Hello from the Depths of an MBA Program

I know I should focus this blog, but if you ever flip through my idea journal, you’ll see that focus is not my strong point (which is how HBS came about in the first place).  I’ve learned that I need to expend enough energy to at least decide if an idea may have legs.  Then I need to find additional people to run with the idea (with me), so the idea can go somewhere.  Well, I’m not going to talk about ideas in this post (that’s for later), this is simply a recap of the past seven or eight weeks.

I have enough material for 10 posts, but I’m tired and time is short (bedtime was about 45 minutes ago…).  Life has been busy since I wrote my last post.  I can very quickly recap:

1) Friday before classes started, I got a phone call from one of my residents to inform me that a van drove into the living room.  I received this phone call at 11.59pm; I had been asleep for about two hours, so I was really groggy and trying to make sense of what my tenant really meant by “a van is in the living room”.  Believe me, it’s just not worth speeding 60MPH while 3x over the legal limit to try to get to the bottle shop before it closes at midnight (see when I got the call from my tenant…).  There are about 1000 complications to this crash…the driver was violating parole, the driver was drunk, the insured (van owner) has not spoken with either insurance company yet (???)

I received a quote for construction and the repairs have started (ever ponder how to suspend an entire story of brick?):

Really nothing more to report on this one.  Questionable tenants moved out, so I can renovate their side (with the help of my brother!) and get that rerented.  Hopefully generate a little more cash flow, but again the renovations were REALLY unintended, so there may be a near term cash crunch.

2) I’m going to brag here a little, so if you don’t like bravado, move to ‘3’ below.  School is going well.  Received grades for the first Mod (essentially a quarter; 4 mods per year, two year program).  Grades are A, A-, A-, B-.  Overall a 3.53.  One of my professors took the time to write me about my contributions in class.  Here is what he had to say “As you well know, I enjoyed working with you this fall.  In fact, I looked forward to our class time together with some anticipation, which is a really good sign for someone who has been teaching MBA’s for more than 25 years now.  I thought we created a good experience together this year. Thank you”.  I realized that I haven’t received feedback like that from any superior (boss or otherwise) for probably eight years.  It honestly felt really good to read that email.

3) The Flip….well, it hasn’t sold yet.  I’ll have to make some tough decisions about it (eg keep as a rental, drop the prices, or ????).  Back to running some numbers.

4) Because “idle hands make the devil’s business” (or something like that), my wife asked that I finish remodeling our 2nd floor.  Destruction is complete and I’ve started installing bits and pieces.  My brother helped with sanding this weekend and left looking like a coal miner.  There was a random dead animal that fell from the ceiling.  Looks bigger than a mouse and was surrounded by a bunch of nuts…maybe a chipmunk?  I also found two carefully folded $10 bills from 1950 (worth $200 after inflation).  Also, found one potentially unrequited love note.:

My help is a TON of fun to have around (this was right before my helper strapped on her tape measure, grabbed her hammer and started rolling carpeting to be thrown in the dumpster)

IMG_20141009_074628812 (1)

5) Odds and ends:
– Drive to 5 is still moving forward, albeit slowly
– I’m biking to school most days now, so gas consumption is significantly lower.  Should have details at the end of the year.
– I’ve been reading “Lincoln” by David Herbert Donald.  It is so packed with information that it is a slow read, but entirely worth it.  Look for a book report, probably in 2015.

Blast from the past

Need more proof the past repeats itself?

“Although interest rates have subsided from the 1981-82 peak, the low and slowly changing interest rates of former years are plainly gone with the wind, as are the former government decreed limits on interest rate competition for savings accounts and the favoritism for [investment institutions] over banks. But an agency of the U.S. Government (…) continues to insure savings accounts in the [investment institution] industry, just as it did before. The result may well be bolder and bolder conduct by many [investment institutions]. A sort of Gresham’s Law (“bad loan practice drives out good”) may take effect for fully competitive but deposit-insured institutions, through increased copying by cautions institutions of whatever apparent-high-yield loan and investment strategies seem to allow competitors to bid away their savings accounts and yet report substantial earnings. If so, if “bold conduct drives our conservative conduct,” there eventually could be widespread insolvencies caused by bold credit extensions come to grief.

Sound familiar?  Banking ‘crisis’ of 2007 maybe?  This was a letter from Charlie Munger to shareholders of Wesco in 1984.  My use of ‘investment institutions’ was a replacement for ‘savings and loan’ in Mr. Munger’s letter.

Ignore history at your own peril.


Death and Taxes

Good ole Benny F. is credited with the quote “Nothing is sure in life except death and taxes.”  He may be right, but the quote puts tax season in a negative light.  There are parts of the tax code that I don’t like, but since I’ve been a landlord, I’ve actually look forward to tax season.

Last tax season, I didn’t really do anything to make my taxes more efficient.  I simply let the depreciation from my first property increase my tax return.  I had a few other things happen in 2012 (my daughter was born and a mortgage refi), but nothing really out of the ordinary.  However, I still received nearly $2,800 back from the Feds.  This $2,800 tells me a few things:

1) I was a fool and let the government have their way with my money throughout the year
2) I probably have more ways to cut back my taxes
3) Owning real estate really helps reduce taxes

424_426 Washington  [I don’t even have a picture of UFUO#3…that’s bad!]

With those pieces of information, I decided to increase my real estate holdings in 2013.  I purchased UFUO#2 and Duplex/UFUO#3.  I put about $8,000 into UFUO#2 rehabbing the place (resurrecting UFUO#2 from the brink of condemnation).  I haven’t done anything with UFUO#3 yet, but the property was fully rented when I purchased it, the tenants pay on time, they sometimes call about burned popcorn, but overall, they’re good residents.

The changes I made in 2013 were:

1) Reduce my withholding from my W2 day job (+$50/paycheck)
2) Save every freaking receipt to itemize every last expense (after compiling all the receipts, I realized I need to do better next year)
3) Track every mile I drive for HBS for the $0.55/mile back from the IRS (about 4,000 miles in 2013)
4) Make a plan for 2014 and adjust the budget for 2014 so I can come out even further ahead at tax time in 2015 (done, almost ready to execute)

My taxes are not complete yet, but (knock on wood) I’m feeling good about them.  I have more depreciation this year (~$2,400 or so v. $181 last year) and one of my units was vacant for 11 out of 12 months last year (UFUO#2, all while the rehab was happening).  I also realized that $5 if $5 and shouldn’t be left on the table, especially for the Feds to keep.  I had $5 remaining for my federal energy efficiency tax credit, so I decided to pull the ‘paid’ receipts to get that remaining $5.

Moving forward to 2014, I need to fully fund a traditional IRA in addition to an HSA.  Both are tax advantaged accounts, meaning my contributions will reduce my earnings for the year, which will further increase my tax return in 2015.  I need to do a better job tracking each and every receipt (they have to stop going through the washing machine!).  Lastly, I need to make sure that all items bought for business are bought on the business account.  There is a book I want to read regarding real estate investment (the closest library that has the book is about 1,000 miles away).  I was going to buy the book personally, but my wife reminded me that it is now a business expense rather than a personal expense.

Here’s to tax season 2015!

I Just E-mailed my Congressman

424_426 Washington


This is the first duplex I ever purchased.  You wouldn’t know it, but the duplex resides in a FEMA flood zone.  According to the definitions I could find, during a 100-year event this property may experience ‘localized surface ponding’.  You would be forgiven if you didn’t know this was a flood zone.  I will admit, the property does slope down, away from where this picture was taken.  I can understand that the backyard may be in the flood zone.  I may get some water in the basement, but this street is not included in the flood zone.  All of the habitable portions of the house are non-flood areas.

The bank wants to protect it’s investment, so I am required to carry flood insurance on this property.  In 2012, Congress decided to not renew the federal subsidies on flood insurance, meaning rates will skyrocket.  While doing some research for this article, I saw some quoted rates of $87,500 to insure some properties, that’s just the annual premium!

In early January, I received a letter from my flood insurer informing me they were dropping my coverage, that I would have to get an official FEMA flood survey (~$1,000) and only then would my insurer reconsider my flood insurance.  I had a mild moment of panic, then frustration, then figured I would get in touch with Chad, my insurance guy (he’s an awesome guy.  Invited me over for beer at his farm; will probably take him up on it this year).

I asked Chad what I had to do to be in compliance.  He replied “Liam, this is probably really bad news” (note to insurance sales people: It’s QUITE distressing when you guys tell your clients it’s bad news.)  Chad then proceeded to tell me to wait and not panic (yet), because he heard the Senate was going to vote on the Homeowner’s Flood Insurance Affordability Act, which would push off the rate increases for five years.

Over the weekend, I decided to see what had happened with the vote.  Well, I learned that the bill is sort of stalled in the House right now.  There are enough committed Representatives that the bill would pass, so long as the Speaker brings the bill up for a vote.  I was going to write to a Representative who is one of the sponsors on the bill, but then thought I should see what my Representative thought of the issue.

Apparently my Representative, Glenn “GT” Thompson, thinks it would be a good idea if the rate increases were pushed off for five years.  He also thinks there should be a vote, but he didn’t mention pushing to bring a vote to the floor.  (Note: I think it would be a great idea if the rate increases were pushed off for five years)

I decided to email my Representative and ask him for an update on the vote and when I could expect to know if I will need to spend $1,000 to survey my property as I would much prefer to not spend that $1,000 on a potentially meaningless flood survey.

Moving forward, I am only required to keep flood insurance for any portion of the building that has a loan.  I plan to pay off this loan as quickly as possible, dumping almost every spare cent to paying down this loan, so I’m not required to keep the flood insurance.  I know it would be a risk, but I am willing to take that risk so I don’t have to pay who knows how much to insure my property.

I’ll let you all know if I hear back from my Representative.

Abundance Thinking vs. Scarcity Thinking

Cash from bike

Abundant or Scarce?

My work (day job) has been rough for the past 18 months or so.  The business experienced some growing pains, resulting in several layoffs, a pay freeze and a pay cut.  Originally, I was living with a Scarcity Mentality…”Well, if he makes an additional $500/year, that’s $500 less that I can make”.  I was fearful of not being able to do what I want to do in life.  When most of the upheaval began at work, I decided that I could either be bitter (which I was for a while), or I could take work for what it was (a good job) and design my life to be what I want it to be.  The only way to do so was through Abundance Thinking.

I always reminded myself of when my wife and I were first married.  We made about $15/hour, combined income, and we felt like we were living like a king and queen.  I always wondered how it was possible to feel that good, while not making much money.  Part of it was because we were newly-weds and it’s very easy to practice Abundance Thinking when everything is new and exciting in life, but part of it was simply because life is abundant if you’re willing to watch and listen.

For years, my parents would discuss an ‘abundant mentality’.  As a kid, I never really understood what they meant by an “Abundance Mentality”.  I then read about Abudance Thinking vs. Scarcity Thinking in Stephen Covey’s “7 Habits of Highly Effective People”, and still the concept failed to sink into my thick skull.  Finally, after my wife and I decided to really take charge of our finances did the concept of Abundance Thinking finally catch hold.

In Stephen Covey’s book, 7 Habits, he defines the Scarcity Mentality and Abundance Mentality as follows:

“Most people are deeply scripted in what I call the Scarcity Mentality.  They see life as having only so much, as though there were only one pie out there, and if someone were to get a big piece of the pie, it would mean less for everybody else.  The Scarcity Mentality is the zero-sum paradigm of life.  People with a Scarcity Mentality have a very difficult time sharing recognition and credit, power or profit – even with those who help in the production.  They also have a very hard time being genuinely happy for the success of other people.

“The Abundance Mentality, on the other hand, flows out of a deep inner sense of personal worth and security.  It is the paradigm that there is plenty out there and enough to spare for everybody.  It results in sharing of prestige, of recognition, of profits, of decision making.  It opens possibilities, options, alternatives and creativity.”

I have found that by practicing Abundance Thinking, my wife and I are more content with our lives and we are actually enjoying life more now while spending significantly less.  Don’t get me wrong, there are still many things we want to do that we are unable to afford currently, but with our new Abundance Mentality, none of our goals feel like pipe dreams any longer.

My wife hates budgets (I find them kind of fun, just difficult to stick to).  In order to make our budget more fun, my wife created a “Frugal Fun Calendar“.  The calendar is full of either free, or very low cost activities/items that we can do/purchase each month.  We didn’t know what to put in the calendar and we actually stressed about not having enough to do in a month.  We settled on about 18 different activities for each month.  We thought it wasn’t going to be enough.


Through our first month of the Frugal Fun Calendar, we learned that we have so many options and so many ways to interact as a family that we actually couldn’t do all that we had planned when we started the month.  On Jan 1, we thought we would be bored, with too many days of nothing to do.  But by Jan 31, we had only completed about 3/4 of what we had planned and we felt the days were just packed.  Only by practicing Abundance Thinking have we been able to enjoy all that is available to us locally.

One interesting mental shift that has occurred is that now, rather than simply spend money on something like we used to do, we actually don’t even want to spend the money anymore.  It just doesn’t seem worth it when we have so much to do without spending money.  I used to be a bookaholic and my wife used to chastise me because my mom is the director of a library (although she has a bad book habit as well…).  I used to buy a book once a month or so.

Since we’ve been practicing Abundance Thinking, I’m finding that the library has a HUGE selection, and (as long as I return the books on time), they’re free.  In addition to the town’s library, we have a HUGE University library system that we can access.

Lastly, Abundance Thinking has actually made us happier.  Rather than fretting about what we can’t buy because we don’t have enough money, we are able to slow down and realize how much we have and that we don’t need to buy those other things.  I admit that it helps that we spent every last penny (and then some) in our past life and purchased some really nice clothes, kitchen equipment, etc.  With proper care, those items will last most of our lives and will generally remain stylish.

If you aren’t actively practicing Abundance Thinking, I encourage you to give it a try.  Set a specific time period, say 4 months.  Go cold turkey and force yourself to maintain the Abundance Thinking lifestyle for those four month.  You may have to kick the multiple-Starbuck-per-day habit and make your own coffee.  You may have to make lunch for yourself before work.  Consider walking or biking to work.

If you’re not happier, go back to your old life style, it’s not difficult, but I would bet you may enjoy the Abundance of life more than you think.

Life of a Landlord – Part 1

Frozen Pipe


You never really know how residents will react when something goes awry in one of your properties.  This morning, I received a panicked phone call from a resident in one of my duplexes.  A pipe had frozen and there was no water in their unit.

There is not too much to do to fix a frozen pipe except to either try to thaw the pipe or wait for the pipe to thaw.  Obviously once the pipe has thawed, you need to be ready in case there is a pipe burst.  I advised my residents to move a space heater into the basement and call if there is a problem as it warms up.  Well, about two hours after that phone call, I got another phone call: “Hey, uhh, I got a swimming pool in my basement.”

The first thought through my head was: man, that didn’t take long to thaw.  Thought number 2: this is going to cost a TON; thought 3: I’m going to have to run down and fix the pipes this evening…there goes my Friday night call a local plumber and get this taken care of immediately.  I also asked a contractor friend of mine to take 12 gallons of water (six gallons per unit) to the duplex until this got resolved.

I called RotoRooter to see if they handled burst pipes.  Luckily, they do handle these issues and they try to ensure a less than 24-hour turn around.  The pipe burst at about 3pm, RotoRooter was called at about 3.45 and by 5.30pm they were on site working on the pipe.  By 7pm I had received a phone call that the problem had been addressed.

There were three bursts, two in a pipe and one that broke the back side of the water meter.  I now have a new water meter, some new pipe and (hopefully) a happy resident.

Through the course of this, I learned that the water had actually been frozen for a full 24 hours before anyone decided to call me.  No idea why no one decided to call.  I asked what they had been doing for water for the previous 24 hours (figuring they had purchased bottled water).  The reply: Melting snow on the stove.  I told both residents to call as soon as there is a problem like this in the future and not wait 24 hours.

Anyway, for 18 months as a landlord and one issue like this, not too bad.

A Lesson from the Past (#2)

As much as young whipper snappers like to think they are smarter, faster, better prepared, have it all figured out, etc, etc etc, history really does repeat itself.  The older you get, the less you feel like a young whipper snapper and that’s probably for the best.  Every time I think I have something unique figured out, I stumble across wisdom like this:

“…Others are less kind.  They say America’s economy is falling apart.  Big labor has lost its ability to protect the rank and file.  Japan and Korea are changing the way we think and work, and the British-style Fleet Street hype has taken over TV and most of the press.  Huge numbers of college students struggle to read and write.  They graduate without having learned to think or decide.  Product quality is an impossible dream in many industries, and the focus on current earnings per share plagues even the most farsighted planners.  All that’s left, it seems, is to work hard and make money.”

If I had left in the original first sentence to this quote, which reads “Some say America is changing from a smokestack to a service economy,” the quote would have shown it’s age.  With a few minor tweaks that quote is apt for life today.  Reread the quote but substitute “China” for “Japan and Korea”, and while I actually had to look up what “British-style Fleet Street” means, my local NPR station does play a variety of BBC type broadcasts throughout the day.

Just as history repeats itself, I’ve got a whipper snapper at home.

Whipper Snapper feet


PS.  The above quote is from “Cashing in on the American Dream”, written by Paul Terhorst.  Copyright: 1988