Dividend Investing - Month 9

The dividend investing account has been idle for the past month according to plan.  Going from $48.91 to $49.16 only was a .51% increase, but any increase is welcome at this point.

This month we had the 'roller-coaster' effect in the stock market with the election results.  Solid companies had tanked in price, only to recover within a week.  It is comforting to know sustainable dividends continue flowing~ even when there is turmoil in the share prices.  During the new year I will be more involved with this blog when I am done building our house.


Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Election Night and the Dividend Investing Portfolio

Tonight is the night of the 2012 election.  It is important push politics aside and focus on things we can control, like our portfolios.  Dividend Mantra just posted Ignore the Noise  for those who may have difficulty in doing this.

Regardless of who wins, there are 3 forces that will minimize the growth of the dividend investing portfolio until early 2013.  They are as follows:

1)Free capital will be used to develop my newest property.  I must put family first and we need a decent roof over our heads, as this will not be a rental investment.

2)My goal of paying off my student loan (only debt that is non-real-estate) by March of 2013 is going to be very difficult and I would really like to make that happen.

3)The fiscal cliff.  There may be troubling times ahead for our economy if politicians let us fall over the fiscal cliff.   If new legislation does not take place, taxpayers will see an increase of 2-5k increase in taxes next year.  The country will also face 600 billion dollar combination of tax increases and harsh spending cuts.

The future is bright for the dividend investing portfolio.  The fiscal cliff is the only reason mentioned that will have an effect on Mr. Market.  And out of it I think there will be excellent stock valuations for future purchases.  The purchases, will be more frequent and larger in size, due to the fact that I will have plenty of free capital once my home is complete and my student loan is paid off.




Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.  

Dividend Investing - Month 8

The dividend investing portfolio has reached $48.91 for the average monthly dividend.  This is a solid 5.67% gain over the previous month.  There are two reasons for this gain:

1 - Aflac (AFL) increased its dividend by 6.1%.  Even at $50.94/share, this stock still carries an RRR value of 11.86.  With the low payout ratio of 23%, we still  have room to for this dividend to continue growing!

2 - Resource Capital (RSO) paid out another dividend.  RSO is still the top-yielding stock of the dividend investing portfolio.  And it continues to have less of an impact on the total portfolio, since free funds are being used to purchase other high quality companies.  RSO has been in the portfolio since the beginning and it continues to better itself with each passing quarter.  As long as its earnings continue to supports its dividend, and interest rate hikes remain unlikely, I will keep RSO.  I want to avoid over-exposure to single stocks and segments of the markets.


Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets. 

Intel - INTC

Analysts have been picking on Intel with their earnings expectations, putting downward pressure on the share price.  I have been monitoring Intel for some time now, looking to add technology into the dividend portfolio.  With earnings being released this Tuesday, now may be a good time to initiate a purchase.  Here are a few quick stats:

Price = 21.48
Dividend = $.90
Payout = 38%
RRR = 10.99
13% debt


Although INTC has steadily dropped over time, here are a few reasons why it may be a good idea to get in soon:

*Shares have a 52-week high in May at $29.27, and have fallen to their new 52-week low of $21.48. This is nearly a 31% drop in price!
*Current dividend yield is 4.19%, this acts as a support for the stock price.
*There have been 9 consecutive years of raising dividends, this dividend challenger should become a dividend contender soon!
*Of the last 7 quarters, INTC managed to beat earnings estimates, surprising analysts 5 of those quarters... do you think INTC might provide another surprise?
*What will the share price be when INTC gets involved in the ever-growing tablet market?

I will conclude this post with a quick glimpse of INTC from fastgraphs:

Intel appears to be quite undervalued at current price levels.

What do you think of INTC as a current purchase?  If not INTC, what technology stock would serve as a good alternative?



Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing - Month 7

The month of September provided a 1.55% increase in avg. monthly dividend gain.  Although its a small gain, it is STILL a gain!  I also keep in mind that I get a whopping 2-4% max. increase in my salary ONCE a year with my day job. 

At this point in time, I am still concentrating my efforts on debt reduction.  High payout ratios for our dividend stocks are not sustainable and usually end in tragedy.  I think the same about me with my personal debt.  If I lose my job and am still forced to make interest payments on loans, what will my payout ratio become?  I don't even want to think of the figures.

A few stocks I will be following for October, MCD, INTC and NSC.




Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Real Estate: Real-life risks associated with leveraging.

A while back I wrote an article called "Cash vs. Mortgage, and a Scenario." There I explain a few key differences between paying cash for investment properties, or mortgaging them.  Today I reviewed my real-estate portfolio and was in shock about how much risk I am really taking on.  I want to provide insight for my viewers to see some real-life examples and to further motivate me to pay my debts off!

I went into my investment properties with nothing down, since I really had nothing to give.  This leverage allowed me to take on long-term debt without using any short term cash.  Having three properties in the portfolio provides 8 renting possibilities.  Assuming no property destruction and no tax benefits, here are the 8 outcomes:

As you can see above, vacancies result in serious financial consequences.  To help minimized risk, I have tenants sign 1-year leases which are staggered so the possibility of multiple vacancies is reduced.  But still, things still can happen that can put me in a bind.  Over the years I have established a hefty emergency real-estate fund for tough times ahead (though this could be easily wiped out should multiple vacancies occur over extended periods of time).

Having real-estate debt has always put a damper on my dividend investing contributions.  I often opt to pay additional cash onto the principal over purchasing a good-valued dividend stock.  This results in less long-term debt and risk.  If I manage to pay off the properties, here is how the 8 outcomes would look like:

After reviewing the chart, the risk here is almost non-existent.  All 3 properties would need to be vacant in order to have a negative cashflow!  If this was the case for me every month I would have a much easier time getting additional properties or helping the dividend-investing portfolio.

It is important to note; that when vacancies occur there are always repairs that need to be done (or house cleaning).  This is usually a minimum of $150 if you have a professional involved.  Insurance and taxes have been included in the scenarios above, making the data easier to digest.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Rental Property - Ranch House 2

Description: 3 bed, 2 bath, 1500 square feet, 1 acre.

Major work completed:
Everything, built this house from the ground-up.

Financial Information:
Estimated monthly cash-flow: $240.43

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

To protect the tenants and their identities, this is only a visual representation of the rental property, not the actual home itself.

Dividend Investing - Month 6

The average monthly dividend payment experienced a significant increase this month.   A 16.77% jump was the result of making a quick sale and investing the proceeds into other companies.

I have been good so far at separating my emotions from the facts and focusing on the RRR values of my positions.  As mentioned in my previous post, the RRR value of WMT just couldn't cut it anymore, and I had no problem dropping this position and picking up new ones to take its place. 

I figured my emotions wouldn't get in the way of the transactions but sometimes you just never know.

Using my RRR theory about evaluating stocks, price gets pushed to the side and allows me to focus on the long term benefits of my positions.  This is the average monthly dividend payments!  Watching stock prices constantly rise and fall make me dizzy, while watching these payments consistently rise gives me hope for the future.  But do remember, higher stock prices lead to lower RRR values ~ which will help you sell when stock prices go up.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

1 Sale = 3 Purchases

I sold half of my holdings in WMT and purchased CVX, TCAP and UHT this month.  This will help my dividend income stream while providing additional diversification in the portfolio.

WMT: I set a personal price target of $68.50 for WMT and as it stands, has been overvalued for a bit.  With the release of their most recent earnings, I knew stock prices would decline if it didn't beat the 'stock analysts' expectations, so I had to be proactive and sell.  Seeing a yield of 2.15% didn't slow me down either...

TCAP = Triangle Capital has a great management team and if you visit Pulling ourselves up financially you can see a good fellow blogger's review of the company.  Using my dividend investing strategy, TCAP had an RRR value of 10.05 at time of purchase.

CVX = In my opinion this stock is way under-valued.  With a 26% payout, there is lots of room for the dividend to grow over the years.  The RRR value was 11.88.

UHT = a REIT that deals with hospitals and other medical facilities, this great dividend play had a yield around 5.75% and an RRR value of 14.50

In case you didn't know, the RRR is simply pairing up the payout ratios with the dividends themselves to measure the "Risk Reward Ratio".  You can learn more about the strategy at here on my blog.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing and Politics - How will it affect you?

It was recently announced that Mitt Romney's Vice President pick is Paul Ryan.  For those who don't know, Paul Ryan places a HUGE emphasis on fixing our country's fiscal crisis.  If elected, 2 major changes to our tax code could take place and have great impacts on our investing strategies.


1)Ryan "promotes saving by eliminating taxes on interest, capital gains, and dividends; also eliminates the death tax." He believes that double-taxation on the American people is unfair.  Period.

2)Ryan "wishes to replace the corporate income tax – currently the second highest in the industrialized world – with a border-adjustable business consumption tax of 8.5 percent. This new rate is roughly half that of the rest of the industrialized world."

What impact would this have on the way we invest?  Let me dwell on the first point.  No taxes on dividends?  Awesome- more money we can keep and continually re-invest for greater compounding returns.  Not capital gains taxes?  Great when stocks go up we can sell and keep all profits and invest into stocks with lower p/e ratios or discounted stocks etc.  We would also be able to sell our rental properties and use all of the profits to invest in cheaper rentals as well, without worrying about our profits being taken by the government.

Now with the second point... Current corporate tax rates sit around 39.2%, putting the United States rate just below Japans 39.7%.  Now imagine how much more profitable companies can be if they had their tax rates slashed by over 30%...  This provides a lot more room for growth of our dividends and capital, which again, wouldn't be taxed.   =)


If Romney and Ryan make it to the white house, how do you think your investment strategy will change?  If Obama and Biden are re-elected, will your strategy change as well?

My Secret Cash Machine

Over the past few months, I have been developing a way to supplement my dividend purchases through means other than rental property cashflows.  This now generates 97% passive income and has been a great way to help diversify my income stream.

My initial investment was 60$ which was really not intended to be an investment at all.  It was more like an entertainment expense.  I now generate $5-10 steadily (minimum) per week here, which may not seem like much, but when re-invested for dividend stocks and compounded over time, this could be big, as items sell from $1.25 to $250.00

Problems:  The game company charges a 15% sale fee for every item.  My money is then sent to an account with the company that can only be used to buy their products, and never withdrawn. So when I choose to move the proceeds of each sale to my paypal account, the company charges an additional $1.... If caught using a robot my account will be banned permanently.  The "97%" is a problem because 3% of the time I need to look at my robot's findings and determine how valuable each item is and whether it would result in a successful sale.  I prefer 100% passive income but this is close enough.

I can only have 10 auctions up at once, many of which may not sell.  This of course is another problem...  Technically the electricity usage and the fee for having internet service will eat up a lot of the income too, but since I travel for a living the hotels always have this provided =)

Opportunities: I could use my robot for much longer and generate more potential income, but I don't want to put my account at risk too much for the moment.  I could also buy 10 accounts and run 10 robots simultaneously, but this would probably put a lot of stress on my hardware.  And as a last opportunity I can play the game manually like a normal person and have fun beating up on monsters and finding my own goodies.  This is a great way to keep my entertainment expenses down to a minimum and possibly make some legitimate cash on the side.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Additional Disclaimer: Cheating is against the video game company's EULA and will result in a permanent ban on your account.

Dividend Investing - Month 5

July was a great month for dividend investing.  The Fed has just announced that the economy is sluggish, with unemployment being stuck at 8+% now for quite some time (this of course was no surprise). They reassured the media that interest rates will remain near 0% through 2014, which in my opinion further reduces risk in bonds and REIT stocks.

Speaking of REITs, RSO had a conference call that provided positive information for investors.  The company has maintained a .5% vacancy rate and has increased profits and net income for the recent quarter, further justifying the sustainability of their great dividend.

Overall the monthly dividend is now sitting at $38.08 per month and climbing.  A very welcome 7.63% increase over the previous month.

 Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing - Month 4

Another solid month of dividend investing for June.  Shares of Wal-Mart have been steadily climbing toward their all-time high, while the rest of the pack has remained stable.  Since share price really isn't that important to the portfolio, lets focus on the dividends:

The monthly dividend average has increased to $35.28, a 5.06% jump for the month!  In future months, I am projecting double digit dividend % increases. We will see if this occurs and I will explain my future purchases.   



Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing - Month 3

Aside from Wal-Mart shareholders meeting, a rather quiet month for the dividend re-investment portfolio.  The average monthly dividend is now  $33.58, which is about a 7% increase over the previous month.  I feel this is rather low but any increase will be appreciated.  Due to hardware failure of my laptop and long hours at work, there will be no fancy excel charts this month.



Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing - Month 2

April was a good month with decent dividend growth. The portfolio experienced a 13.61% increase in the average monthly dividend!  Very exciting, I'm also happy that my REIR investing technique has been helpful in keeping me within reach of my goal: to be debt free (except mortgages) within a year. 

To continue the balance adjustment of the portfolio I liquidated a few shares of Wal-Mart (WMT) and now had some free cash for a good purchase.  About a week later the stock tumbled a bit from the accusations of the "Mexico Scandal."  I got lucky in 2 ways:  1-prevented a big hit on my portfolio value and 2-since I have shares purchased regularly they are now discounted =).

I decided to give Aflac (AFL) a green light, watched it drop 1-2%  daily until a purchase was made just under 41$ per share.  Once earnings were reported, the stock shot up 7+% shortly after.  Again, I got lucky.


Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets. 

RRR - Risk Reward Ratio

With a good bit of student loan debt paid off, the dividend investment portfolio now has room for a good purchase.  I plan on purchasing AFL, and just by chance a fellow blogger named PullingOurselvesUp just made a great post about Aflac.

With the millions of factors going into a stock purchase, I like to look at the RRR.  I call this the risk reward ratio, which is a simple way to compare the risks and rewards that stocks provide.  My ideal stock pays huge dividends with very low payouts.  Here is a quick glimpse into how the RRR works, and how AFL stacks up against a few dividend champions.

The RRR is simply the Yield/Payout (there are other names for it im sure).  The idea is if the yield goes up, and the overall payout goes down, the RRR value goes up.  AFL is currently very under-valued, which helps the yield % and also leaves room for great stock-price hikes when the market corrects itself!

Like AFL, MCY is also an insurance company.  Both companies have similar stock prices, but MCY pays almost twice as much dividends, with twice the payout amount.  I think there is more long-term potential for AFL since it pushes harder for earnings while maintaining the low payout.  Since MCY focuses on automobile insurance, while AFL focuses on supplemental insurance, owning both would be a possibility if someone couldn't make up their mind between the two =).

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

How to tenant-proof your rental property.

With rentals, there are 2 ways to improve and sustain the return on your investment.  The first is to "get by" as quickly and cheaply as possible, and rent the property out for quick cash flow.  The second is to provide adequate maintenance and invest in upgrades to the home, then renting the property out.  This post covers the second method, as it is the one I'm more familiar with.

There are three key results I have discovered while applying upgrades to my properties:
1 - Tenants are more careful/respectful when they live in a home that was given to them in good shape.
2 - Tenants are happy to pay a small increase in rent when they have upgraded homes.
3 - Property value increases.

With this in mind, I look for upgrades that are relatively inexpensive, provide good protection against tenant destruction, and provide a decent return.

Floors.
This is a big one.  After my first lease ended I had to deep clean the carpet in the house.  After purchasing an expensive steam-cleaner and investing several hours of labor, I discovered this was not going to work long-term.  The house got re-rented and the next tenants moved out and guess what?  The carpet was now destroyed.  In terms of dollars per square foot, I found tiling my own property is cheaper than having a company like Lowes install carpet in my home, even with their free installation promotion running!
When the tile was complete, new tenants moved in, and were very  happy with having a tiled home.  When the tenants moved out, a quick 2 hour mob job and the floors were as beautiful as the day they were laid. 

Landscaping
Design the yard to be maintenance-free (or at least easy to maintain), and your tenants will take better care of it.  Find low growth shrubs or trees that don't require too much pruning, along with grass that doesn't require lots of water, and your tenants will not disappoint you.

Roof
A metal roof is a long-term plus.  With a metal roof you get a lifetime warranty (or 50 years).  Traditional shingles typically last 20-30 years.  This alone gives you a greater return, not to mention your less susceptible to wind, hail and storm damage.  This can also qualify you for a discount on your insurance, which is great.  Just know that if your home has a hole in the roof, all it takes is that one tenant who either doesn't care or doesn't pay attention and you will pay big.

Counter-tops and Cabinets
Heavy duty is always better.  Lower the chance of replacing your cabinets or counter-tops, lower the number of times you pay to replace them.  Statistically, aside from landscaping, money spent in the kitchen can add the most value of your home.  Additionally, your tenants feel they get more value for their buck too.


For those doing serious remodeling or new construction, here are a few suggestions.

Plumbing:
Utilize PEX pipe.  This handles extremely hot and extremely cold water very well.  This does not corrode like your traditional metal pipe and does not crack like pvc pipe.  There are never joints behind your walls, and when installed correctly, you have the opportunity for a shutoff for every water exit, which is HUGE.  If you need to replace a faucet in the guest bathroom, you can simply flip the switch to shut the water off to that bathroom faucet without having to shut water off to the entire property.

Electrical:
Pre-determine the location of your electric meter and strategically place major appliances as close to that location as possible.  Less lineal feet of heavy duty wire means huge cost savings, plus you have less wire in the wall that can be damaged by tenants.

Structure
Metal studs with brick exterior (or stucco) is the way to go.  Remember that termites love to eat wood, and are expensive to kill.  The local bug killing company charges 6$ per lineal foot around your home to treat termites.  This averages to about $1100 for one of my rentals.  Also, tenants love to hang picture frames, what happens when they put a hole through a wooden stud containing conduit? Not good.

This post will be updated as I get more photos of my work.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets. 

Dividend Investing - Month 1

The transformation of the dividend investment portfolio has been a slow one.  Until significant dividends start flowing into the account, the changes from week to week will always be minimal.  For this reason, I will provide updates here on a monthly basis.  The data from the weekly updates will continue to be displayed.  Any major changes inside and outside the portfolio will be available too.

When I first began the dividend investing portfolio, RSO was my first purchase.  This represented 100% of the portfolio for some time.  It now represents 70.4% of the portfolio.  This will continuously decrease as I balance the portfolio out and add some future trades.  The average dividend payment this month will be $27.54.  Were a bit off from the $2000 goal, but this is a good starting point.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.  

Dividend Investing Week 5

Another stable week in the markets.  The weekly dividend estimate remains at $6.31. I am still determined to put emphasis on REIR step 2 of my strategy, so I will have additional funding for the dividend investing.

I made a solid contribution toward my student loan this week, reducing the balance by 4.31%.  Normally a monthly payment reduces the principle by .76%.  So this was a huge gain for both me and the dividend portfolio.  Since this is the last big debt holding me back from contributing to the portfolio, its only a matter of time before things get going.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets. 

Banks Becoming Landlords, What Should We Do Now?

As I go to shut my laptop down, I notice an article pop up on my screen titled "Bank of America Starts Foreclosure Rental Program".  This states that homeowners at risk of losing their homes to foreclosure will have the titles handed back over to the bank, at that point they become tenants of their current residence....Although very little info is being provided here, I foresee a huge impact this program will have on the average American's future.
With 'bad loans' being written off, and toxic assets will be converted into money making machines, Bank of America will have success here.  This pilot program will start small, but I think it will be expanded exponentially.

This graph was pulled straight from the federal reserve's site, highlighting the correlation between monetary rates and housing prices.....


With interest rates at their all-time lows, there is only one way they can go; UP.  This being said, the rise of interest rates translates to:
1)Loans being even harder to get (since its near impossible to get one now)
2)Loans costing borrowers more (having even a 4% mortgage rate is still a drag, imagine have rates near 20% like in the past....)
3)Housing prices plummeting so current home-owners will either be upside down on their loans or will never be able to afford to purchase property, driving down demand.

I sense Bank of America will set the standard for the 8000+ banks in the US in becoming new owners of rental businesses.  All of the factors above will come together, to make it an easy decision for homeowners to just 'walk away' from their loans and become tenants.  Next thing you know purchasable homes are nowhere to be found, rent artificially being increased across the country, and everyone is miserable.

Maybe I am taking this article the wrong way or just over-thinking the possibilities.  But if the situation above happens, what should we do next?

1)Sell our homes now, pocket the equity, rent for a bit, then throw down cash when the prices of homes plummet?
2) Buy a house now while rates are low, and accept the fact that your future purchase will decrease in value?
3)Invest in Bank of America 'BAC' (or other banks)?
4)Pray the pilot program fails?

I would like to know what my readers think, please email me or comment, thanks.

Dividend Investing Week 4

The average weekly dividend has crossed the 6$ mark.  This increase is attributed to the extra shares in WMT.  Until actual dividends are distributed I believe this portfolio will linger in the 6 dollar range for some time.  For now, I plan on putting an emphasis toward step 2 of my REIR strategy.  That is, eliminating debt.

I believe reducing  debt will eliminate a lot of risk with my personal finance situation.  And at the same time, give me the chance to invest huge amounts of money that otherwise would keep flowing to the banks.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Cash Vs. Mortgage, and a Scenario

Its easy to debate whether to mortgage rental properties or get them with cash.  With record low interest rates and ever-increasing difficulty of accumulating cash, mortgaging seems to be the only option for most of us.  Using figures from one of my properties. I will demonstrate the differences between the two sides.  I will also throw in a quick scenario to highlight the risk levels associated too.

To make things easier, I will scale up the mortgage on the property to $1000.

With a paid property, assuming this property remains rented all 12 months of the year, you would be taxed on $11504 income generated.  At a 30% rate you would pay the government $3451 and pocket the remaining $8053.

With a mortgaged property, assuming its rented all 12 months of the year, you would be taxed on 4800 in income.  At a 30% rate you would pay the government  $1440 and keep the remaining $3360.

With my experience I can tell you two things: 1)Your rental investments will rarely be filled every month of the year, and 2)Things go wrong.  Yes you do pay less in taxes at the end of the year, but I would much rather give the government 30 cents than to just hand over the banks a dollar....   Plus if you are worried about making too much money on the property re-invest in the house through major improvements.  You could do this with good cash-flow, but you wouldn't make enough if you were barely breaking even.


Lets apply this way of thinking to a possible real-life scenario:
Your property is rented the majority of the year, but is vacant during the months of July, August and September due to lack of tenants in the market and your flooring needs replaced...  The floor job requires $3,000 to tile your property.

Looking at the data above you will now see the danger due to lack of free cash flow from the investment property.  Writing off the 2400 dollar loss on your taxes is always a plus, but paying $1291 in taxes and pocketing $3013 is better any day.  There are numerous tax advantages to acquiring losses with rental investments, that you cannot claim with other investment vehicles.  But the piece of mind and profits you get from having 'paid-for' real-estate outweigh the "tax advantages."

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

OPM and Real Estate Purchases

OPM (other people's money) is a tool to gain serious leverage in real estate investing, often used by Robert Kiyosaki, author of Rich Dad Poor Dad.  The basic principle here is to buy a property with the least amount your personal money, then cash-flow that property via rental agreements.  This has huge advantages and at the same time, can be very dangerous.

When I purchased my Victorian property, I had a very small income and almost nothing in savings.  I managed to dive into this contract for less than $1,000 down and start generating $2,400 cash each year from that initial investment.   With the revisions of modern lending polices in place, it would be impossible to jump into the market like I did.

It was fun reaping the rewards of the big yield when I became a landlord, but one factor kept my profits low and my risk high.... this was the huge DEBT that the deal put on my lap.  If the property becomes vacant I get stuck with a huge bill, thanks to the mortgage.  I find that buying real estate with cash is most sensible option for me now.  Being in my situation back then, OPM was my only choice.

I feel like the main reason I didn't fail was because the houses I purchased were cheap, and never lost value during the declining housing market.  Imagine the others who tried what I did, who were stuck with huge house payments, taxes and declining house values...  From now on if I don't have the cash for it, I wont buy it.  With leverage out of the picture, risks decrease and rewards increase.  This is always a good thing for investors!

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Rental Property - Ranch House 1

Description:  3 bed, 1 bath, roughly 1600 square feet, 1 acre.

Major work completed:
100% floor tiled.
Interior repainted.


Financial Information:
Estimated monthly cash-flow: $74.74
Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

To protect the tenants and their identities, this is only a visual representation of the rental property, not the actual home itself.

Rental Property - Victorian house 1

This property was purchased before the beginning of this blog.  It is a beautiful Victorian home located downtown.

Description:  2 bed, 1 bath, roughly 1650 square feet, 0.6 acres.

Major work completed:
25% floor tiled.
Driveway repaired.
Exterior repainted.
Rear ramp repaired.
Hot water pipes replaced.

Financial Information:
Estimated monthly cash-flow: $251.43
Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

To protect the tenants and their identities, this is only a visual representation of the rental property, not the actual home itself.

Dividend Investing Week 3

The dividend investing portfolio has not changed much this week.  Both the average weekly dividend and the value of the portfolio have remained maintained their levels since the last update.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing Week 2

A couple quick trades made and the dividend portfolio begins to evolve.

Instead of using Open Office, data was fed to Microsoft Excel.  This resulted higher quality graphs.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing Week 1

Dividend Investing.

REIR step 3 involves investing with good information.  Aside from real estate, dividend investing can generate some serious cash-flow.

Companies often pay out a portion of their profits to investors in the form of dividends.  This is great because regardless of stock price fluctuations, we can still make money just by owning a stock and holding onto it!  I want my readers to check out "Pulling Ourselves Up Financially" and see how beneficial it can be to track your holdings.  I have been following this blog for some time now, and would like integrate its idea of the 'weekly update' into this blog.  This will be a great opportunity to give my readers a view of the evolution of my dividend portfolio, while giving me a chance to monitor my progress too.

This is a rough idea of how I would like to present my data.   Yes this is very rough indeed, but the presentation will improve as the portfolio improves.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Real Estate Portfolio Introduction

Real estate should play a key role in everyone's portfolio.  Personally, I have had good luck with rental homes in my real estate portfolio.  Yes there are horror stories out there about evil tenants and destruction etc.  But there are ways to minimize risk in rental investments that I will get to later in this section of the blog.

Statistically, the average person's largest investment is their house.  As time goes on, this trend appears to be declining, as more choose to rent instead of own.

There are 2 points I would like my readers to know.  1-Real estate offers great diversity to your portfolio and 2-With the current tax code, there are many benefits to real estate ownership that you can take advantage of.  These will be addressed in the future.

Diversification and Investment Options

Diversification is simply spreading out your investments to reduce risk of loss to your portfolio.

Some believe you can have diversification by investing in mutual funds.  The bottom line is this is still just a mix of stocks... And on top of that - a majority of mutual funds hold only a few heavy-weighted stocks.... A truly diversified portfolio should contain other forms of investments.

Stocks
Real Estate
Bonds
Forex
Businesses
Physical goods/materials

The mix you choose will really depend on your situation and your personal understanding of the investments.
Remember, with REIR investing, invest with good information, and the profits will follow.

If your main focus is on stocks, you can choose to split your holdings among the various market sectors to reduce your risk. These sectors include:

Basic Materials
Capital Goods
Conglomerates
Energy
Financial
Healthcare
Service
Technology
Transportation
Utilities

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Net Worth, How to Track it

Now that the fundamentals of REIR investing have been mapped out, I want to focus on: "net worth." This is the heart everyone's financial health.

Net Worth is your assets minus your liabilities.  In other words, if you sold everything you owned, and paid off every debt you've got, you would end up with this much money.  A high net worth is what truly separates the rich from the rest of us, not the amount of income we get from working. I will explain this later...

I have been keeping track of my personal net worth for almost 2 years now.  This has been very beneficial for me, in that I have been able monitor the direction of my finance situation.  I encourage everyone to create a net worth spreadsheet using Microsoft excel or open office (free!), and update it every month.




There are many websites that can guide you through the process, but here is a screenshot sample of a net worth spreadsheet in open office.

This individual has a few assets valued at $66,100.
This individual has liabilities totaling $62,500
This individual's net worth is $3,600

When you calculate your net worth for the first time, you may discover you have a negative net worth!  This could be a great wake up call for you, like it was for me.  I followed my REIR strategy and updated my net worth monthly. I noticed my liabilities dwindled and my net worth began to soar, even without adding assets.  Therefore, my net worth was heading in a positive direction, which may have been unnoticeable without my net worth spreadsheet.

Visit CNN Money's Net Worth Calculator to see how you stack up vs. others your age and your income.  Very neat.  Leave comments or messages on your thoughts.

Reward Yourself - REIR Step 4

This is where the fun begins!  Now that your hard-earned money is generating some cash from investments, you need to reward yourself.

Heighten your motivation by celebrating your milestones.  Every time you pay a debt in full, take your family out for a good time and celebrate your victory!  Just never forget to give either.  The more you give, the more income will be generated from your investments.

Invest - REIR Step 3

The third step of my strategy, and focus of my blog is to invest.

Simply put, investing means purchasing something offering potential profitable returns.  Since there are so many strategies and approaches to investing, throughout this blog I will explain what works for me, and I'll encourage you to research and find whats right for you.

When I invest there are 2 points that I want to make.

I. The earlier you start your portfolio, the better.  This is backed by the idea of 'compounding.'  In which your investment gains will get future gains and this huge snowball builds up over time in your favor.

II. All of my strategies are based on passive activity.  I believe money has to potential to work harder than a human ever will.  Plus, there is nothing cooler than seeing your accounts grow as you do nothing but enjoy yourself, and the finer things in life!

Eliminate Debt - REIR Step 2

This is pretty straight forward. Stop using debt, and start paying it off immediately.

According to the federal reserve, households with credit card debt, on average owe $15,799 to credit cards.  Regardless of the interest rate, this is like having an investment of 16k guaranteed to lose money every year.

If you need to use debt to buy something, that just means you can't afford it.  The exception to this may be your first home if you have nowhere else to go.  Forget about keeping up with the Jones' next door or impressing your friends with expensive cool things that you purchase with debt.  When you stop doing this, you'll find that the only people who cared about your new purchases were others that are in the same debt-loving situation.

There are 2 methods to paying off debt.  The first is to pay your debts off in order from smallest balance to largest balance.  The second method is to pay your debts off in order from highest APR to lowest APR.  I personally favor the first method, because its easier to see improvements in my financial situation.

Reduce Spending with bill savings - REIR Step 1

Reduce Spending, Save Green (bill savings)!

II.Bill Savings

-Save on TV. I originally signed up for satellite t.v. service for $49 each month. A couple years later, my bill inched its way up to almost $90 a month for no reason... I called them to cancel and they told me of a 'bare-bones' package for 9.99 monthly, I gladly accepted and even paid extra for the local channels.  My current bill is $14.99/month.  This resulted in a $900 savings every year!

-Save on Electricity.  According to the U.S.E.I.A, our average energy usage at home is displayed below.  Aside from getting energy-star rated appliances, there are 2 major things you can do to lower your electric bill.. The easiest thing to do is monitor your thermostat and wear the right clothes!  Another thing you can do is use surge protectors.  Shutting your TV off when your not watching it helps... but if a TV is shut off it still uses electricity when its plugged in (called phantom power).  If you have all of your electronics plugged into surge protectors, you can shut your protector off when you are done... eliminating huge wastes of power.

-Save on insurance. My advice is to shop around before committing.  You can save money by having multiple vehicles or homes if you insure with the same company.  Also, shop around annually, because a few companies will raise their prices every year in hopes that you never leave since you have developed some sort of loyalty to them.  As for health insurance, if your relatively healthy get lower premiums by having higher deductibles.  Never go on without insurance!

-Save on phones.  Get an affordable cell phone plan, and dump your home phone.  Most people don't use landlines anymore (except for faxing).  This can be a great savings.  Just remember to update all of your contacts with your new number, including lenders, insurance agencies, banks etc.

Reduce Spending with food savings - REIR Step 1

Reduce Spending, Save Green (food savings)!

This is the foundation for my personal strategy.  I found that the biggest reason for not investing is the fact that I don't have the extra cash.... I have found a few ways to do this without starving my family or having my electricity shut off.

I.Food Savings
-Make lunch at home and bring it to work!  Compared to local fast food restaurants groceries are very cheap.  Remember to keep your lunch simple and healthy to include soups, sandwiches and basic fruits.  If you get frozen convenience type meals you will be paying several dollars per meal.

-If you insist on eating out, eat at a buffet style restaurant and order a water... Including taxes, I can eat at the local Cici's or Ryan's for $5.40.   They advertise all you can eat for 5 bucks, but fail to mention that ordering a soda will run you an additional $2.15 after taxes...

-If you live in an area with a lot of grocery competition, I would try utilizing coupons.  Personally I do not shop with coupons since my local grocery stores do not accept double-coupons... I focus on cost/ounce ratio when I shop, always grabbing whatever is the lowest.  The 'brand' might not be as good, but you'll learn to enjoy the cheapest brand at the same time you enjoy saving money.

Watch Your RIER!

My vision: to encourage investing early, helping me become financially independent sooner.

I believe there are 4 elements to learn, that will allow for great financial freedom.  To help me remember these, I just think to myself.. "REIR."

1-Reduce Spending.
2-Eliminate Debt.
3-Invest.
4-Reward Yourself.

Every decision I make involves all 4 of these elements.  Every dollar I can save today, can be something much more valuable in the future.  I recommend getting a copy of Dave Ramsey's Total Money Makeover for a much more detailed approach to financial freedom.

Resource Capital

Here is a glimpse into RSO, one of my personal REIT investments.  At the beginning of last year, I started with 200 dollars in this DRIP (dividend re-investment plan), and have put in 100 dollars monthly.

My investment strategy does not focus on the price of stocks, but rather their dividends.  Knowing the situation of the U.S. housing market, I figured share price would fall.  This did not stop me.  As  a long term dividend investor I was prepared to let the dividends roll in.

Over the course of the year, I have $1400 invested.  As of today, the stock closed at 5.87 per share.  253.29 shares x 5.87 = $1486.81.  This resulted in an $86.81 gain of 6.2% annual gain



Disclaimer: These trades are not recommendations for others. I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Investing Early Introduction

Thank you for you interest with investing early.

It is my mission to encourage you to invest early.  This may not necessarily mean investing while your young, but investing before its too late.

I have a sense that our country is going in the wrong direction, with few people helping us get it back on the right track to prosperity.  Over the years the government has made us dependent on social security for retirement.  Well for some people, it may not be there when we're able to collect, or we might not make it that far.  401k could be the same thing, I know its your personal account, but will it be there when you need it?

I feel that I can make a difference in your life, and your community, by helping you become financially independent.  I hope you follow this blog to learn how to invest, save and reward yourself, so you can give to others, later.