The Investment Scientist

Archive for November 2011

At 2:24pm on 11/5/2011, my second son Caden arrived in the world. Upon seeing his face, my heart sank since there appeared to be a tiny piece of flesh dangling from his nose.

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Less than a week after we were done with settlement on a rental home purchase, we bought a house for our primary residence. The decision process for our primary residence purchase was vastly different from that of the rental property. For one, I didn’t use cap rate to evaluate the primary residence. Instead, we followed these five decision steps.

1. School district

My two sons will grow up in this house, so the right school district was of the utmost importance. My wife did thorough research, and she declared Whitman to be the best school district in the whole state of Maryland, followed closely by Churchill. The first is in Bethesda, the second is in Potomac. These two areas happen to be the most expensive areas in Maryland.

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Owning a rental property as investment may sound attractive to a lot of people who are sick and tired of the volatile stock market.  However, owning a rental property is like owning a business. Do you know what it takes to be a landlord? Listen to Paula Pant talks about it.

Podcast: Becoming a landlord

Table of contents

Consumerism Commentary Podcast[00:00] Introduction from Tom Dziubek
[00:36] Interview with Paula Pant
– [00:54] Owning rental properties
– [01:51] Analyzing a property’s profitability
– [03:04] Expenses involved
– [04:08] Things to look for in a property
– [05:19] Renting to professionals
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[Guest post by Tom Warburton] Market timing is alluring, but, you have to be right twice – when to get out and when to get back in – over and over.  We have NEVER found evidence of anyone successfully practicing this tactic over a statistically significant period of time.

Market timers get out hoping they have ‘called a market top’ – OR – get in hoping they have ‘called a market bottom’.  But then the agonizing work begins because market timers not only have to be right on When To Get Out Of Their Seat but also When To Get Back In Their Seat.   It is this second decision that is so terribly difficult.  When markets move up, or down, they do so VERY quickly.

Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.

History Demonstrates That If Investors Miss The Best Market Days

Their Long-Term Returns Are Dramatically Reduced.

Best Days Worst Days Missed

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[Guest post by Tom Warburton] Who could forget the recent World’s Series?  Man, was that sixth game otherworldly or what!

The day after the sixth game a buddy wandered in – remorseful that he, while watching the Cards vs Rangers, had gotten up out of his seat to go out in his backyard with his dogs (to do who knows what) only to return to his seat and discover that he had missed the walk-off Home Run by Freese – arguably the climactic play of the season!

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My second child was born with a minor deformity in his nose. He looks like he has a cleft nostril.

When I first saw that, my heart sank like a rock. I began to imagine that if he grew up like that, the ridicule and rejection he would have to endure. I also worried that it might be a symptom of a major sickness. What about his nose, mouth, and brain? Are they normal?

Suddenly, I could empathize with parents who had a cleft lip baby. I knew how they felt, except that their emotions are probably 100 times more intense than mine.

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For folks who think we got a great deal on our investment property, they have to balance that with the hassles we were put through. All in life is fair; there is a reason why these houses are sold cheap.

A short sale is like a tripartite dance between the buyer, the short seller, and the bank that holds the title, and that’s not counting the buyer’s mortgage lender. Any one of these can trip up the others, and the deal will fall through.

Here is the list of 10 troubles we went through:

1. The seller was willing to sell at $170,000, and he said the bank had pre-approved the price. Once we accepted the price, the bank (Bank of America) reneged. It would not release the title unless the price was $180,000. After a few weeks of negotiation, we split the difference – $175,000.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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