Monthly Update - Keeping the Pace - 1.3% each month

Work, work, work

It's been 2 months since I last wrote - Been very busy with various work and nothing much happened with my money. Just your basic income coming in (isn't that where the name came from). And, your basic outcome (income going out?). In keeping with my basic premise for the markets, I have sold off more and converted to cash and earn 5.13% now with the Vanguard money market. I am 95% in cash and just waiting for things to go down (possibly 4-5 years) before I get back in. I know that could lose me large amounts of money if the market goes up, but I'm not feely very risky right now.

Recent Transactions

In the last 2 months, I sold off more of my Overseas fund and have just a little left. The reason I don't sell it all is because the remaining shares were bought a little less than a year ago (Oct 27). Those remaining shares have risen 1300$ in value and I don't want to pay the 30% capital gains tax on it. I'd rather wait until October 28th this year and risk them falling a little and just pay the 15%. I know there's a math equation that would tell me just how far they can fall where it would be smarter just to sell now and pay the 30%, but it's such a small amount of money (200-400$) it's not worth it.

The only other thing I need to sell is 1500$ worth of individual stocks. I just need ot fill out the form at work and get it done.

Re-Appraisal

Also, In Net Worth IQ, I self-re-appraised my house value at 225,000 instead of the 250,000 I had it at. By the end of the whole Real Estate crash, I'll probably need to adjust it back to 200,000 for the entire period.

Analysis

Notes of interest on Net Worth. I've been able to track my Net Worth for a couple consistent months now. It seems at my current income and expenses and having most of my money in the money market at 5.13%, my Net Worth increases by about 1.3% every month. That comes to about 17% a year. At 17% a year (barring raises, bonuses, unforeseen expenses), I'll be a millionaire in less than 5 years. However, that overlooks exactly what Stealthbucks has discussed. As your networth goes up, you need to make more every month just to have a constant increase percent-wise.

Not much going on with my finances or the market, but I'll try to update again next month.

Monthly Update - Down 3K

My NetWorth fell slightly (about $3000) last month. It wouldn't have fallen at all, but I started selling away my large positions in the S&P 500 as I am trying to move into cash and more stable and less risky investments for a year or 2 (or 3 or 4). Since when did the S&P 500 become a risky play? I sold positions on various days throughout the month and seemed to of picked some bad days. Don't try to time the market. Don't try to NOT time the market like me. Either way I always seem to lose the minimum/maximum peak and valley game (even when I dollar cost avg). I also sold off most of my IRA and SEPIRA positions and transferred it in the money market (of the IRA or SEPIRA or ROTH IRA account). I will still be paring away the rest of my positions as soon as the market stops going up (but how will I really know when that is?).

After selling off most of my positions in the S&P 500 fund of a 2nd rate mutual fund company (S&P 500 index fees of 1.21% !). I prompty opened a Vanguard account and transferred all the money into it.

Vanguard

By the way, opening a Vanguard account is the easiest thing I have ever done. Their website is so much nicer than the others (Janus, Fidelity, etc). It took 10 minutes and I could then set up the transfer from my bank account. 2 days later I logged in and the money was there.

New Beginings

Anyways, now I have lots of 2/3 of my cash and stocks (which comes to about $107,000) in Vanguard's money market earning 4.93%. I am debating what to do with it. 15% into Gold? 15% into Energy/Oil mutual fund? Should I just be happy with 5% for the next 2-4 years? I know fear is bad for trading and investing purposes, but right now, I fear losing my hard-earned money.

Time Deposit

I had about 25000$ in yen in my Japanese bank account and was ready to transfer to the US when I noticed I could get 8.6% (APR) on it for 1 month via my bank. Basically, it's like a 1-month CD. The only catch is it had to be in USD instead of Yen and I would have to pay the transfer cost for changing my yen into dollars. But, after doing the math, the 8.6% (divided by 12 since it is just for a month equals .71%) is still a great deal so I did it and locked it away for a month. I'll have 25164$ on July 24th. 164$ free dollars for the month isn't bad. EXCEPT, if the Yen-$ exchange is down to 112 by then, it would have been smarter to hold onto it in yen. Right now, we're at 114.57 and falling! It doesn't look good. I wish my hindsight was my foresight.

Future thoughts reside in China

I am looking to get a lot of my money back in yen and I have found I can invest in a risky emerging market fund which is just Chinese companies. This kind of mutual (hedge) fund is not available in the US and only because I have access via my Japanese bank can I do it. While the emerging markets don't seem that great, I feel that China is a bit insulated from all the others. This fund's correlation to other emerging markets is very close to 0 (no correllation). Furthermore, I can invest in yen and therefore will not be exposed to the Dollar volatility.

Until now, I have only transferred Yen I have earned here into Dollars back home, but now I would like to transfer some of my Money Market Dollars back into Yen. Problem is it's not that easy, as I need to call up my bank in the US and setup that kind of international transfer.

The Smart? Money

Smart Money
I cannot tell you where the "Smart Money" is at. I don't know.

However, I CAN tell you where the "Adequately Educated and afraid to lose a lot of hard-earned" Money is at.

First, I will discuss my next largest allocation of money - My Equities (Stocks and Mutual Funds). However, keep in mind things are changing daily. I lessened my position in my main S&P 500 index fund drastically last week (by 80%!!). I am debating doing the same in most others as well.

Plagirism
I recently read in an article or another blog something that made me assess how I want to play the next couple months/years with all this uncertainty and negative forecasts of the markets. I really think it states the two main sides of investing:

"Wealth is obtained in concentration and preserved in diversification"

You have to ask yourself what do you want? Long-term and short-term.
Well, right now, with all this uncertainty, I just want to preserve my wealth (although I wouldn't consider myself "wealthy" yet"). I am trying to diversify like crazy right now.

My Holdings
I own 5 mutual funds(45% of my Networth), and a very small amount of stocks (.5% of my Networth).

Stocks
First, let's just get the stocks out of the way:About $3 in penny stocks that I own a hell of a lot of shares of. There's no reason to sell as the commissions (8$) would cost more than my return (3$). These stocks are just remnants of my idiocy in the .com era. I lost about 4000$ total on them. I know I should sell and take the tax deductions, but with me living overseas and no domestic earned income, tax deductions are basically useless (except to cancel out capital gains which I dont' really have much of). One of these stocks thast I still have quite a bit of shares of is CMGI - everybody's .com favorite. I think my position in that is up to $1.74.

I don't really dabble in stocks. I prefer to stay in mutual funds as I like the diversification. Additionally, the other reason I don't buy and sell stocks right now, is due to work. Since I work for a major investment bank, there are audit and compliance issues with me freely buying and selling stocks. Each time I want to do so, 5 days before each transaction, I have to fill out a form, get written approval from my supervisor (who then sees some of my finances and what I am doing with it) and then get approval from the compliance department. This is probably a good thing, as I might be daytrading like crazy losing money without these restrictions.

That said, before I joined the investment bank and before my stock account was pseudo-frozen, I owned positions in two companies: RHAT (Red Hat Linux) and EBAY. 900$ in RHAT and $1100 in EBAY. I have no reason to sell these and since I don't want to jump through beauracracy hoops to do so, I will just stick with them.

On to the Mutual Funds
S&P 500 Artificial Intelligence
Until last week I had about $110,000 in an S&P500 index fund. Well, it's not a straight index fund. They claim (as does everyone) to use computer algorithms to over/underweight parts of the S&P500 to gain a slight edge over the normal S&P 500 return. I haven't seen it. It's done almost exactly what the S&P 500 has done in the 5 years I've held it. That's been fine. Except, they charge like 1.2% managment fees for this AI. But, like their algorithms, mine, too has adapted and become smarter over time. I have been waiting for a time like now when I wanted to lock in some gains and liquidate my position in order to move to something like Vanguard funds where the manegement fees are like .2-.4 %. That's almost 1% a year I will make. When I started and only had $10000, that 1% didn't really matter much, but the larger amount of money you make and save and have, the more half a percent of interest matters each year.

[As an added bonus, I just noticed that Vanguard's Money Market (where I park my cash) is like .3% higher tha most others]

A couple nights ago, I sold off 80% of my position in it. Hopefully, the market continues to plummet. Should I buy some more Foreign stuff or some Gold? I want to sell off the last 20%, but didn't want to pay the "held less than one year Capital Gains", so I will attempt to sell more over the course of the next year. My last investment into it was February of this year, so by next March I can be totally out of it.

I will still be paying the Long Term Capital Gains at 15% on my profits. Since I have been investing monthly for 5 years via dollar-cost averaging like all good investers, it would be awfully tedious to calculate the capital gains on each little investment and any capital gains reinvested. Luckily, for tax purposes, the government gives you another way to calculate the cost-basis. You still need to know how much total was invested into the fund (you don't need to know the prices at which each amount was invested at). I have roughly calculated I will owe somewhere between 1000 and 1500$ on the gains. That's not bad as I still made much more money than that. And, now I can get the money into a similar fund (with slightly better returns) and much lower fees. That 1000$ in taxes will be made back the first year as I save an extra 1% on management fees each year.

Right now, I am thinking of dollar-cost averaging it into an International Fund something like the Vanguard Total International. Do I go for a Europe-only fund, Total International, International Growth, or Asia-only? I don't think I need the Asia-only as I am living and working in Tokyo, so I am already getting all my income from the conditions in Asia. No need to overly weight that area? Think again, as the original quote goes: "Wealth is obtained in concentration".

As for my other funds
40% of the remaining money is in an Emerging Markets fund, but I will be liquidating this soon in order to raise cash to hold for a while until I see a better place to invest it. I made a good deal of money on this and don't exepect much more.

30% of the remaining stuff is in a pretty high-risk mutual fund that has done well for me since the .dot com bubble burst 6 years ago. However, I will be liquidating that, too, in the next couple of weeks on any uptick in the market. I need to get me some gold with it! I have none and would like to get into it a little at a time and slowly build up my stash over the coming years.

15% in a contrarion fund that has also done quite well since I got in after the crash. I will liquidate this as well.

15% in a bio-tech, healthcare fund, but I am looking to get out of this too in the coming months.

Work and Salary History, Part III

Here is a graph of my Salary plotted against my age. Obviously, like all good capitalists in their 30's, it is sloping upwards :) I have not included any smaller incomes like my house rental here. The graph is just a representation of my pay from my main jobs (currently I do some consulting at night that brings in enough money to be worthy of being graphed)


The blue, top line represents gross pay before taxes, while the pink is a pretty good approximation of my net after taxes (and exchange rates). The taxes to some extent and the exchange rates to a large extent have really affected my net. For the last 4 years living in Japan, making my income in Yen, and shipping most of it home to US Dollars to be invested has affected my before versus after tax percentages. You can see about 2 years ago where my gross pay went up a little, but my net went down compared to what it was the year before. That was because of exchange rates.

You can also see the dot com bubble helping me out a couple years ago. It seems like Japan was 2 years behind on that. I was with a dot com company in the US, my salary was increased like crazy. Then they tanked, but we still had deals in Asia so I came to Japan to continue the development of the product (and internationlaize it) and was paid even more. Since Japan's economy was not doing much, they were not affected by the dot com crash (that much). While a sample size of one does not mean anything, you can almost see a mixture of the US and Japanese economies displayed in the graph.

I do try to wait for good exchange rates before I ship my money home, but it all depends on the amount of money I hold in my Japanese bank accounts. I usually save up about $20000 dollars (after taxes) every 4 or 5 months and then wait for a decent exchange rate (depending on forecasts of market conditions) and ship it to the US. However, it also depends on money market rates (I don't do US treasuries right now, but I guess I should for the extra 1%). About 3 years ago, I could wait longer for a better exchange rate because my $20000 would have only been getting 2% in the US money markets (which comes to $33 doallrs a month). But, the yen-dollar rate depending on it's swings, could save me 100-200$ a month if I held it waiting for a good rate. Now, it's different though. Now, with money markets returning 4.5%-5%, the longer I hold it in Japan, the quicker I start to lose money I could have gotten in interest in a US money makret account.

Also, don't even begin to ask about Japanese bank interest rates. They are always less than 1%. I get like a penny a month for $20000 here in Japan. That's one reason many Japanese don't save the same way Americans do.

May Month-End Net Worth

I just posted my new month-end for May at NetWorth.com . It looks like I'm back to where I was 2 months ago. 2 Months salary down the drain - I made 2 months salary in that time ($10000 - about $5000 per month after taxes), but my portfolio has dropped by the same amount in those 2 months. All my gains erased by this fickle market. That's what I have for being so heavily invested in stocks. It's really tough to manage my stocks from here in Japan. Once I get back to the US I'll be more proactive.

The other problem was an un-expected $950 payment for a new hot water heater and installation for my house that I am renting out. Is that a normal price for a 30 Gallon? With me in Japan and no property management (which I said I will look into in 2 years), the tenant was without water for 2 days and had to arrange the repairmen and replacement hot water heater themself. They knew that they'd have to do those kinds of things going in to it. But, it's still a pain. And, a big cost.

I will post the 3rd and final post dealing with my work history soon. It will just graph my total gross at each age and discuss where I'm headed with pay.

Work and Salary History, Part II

Software Engineering Career

The Apprentice

These numbers for the first job are probably a bit off as I can't remember exactly.

Software Contracting / Programming - Part-time - equivalent of $18,000. However, I didn't get that amount each year, as I was only working like 12 hours a week. Maybe it was something like $12 or $13 an hour. I was working 7:30am to 3:00pm reaching each day, and then drive over to the software place and work there about 3 hours a couple days a week. After going to school for computers and then going to school for teaching, and then actually teaching for 1.5 years and 3 months of part-time programming, I realized that I definitely wanted to be an engineer long term and engineering and creating was what made me happy.

Software Engineering - Year 1 - 4 days a week. $24,000 a year. I quit teaching and proceeded to work 4 fulltime days a week for the first 6 months so I could finish my (now unneeded) Masters in Secondary Education. When that was done, I went fulltime programming and never looked back. In addition to the salary, I got a $2000 bonus and maybe $4000 to invest in a SEP-IRA.

Software Engineering - Year 2 - $30,000 a year. I was now fulltime and taking and handling projects on my own. And, learning lots of techniques and knowledge. Our projects were usually focused on real-time control and processing systems. Excellent experience. Additionally, $3000 bonus and $5000 in a SEP-IRA.

Software Engineering - Year 3 - $35,000 a year. $3500 bonus and $5000 in a SEP-IRA.

Software Engineering - Year 4 - $50,000 a year. Senior Engineer leading projects. I invested a little and owned 2 shares ($5000) of the privately held company (the investment never worked out - I lost $2000 on it). About $3000 bonus (company had a bad year) and $4000 in a SEP-IRA.

Software Engineering - Year 5 - $60,000 a year. Senior Engineer leading projects. Never saw the bonus or SEP-IRA investment that year as I decided to change jobs. I wanted to learn more (hard to learn when you've been there the longest and are mentoring all the new employees) and I wanted to learn a new domain (inside software of course). The internet boom was just starting to happen, so naturally, why not learn internet technologies (something I was very deficient in)...

The Dot.com ERA

Software Engineering - Year 1 - $77,500 a year. A typical Dot.com company. I was employee number 60. All the great worktime perks: at-desk massages, pet insurance, etc. It was great to be able to learn internet technologies since I was very deficient in them (I had been doing all real-time, multi-threaded, low-level C/C++ programming and designing). In my first review, I got no bonus - just stock options (which were ultimately worthless). Also, no extra retirement like the SEP-IRA I had been receiving at the previous job. Instead, we had a 401K and that could be donated into (included in the salary).

Software Engineering - Year 2 - $85,000 or $88,000 a year. The Dot.com company. We now had over 300 employees. I soon got a raise to 92,500. But, 6 months later, like all dot.coms (outside of google, yahoo, amazon, and ebay) the company was in the red. We started laying off hundreds. We operated with about 20 employees for a month. When it was all over, there were 7 of us left. I was one of those 7. We worked another month like that. When it was announced that we too would be out of a job in 2 weeks, I didn't really care.

The 7 of us had already been approached to continue developing the application for the asian market. The partner company that still had solid sales though. 4 (manager, 2 developer, DB/DBA) of us decided to go (for the money or the adventure?).

Japan

Small Startup - 10-15 employees. $100,000 + housing (about $25,000). I was paid as a contractor in American dollars for 6 months so I really only made $50,000 of it.

After the first 6 months I got a 3 year Engineering VISA to live in Japan and was converted into a fulltime employee and paid in yen - 12000000 yen per year. At the time the exchange rate was about 125 yen per dollar which would equal $96,400. But, I was also given some other perks commonly referred to as an ex-pat or ex-patriot package: $1000 moving expenses, free Business Class flight once a year, 100000yen per month for rent (equal to $800 a month which was nice but not sufficient considering the cost of aprtments in Japan).

It was decent but not the best ex-pat package I have ever heard of - the big banks know how to do that.

So, to sum it up I was making about $107,000 a year. But, if you were to take into account tax laws (my Japan yen income was only taxed at like 19%), I was getting the equivalent of $140,000 before taxes and $87,400 after taxes. Before you say that the equation is not that straightforward and is wrong, please actually know the ex-pat tax laws. Plus, I am account for everything (health insurance, etc) and am calculating based on final money deposited into my bank account each month.

I did that for one year and then they had to let us go (or cancel the contract depending how you say it).

I realized I liked Tokyo and decided to try to find another job.

The only way (not the only way but pretty much) to get a job in Tokyo is through introductions via friends or recruiters. I had a friend recommend me for a position at the Tokyo office of a small, but public multinational hardware/software computer listed on NASDAC. The pay was not that great but it enabled me to stay in Tokyo.

I think I'm turning Japanese: Yen Employee

Public Multinational Hardware/Software Company

Senior Engineer - Year 1 - I got 8000000 yen per year which was equivalent to about $66,000 at the exchange rate at the time. Looking back on it, I should not have accepted such a low salary. Oh well, I learned. The job was so easy though, I'm not sure if I could have contributed anything above $66,000 a year. The equivalent salary, after taxes and heathcare costs, etc would have been a American Salary of $90000.

Senior EngineerYear 2 - I got a small $1500 raise. As the yen-dollar exchange rate moved in my favor, I was making about $75000 a year. The equivalent salary, after taxes and heathcare costs, etc would have been a American Salary of $95000.

In addition to that I started doing consulting/contracting on the side for a small private company that needed help and made another $10000 a year.

Finance

Team Lead (of a team of 4)

Depsite the title, it's still mainly Software Devleopment - about 50% development, and 50% management and bureaucracy. I was not very challenged (aside from improving my Japanese) at the Software/Hardware company and there was nowhere in the company to go. I found a job at a huge, multinational bank and took it. I have been here about 7 months. 11000000 yen per month plus 25% of that is untaxed and goes towards housing costs. The equivalent $ rate of that is about $130,000 per year. The tax laws really do help me living here.

In addition to that I am still doing consulting/contracting on the side for a small private company that needs help. I make about $20000 a year from that.

So really, I am making like $150,000 a year, but I choose just to list the main job right now.

And, I still hate getting up in the morning.

Work and Salary History, Part I

The next biggest moneymaker is work. I work for an investment bank as a Team Lead / Software Engineer. Banks definitely pay better than other companies. As I joined less than a year ago I have yet to experience a bonus, but I have heard great things and am waiting patiently.

I also currently do a little contracting / consulting for another small business at night and weekends [and sometimes during the day at my main job - like I'm writing this during right now :) ]. That is another source of income at present (another 20% on top of what I already make in the main job). Basically, I am trying to live off of that, while saving everything that comes in from the main job.

I will now rundown my work and salary history in a 2-part post (some of the early numbers might not be exact as it's been a while and they are not written down anywhere but my brain). At the end a 3rd post wil summarize and graph all the numbers.

First Job

Age 12: Delivered newspapers for a school year (mornings before school). I have no idea what I was paid, but it was probbaly something like $300 for 6 months. I hated getting up in the morning.

High School Part-time jobs

High School: 9 months Burger King - $3.75 per hour inserting frozen patties into the burger machine. Quickly promoted and earning $4.25 an hour and and then $4.75 an hour handling money at the drive-through and counter registers.

High School: Bussed tables at a local restaurant for 2 nights before quitting: $30

High School: Self-Serve gas station convenience store. Start at about $5.00 an hour and by the end of high school 2 years later was making probbaly $6.00 an hour (I really can't remember though). I didn't save any of this money, just used it for food and going out with friends. It was dream job as I was alone in this store with hardly any customers. I could play music, do homework, study, read, watch TV, lots of free junk food - pretty much anything goes.

Choosing College

For choosing college and my future, I loved math and computers and was not sure whether I wanted to teach math or develop computer applications.
I went to school for Computer Science at one of the top 10 schools in Computer Science, but with the knowledge that I could still go into teaching if I wanted. When I graduated, I quickly decided I wanted to try teaching as well. I enrolled in another small, but well known college for a Masters in Education to teach Secondary Mathematics (High School / College math).

Freshman year of college - Christmas break worked a little at the gas station/mini mart / convenience store a couple times for a little more spending money.

First taste of money

First summer home from college - ~ $7.00 / hour. Painting and maintenance work at my Dad's office (who helped me to get the job). Best part was I was paid as a contracter so minimal taxes were removed. I was paid flat out for all the time I spent. Probably about $1500 in 2.5 months.

Responsiblity, Future Experience

Next 2 summers home from college - Camp counselorI wanted to get back to working with kids and gain experience doing so. I must have anticipated maybe going back to school for a teaching degree (after my undergrad was finished) and how my resume would look with the counseling experience on it. Or, maybe I just wanted "nice, fun summers playing with kids."

Summer between Sophomore and Junior Year: Counselor / Trip Coordinator for a sports camp. Managing kids daily getting them to and from their activites. Coordinating and managing huge amounts of kids on day trips away from the camp including places like NY City. When I think back, I can't imagine being responsible enough to handle all that - but I did. ~$1400, plus free room and board for about 10 weeks. In terms of an hourly rate, it was ungodly low since I was required to be on the campus 24 hours a day for 6 days a week. We had one day off a week to go home or do whatever.

Aside:

That's sort of like the hourly pay being in the army or military - they get next to nothing an hour since they are required to be onsite for so much of their time in the service. It's probbaly not good, but that's how I have come to think of jobs - how 24 hours - how much time you have to do whatever you want wherever = How long you have to work = How long you cannot do whatever you actually want.

Then take Total Salary received divided by "How long you cannot do whatever you actually want" and that is really your $ / hour. That means Transportation time is included because if you didn't have the job, you would be doing what you wanted, not driving to/from work. If you start to think about jobs this way, you will really see which ones are oppressive and which really pay you the best rate. You want to maximize your money and minimize your time.

Back to the jobs:

Summer between Junior and Senior Year: Senior Counselor for the sports camp. Managing kids all day long throughout their daily routines. It was a lot of work involved creating activites, skits, etc. But, it was really fun. ~$1800, plus free room and board for about 10 weeks.

Teaching Math

While enrolled in the Masters Program, I got my first real job teaching small classes in a vocational high school for about $9500 a year. Upon graduating college, I did not want to take a computer career immediately. I wanted to try for the teaching degree and teaching. I got accepted at a small, sort of elite (sort of snobby) liberal arts college to study for a Masters in Secondary Education. I would also be taking a state test for teaching certification. Since I was currently pursuing the degree and the certification, the school was allowed to employ me as a teacher. It was quite an honor to be selected over many other candidates and I was very lucky to have such a job. All of my other classmates who were studying in the same program had nothing close to what I had (in terms of resume-building and experience - not in terms of money).

In the summer, I was off and made some extra money ($3000?) teaching soccer at a pretty high-class soccer camp (due to a connection my aunt had). It was a great deal and I made $20 an hour. Plus, very little taxes due to be paid as a contracter again.

Teaching class in a vocational high school for about $12000 a year. Pretty good raise - especially in terms of percent (%26). After a year and a half of teaching and schooling (only needed 6 more months to graduate and teach fulltime), I realized I didn't want to be doing the same thing every year. I was prepared by the other senior teachers to graduate, find a good school district, create some lesson plans that would never change (as well as the fact that new math is never discovered - you teach the same concepts every year) and sit back and teach for 30 years, then retire. That was a bit scary, but mostly depressing. I wanted more.

About the same time, I found an ad for part time programming at a local software contracting firm...

(continued in Part II)

My House & Mortgage

I'll start describing each of my investments, largest to smallest. The first investment to discuss is my house and mortgage.

Synopsis

I bought a small house in the center of a large city in March 2000 for $100,000. I only put about 10% down, but did not have to pay PMI as my real estate agent did something funny with the numbers. I think the real price of the house I bid and was accepted at was like $95,000 but then he rolled PMI into the mortgage. I don't know what they did (I should have understood better), but looking back on it, it really didn't matter. It quickly doubled in value.

My initial mortgage for the $90,000 ($100,000 - $10,000 down) was at 8.5% !! That was normal at the time, but seems incredibly high right now. I was paying something like $940 a month ($745 for mortgage + PMI + insurance + property taxes).

Job Change and Moonlighting as a Landlord

I was making about $80,000 a year. I did that for about 2 years. I then got an offer to transfer to the Japan branch of the company I was working for - A nice raise (or just salary plus substantial relocation expenses - Tokyo is expensive!). I rented out the house to a friend and was collecting about $850 in rent a month. It was a slight loss but it was what the market would bear, I didn't have to spend any time finding a renter, I trusted the person renting it, and could get an extra $850 in my bank account to make interest off of (the security deposit).

The Housing Boom

A year went by and the house quickly went up in value soon after that due to the housing boom experienced in many large cities. Interest rates also quickly went down after that. I had it re-assessed at $150,000. I had magically gained like $50,000 in equity! At that time I owed $87,000 on the mortgage and had a house worth $150,000.

I tried to re-finance my mortgage at 6.00 % for 30 years. Problem is, I had trouble getting a new mortgage since I only had foreign income that could not be verfied!?!?! I was working for a Japanese compnay and being paid in Yen. I had $60,000 in collateral. Is this unheard of to American banks?!?!?!?! (I later found out the mortgage company I was dealing with was very inexperienced and not very professional.) It turned out to be the best thing that could have happened.

Home Equity Loan

My mom told me that my bank was offering Home Equity loans at better rates, less years, and approval was very simple. I just showed them the reassessed value of my house, they verified my credit (and didn't care about my Japanese income). I got a 20 year loan at 5.25% !!! I paid off another $10,000 as well when I applied for the loan. That comes to just $550 a month.

There are no management fees to deal with and the property taxes are quite reasonable at $1800 a year.

Looking back on the housing boom now, I wish I'd have bought something larger or 2 properties, but you can't look a gift horse in the mouth :) 2.5 times my value after only 6 years is something to smile at.

Summary

So, as it stands right now, I have a house worth about $250,000 (based on web studies, re-assessments, and comparable properties that have sold in the last year next to mine). I owe just $74,000. I pay $550 + $200 = $750 a month (property taxes and insurance pro-rated from the year). Furthermore, I am still renting it and can now get $975 a month for it (plus 2 month security deposit to make interest on!).

I get $225 a month income from renting the house with a minimum of hassle.

Strategy

Obviously, if you look at my numbers and accounts, I could pay off the house tommorrow if I wanted. I could just sell some of my mutual funds and pay off the entire $74,000 remaining on the mortgage. However, that would hurt me in multiple ways. I would not be able to deduct the interest paid on my mortgage from my taxes each year (about $2000). Although, right now, most of my income is foreign. However, the income from my house rental (and maybe capital gains from Money Market funds?) would be taxed if not for this extra $2000 I can write off. In the future, if I move back to the US and have my main source of income from there, that will $2000 less lost to taxes each year (of course, it is becoming smaller and smaller each year as I pay off the mortgage and at that time might be like $1500). I don't see any reason to pay off mortgages early, unless you are not able to recoup the tax savings from the deductions. I guess once the interest I am paying each year exceeds the amount I can deduct each year, then I am better served just paying it off all at once and saving on the interest paid that is lost from there on out.

Property Management

I have also been debating using a property management company to find me renter's. They could probably get me $1300 a month (minus a 10% fee) instead of the $975 I currently get. I will probably pursue this once my current renter moves out and it is time to find a new tenant (estimated in 2008).
Right now, I feel I should have a little more money invested in real estate and less in the stock market. Therefore...

Another Property

If I do move back to the US, I would like to continue renting this property and purchase another property where I would then live. Only problem with this, is I think I will have another hard a time getting a new mortgage since I will have no history of consistent income in the US when I move back. I am not sure if I could borrow off my current property's equity as collateral (currently about $175,000). Or, just get another home equity loan like I currently have (and based on my current house) and apply it to another property?

My Net Worth

My facts and figures

I have created a profile in NetWorthIQ that pretty much sums everything up. I'm not very impresssed with Net Worth IQ's site and functionality yet, but I guess since they are new they are still trying to figure out what to do. It's still in Beta. But, so is everything Google has released :)

What I Amount To

According to Net Worth IQ I am worth $444,431. Which is fine by my standards and especially if you'd have told me 10 years ago I'd be worth that much (but with 10 years of inflation maybe I wouldn't be that happy). The more I think about it, I should have more (or should have saved more by now - especially for how frugally I have lived until now).

How I Rate

According to Net Worth IQ's statistics, I am slightly below average for my profile. That's sad as I thought I was definitely above average. When I compare myself against my friends and co-workers, I am way ahead. I figure, many people on Net Worth are overestimating themselves (purposely or not) when they fill it in. Sort of like when people play golf and forget to add extra strokes for penalties and take mulligans and such. Additionally, those people already having an above average amount of money to begin with and caring about their money growing are much more likely to go there are create a profile. I am being perfectly honest in the numbers posted and will update them each month. If anything, I tend to underestimate a little, so I can be pleasantly surprised in the future when my investments grow larger than I had planned for.

Coming Soon

In my coming posts, I will try to describe each of my investments listed in the Net Worth IQ profile.

Later posts will describe my goals, both monetary and lifestyle. After that, I will try to get into things I am thinking of doing with my investments and hope to get some advice on what is more beneficial for my goals.