AskDong

I’m back from a very lovely vacation in costa rica. As always expect a few different reviews in the next few weeks. Today I just want to take the time to share some photos from the vacation. All in all, I was very impressed by my experience with both the country and people of costa rica. I also found greater appreciation for the history of central America, and embaraaament over how little I know about a region of the world that is so close to the United States.

I will have a few more phtos to share once I’m back at my own computer, and have more time.  I’m still digging out from a deluge of backlog, and a cold

I should have written this before I actually left for vacation. I forgot and for that, I apologize. Right now, I’m in tropical Costa Rica and will be back next week. I do not expect to be able to post much of anything until I get back on September 1st. I leave you with a few photo of my travels.

Yesterday, I had a meeting at work with an outside company. There were about 5 us at the meeting. At the end of the meeting, the other company handed us pens and a flash drive! I love freebies, so I was pretty excited. Obviously we were being pitched something.

All I know the last time I purchased a flash drive about 2 years ago, I’m pretty sure I paid easily over $40 for 1 GB. Yesterday, I received half the capacity for less than half the price (free). How much are flash drives these days? The answer, pretty cheap. If anything the branded flash drive I got is even cheaper. The manufacturing is quite shoddy. It’s free, and I can’t seem to find my 1 GB flash drive, so I really shouldn’t complain. Though of course, I have to worry that this might trojan horse USB drive.   In the end I think the pen I got is probably a higher priced item than drive.   To think that USB Drive has about 4000 times more memory than my first computer.   We have come a long way.

Gabriel Ask

Dong, I am debating whether to sell my house or rent it. I purchased my house late 1999. Then, two years later I refinanced my house to obtain a lower interest rate thinking that this would be my last house. I owned 109,000 and my house is currently valued at approx. 147,500 with an equity of aprrox 35,000. I have 13 more years to paid off the house./
Should I see the house or rent it?
Thanks.

Gabriel

Gabriel, I had similar decision to make about 3 years ago when I decided to move from my old Condo. I quickly decided that I wanted to rent it out. That was the right decision for me, but not necessarily the right one for you. I made the following considerations.

• The property was in area that is very easy to rent out. It’s in the city, and there many many renters every year looking for a place in the area I owned my condo.
• I was able to cover most of my costs through rent. My conservative rule of thumb is that annual rents should be at least 10% more than annual expenses. To be honest this is not true for me.
• I had decided long ago that I wouldn’t mind the burden of being a landlord. I don’t mind answering calls, and making arrangements for repairs as they come up. This last point is the most important one to consider. I have had great tenant, and the apartment has been mostly trouble free. Yet, at the same time I have to acknowledge the mental burden of being a landlord has been greater than I thought. Because it’s not my full time job, the added stress of knowing that something can come up is actually more acute. And, I have a great tenant. I can’t imagine what it would’ve been like had the condo had major problems or if I had a tenant that was unreasonably demanding.
• Part of my long term investment strategy is owning property. I knew from 1st day I purchased my condo that I would someday convert it into a rental property. That’s what I did after 4 years.

Was it the right choice financially? If I were evaluating the decision right now, the answer would be no. Had I sold three year ago I would’ve sold into a better housing markett. However these decisions should not be evaluated purely on the basis of investment timing. Timing is always a game better played in hindsight. The more important question financially is how it fits in one’s overall investment strategy, and cash situation.

• Do You Need the Money? If you need the money to finance another home purchase, then you should sell. It’s not a good idea to put yourself under more financial duress than you can handle.
• What else are you invested In? Are you already well invested in the stock market? I’m not believer that Real Estate is the only place to make money. I think it’s great place to do so, but so is the stock market. It’s best to have eggs in different baskets.
• What’s the current Interest Rate Environment vs. your Mortgage? If you’ve been able to lock in a great rate that is well under current market rates, this is when renting can make a great deal of sense. Let’s say for example Gabriele locked in a 5% 15 year Loan, and current rates are over 6.5%. By selling, Gabriel would give up that rate. If Gabriele can rent out his place, and earn a healthy amount over 5% then that’s “free” money Garbriele would be leaving on the table. Unlike companies, individuals are generally not in a position to borrow money at competitive rates except when it comes to property, especially property originally purchased as a residence. This borrowed money gives leverage which magnifies both losses and gains.

Crunch the numbers. Make sure you’re ROE (return on equity) is more than acceptable. Above is simple example of s such a calculation. Play with different scenarios. I also can’t stress this enough, if you do want to rent out the property make sure you want to be landlord. While it’s possible to hire a professional property manager, this is likely to eat most of the profits associated with having a rental property. Landlording isn’t for everyone. Hope this helps.

Every year there is a proposal on the Massachusetts ballots to repeal the state income tax.  In 2002, a similar proposal garnered nearly 45 percent support.  While wanting reduction in taxes is a more than reasonable, eliminating the state income tax so quickly is neither realistic of wise.

Ultimately the government needs your money one way or another.  To the north of Massachusetts, new Hampshire collects no state income tax of sales tax for that matter. What they do is have very high property taxes. This leads to big in balance between different towns and cities. One could argue this is more fair as people effectively get the government services that they cam afford. I’m not one of those people. Even in Massachusetts there is more than enough disparity caused differences by local taxes.

The current proposal is slightly more pragmatic as it would lower the tax rate form 5.3 to 2.65% in year one, and eliminate the tax in the second year.   Admittedly,  my fiscal and political tendencies are moderate.   Do people who oppose taxes feel the Government really does no good?  I mean I’m all for fiscal conversation.   There is a lot of waste.   But even some of the lowest tax countries such as Hong Kong still need taxes to operate Government to maintain social services.   As the Federal Government is not in the business of providing all the Government services required, it seems rather unwise to eliminate the state income tax so quickly without having an exit strategy.