Personal Review, June 2009

Over the last couple of weeks, I made my way through my half-yearly review. Not quite as detailed as my full-blown annual review but useful none-the-less.

This week I will hit on a few topics that might prove useful.

Personal Review
From my point of view, the improvement in the quality of my sleep (from consistent wake-up); combined with moderately challenging training (rather than massive overload, rest, repeat) has done wonders for my productivity and outlook. I'm getting a ton done on all fronts. It's nice to have the extra energy to "step up" and help manage the house.

Similar to the markets, some times all it takes to feel better is for the situation to stop getting worse. There was a lot of negative shocks in 2008, these have stopped coming through as often so even if things merely stay the same... they appear to be improving.

Two quotes I'll share with you:

"Somewhere in my life something is always @#$%^&" - Brad Feld
"Life is dealing with problems"

When I can hold these thoughts in my head as acceptance, rather than resistance, they help me maintain perspective. My goal being to deal with things, rather than arrive at a place where everything is "fixed".

Not that there is much screwed up in my life. However, if you look for it then there's pretty much always something you can find to get yourself worked up. If we can't get to relentless positivity then striving for consistent acceptance is reasonable alternative.

Two questions remain outstanding right now:

What new subject do I want to study and learn about over the next year?
Where, and how, will I fit in my personal retreat? Here I am thinking about making Epic Camp out-bound only for technology. Blogging daily (so I remember a special trip) but not pulling in any media/email/IT over the duration.

Athletically, I think that I need to remember that this current position I am in is offering me all the success I "need" from training. Marko invited me up Mt Evans today and I, wisely, declined noting... "why would I want to do something stupid when everything is working so well?" Besides, I might get a shot at heading up during one of our Boulder Camps.

MonGo Review
With Lex's arrival we've built a few scheduled items into our marriage so we can spend some time doing things that we both enjoy. Here's what we are going to shoot for:

Weekly date night where we talk strategy - M likes to know what I'm up to so, monthly, we bring our annual planners along to map out the next few weeks. I have to admit that constantly being asked about my schedule is difficult for me. READER INPUT PLEASE... Is there an easy way for me to shift to a Mac-based calendar that M can access via her iPhone?
Running together - I like to run with M at least once per week but scheduling that isn't possible right now. We have lucked out a couple of time when, by chance, our schedules linked up. Right now, my non-structured running fits well with M. I have to walk the hills (and she gaps me) but, overall, we're close enough for both of us to get something done.
Swimming together - like a lot of people... M thinks that I train "too easy" and enjoys giving me a push in the pool. The gap between our swim abilities is close to an all-time high. That said, if Team Bennett is out of town AND if she does a FAST run immediately prior to swimming... then she's OK swimming slow with her husband... Her easy day, my tough day. Guys, there is a lesson here. My wife gets a lot of pleasure from spending time with me doing something where she is far superior to me. None of the emotional issues are present like when we ride and I am worried that she'd get run over after I dropped her (the main reason that I choose not to ride with her).
Quarterly Trip - I'm not sure if we're going to be able to pull this off on a quarterly basis but we're shooting for it. Two nights away, no baby. The goal is to figure out a convenient place that we want to check out that's within driving distance. Fun, not fancy.

The #1 thing that I'm working on right now is consistent kindness in my tone of speech. M asked me to improve in that area. Perhaps this means that my listening has improved. Not sure but working on consistent kindness now.

Financial Review
Now that the direction of the global housing market has changed, one of the questions that I wanted to ask myself is, "What is the cost of my personal property holdings?" More specifically, what is the true cost of living in a "big" house. "Big" being any property that's larger than what you truly need - "Need" being a question in itself, that is driven by media, social pressures and imagined expectations I create for myself!

When the market was rising and finance was readily available, it was easy to ignore the costs associated with holding property assets. As part of my review, I did a detailed calculation on what our home is likely to cost us over the medium term.

Capital Cost - this is the opportunity cost of having equity tied up in a home or vacation property. Different from the cost of finance (debt cost), the opportunity cost is what you miss out on by being locked into your current position.

Here in Boulder, the net yield that you can receive appears to be ~3.5% for high-end residential. Folks present numbers better than that but I don't see it. The true cost of property ownership is always higher than we expect.

Putting this another way - every $1,000 of capital in our house could be earning us $35 per annum. There is a TON of hassle and switching costs with property, that's why I buy with a 25-year time horizon. NOTE - I'm not talking about leveraging to buy an investment property. What I wanted to do was price the likely investment return to better understand the capital cost of living in a large, expensive, non-yielding asset.

Taxes & Association Fees - here in the Rockies, association fees are material and can run up to 2.5% (per annum) of the value of the property. That puts a big headwind on long term investment return. We don't have a homeowners association but we did receive a 20% increase in our tax assessment for 2010 (thank you Boulder County). With the tax base shrinking in many cities, expect property tax (and all taxes for that matter) to continue to increase much faster than inflation.

Running Costs - insurance, utilities, maintenance... everything that comes out of your pocket. It might be tempting to see these as fixed costs regardless of location but there is a lot of variation caused by location, size of property and how you live. This is a hidden cost of living in your home - we're pretty efficient. I've seen properties that cost more than $50,000 per annum just to maintain.

So those are the big one's that I've focused on. Taking those incremental costs together, our current house costs the family ~$100 per day of incremental costs. In an environment where my portfolio yield is close to zero, that's a lot of after tax income, especially if you project through to Lex's graduation.

Roll those costs for nine thousand days, add inflation, add various layers of increased government taxation... this becomes an area worth mitigating. So I've been thinking...

To protect the family's personal position, I've been looking at residential income properties here in Boulder. Here's my logic:

Aim for a multiple unit property:

One unit covers operating costs.
One unit provides a Golden Years housing option for MonGo.
One unit covers our basic living expenses.
Incremental units provide investment income that should keep pace with inflation

The above has a lot of attractions to me. If purchased in the right neighborhood then it's my cost of living hedge. Strictly speaking, property values (in most markets) will keep pace with the real incomes of local populations. So when we buy property as an investment we are often making a long term bet on a city or region. This can work great (Silicon Valley) or less great (Detroit).

I don't plan on moving now, perhaps not even in the future. What I want to do is create an option to move and, thereby, insure my position. This is a much better form of "life" insurance - an investment to protect MY position if I happen to live a long time.

So, for strategic reasons, I pulled the trigger and made an offer on a local investment property. My bid was priced at a projected 5% net return. My offer wasn't accepted.

In re-entering the investment market, I was reminded:

It's really tough to separate one's self from the deal. There's always a desire to "win" and an excitement of purchase. Both of these skew judgement and lower returns.
To do a good deal, we need to be willing to walk. It's arguable if I need to do ANY deal. At the most, I need to do one excellent deal per DECADE. I remind myself of this all the time - still quite tough to apply in practice.

When I consider what happened over the last 25 years (1984-2009), I am certain that I'll get a shot for at least two more great deals in my pre-65-years.

The source of the 5% net projection is:

If I can get 20% of my net worth yielding 5% pre-tax with capital upside and option value, that is a good deal (for me) in the current climate. How times change though! I remember two years ago that people wouldn't even bother with single figure investment returns.
Even with my conservative view on costs... "stuff happens" when you own assets. I need a margin of safety built into my entry price. Unless you get unreasonably lucky, you never recover from overpaying at entry.
Regardless of what happens to interest rates, a meaningful yield provides an option to leverage in the future to make the vehicle more tax effective. I see an opportunity to create a quality income portfolio here in town -- perhaps the over-bidder did too!

With the rest of my financial life, there hasn't been much change. Endurance Corner managed to cover the family's expenses with a June distribution so the score is now:

Incremental progress!

gordo

personal planning

Gordo Byrn's blog
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