuting to get to the nearest dojo (although I do do that for the job) and ditto for scheduled yacht racing (although the marina is about 1-1.5 miles away). So I've been lifting weights at home (I've been playing with the bruiser clubbell doing two-handed Gama casts) with no particular goal in mind. The last two sports I have (I seem to cycle between a bunch) are cycling and hockey. Hockey also requires a commitment, so cycling it is. I was kinda feeling that my heart rate was creeping over 60 again which is never a good feeling. Maybe later I'll do some long rides. Randonneuring might fit into the schedule.
3) The ERE book has now sold close to 7500 copies. Once again---and not entirely related to sales numbers---I'm motivated to write another one.
4) I recently discovered the GMO newsletters and Jeremy Grantham. Thanks M_. I've previously sworn off further attempts to save the world mainly because I don't believe that further education/information will make any difference(*). Finding ways to fix the problems through self-interest might work though. ERE was one way... is there another? Yes, perhaps non-judgmental investment commentary. I have a few other ways in mind as well.
(*) Ironically, JG runs a foundation where one of the stated goals is to educate.
5) ERE got a _positive_ (or at least neutral) mention in Forbes. Imagine that. Usually, there's always some snarky remark about sacrifice and suffering whenever it comes to saving, but not this time.
6) I think we've figured out the technical parts house buying issues (also helps that one of my coworkers is currently going through the process). There are two hard problems. Pulling the trigger (do we really want to stay in Chi-town?) and liquidating portfolios. After spending years finding good investments, it's tough to just sell them off to raise money. I'm still not too happy about funding the house with a mortgage.


secretwealth
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Post by secretwealth »

I would reconsider the mortgage. You can get some loans at or below the effective rate of inflation these days. I know you don't like debt, but that's free money.
7,500 copies is really incredible for a self-published book. I'm jealous.


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Ego
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Post by Ego »

The thing I miss most when we travel is my vita-mix. I love it. I grind up the twenty healthiest vegetables all together about once a week to make a bucketful of synergy-gruel. Doll it out in yogurt containers and eat it rather than ice cream throughout the week.
Not to burst your bubble but.... you can transfer money from paypal to your bank account for free. Or you can get a free Paypal debit mastercard and earn 1% cashback every time you use it.


jacob
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Post by jacob »

@Ego - Well whaddyaknow ... I was under the distinct impression that withdrawals cost 3% but one can withdraw $500/month for free.


dragoncar
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Post by dragoncar »

+1 to Ego for saving the day.
If you have a bunch of cash, you can probably transfer to your wife for free, then she can withdraw $500 too.


karim
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Post by karim »

@secretwealth: Not sure I believe it's free money. It's also not without risk, though I'm not arguing whether it's worthwhile (it probably is). You assume inflation will stay the same, effectively making your r < 0. But deflation can occur. And you are also assuming that your investments will outperform your mortgage interest rate. All of this is plausible, but I rarely see anyone consider this without thinking of the risk involved.


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jennypenny
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Post by jennypenny »

Do you have to sell assets to fund most of the purchase? What are the tax consequences of that? Have you run the numbers both ways to see how much a cash purchase would cost you? On one hand you have the tax hit selling the assets, but no fees with a mortgage. OTOH, you have mortgage fees, but you avoid taxes on gains and you can deduct mortgage interest lowering your taxes further. This could be a lot depending on your bracket.
Maybe you could get a 10 or 15 yr mortgage. Pay off the loan over the next few years. You could use tax loss harvesting to offset gains each year. (haha, do you ever have losses?) You can also use the mortgage tax deduction to offset gains. Then you have a few years to sell off/pay off so you can time things a little.
Am I even making sense? (I'm on the road today.)
#3 makes me happy. I noticed your FB keeps climbing also.


pooablo
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Post by pooablo »

Congrats on hitting the 7500 mark! That reminds me, I should read through my copy again today. I'm surprised more libraries haven't picked up copies of the book yet. :P


Dragline
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Post by Dragline »

I'm still kind of unclear about why you want to buy a house, which in my mind is a separate issue from whether to remain in Chicago.
Is it purely a financial play or are there other reasons?


jacob
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Post by jacob »

Owning costs much less than renting in this city. Chicago is one of the better areas [in the US] for dealing with peak oil and climate change, so it meets the strategic criteria.
Also, stocks are currently quite overvalued. (Profit margins are excessively high suggesting that earnings are overblown. Hence, P/E is high and can't/shouldn't go higher. The market is in the greater fool regime right now.) Thus exchanging equity for bricks-on-land seems like a prudent move especially since housing is close to the long-term trend (when the bubble is removed).
Whether to finance is primarily a question of which capital structure I prefer. This is not just a bottom line calculation but also a question of risk, in particular in terms of how the economy will develop over the next 15-30 years. Strategically, borrowing is likely a bad idea, albeit tempting in the short run.
TL;DR: Buying a house here seems like a smart move for several reasons.


Dragline
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Post by Dragline »

I might suggest that you contact this person: http://www.kimkerbis.com/home.asp
She is used to dealing with quirky people who have unusual ideas. Probably why she is married to a childhood friend of mine who acts in things like "A Klingon Christmas Carol". See http://chicagotheaterbeat.com/2011/12/0 ... re/#review
I also know a guy there (another childhood friend) who owns a small independent record label in case you ever wanted to put ERE on CD or put it to music. He's even more unusual. ;-)


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jennypenny
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Post by jennypenny »

That's cool. I hope you find a house you like. I think you'll be really happy when you have a place where you can dig in. We've owned our own home since we were 22yo. Never wanted to live in someone else's place.


secretwealth
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Post by secretwealth »

"Also, stocks are currently quite overvalued. (Profit margins are excessively high suggesting that earnings are overblown. Hence, P/E is high and can't/shouldn't go higher. The market is in the greater fool regime right now.) Thus exchanging equity for bricks-on-land seems like a prudent move especially since housing is close to the long-term trend"
I felt like this last year when I bought my co-op, and then the market rallied at the beginning of this year when I deleveraged instead of moving into equities. I feel the fool, but I agree that equities are really ridiculous right now. I don't know if I expect a crash, but I'm waiting to get into some dividend stocks until prices go down.
jacob, I really do recommend buying if you plan on staying in Chicago for the long term. To put it in perspective, our monthly housing costs on our NYC co-op are $620/mo. (including heat and hot water, property taxes, sewage, water, and trash). Rents in the neighborhood for a comparable apartment are about $1500, so the savings on rent is pretty substantial.
True, the opportunity cost on the $100k sunk into the home is a factor, but I think of it as a potential income-yielding investment. If rented, that $100k would earn us pessimistically about $700/mo., and 7% isn't too bad. That will only go up, as rents are skyrocketing in NYC now.
The Chicago market might be different, but I think the trend is pointing to greater demand for urban space, and that trend isn't going anywhere.


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Ego
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Post by Ego »

Rapidly changing environments demand adaptation to survive and thrive. Flexibility is key for adaptation. Being fixed to one place is inflexible. Look at any great upheaval in history. Those fixed to place suffered most. Those who were the least encumbered did the best.
I ask myself if the pace of change will continue to accelerate or will it slow? I operate on the assumption that it will continue to accelerate. Perhaps I'm wrong. But if I'm not and the pace continues to increase, will some other factor alter the above golden-rule of resilience?
That said, I read what the guy who started Vanguard said in the times today.... yikes!
https://www.nytimes.com/2012/08/12/busi ... -rest.html


secretwealth
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Post by secretwealth »

I'm not so sure paper assets will fare too well either in a "great upheaval". Are we talking a major calamity? If so, I don't think cash will be quite as useful as canned goods and guns.


karim
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Post by karim »

@Ego: thanks for the article. Interesting read.

@secretwealth: you are right, in an apocalypse, how would care about what stock you own or your now worthless paper money. Although I'd hope that guns wouldn't be needed, a system of bartering would evolve, only to be later replaced by a new currency (since bartering ultimately is inefficient).
Not sure if Jacob recommended it in one of his blog posts, but next on my reading list is: The Collapse of Complex Societies.


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Ego
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Post by Ego »

By "great upheaval" I meant moments like the industrial revolution, the movement away from rural/farming and toward cities during the factory boom, the great depression, the white-flight of the 1950-60s, the lesser-depression or great-recession.... and many more. Now we've got the coming death of the exurbs, the shift away from cubicle farms, the increasing technologization of work,....
It wasn't long ago that inner cities looked like war zones. Today they are flourishing. Back when I was in college in the late 1980s I remember seeing the old folks who bought their West and North Philly places in the 1940s and never left. It was amazing to see these fine, upstanding folks somehow holding on as they were deluged by the ghetto. For one reason or another they failed to adapt, stayed stuck in place and were eventually... well, you know.
We assume we'll always be as flexible as we are right now. But flexibility / adaptability are skills that gradually decline if they are not practiced.


anomie
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Post by anomie »

Hi Jacob,
I'm curious as to how the move to full-time work is treating you and if you would care to speak to that. Does it not require all of your attention and free time? Do you have any time leftover to pursue 'Renaissance' life?
Just really curious how you are balancing it all.
Regards,

anomie


jacob
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Post by jacob »

Time is not limiting factor. Energy is. I spend 8-9 hours at work thinking about quant stuff and 1.5 hours commuting (reading books on the train). I find this takes away the energy to sustain more transportation (hence I work out at home instead of going places to do it) and the energy to think about "writing" (hence I don't write as much on the blog/forums/books anymore). At home I make furniture (so far a stand, bookshelves, a cabinet for DW's yarn (almost done) and a desk (almost done)) and wine (about half a dozen different kinds by now). These are the two new skills I've added this year.
In general the Renaissance way of life doesn't take more time than other kinds of living (I don't spend more time "making" than other people do "shopping"). The idea is to "work smarter, not harder". While that sounds trite, the difference really is due to a added smarts (skills). Of course that addition does take time (which other people usually spend watching TV instead) but once it's added, it doesn't require any additional input.


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