Jacob's other journal

Post by **jacob** » Sat May 05, 2012 4:56 pm

It does seem like I've [at this point] almost completely lost my desire to write. Something similar happened after retiring from physics.
http://earlyretirementextreme.com/break ... areer.html
I have almost no direct interest in physics, but I still think like a physicist. I have almost no direct interest in writing matters (putting my thoughts into words on a screen), but I still argue internally.
Maybe this is symptomatic to my temperament. Maybe the break-up model explains it...
In other news:
1) Another financial round number has almost been reached. At this point it's pure score keeping; like a runner who is hammering out miles ... passing 10 miles, now 15, now 20, ... and so on. (I currently count in increments of $50,000) But just keeps running.
2) I've started making wine^H^H^H^Hvinegar. After much adding and subtracting prices, it turns out it was just as cheap to get the kit as DIYing the containers and buying the chemicals separately. This should eliminate the need for beer money. BTW, my first batch is an apple wine/hard cider. My next batch will be either a potato wine or a coffee wine.
3a) Once again, for the third time, I've started looking into buying a "whole in the water into which one pours money". Crewing allows one to sail for free (or the price of homemade cookies) but it does not come with the appreciation of fixing and paying for things that break all the time. In a way I feel like the independence and self-reliance that's associated with owning a boat is similar to the difference in moving out from home. Somebody stop me!
3b) After finishing the ERE book, I spent some time looking for the next large project (which turned out to be a quant job and not the expected great bike ride across the US). It's tricky to find large projects which I can do on my own. The reason lies in the definition; I need a specific goal. "Let's do something random and see what comes out of it doesn't work for me." One such project may be to build a boat. Apparently it takes about 1000 hours per ton. Hence, a small 20 foot microcruiser would take 1-2 years to build. That's reasonable.
4) Except for still struggling with dovetails (way too much fitting!!) woodworking is proceeding splendidly. At least with mortise and tenons I can now make one cut and have the fit slip in the first time 4 out of 5 times. That's tremendously satisfying. I'm almost done with the bookshelf now. Next projects: A yarn tower, a tool stand/cabinet, a blanket chest. This should keep me occupied for the rest of the year.

sshawnn · Post by **sshawnn** » Sat May 05, 2012 5:09 pm

The two best days of a boat owners life.....the day the boat is bought, and the day the boat is sold.
Building one is intriguing

Scott 2 · Post by **Scott 2** » Sat May 05, 2012 6:20 pm

Excess money in the bank does nothing for you. If you want a boat and have the resources, get a boat. Buy used and smart, be prepared to sell when you are tired of it. Total cost of ownership will be a blip on your score card.

J_ · Post by J_ » Sun May 06, 2012 12:17 am

You have a (very) big Lake on your doorstep, so choose not too small. I mean the length of your boat you will possible build. I would say make it 25 foot long (lenght gives speed). If you do it for sport/adrealine it will be a sailing boat, if DW is also interested make/buy/finish a motorsailer.
Since two years I have a Marina 75 (GRP hull, wooden deckhouse build by Jutahela Finland) of 1974. I bought it for the price of its just new build in diesel motor. And then I repaired everything. Working and pottering around with it gives me lots of pleasure. (In Canada there are some for sale)

secretwealth · Post by **secretwealth** » Sun May 06, 2012 3:14 am

I would really warn against building a boat. An uncle of mine who had been a lifelong electrician and had worked building/repairing commercial ships his entire life spent the last 8 years of his life renovating an old Norwegian fishing boat. It took a lot of time and a lot of money, and the amount of expertise involved in various fields floored me. He had built several boats for other people and two for himself before, and still the last boat took a lot of time and energy. I can't imagine a non-specialist doing it alone or without close supervision.
But I can't even build a box, so I may not be the best person to listen to on this issue.

Mo · Post by Mo » Sun May 06, 2012 2:22 pm

If you get close to buying a boat, just post a link or pics here and I, and perhaps others, can respond in the typical raincloud, debbie-downer fashion and point out all kinds of things that could go wrong with it. That may just make you want it more, but at least you will have really tried to be talked out of it.

jennypenny · Post by **jennypenny** » Sun May 06, 2012 3:56 pm

I think building a boat could be a nice combination of your interests in sailing and woodworking. You could rent any cheap space for construction as long as it had reliable power and good ventilation. Would you do it yourself? It's easy to find people to help when you turn over the hull, but what about when you're building the hull? At 20' wouldn't you need a second set of hands occassionally?

Post by **jacob** » Sun May 06, 2012 4:29 pm

FWIW I'd definitely start very small and work my way up.

Post by **jacob** » Fri Jun 29, 2012 2:57 am

http://earlyretirementextreme.com/updat ... o-car.html
We sold our car. Some rants the semantics of the word retire (I just never learn, do I?). Comments on investing and health insurance. A few comments on home production.

teewonk · Post by **teewonk** » Fri Jun 29, 2012 1:45 pm

Thanks for the post. How did you learn to make wine?

riparian · Post by **riparian** » Sun Jul 01, 2012 2:14 am

Oh, Jacob. I have a beautiful boat project for you. It's even not far away.

pooablo · Post by **pooablo** » Sun Jul 01, 2012 3:21 am

Hey Jacob,
I see that you and your wife may look at buying a house. If you have any questions on the lending side and the financing process, I would be happy to answer them for you and give you my perspective as a commercial banker. The rules may be different between Canada and the US but I can give you a run-down of the overall process.
Cheers,
Pablo

Post by **jacob** » Sun Jul 01, 2012 2:45 pm

@teewonk - Lots of websites. It's like baking a bread but without the flour and without the oven which makes it correspondingly easier.
@riparian - What kind of boat and where?
@pooablo - For a primary residence I was thinking a 100% cash deal. The reason would be to diversify heavily away from the interest rate market (no spread between the rate I'd be paying an a mortgage and what I could possibly get by investing the money elsewhere). It would also save on fees to set up the loan right, right?

evolution88 · Post by **evolution88** » Sun Jul 01, 2012 7:37 pm

Jacob, unless you can't generate more investment return then your mortgage then it's worth buying cash. Currently, you can get 10-15 year mortgage at 3% interest. That's almost free money...

George the original one · Mon Jul 02, 2012 5:49 am

It might be harder for Jacob and his wife to get a good rate on a mortgage since she isn't working and Jacob just started this job after several years of not working.

Post by **jacob** » Tue Jul 03, 2012 2:41 am

I wonder whether, say 60% down will make a difference on the rate. After all, it's the prime rate+default rate and the latter is determined by how easily the bank can lose money. In any case:
Cash purchase <=> Buy RE, sell stocks

Mortgage purchase <=> Buy RE, sell bonds (the mortgage), keep stocks (assuming that the cash not spent would be in stocks).
Net difference: buy stocks, sell bonds. That's essentially a leveraged play with no margin requirements (and a low margin interest) and security in the house. I know that stocks are currently expensive, RE is currently cheap, and bonds are iffy (shorting Helicopter Ben). Therefore the mortgage does not sound too attractive. The alternative is sell the 30 year bond against shorter terms hoping that short term interest rates will rise. Not to sure about that one either (it's the opposite of Operation Twist). Yet another alternative would be to buy long term corporate debt. Who's more likely to default before 2042... me or Goldman Sachs? In conclusion, trying to carry trade through a mortgage sounds rather tight right now.

dragoncar · Post by **dragoncar** » Tue Jul 03, 2012 5:50 am

Jacob, assuming you are now in a fairly high tax bracket, and the mortgage deduction stays in place, you get a government-subsidized bonus on the interest rate spread.
There's also interplay (that I don't completely understand) between interest rates and inflation, right? If rates stay very low, inflation could rise. In inflation situations, it's great to be in debt, or put another way, great to get leveraged capital appreciation with, again, tax advantages such as the capital gains exemption.
Not trying to convince you (and there is a lot of uncertainty). If you were in California or another non-recourse state, you'd also get a nice asymmetrical risk profile (housing market tanks, you could walk away).

secretwealth · Post by **secretwealth** » Tue Jul 03, 2012 11:50 am

"It would also save on fees to set up the loan right, right?"
Nowadays, mortgage fees are extortionate; I was quoted $11,000 on a $130,000 condo purchase by Chase. Community banks and credit unions will offer less fees.
About whether to get a mortgage or use the money to invest elsewhere: obviously this will vary from person to person, but in today's low interest environment it is difficult not to earn more on investments than you'd pay on interest rates.

I've decided to pay my mortgage off instead of getting higher returns elsewhere, and I do regret it sometimes. However, the feeling of knowing that I own the place where I live and no one can take it away from me (as long I keep paying for the taxes and maintenance, of course) is an enormous psychological benefit. Other people may not need that feeling as much as I do, and if they can be a bit more rational about it, I suppose just dumping that cash into VZ or T would be a much better decision than owning a house debt-free.

teewonk · Post by **teewonk** » Tue Jul 03, 2012 1:02 pm

"I wonder whether, say 60% down will make a difference on the rate."
It depends on your credit score, but you probably won't gain anything past 40% down. Rejection is less likely with more money down, which would help if George is right. You can see an example of how LTV affects rate here. It's a detail you can work out with the lender, and then get an official GFE to match the online GFE before you start your loan application.
We are in the process of refinancing to a 30-year mortgage with 75% LTV at 3.5% with no points, with closing costs at $2700 (plus pre-paids) through AIM Loan. Their 15-year rate is currently at 2.75%. For purchase rather than refinance, the closing costs would be higher for the inspector and lawyer, plus/minus an adjustment for difference in state laws.

pooablo · Post by **pooablo** » Thu Jul 05, 2012 12:39 am

Hi Jacob,
Do you mean to say that you would like to pay cash for the property and then apply for a home-equity line of credit (HELOC) on the property?
If that is the case, you would probably only need to pay for the solicitor's fee ($300) and, if required, an appraisal fee ($250).
I was able to get the solicitor's fee ($300 at my bank) waived because I am a bank employee. I didn't need to get an appraisal done because the property value that I had used in my application was based on the city's tax-assessed value of the property.
If you borrow against your home property and use it to invest, you'll get a better interest rate and I think you can write off the interest too.
The HELOC will give you more flexibility if you decide you would like to borrow to invest as the line is a revolving line.