Thursday, June 26, 2008


These stickers are all over the matter their managers see them as well. Railroads - the last bastion of strong unions.
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Wednesday, June 25, 2008

Hotel adventures

This week my room is adjacent to a small conference room. I'm sitting here doing some work and there's a Mary Kaye presentation from an energetic young lady. She went on for awhile and then said "let me tell you a bit about myself....have you seen the movie Annapolis? That's where I went."

A female Annapolis grad who then went into grass-roots makeup sales in Galesburg, Illinois?

Tuesday, June 24, 2008

5 Years Ago Today

Eric and I completed the purchase of our first house. I can't believe how fast time flies. I can't believe what a good idea it was.

Leading up to that day, a couple of night-owl freshman working out at 3am each day in Yuma Hall bored and with scholarship money to burn just churned ideas in their heads. Somehow they settled on buying a student rental. They drove around the neighborhood each night looking for signs, trying to figure out the market. Somehow they stumbled on 1004 E. Mitchell St. A cute little house. Yellow stucco, red rocks, oleanders and a goldfish pond. Simple, and as we would learn, a diamond in the rough.

That house cost $111,500. It was 4 bedrooms, 3 bathrooms, 1.5 miles to campus. Mortgage payment: $580/month. Rent: $1400/mo. Screamingly profitable, but we didn't know it at the time- we were too busy worrying about what could go wrong (and when the roof leaked that fall, we learned our first lesson - that what can go wrong, will).

The whole real estate world was a mystery. We were cautious, skeptical. I would bombard anyone we dealt with with a hundred questions until we knew every detail, every exception, every rule. How do mortgages work? How does closing work? What are the important laws? Property taxes, zoning, permits, construction, landlording.

My level of handiness started with "what's a Phillips-head?". But we somehow managed to make improvements that summer and our first four tenants moved in that fall.

We kept talking about real estate. The process was fairly straightforward. And replicable. And we loved doing it. That winter we purchased our 2nd over winter break. I went abroad that spring, 2004. We purchased 3 more while I was gone (I knew that power of attorney I setup before I left would come in handy). Financing at the time was easy (the subprime crisis was no surprise if you dealt with real estate professionals in late 2004/2005).

And the math really added up at the time. $870 mortgage, $1450 rent. $800 mortgage, $1200 rent (even if the Rugby team that rented the latter burned down a tree, built a golf-club shrine, and put couches on the roof).

After we had our 5 was the scariest time for us. We had invested basically all of our money, and fast. We had leveraged to our heads. If the market turned, we would have had major problems. Little did we know that our main criterion for what to purchase - a house for which rents are comfortably more than the mortgage payment - ensured they were good decisions. This would become our guiding strategy, but at the time it was just risk aversion.

Spring and summer 2005, the housing market was at it's apex. This was a critical time for us for two reasons. The first was that we finally felt confident enough in our knowledge to make things happen. The other is that our houses had gone up so much that it made sense to sell them. We figured that first house was then worth about $205,000. Though our mortgage payment was still $580, when you considered the cash on the table, it made sense to take it and try to do something else. We put three houses up for sale, and within days a buyer bought all three in one fell swoop. The Mitchell house, $220,000.

We quickly went into a 6 month frenzy of deals, buying and selling because we had figured how to arbitrage the market. We had 10 different houses by then. But as the market reached a peak, we sold and sold until by my last semester, we had only the house I lived in.

House prices had peaked, and there just weren't any more Mitchells out there. We each invested our profits in stocks and we were happy with that.

Our college time was coming to an end, and real estate had been one of the best parts. We both got a deep understanding of how to run a business. I'm shocked at how applicable that experience was to everyday decisions. So many decisions that I think through I think back to those houses.

Eric graduated three semesters before me, and started a real estate related startup for which he was named one of Business Week's top 25 entrepreneurs under 25. I stayed until fall 2006, and right after I graduated something happened that brought us back in the game. We found another Mitchell. Not as profitable as Mitchell, but a solid, underpriced, profitable rental. The kind of no-compromises property that would throw off increasing rental income over time. The kind that was so hard to find at the right price. The kind you would buy even if, as we had believed since 2005, prices would stay flat for 5 years (a prediction that now seems overly optimistic!).

So we were back at 2 houses, but Mitchells were still hard to find. As where in 2004 we found dozens of houses every month we would buy if we could, in 2007 we found fewer than a dozen a month that even merited taking a second glance at the listing. But we found 6 houses together for cheap, the result of a doctor's hasty divorce settlement and our ability to make a big down payment, and were really back into it. Another (our closest ever to campus), then another (our first duplex), and now maybe two more. So who knew we would be back. We don't even live in Arizona any more, yet we still enjoy it enough and believe in it enough to make the effort to keep it up. Learning how to interface with property managers helps (and both of us are convinced we could start the best property management company ever).

I love our rentals. I developed a deep passion for all aspects of them. I love fixing them up. I love finding tenants (and have made multiple friends that way). I love all the things I learned along the way. The good lessons and the hard lessons. I've been to court to evict a tenant, made my first contracting mistake, hired my first lawyer ($1500 to fix said contracting mistake).

Who knows where we'll be at in 5 years. He's a serial entrepreneuer, I'm a nomadic consultant. But regardless we can trace our experiences back to those nocturnal workout sessions. If you ever get that bug in you to make something happen and it makes sense like buying that first house on Mitchell, do it.

Addendum: That first mortgage: 4.25%, 5/1 ARM mortgage, meaning the rate was fixed for 5 years. Can you believe that that rate would only today be going higher?

Tuesday, June 17, 2008

Welcome to Galesburg, Illinois

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Monday, June 16, 2008

Railroads: obsessed with safety

Friday, June 06, 2008

Bag fee - not so bad

Recently American Airlines' announcement of a $15 bag fee for most passengers set off quite a news storm. Seems people are pretty ticked off about something they think should be free.

I am a big fan of the idea. There are two reasons this is a good thing.

First, airlines are losing money hand over fist. If they don't raise fares and all of that, they'll be out of business soon. Complaining when they do simply misunderstands basic economics.

But the bag fee is a good thing in and of itself. Checking bags and putting them on the bottom of the plane is a costly endeavor. Airlines pay for it and have simply built the costs into the price of tickets for years. The problem is that since it never cost anything, people could check a bag for free, even though it increased costs for the airlines. Sometimes, people would check multiple bags. Ever gone on an LA to anywhere-in-Latin-America flight?

This means that all passengers are splitting the costs for the passengers that check bags.

Now, with those that check bags paying, the airline will not have to increase fares as much for the other passengers.

And now that I am quickly becoming a seasoned traveler (I already have enough points to get about 8 free tickets), I am learning it's really not that hard to pack it on a carry-on.

So while it's a general bummer that airlines have to charge more, be grateful that American, which is based out of Dallas by the way, at least got the bag charge right.

Expect other airlines to follow soon, and embrace it.

Sunday, June 01, 2008

this is great news