As I look back on 2016 and the almost one year anniversary of this blog, I am of course reflecting on how the first year went.


  1. I’m lucky if I post once a month.  If the content was awesome, I would be more OK with that.
  2. My earlier posts involved more analysis and resonated more.  I perceive they were better”quality.”
  3. I’ve read lots of other folks’ blogs, and I’ve hesitated to either comment or reach out because I’m not psyched enough about the content I’ve created this far.
  4. Starting a blog and building an audience is a sloooooooow process.  Let’s just say that I have a lot of room for improvement.

My goals for 2017 are pretty simple:

  1. I’m not planning to pump out lots of quantity.  That means I want to improve the “quality” of the content that I’m writing.  More data.  More insight.  More analysis.
  2. Reach out to other members of the blogging community for idea exchange.
  3. Find ways to get in front of other bloggers’ audiences (e.g., guest post, etc.)

    Let’s see how I do… Happy New Year, everyone.

    Any specific goals on your mind for the new year?  

    One Year Anniversary (Of Being a Landlord)

    How did that happen?

    A friend of mine said that I would be surprised at how quickly time would pass once our rental property was up and running.  He was right.

    It’s actually been 13+ months since our first tenant moved in on November 20 2015 with a six month lease.  She left after about 8 months, and we were able to find another tenant before the unit went vacant.  In August, we signed a year lease with our current tenant.

    I last posted on our invested effort in September.  At that the, we had logged 585.5 hours.  All told, we’ve now put in 593 hours since I started keeping track.  In total, we’ve grossed $22,350.  That’s $37.69/hr for those of you keeping track at home.  Of course, that ignores the approximately 200 hours we spent screening.  But, I think it still beats working for a boss.

    Rent is due again on the first.  There will be ups and downs…I hope it will be a very happy New Year for us and for you!

    Presidential “Pop”


    An upset worthy of hyperbole: Donald Trump will be our next president.

    Almost immediately, the markets started reacting.  US Futures dropped like a rock.  Foreign markets dropped for real and then rebounded.  Now, almost a week later, lots of folks are starting to interpret what a Trump presidency means.  I wondered what typically happens shortly after an election.  Let’s just stick with the S&P 500 and look at how it closed on November 1 (before an election) vs. December 1 (after an election).  Maybe we can see how panicked or calm we should be…

    Here’s a table showing the 1 month closing values and the % changes since 1900.  If you’re wondering why that particular window, it covers a pretty significant span of US history and a range of tumultuous to halcyon periods.  By the way, the S&P Data is from here.   Special thanks to Robert Shiller for making it freely available.  And, the Electoral College data is from here.

    One month S & P 500 changes since 1900.

    One month S & P 500 changes since 1900.


    For all years since 1900 without a presidential election, the average one month change was a positive increase of 0.5% (standard deviation of 0035).  For all election years in the same period, the one month change was a 0.3% increase (standard deviation of 0033).  Here’s a histogram to help visualize things.  See the overlap?  The stats seem to suggest that for this time window, there’s no net benefit to either jumping into or out of the stock market in response to election results.



    But, wait a minute.  Aren’t Republican presidential candidates better for business and the stock market?  In the days since The Donald was elected, the US stock market hit record highs.   See!  Well, let’s look at the data.  For all election years in our data set, we can split the one month returns by the winning party.  When Republicans win the White House or Democrats win the White House, there is no difference compared to non election years.

    So, forget about non election years: let’s pit Democrats against Republicans directly.  Since 1900, there have been 15 Republican presidential terms and 14 Democratic ones.  Here’s the histogram of the one month change in the S & P 500.  Visually, it looks like there might be something there: a couple more high returning years in red vs. blue.  Again, the stats don’t show any meaningful difference between the two parties.



    So, what’s the take-away?  Warren Buffet’s sentiment: “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.”  Despite all the rhetoric, punditry, and discord, America is a great nation to belong to. 


    Regardless of your political affiliations, invest.  Invest for the long haul.  Plant that seedling as soon as you can.  It will grow into your own money tree.

    Investing With Leverage: Whose Money Is It Anyway?

    As the year starts to wind down, I spent some time reviewing our financial books for the condo.  I was adding up the income earned to date, paying required expenses, and thinking about what distributions we should take.  Then, it struck me: Once rental payments started coming in, we haven’t spent any more of “our” money.  Effectively, our tenants have been paying our mortgage, covering condo fees, and building our maintenance reserves.

    So, let’s explore how much of our actual cash we’ve spent. I’ll use some rounded numbers to help illustrate this.  We spent about $65k to acquire the condo and get it rented.  Now, that includes all of our closing costs and renovations as well as our initial equity.  Npw, let’s break things down a bit further:

    • Down payment ~40k
    • Closing costs ~10k
    • Renovation costs ~15k

    The down payment is not really gone assuming we sell at some point.  It’s counted as part of our initial equity in the property. But that cash is currently tied up, and we cannot use it for any other purpose (More to come on that). If the condo appreciates at all (we sell it for more than we bought it), that will be considered an increase in our equity also known as a capital gain.

    The 10k in closing costs are essentially gone.  The allowed ones went into our business expenses and will be helping us to offset current and some future income.  So, these were “real” expenses to us.

    We also spent about 15 k to renovate.the unit. You could argue that we had to spend real money to pay for countertops, appliances, and a new HVAC system.  Or, you could consider them as increases in the base value of the property.  Where applicable, that’s what we dis.  The big items were counted as increases in our cost basis, and they are being depreciated over their IRS directed lifetimes. So, an accountant might say the money is not technically gone.

    That means we bought an income generating asset that meets the 1% rule.  And we did it for a total of 10k of real expenses.

    Baring any major disasters requiring cash above our reserves, every other nickel  from fixing the garbage disposal to putting in new floors (again), will be paid for with other peoples’ money .  Now that’s exciting!

    So, we have this great problem…what do we do with the excess cash once we’ve fully funded our reserves?  Pay down the mortgage?  Save for rental property number two?  Invest in Wells Fargo?

    Rental Operations: 10 Months Of “Normal”


    Last post, I talked about the time we invested to get our first rental property up and running.  As landlords, my wife and I may have an odd perspective on our tenants.  They are, in fact, our customers.  Our goal is to keep them happy enough to continue to occupy our property while paying the rent on time and causing as little wear and tear on the unit itself.  We’ve had 100% occupancy for 10 whole months (yes, I know that’s hardly a world record).  Starting up a rental, I knew we would be spending time and energy to keep our customers happy.  I didn’t know exactly how much it would take, so I kept track of our hours.  Let’s take a closer look at what we’ve done and how much time it took…

    Our first tenant came to us on the recommendation of a great friend.  Even better, the prospective tenant was in a pinch and needed a place quickly.  It was November 15, and our place was almost ready. Despite a few missed milestones from Home Depot in delivering appliances and counter tops, we thought we could accommodate this tenant if she went through our application process.   Things checked out, and we settled on a 6 month lease with the intent of signing a new 12 month lease in the late spring during peak rental season in our area.  Because our tenant came to us, we didn’t spend much time or effort to “sell” our unit.  Most of our time was spent developing our lease and application process.  All in all, we spent about 40 hours preparing our lease, showing the unit, and signing the lease with our tenant.  I should mention that we used this e-book, The Everything Lease Addendum: How-to For Landlords by Elizabeth Collective over at reluctantlandlord.net to help us write our lease, and it was one of the most helpful resources we’ve found as new landlords.


    We spent about 40 hours in November of 2015 preparing our lease and application process.

    Our first tenant moved in while the unit was still being renovated.  We never took photos of the empty interior space.

    Doh! <Smacks forehead>

    We remedied this oversight in August 2016.  But, it was one of the more frustrating parts of trying to rent our unit.  Note to aspiring landlords.  Take photos.  Take great photos. Take lots of great photos.   If you don’t have a decent camera (by the way, your cellphone is not a decent camera) and a basic understanding of photography, hire a real estate photographer.  It’s almost impossible to get web traffic without photos.  And, great photos will set your rental unit apart.  Hopefully, the images will serve you for many  years to come.

    Our first tenant left after about 8 months; she needed a larger space to accommodate her kids who were moving back in with her after finishing college.  So in August, we needed to go through all the tenant screening steps in addition to creating the marketing materials for our unit.  In total, we spent 33 hours taking photos, building a virtual tour, and updating our lease. We showed the apartment 4 separate times (about 1/2 to 1 hour each time).  So, our total to get the unit re-rented in July/August was just under 40 hours.


    About 40 hours to re-rent the unit

    So, what happened in between?

    Remember how everyone who told you not to become a landlord cited not wanting to fix toilets!?  I can tell you that we didn’t fix the toilet ourselves.  Within two months of leasing the unit, we had a pipe inside our floor/the unit below ours start leaking. We spent 7.5 hours coordinating/supervising/figuring out who would pay for the repair in January of 2016.

    Book keeping and taxes occupied a bunch of time in 2016: about 14 hours in April went to tax preparation & research.

    Remember how I said we’re making about $20/hour when you include all the searching and renovations?  Let’s take away those startup costs.  We’ll remove the ~200 hours we spent searching for a rental property.  And, let’s remove the 400 hours we spent renovating.  Now, for some fun math: $17,000 divided by 200 hours of operations.

    Wait for it


    Not bad for a side hustle.  That works out to the hourly wage of a hand or foot model!

    Hands.  Photo Credit: Alex Tran

    Hands. Photo Credit: Alex Tran

    Real Estate Investing: It’s Not That Passive, But It Beats Working For Your Boss.


    600 hours.

    And that’s just what I kept track of once we had an offer submitted.

    I’m going to delve into what I’ve experienced during the purchase, renovations, and management of our first rental property over the 2 years we’ve been involved in it.  Keep in mind that we’re brand new to this business.  There’s a lot of startup activity we’ve gone through to get to this point (and probably some more to come).


    Even this ole dog can get up and move if properly motivated. An income stream for life? Let’s go!

    On The Hunt

    Let’s start with some data that I don’t have.  If you’ve read any other post on this site, you can probably guess that I like data. During our search process, we digitally screened North of 150 properties. I made 2 spreadsheets for this task.  One mimics the Multiple listing service but adds a few more columns.  With this first tool, I could see all inputs from the listing and get a rough estimate of cash flow.  For properties that looked interesting, I would fill out a more detailed sheet.

    Spreadsheet#2 calculated several measures of profitability (or loss) based on some more specific details.  I filled out upwards of 40 of these detailed sheets.

    Finally, we went to see about 5 places.  We made offers on two.  We were outbid on the first.  And, the second took 10 months from the time we wrote our offer to the time we actually closed.  I would guess we spent about 200 hours screening for our rental in 2014. Let’s amend my total at the start of this post to 800 hours.


    Ah, the thrill of the chase…is so much better if you get the treat at the end.

    The Grab

    In October of 2015, we found a short sale: a 2 bed, 2 bath condo that priced about 25% below market.  We walked through the unit and saw lots of potential.  No major problems, just an interior badly in need of updating.  So, we put in an offer almost on the spot.  We made a list of the major things we needed to do with 3 point estimates to complete each.  And then we waited.  We filed contact extensions.  We waited some more.  In summer, we went on vacation and then updated our financing pre-approval.  We found out we were pregnant…and filed another contract extension.  About 8 months from the time we put in our offer things started moving.  Finally!  All told, we spent about 20-25 hrs between the end of 2014 and August 2015 keeping the contract alive.


    Now, there were lots more forms to fill out from the sellers’ bank.  We coordinated the appraisal and the inspection.  The bank finally set the closing date for September 30, and things went more smoothly.  We made a more detailed punch list of our renovation activities and a schedule.  That’s the time you see in September: about 63 hours of effort to get us through closing and actually into the unit on the 30th.


    Sometimes you get in over your head. Almost.

    The Flip

    You bought it, you broke it.  … Or something like that.  I admit that at times it felt like we were barely keeping our heads above water.  We were both working full-time and then trying to renovate our condo and get it on the market ASAP.  We spent almost $15,000 taking our condo from ugly builder’s white and grimy to a chic penthouse apartment in one of the most desirable locations in the area.  In addition to the cash and contractors’ efforts, it took us about 400 hours of our time spread out over 2 months.  We contracted for the counter top installation, HVAC replacement, and appliance haul away/install.  We did every other bit of paint, flooring, fixtures, cleaning, etc. by ourselves or with the help of one great friend.  But, we kept our vision firmly in front of us and pressed onward.


    You might think that cutting floor boards on a Saturday is beneath you.  Or that you’ve progressed beyond replacing the fill valves in a toilet tank.  If so, you’re right.  Go work in your cubicle for another 30 years before you can retire.

    For everyone else, I can tell you that there is no more liberating feeling than swinging a hammer to build your own system.  To quote Sam at Financial Samurai, “don’t be too proud to be rich.”


    Worth IT.

    The Aftermath

    Now that things are up and running (we’re entering our 10th month of having the unit rented), we are enjoying the result of all our efforts.  I’ll follow-up with more detail in future posts.  For now, our aggregate has been about 100 hours of total effort to handle rental operations.  Despite the monthly ups and downs, we’ve brought in a gross income of over $17,000.  Divide that by 800 hours, and we’re making $20/hr!  That puts us squarely in the basic Human Resources and Gaming Supervisor categories. Woo hoo!


    Before you scoff, remember this is income that:

    • Comes in whether I’ve had a bad day at work or not.  In fact, it comes in whether or not I show up to work at all.
    • Will get better over time (both the hourly rate and the annual gross).
    • Currently has a mortgage associated with it, taking a big chunk of the gross income.  Someday it will be paid off, and then we’re that much closer to financial freedom.  Better still, someone else is paying our mortgage for us.  All of our cash outlays are complete!  More on that in another post too!
    • Allows us to learn about and claim a number of potential tax deductions/business expenses.

    Now this is a seedling I am excited to nourish.  Grow little money tree, grow!

    Stats and Personal Finance: Oh My!


    Lions and Tigers and Bears… Oh my! Wikipedia user: Wulfstan; Wikipedia user: Dibyendu Ash

    Last time, I wrote about volatility in one’s expenses.  I kept it pretty generic.  On purpose.

    Today, I’m going full nerd.  We’re going to look at expenses and how much volatility there really is.  And, we’ll quantify that volatility.  I’ll do my best to keep it accessible, but it will involve a smidge of math.

    If you’re still trying to get started tracking your expenses, Mint.com is a great way to start.  You can probably get everything set up in about an hour.  After that, it’s almost entirely automatic.  You get all the charts and graphs that most normal humans would ever want to look at.  And, for us nerds, everything is downloadable so you can do extra analysis when no one else is looking.  OK, back to the task at hand.

    Before we get too deep in the proverbial muck, a question: why would you want to look at expense (or income) volatility!?

    Answer: so you can plan better for long term things like financial freedom, retirement, house purchases or pay-offs, and budget risk.

    In my last post, I showed a time series plot of our monthly expenses:

    And because I'm a nerd, I also track spending within each pay period to ensure I don't go over budget.

    And because I’m a nerd, I also track spending within each pay period to ensure I don’t go over budget.

    So that I can work with our actual data in the public domain of the internet, I’m going to convert all of the expenses to a standard normal distribution so I’m not sharing the actual values.  You’ll still be able to see each monthly value expressed as a z-score relative to the average of all the others.  (That translates into the following: expensive months will have big numbers.  Cheap months will have small, possibly negative numbers.)   If that leaves you confused or angry, you can watch Psy dancing Gangnam Style again and feel a little bit better.   Or, you can just skip the conversion when (if!) you try this at home with your real data (and not post it on the internet).

    std_expense-varianceA couple of things jump out at me based on these two views.  Lets start with the time series plot:

    • There’s a whole lot more volatility in the past 3 years than in the first 3 years.  Lifestyle inflation, buying and renovating a rental property, and having a little one will do that.
    • Baseline expenses are going up.  And, we probably have more increases to look forward to in the future.  That’s even after accounting for the “unusual” expenses of starting a rental property
    • The histogram shows two humps: the main one centered on 0, and a second one centered on 3 sigma.  Given the relative sizes, that says to me that we’re pretty good about sticking to our budget.  But, when we overspend, things really come off the rails.
    • As with so many things in life, “Average” doesn’t tell the whole story.  That’s the crux of this post, so I’m going to break out of bullets and expound.

    A lot of conventional wisdom is centered around the idea of working to an average.  Average home prices, sales figures, time to commute to work, heights, salaries, etc.  The list goes on and on.  We’re taught from a very young age that in order to summarize a data set, we should add up the numbers and divide by the number of numbers.  That’s the average.  It’s a useful statistic to start with, but it doesn’t tell the whole story.  Check it out.  Each of these lines (H, S, and P) all have the same average.  What’s different?  The spread.


    There’s more to data than just the average. If your head is in the freezer but your feet are in the fire, on average you’re fine! Right?



    Enough stats for a minute.

    Back to personal finance.  If I were to plan my 2017 monthly budget around last month’s expenses, I might pick up an outlier where we paid all the fees for an au-pair (and ate nothing but peanut butter and jelly to compensate.)  If I take a 6 year average, I might overlook the fact that my recent baseline expenses seem to be increasing.  So, let’s only look at the past 3 years.  That might have a more representative sample.

    The past 3 years of standardized expenses

    The past 3 years of our standardized expenses

    Now I have a range of expenses to plan for in the future.  Picking the average and planning for that level of spending would result in having enough money allocated to cover 54% of months!  I’m dipping into my savings or emergency funds almost half the time.  If I want to be more confident that I’ll be allocating my budget appropriately, I should plan for a higher level of spending: enough to cover 80% of months.  That means I need to be budgeting at the 1 z-score level and not the average  (Or, we could slash our expenses by eating nothing but Ramen noodles).

    Even if I upped our budget to cover an 80% level of spending, we’ll still be short in approximately 2 months of each year!  I have more confidence that the financial plan I’m building will get us where we want to go.  Is it relevant for 20 years from now? Probably not.  But, for the next couple of years, yes.  This model is probably relevant and can give me a good idea of what life will cost, including some pretty major surprises.  With this new information, I can set new thresholds for my emergency funds to ensure that we’re as prepared as we can be if/when disaster strikes.

    Has anyone else looked at their spending (or income) with an eye towards variation?  What insight did you draw from the analysis?