Skip to main content

Monthly Archives: March 2010

Newer posts

DINKs Buying More Real Estate

Posted on by 3

Hi Folks,

So we don’t normally write so much about our own finances these days, but it looks like we’ll be buying another investment property. My wife Miel has been keeping an eye on the real estate market here in Washington DC for the past few months. On Sunday she found a great investment prospect. To make a long story short, we decided to put in an offer on the place.

So, the past two days have been a bit of a whirlwind of applications, digging through our tax information, applying for loans, adding up accounts and signing lots and lots of paperwork.

The tricky thing about this deal, is the agent representing the seller reads our blog! So, unfortunately we can’t discuss our negotiation strategy or how much we are offering right now. However we can tell you that we’re looking at a basement apartment in the 17th street neighborhood in Northwest DC.

Here is a picture of me with our agent, Marcie Sandalow.

In order to raise the downpayment money we’ll have to dip into our emergency fund and the bulk of our liquid stocks and bonds. So most of our dividend paying stocks, our bond funds and our index funds – all that will get sold. Basically we’ll be converting that money into real estate equity. As I can see it this has at least two disadvantages:

1) It limits our future options. If we put most of our liquid wealth into relatively illiquid real estate equity, we will be less able to react to the next opportunity that comes our way. Cash is still king.

2) It reduces our diversification. Our net worth is somewhere south of $400,000. If the deal goes through, about half of our wealth will be in equity in DC based properties. This means our wealth would be vulnerable to any protracted downturn in the DC condo or rental markets.

These advantages are mitigated somewhat by the income and tax benefits the investment would generate. Right now, we are still specifying the exact tax benefits, but our back of the envelope estimate is the acquisition should slightly improve our cash flow over and above what our stocks and bonds are giving us.

We’ll keep you posted.

Best,

James

Manage Your Money Challenge

Posted on by

Hi Folks,

We thought our readers might be interested in the March Manage Your Money Challenge that is being brought to you by the Enemy of Debt blog.

The challenge promotes at a calendar-based budgeting system called pocketsmith. I’m really excited to try it myself, but will have to wait until I get back from Congo to start my free trail.

If you check it out, let us know what your thoughts are.

Enjoy!

Miel

Bonds vs. CDs

Posted on by

Hello Folks,

Here is a topic that you don’t see covered much in personal finance literature these days. It tends to come up more when you’ve gotten out of debt and are looking at low risk ways to hold on your cash while still keeping it readily available. So, provided that you have $1,000 to $5,000 you may be wondering whether you should buy CDs or Bonds?

A few points to consider:

Historically CDs are the investment of choice for many. Usually CD rates are higher than interest paid on savings accounts and unlike bonds your principal doesn’t change in value. This has made them historically popular.

But, compared to bonds, CDs do have some drawbacks.

First, CDs often penalize you if you take the money out before the deposit is mature. Unlike CDs, a no load bond fund or direct investments in bonds can be relatively quickly converted to cash – you don’t have to wait around for the CD to mature. In addition many CDs charge you 3 to 6 months interest as an early redemption fee. On the other hand, bond funds or direct ownership of bonds tends to be less expensive to redeem. For example selling bonds or a bond fund can cost between 10 and 50 dollars. Cost savings tend to be greater when you have more invested, so generally bonds give you more flexibility in buying and selling than CDs.

Second, CDs are generally taxable. On the other hand, bonds come in different flavors. They can be tax free (if they are federal and/or state) or taxable.

Third, more importantly, bonds tend to pay a couple of points more in interest than CDs.

Fourth, ss a final note, if you’re going to be buying either bonds or CDs you really should consider diversifying your holdings. For example if you own CD be sure to ladder them by buying CD with different maturity dates across different institutions. If you are buying bonds, be sure to consider a properly diversified bond fund, not just individual bonds.

Happy Shopping!

James

Newer posts

Boost Your Brand – Advertise with Us!

Advertise With Us

You cannot copy content of this page