Sunday, March 22, 2009


My children used to watch a movie when they were small with some sort of an acronym that went something like ROUS. It was a very popular movie cartoon that featured "Rodents Of Unusual Size". That is about all I remember of it. Those children are all in thier 30's now and their Dad is soon to turn 63.

I am now making a living as a real estate broker. I just entered into my 7th year and have had a modicum of success. At one time Tallahassee had a real estate agent population of somewhere around 2500 agents. If you do the math, that makes one agent for every 20 households in Tallahassee. That number has dwindled down to less than 1000 with our new economy.

I remember another acronym that someone once quoted to me. It was NUTIE. I don't know if you pronounce that with a long or short U . It stands for Never Underestimate The Importance of Experience.

The years since I was in my 30's have flown by as any sextogenerian will tell you. I remember when I turned 50 yoa a reality set in on me. I was not young anymore. I also came to realize that when you turn 50, in the workplace you almost become invisible. People don't include you in dinner plans, outings, team meetings, etc. You don't get the notice you once did nor the acclaim. The J is suddenly gone from your jump shot. You don't have the moves on the dance floor you used to have. What happened to me? I got promoted to management after 20 years of being a sales rep.

I remember one thing that I said during my interview. I referenced a book I had read called Iacocca. It was a biography written about Lee Iacocca the mastermind of the Chrysler resurgence. I quoted him on the subject of age. He said that there was one anomaly that existed in the auto business that really bothered him. When he was at Ford the UAW had negotiated a package that allowed you to retire after 25 years of service almost at full pay and benefits. So he said what would happen is that you would start someone 25-30 yoa and after they had become journeymen in their service they suddenly got up and walked out the door. There was all this experience evaporating at Ford. The person would retire and get a part time job and play golf, travel, landscape their yard, etc. It was nice for the person, but it was foregoing a valuable resource for Ford.

Just as an employee had seen it all and knew the business inside and out, they walked away. He said that was a drain on their capital that was always worrisome to him.

I believe that is applicable in all trades and professions. It is the old gray-beards that are the valuable resource in the worker pool in any organization. They have seen it all. They have faced good times and challenging times. They do not react from the endocrine system. They react from the bedrock of experience.

In this relatively new business I am in I see a lot of sorority girls and fraternity boys turned realtor. They look good on billboards, websites and business cards. They are invited to all the parties and the team meetings because they are are just so darned good looking.

My advice to you, and I believe Iacocca would tell you the same, is get the experience to walk by your side. Choose an agent that has some battle scars in place. Retain the executive who has a broad base of experience in the business world. Someone who has had to make decisions that really counted heavily. Your best friend may be one of those sorority girls or fraternity boys turned real estate agent. In the most important purchase you will ever make go with the professional that has been to war and has the experience. You will be glad you did.

NUTIE. Never Underestimate The Importance of Experience.

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Friday, March 6, 2009

Mortgage Interest, A Great Investment

I have several acquaintances who are financial advisers. Most of them have been very successful. They are really earning their fees right about now, in this quagmire of an economy we find ourselves in.

One consistent place that advisers have always counseled their clients to invest is in a home. Mortgage interest is a hedge against taxes as the interest is tax deductible. That has been the case ever since I have been aware. If you have a new mortgage and your Principal and Interest monthly payment is $1000.00 then you have approximately $12,000 to claim as a deduction when taxes roll around. What are the taxes on $12,000? We have a graduated income tax system so if we determine that you are in a 20% tax bracket, that does not mean that you are actually going to pay 20% of your income in taxes. Let's say that you pay more like 12% of your income in taxes.

So we see that having a home will save you 12% of the $12,000 that you paid out on your mortgage loan. All the payment is pretty much interest until you get into the last 15 years of the payback period. So how much cash does that home save you? 12% of $12,000 is $1,440. That is your total cash saving. Divide that by 12 months and you are adding a tidy additional $120 to your monthly cash flow, just by owning a home. Throw in the property taxes, which are also deductible and you add more to the cash flow. Let's say you pay $2,000 in property taxes. At your 12% tax rate that amounts to an additional $240 you save. Divide that by 12 and you add an additional $20 per month to your cash flow. So now we are up to $140 in monthly cash to your bottom line.

If you are putting out $1,000.00 rent per month you are not eligible for any savings at all. Makes you wonder why so many people rent, doesn't it. I suppose that a lot of folks just don't know how easy it is to purchase. That is what we Realtors do. We advise people on that front.

Now let's do one more little exercise. Let's say that you owe $100,000 on your home via a mortgage. You have your home financed for 30 years at a fixed rate of 6%. Using one of the calculators on my website we can posture an exciting scenario.

Let's say that you have an additional $125 extra per month coming in and you would like to invest it in something. You already own your home so you are thinking about investing in something else. What is that something else going to be? Is it going to be the stock market? Not a bad idea because there are a lot of great deals out there currently. How about gold? Some people think that is a solid place to look right now.

I read in the USA Today that people were buying Treasury bonds at 0% interest. Why would people do that? Because they trust that to be a place to put their money that would be safe. Do we have all that much confidence in wherever we have our money currently? 401k's have become fodder for late night comedians.

Here is something to consider. According to the calculations that I just made on one of the calculators on my website, you ought to consider investing that money in paying down your mortgage. If you were to pay an extra $125 a month on that $100,000 mortgage do you know that it would knock 10 years off of the length of your mortgage? It would save you somewhere around $42,800 in interest. Where could you put your money to get that sort of return?

If you pay that extra $125 per month and you save $42,800 it would mean that you are getting return on your money at the rate of 142%. Do the math. $42,800 divided by 20 years is $2140 per year. Compare that to the $1500 per year you are paying extra on your mortgage. My calculator tell me that is 42.7%. Sure beats treasury bonds at 0%, doesn't it?

Something to think about. If you are paying rent, please call me and let's get you into a home. Man, you would not believe the deals there are on homes in the Tallahassee area. Let's get started.

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