Yesterday I completed a multi-week process of searching for and picking a new place to live. I have been living in a house near my school for the last 15 months. In that 15 months, I have been very happy with the rent and location, but I decided it was time for me to go out and get a place on my own.
I started my search with an apartment book and the Internet. I found a free “Apartment Book” for the Denver area from the people behind Apartment Guide. I used that book to eliminate certain parts of town, limit down neighborhoods I would like to live in, and get an idea of what is out there and what costs might be.
From there, I used a combination of two websites to find and investigate apartments in those areas. I used a zip code map to help me search. Apartment Guide was useful for finding apartments within my rough guidelines for a one bedroom apartment within a certain area and price range. I also checked for things with Apartment Finder and Apartments.com. There are dozens of sites that help with this. Some charge, some are free. Based on everything I saw, the charge sites are a rip off. Why pay for what you can get for free?
The big things I was looking for were near my school, but not full of undergraduate students. That created a circumference to search within but eliminated a handful of apartments right near campus. I also wanted something that was one bedroom, not a studio, for about $600 per month. Again, this limited down the selection. There were also a bunch of “wants” that I could live without. Those included in unit washer/dryer, covered parking, and no pets. I also wanted to be in a safe, clean place. Those two are not negotiable.
Based on a few hours of searching on those websites, I came up with a list of about a dozen potential apartments. I searched for ratings on those apartments through two major methods. The first was a simple Google search. Using Google, you can find out a lot about an apartment, particularly a bad one. Second, I searched every single apartment on Apartment Ratings.
Apartment Ratings was one of the most useful tools in limiting the apartments I found. I looked back at a few places I have lived before and saw that most of the ratings were either very bad (most) or very good (a few). The ratings on these sites are user generated, like Wikipedia or Yelp, and have to be taken with a grain of salt. People are more likely to rate a place that is really bad than if they were just content. I also looked at a trend over time. More recent ratings are going to be more relevant to current management than older ones.
Using the ratings sites, I was able to eliminate apartments with apparent drug, violence, noise, break-in, and bug problems. That narrowed my list down to about six. I then did more reading into what people liked and didn’t like about certain areas. That limited it down to three.
Once I had my top three apartments in mind, I looked online at the websites, which offer only the most glowing reviews, and found that one of them had nothing available in my price range (not even within a few hundred a month!). And then there were two…
I did a drive by of both complexes to see what they looked like in person, how the neighborhood felt, and what was around. One of the two was in an area just off from a familiar busy road. The farther I got from the road, the less safe the area felt. And then there was one…
I toured the final apartment complex on my own once and setup a time to come back with my Mom to get a second look. No matter how old I am, it is always good to get a second opinion. I trust that my Mom would never let me do anything stupid, so I brought her along. Parents, significant others, and good friends are good options for when you are looking. I did it once without anyone helping and ended up in a bad situation that I had to pay to get out of.
I setup another visit to see the actual unit I would be moving into. I really liked it. I filled out the application and left a deposit. I should be moving around the middle of next month. I would love to tell you all where, but seriously, this is the Internet. There are lots of wackos out there!
What I Learned: Tips for Apartment Hunting Neophytes
Living around a university campus often puts you in a situation with a crappy landlord that will try to take advantage of you. Living farther out could mean better landlords, based on my experience.
The web has a plethora of information about safety and living in certain areas, but you have to see it in person and go with your gut.
Get a trusted second opinion before you pay any money or sign a lease, always.
Living is generally the most expensive part of your monthly living costs. However, it is also the place you spend most of your time. Pick a place that you will love. Don’t settle on being unhappy with your living situation. You can quit a job, you can sell a car, you are stuck in a contract when you sign a lease. If you are not confident, don’t sign it.
What advice do you have for a new apartment goer? A college student looking for fall housing? A 20-something going to a new city? Please fill in where I missed or left off in the comments.
I just finished reading The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Richby Tim Ferriss. The book was fun and easy to read. Not only was it fun, it was a bit inspirational. I know I am behind the curve in this book, which made waves when it came out in 2007, but its words are just as relevant as they were in 2007.
The book is written in a logical progression giving steps to eliminate needless work, make what you are doing as efficient as possible, start your own super efficient business, eliminate your need for going to work, and finally leaving the 9-5 world. The ultimate goal presented by Tim is to have the freedom to travel or spend time with friends and family.
According to the book, there are a few tricks to making this whole system work. Making your life more efficient and eliminating time wasters is possible by eliminating voice mail, focusing on e-mail, and letting people deal with small problems themselves. Bring in an Indian virtual assistant and your life is on autopilot.
From there, the book suggests finding a “muse” product that you can sell for a nice markup. I have one in mind and have already had a couple of bids from Chinese companies. From there, it is possible to setup automated sales, distribution, and customer service that will ultimately take only 4 hours a week to maintain. The money just flows into your bank account.
What I Liked: I like the idea of the 4 hour workweek, but who wouldn’t? It seems like a great life plan. Eliminate the crap and focus on what is important. Use the 80/20 rule to ensure you are only focusing on what is important and yields results. And, for what is left, hire an Indian for $8 an hour to deal with, freeing you to do whatever you want on a decent income.
What I Didn’t Like: I had a bit of a feeling the entire way through that they guy is full of it. How easy can it really be to start a company that requires almost no time and effort? How well can someone in India really help me with my life that it is worth $5-$10 per hour for something that I can do myself? It is possible to really do what the book says, but it is important to bring yourself down from the cloud the book puts you on. Remember, if you follow the book, to make calculated decisions. Don’t throw everything away on a whim.
Overall:I like the book. I think it is a fun idea and I am giving it a go. Make sure you keep up on the blog to read about my progress. I recommend this book to anyone who wants to try a fun project to make a bit of extra cash. If it goes well, who knows, you might get rich on the way to a 4 hour workweek. That, according to the book, makes you part of the NR, the “new rich.”
I just watched a funny segment on how little people know about finance from the Jay Leno Show (hat tip to Fabulously Broke). I thought I had better pass this on to Narrow Bridge readers. Please don’t tell me in the comments if one of my readers is featured here. I hope I did better than this.
On a side note, thanks to the lovely Fabulously Broke for including Narrow Bridge in the Carnival of Personal Finance.
It is nearing census season here in the United States. Every decade, the United States government puts together a report with details about every single person in the country. This includes citizens, legal residents, and illegal residents. The government then puts together population demographic and trending reports that tell you everything you could imagine about people living in the US. You can see these reports at census.gov.
Other countries have similar systems. In the UK, government projections show that the population in England will rise from about 51 million today to over 60 million in 2031. In the US, the population grew 8% between 2000 and 2008. That is over 22 million people. The 2010 census is projected to show continued population growth.
What does that mean to us? The average person will need a place to live. More people means more houses are needed. The simple “what it means” is that houses will have to be build, mortgages will be needed, and banks will make loans.
However, there is another segment where people stand to benefit. Not all people live in a single family house or a condo. Many Americans rent. In Minnesota, 75% of homes are owner occupied, leaving 25% as renters. In New York, on the other hand, only 55% of homes are owner occupied.
Jobless rates today are impacting those numbers. Many of the bad mortgages in the last year or so have been in owner occupied situations. People have to give up their home ownership and move into a rental. Property developers and investors have the opportunity to profit from this situation by owning rental properties with an increasing demand.
It is also important, though, to look at an often forgotten group of people. 3.5 million people in the United States, about 1% of the population, experiences homelessness at some point in any given year. Be sure to remember those in need even in tough times. If the economy is treating you bad, imagine how some people are doing. If you are able, support a local homelessness charity like the Colorado Coalition for the Homeless in my neck of the wood. Everyone deserves a home.
This time I was interviewed and featured in the story. For the first time ever, you can all see my last name. I was asked about parent’s investments for a story about the Dow breaking 10,000 on Denver’s Fox 31 News. See the video below. If you are reading this on RSS and can’t see the video, it is also available at Fox 31. My short part starts at about 1:57.
I guess I really am famous now. Two times on local news in a week is my personal record.
I was on the local Denver 9 News on Monday night in a story about young people investing. Sadly, they did not interview me or use my name. The reporter came to a class I am taking at the University of Denver and asked the professor and one of the senior students in the class a few questions. If they knew I had a blog, they probably would have done a whole feature story on me, right? (Us blogger have egos to keep up)
I am the one in the brown Israeli shirt near the speaker at the front of the room. You also get my hands typing a couple of times. Those hands type on that keyboard to bring you these great posts!
Like stock, companies use bonds to raise funds for any number of reasons. When a company raises funds with stock, they are giving away ownership in the company in exchange for they cash. With bonds, the company is only making a promise to pay the funds back, with interest.
Lets say company X needs to raise $1 billion to build a new plant. X is privately held and has no stock ownership outside of the company founders. X is a large company that is worth $10 billion, as determined by a private auditor. The company’s cash flows are strong and the company has healthy sales and profit growth.
To build the company, X’s owners can issue stock for $1 billion, which would give away 10% control of the company. That $1 billion would not have to ever be paid back. Alternatively, they can borrow $1 billion from investors and pay them back with interest. Due to the company’s credit rating, they have a 4% risk premium over the risk free rate (the Federal Reserve long term t-bond rate). If the risk free rate is 4%, X would have to pay 8% interest to borrow.
They decide to go along with the bond issue and issue $1 billion in new debt. Through the assistance of lawyers, accounts, and investment bankers, the company issues 1,000,000 20 year 8% coupon bonds with a face value of $1000 each. That means an investor can buy one or more for $1,000 each with 8% interest paid semi-annually. The company keeps the $1,000 from each investor for the time being.
If you buy one of these bonds at the time it is issued at face value, you are now owed the $1,000 plus interest from the company. Twice per year, the company will pay you $40. Your $80 per year, or 8%, is called a coupon payment. Some bonds are called “no coupon bonds” and are sold at a discount to make up for the interest.
At the end of the 20 years, called the bond maturity, the bond holder is paid the final $40 payment in addition to the $1,000 principal. Now, you, the bond holder, have earned 8% interest have all of your money back.
The risk to you is that the company will go broke and not be able to pay you back. Some bonds are “secured bonds”, and have an asset that will be sold to pay back investors. Others are not secure, and are only guaranteed by the company’s good credit. The risk level of the company determines the interest rate paid. People demand a higher interest rate for risky bonds than for safe bonds.
What if you buy a 20 year bond for $1,000 and you decide you need your money back sooner? If the bond is traded on the secondary bond market, you can sell the bond for its current value. Assuming interest rates are still yielding 8% for that company’s bonds, you can sell the bond for $1,000 at any time as long as there is a buyer. That buyer will then receive the 8% coupon. Most stock brokerage firms give their customers access to buy new bonds and buy and sell bonds on the secondary bond market.
That sounds pretty simple, right? It is, assuming interest rates are always 8%. In real life, interest rates are constantly changing. When interest rates rise, the price of a bond goes down When interest rates fall, the price of a bond goes up. The price, that $1,000 if interest rates do not change, impacts the bond’s yield to maturity. People demand that a bond pays a yield that matches current market conditions. If someone gives you $900 for the $1,000 face value bond (a 10% discount), they are going to get a higher yield to maturity than someone paying $1,000. The calculator of YTM is very complicated, unless you have a fancy financial calculator (about $20) or a finance degree. Fortunately for you, I found this free YTM calculator online.
If you are thoroughly confused, have any questions, comments, or stories to share, please do so in the comments.
Back in the good old days of classes like Financial Institutions Management, I learned quite a bit about how banks and insurance companies make money. The way insurance companies drive their profits is not what you might expect.
Insurance companies have two sources of profits. The first, and most widely known source of profits, is bringing in higher revenue from insurance payments than is expended in claims. If you pay $150 per year for renters insurance and never make a claim, the company keeps all of that as profit. If you pay $800 per year for car insurance and the company has to pay out $900 per year in claims, they are not making money. This is how insurance companies get the reputation of being stingy. They try to limit what they payout, even if it hurts their customers. However, it is not quite that simple.
The second way insurance companies make money is through investments. I met with a manager at Pinnacol, the Colorado guaranteed workers compensation insurance provider. He was very up front in explaining that Pinnacol’s investments performed so well and the overhead was so low that even if Pinnacol paid out 100% of its income, it would still be profitable.
Insurance companies make most of their money through investments. To earn a profit, the insurance company must maximize the time between receiving a payment and making a payment. This spread is the investment period that the insurance company uses to make money. If you pay the company $100 on January 1st and they pay it out on July 1st, it had a six month investment period. If the company had an investment gain of an annualized 10% during that period, it made $5 in profit, before taxes and related expenses.
The scale comes with having many customers and extending the investment period and minimizing payouts. If the company has 1 million customers in the same situation, it makes $5 million. You can see how fast the scale can increase profitability, even if everything you pay in gets paid back out.
To extend the investment period, the company will delay claims processing. Some companies expedite claims for customer service reasons to bring in new clients, but some have waiting periods and processing periods that delay check writing.
The best way to increase profits for an insurance company is to increase investment return. As any educated investor knows, increased profits often come with increased risk. Insurance companies hire educated professionals to balance risk and return to ensure a well diversified investment portfolio.
AIG’s investment professionals did not appropriately manage the company’s risk. AIG invested into highly risky securities hoping for a very high return. It worked, for a little while. However, when the markets turned sour the company had record losses.
If any of the terms here were confusing, be sure to read this well written glossary of insurance terms. If you think I missed something or have any questions, please say so in the comments.
If you have ever bought or sold stock, you know that you have to do so through a stock broker. The stock broker has access to sophisticated systems that link in to a series of exchanges that execute the trade. Most of us never think about those systems and exchanges, but I was just there and I thought it was interesting. Here is how a stock trade works from the buyer side.
New York Stock Exchange, 1930
So Joe Investor decides he wants to buy a share of Citigroup, which might not be so advisable today. Citigroup’s ticker symbol is C.
In the old days, Joe would call up his stock broker and say, “Mr. Stock Broker, buy me 100 shares of Citi.” At that point, the broker would call his trading desk and tell them to buy 100 shares of Citi for Joe. The trading desk would call their floor trader at the New York Stock Exchange, and that trader would go find someone who wants to sell 100 shares of C. Those people would meet at a spot on the floor where a specialist is posted for that stock. The two traders would agree on a price. If no one was selling, the Joe’s trader would just buy the stock from a specialist who keep an inventory of C in case anyone wanted to buy it but couldn’t find a seller. Once an agreement was made on the price, the trade would take place and Joe would be the proud owner of C. Joe’s broker would keep the stock in his account until he wanted to sell it or transfer to another broker.
Now, things are a bit different. If Joe wants to buy a share of stock, he logs on to his stock broker website. If he wants, he can still call, but the fee for doing that is usually about $20 higher than doing it online himself. If Joe knows he wants C no matter what the price is, he can just type in that he wants to enter a market orderfor the stock. At this point, the computer system will link into the NYSE-Euronext system and look at current sellers of C. The system matches buyers and sellers automatically. For small orders, this all happens automatically with no human intervention.
The order system is best visualized through the image on the right. Just click on it to make it larger. This is the active trading screen for Charles Schwab’s Street Smart, the program I use to monitor stocks live. If you have a large account it is free, otherwise there is a big fee. The screen, and similar ones at trading desks and Bloomberg terminals around the world, lets you see current bid and ask prices. When they meet, a trade executes. In this screen, you can see recent trades in the colored boxes.
Once the trade executes, your stock broker’s system will credit the shares to your account. This generally takes two or three days to happen, as there is still a settlement lag time for the assets to transfer from the seller’s account to the seller’s broker to your broker to your account.
If I didn’t confuse you enough, some trades still can happen between two people, but those people must enter the trades into the computer system. New shares of stock are distributed through an IPO and involve pre-orders through designated brokers. Each stock exchange also has a separate system. The NASDAQ and NYSE cannot trade each other’s stocks, but the NYSE and Euronext have merged and can trade each other’s stocks. There is a lot to know.
How does this really impact you? It does not unless you work on the stock market or are a serious active trader. Either way, it is good to know how the system works. You can impress your friends telling them about the bid-ask spread over drinks tonight. (Disclaimer: Unless your friends are nerds they will not think this is cool.)
An Picture of the Elusive Eric at the NYSE
If you think I missed something or have any questions, feel free to let me know in the comments.
October 1st update. I had to pay for school and updated the value of my car. That made a big hit on cash and a big hit on overall net worth. My student loans increased too. This is not looking quite as good. Only one more school payment left, ever! Starting in March my net worth should start going up.
Using the ratings sites, I was able to eliminate apartments with apparent drug, violence, noise, break-in, and bug problems. That narrowed my list down to about six. I then did more reading into what people liked and didn’t like about certain areas. That limited it down to three.
by Tim Ferriss. The book was fun and easy to read. Not only was it fun, it was a bit inspirational. I know I am behind the curve in this book, which made waves when it came out in 2007, but its words are just as relevant as they were in 2007.
