Save Money and Lose Weight

Would you pass up a pizza a month to pay off your mortgage seven years ahead of schedule? Photo by: Shutterstock

This post originally appeared on the Hermit Haus Redevelopment blog on 2019-10-09.

Most of us make at least one mortgage payment every month. It’s not one of our favorite things to do, but we do it so that we can continue to have a place to live. Those of us with rental properties probably make a mortgage payment every month for each property.

This week, I learned of a painless way to pay off your mortgage—one or many—early. According to Kristen Berman, co-founder of Irrational Labs (a behavioral economics company), one simple hack can help you pay off your mortgage up to eight years early. That’s right. One simple behavioral twist can save you thousands of dollars in interest on your mortgage…painlessly.

By paying $625 each month instead of $613.86, my friends could pay off this $70K mortgage a little more than three years early. By paying $650, they could pay it of 7.5 years early. This is the power of rounding up.

Would you like to know what it is?

Round your mortgage payment up to the nearest ten dollars and instruct the bank to apply the rest to principal. I can pretty much guarantee you won’t feel the difference in your cash flow, especially if you make your payments automatically. You make the change once, and it increases your net worth and saves you money going forward until the mortgage is paid off. Just by rounding up to the nearest ten dollars, you can pay your mortgage off at least eight months early. If you round up to the nearest $25 or $50, you can save even more.

This graphic shows the difference in rounding up to the nearest $25 and $50 on the $2000 payment in the body of this post. It works the same because $1200 of that $2000 payment goes to taxes and insurance, which never go away, only up.

Think about it. If your mortgage payment is (like one of mine) $2000.72, paying $2010.00 is a negligible difference—less than the cost of a bacon cheeseburger combo at Dairy Queen. Yet it could save thousands of dollars. You can save even more for the cost of dinner out once a month. I’m not saying you shouldn’t ever have a nice dinner out, just that you choose to do it being aware of the cost and benefits. Do it intentionally.

What I really like about this hack is that you already think this way. If I asked my friends what their mortgage payment was, they probably wouldn’t say, “$613.86,” like I did. They’d probably say something more reasonable, like “$615” or “$620.” Our brains are wired to round.

To me, this hack is better than setting up an automatic transfer to your savings account because you can’t sabotage yourself by spending your savings on—okay, necessities—later on. Even if you run onto hard times and have to stop paying extra somewhere down the road, the money you’ve already paid down continues to reduce the amount of interest you pay every month. Until the mortgage is paid off.

The sooner you implement this strategy, the more money it can save you!

Now seriously, when was the last time you heard of a financial tip that can save you money and help you lose weight at the same time?

How to Ru[i]n a Business

The post originally ran on the Hermit Haus blog because that is where we talk about running a business. It derives from efforts on behalf of our new non-medical, personal assistance company, Hearts Homes Hands.

This post originally appeared on the Hermit Haus Redevelopment website on 2019-09-28. A slightly edited version also appeared on the Hearts Homes Hands blog.

Over the past few weeks, our sister company, Hearts Homes Hands (Hearts, for short) has been trying to get some promotional items with the lovely helping hands logo embroidered on them. Since Hermit Haus has previously purchase such items from the big online vendors, we knew that the quality of the items they provide tends to leave a bit to be desired. So we decided to buy the shirts from Lands End and have a local company embroider them. This decision provides the quality we like while supporting local businesses, a win-win.

Based on our experience so far, here are a few rules to follow if you want to avoid doing business.

Don’t Have the Equipment

Our first call was to a local tailoring and alterations business. It was a long shot, but we like her, so we wanted to give them the business if we could. Unfortunately, they don’t have the right sewing machine for the embroidery work. That’s not really surprising, since it isn’t their core business. It’s not a big deal, but it does keep them from expanding.

They did refer us to another local business that does. They just didn’t tell us that’s what they were doing.

Don’t Follow Through on Commitments

The owner of the second business actually did have the equipment and called us at 9:00 o’clock on a Saturday night (impressing us with their dedication) to say they would call on Monday to talk about the details. They didn’t. We did get an email Monday night saying they would be in touch with us on Tuesday. They weren’t. Nor did they answer when we called back the original number.

Don’t Provide Contact Information

We then set about looking for another local business to do the work for us. We found a Facebook page for one with no phone number and no email listed. See the previous “rule” and guess what happened to our FaBoo messages. How are you going to get new business if you make it impossible for your customers to contact you? You don’t have to answer the phone yourself, but somebody needs to.

Don’t Have a Physical Location

Now you may think that brick and mortar operations are passé. It so, why did Amazon buy Whole Foods? Why does Google have so many offices throughout the country for Google Fiber and their other marketing ventures. No, if you’re going to have to interact with your customers—especially if you rely on local customers—you need a place to do it.

The result of all this is the Hearts leadership team is going to our first industry event without clothing to identify us to potential customers and referral sources. Sigh. Anybody have a Sharpie?

How to Get Through College Without Drowning in Student Debt [iii]

To get where you want to go, you need a plan, a vehicle, a mentor or guide, and the willingness to get out and push.

Many people graduate university with enough debt to buy this nice starter house in Cameron, TX. Now add the stress of finding a job and starting a career so that you can begin to repay that debt. There has to be a better way!Starting with no educational debt, the roofers on this job stand a better chance of achieving financial independence than many debt-ridden college graduates.

This post originally appeared on the Hermit Haus Redevelopment website on 2019-02-22.

Part III: Pay for Your Education Without Sacrificing Your Future

One of my younger friends once told me a staggering truth while recovering from the party to celebrate his graduation from the University of Texas. “Yesterday, I knew who I was,” he began. “I was a college student with a 3.7 GPA. I lived in a dorm and had a meal plan. This morning I’m homeless and unemployed.”

Being homeless, unemployed, and facing a mountain of debt with no real hope of ever paying it off is not an uncommon situation in this country.

Unless you are born to wealth, there are only a few options to obtain a degree without also acquiring ridiculous amounts of debt. The most obvious way is to work and pay as you go. That’s what I did. I graduated with honors from both my undergraduate and graduate programs without debt by working full-time while being a part-time student.

Here’s How I Did It

Just as you wouldn’t start a construction project or a reno without detailed construction, financing, and contingency plans, you shouldn’t start your education without detailed career, financing, and contingency plans.

At the beginning of each semester, I would sign up for two or three classes in my degree plan and put the tuition on my credit card. During adds-and-drops, I would get the syllabus for the classes and determine the difficulty (and time requirement) of each class. If I judged I could successfully complete the courses without endangering my job or family life, I would buy the books (also on my credit card) and do the work—both the class work and the jobby job work.

If the task of working and schooling appeared too daunting, I would determine which class (or classes) to drop to ensure my academic success, hopefully before the university started assessing a fee for partial completion. I always made this decision before the deadline to withdraw passing.

As the semester progressed, I would pay off the credit card. This strategy is one of the only times I would consider credit card debt to be "good debt."

If something came up at work (like getting sent to Panamá for ten weeks) I would cope the best I could. Sometimes, I would have to withdraw (passing) from a course. If it turned out I had misjudged the difficulty of the course or courses I was pursuing, I would have to decide it I could slug it out or if I would have to drop a course. Sometimes this decision was overshadowed by how often the course was offered and the competition to even get in. I only took electives that really interested me and would advance my career.

At the end of the semester, I would check off the course(s) successfully completed on my degree plan and start planning the next semester. Sometimes, I would not have been able to pay off my credit card, which would limit or eliminate the number of courses I could attempt the next semester. Sometimes, my employer would reimburse or partially reimburse my expenses for courses that directly applied to my jobby job.

Employer educational benefits are the secret advantage of working while you pursue your degree: your employers want you to succeed and most will help you do so financially! After all, a better-educated, better-qualified employee is in your employer’s best interest.

All It Takes Is Time

By paying as you go, you control the Cost of your education but may sacrifice Speed. But I believe the smaller course load I attempted each semester increased the Quality of my education by enabling me to pay more attention to what I was learning.

This approach was not without cost. It took me ten years to get by bachelor’s degree (normally a four-year degree) and four years to get my master’s (normally a two-year degree). This meant that any degree-related career advancement was also deferred. And neither could I benefit from many of the social aspects of university life because I had to run home to family and jobby job. [But, honestly, I am a hermit. The social aspects of university life never appealed to me.]

On the other hand, I graduated with real-life experience that increased my value in the work place and ensured I could work in the field I had chosen to study. My initial plan to be a psychologist was derailed by the economic realities of that profession just as much as my plans to be a professional musician. And keeping grounded in the working world kept me from the horrors I’ve seen of hopelessly lost academics who charged straight through to a doctorate with no grounding in how the world actually works.

What Matters to You?

Like all the “advice” I give, my version of the pay-as-you-go approach to education worked for me. It may not work for you.

Only you can decide if graduating without a significant debt load is more important than the future value of the overall university experience. No decision is without sacrifice. No plan is right for everyone.

Setting Your Goals Starts the Process

These are the qualities of a well-crafted goal. For example, we want to acquire 36 properties (specific, measurable, and relevant) this year (time-bound). It should be attainable, but it is our stretch goal. Photo by: ClipartFest

This post originally appeared on the Hermit Haus Redevelopment website on 2017-01-31.

Only you can define success for your business. Don't let anyone try to convince you you're not successful if you're meeting the goals you establish for yourself. If you want to rehab just one house this year, you're a success if you accomplish or start one project. If you do that, and you want to, you can set a higher goal next year.

But you can't stop with just setting a goal. That just starts the process.

Let's focus on 12 projects for the year. What do you have to do to get there? You can't just look at 12 houses, buy them, rehab them, and sell them. Well, you can, but not if you want to make money and stay in business.

There are basic numbers for each stage of the deal. At Hermit Haus, we know we closed on about 60% of the houses we got under contract, or about or about 42% of our offers. We made offers on almost 46% of our active leads. And only 36% of our prospects became active leads. All-in-all, we acquired about 4% of the prospects that crossed our desk. (We can debate the efficacy of those numbers at another time.)

Think about that. To buy a house, we had to have 25 prospects, and our acquisition rate is much higher than the industry norm. (One reason is we only track the prospects we spend time on, not everything that gets presented. And I still don't expect to be able to keep the ratio that high this year.) To buy 12 houses, we would need at least 300 prospects. That's more than one serious prospect every business day. And our actual goals are significantly higher than 12 projects this year. We don't want to manage 36 at a time like some folks we know do, but we have shown we can certainly manage more than five at a time.

And managing multiple projects requires managing your goals. Next time, I'll talk about how I do that at Hermit Haus.

If you have questions about goal setting or want to help us attain our goals, email me or leave a comment.

Austin’s “Affordability Crisis”

High prices mean more people, especially young people, are renting again. Pricedoutforever.com argues that this is a good thing. I’m not certain if its good for them, but it is a good thing for investors. Photo by Pricedoutforever.com

This post originally appeared on the Hermit Haus Redevelopment website on 2016-07-23.

The median price of a single family home in the City of Austin rose 3% to $350,000 in June. When you take the surrounding cities into account, the median price was up 8% to $295,000. This sounds like great news to investors, but it actually makes our game riskier. Just as the higher prices are denying many first-time home buyers and lower income families the opportunity to buy a home in Greater Austin, they make it harder for investors to find the margins we need to sustainably run our businesses. Not impossible, just harder.

If you talk to a real estate agent, they’ll say, “Buy high, sell higher.“ But remember agents are motivated by commissions, and they get paid no matter which way the market trends. They get paid more if it goes up, but they still get paid if it goes down, assuming it doesn’t collapse and they can still sell something.

The more people get priced out of the market, the fewer people there are to buy any given home. That doesn’t seem to be a problem yet—along with the "affordability crisis" the ABOR article mentions, we have a supply crisis. Our inventory levels remain at historical lows, less than two months. I’ve even heard speculation we may see a one month inventory in the near future. That means, despite the price, someone is buying all the houses that are for sale, and it’s not just investors.

Remember, a stable market has around six months of inventory. So we are still in a really hot market.

While the trend in median home price continues upward, it is not a straight line. You can’t count on appreciation to save your donkey. Data source: Austin Board of Realtors^®

But consider this: this business is cyclical, and it can turn on a dime. Add to that what our mentor Shenoah Grove says: "We’re currently eight years into a five year cycle," and you can begin to see why some investors are starting to talk about bubbles. And finally, I’ve seen a market correction in the first year of every new administration since I can remember, regardless of which party was involved. So you have to ask yourself if we are approaching the crest of the wave.

Over time, real estate has always appreciated. But that appreciation isn’t a straight line, unless your talking about the very long run. It’s downright bumpy. And as I’ve always said, to reap the long term benefits, you have to survive the short term. Or as I once heard Alan Greenspan quote John Maynard Keynes when asked why investors don’t plan for the long term, "In the long run, we’re all dead."

So how do we continue to help people and make money in times like these? We have to stick to basics.

• Don’t buy assuming appreciation will fix our mistakes. I think it will...in the long run—if we survive the short run.
• Know your end buyers well enough to improve the house to the right level, neither over improving nor under improving.
• Remember your time lines and try to eliminate slack from your schedules. This one is really hard right now when contractors and subs still have more work than they can handle. Why do should they care about your schedule?
• Manage your holding costs. Use private money rather than hard money. Use bank money rather than private money.
• Partner up to spread the risk. You only shoulder half the risk with a seasoned partner, but you only get half the profit.

That said, don’t forget the motto I learned from my mentor Than Merrill: “People first, profits second.“ This business revolves around solving other people’s problems. Even in these high-priced times, even when the market turns down, if you can help people solve their problems, this business will continue to be rewarding and profitable.

For the full report on the June market from the Austin Board of Realtors, see Austin-Round Rock home sales on pace to surpass 2015 record levels amidst affordability crisis