I spent a few minutes pondering what kind of joke I should open with. Let’s go with a hooker joke.

Coming up, 700 words on me justifying getting a hooker. I don’t care, I’ll buy love.

Since I’m pretty badass, I break the law all the time. Jaywalking? YOU KNOW IT. Going over the speed limit? SPEED GIVES ME A RUSH. Sex with underage girls? I ADMIT NOTHING. GO AWAY, CHRIS HANSEN.

Let me tell you kids a story. It involved a friend of mine, who lived in Calgary, back in about 2006. He was on Calgary’s version of the subway, their above rail line called the C-Train. (The ‘C’ stands for crazy. As in, Crazy Train. FINALLY, AN OZZY OSBOURNE REFERENCE ON FINANCIAL UPROAR) And he watched someone get a ticket for riding the train without having purchased a ticket. That prompted the following conversation.

Me: So did the transit cops, like, Taze him?

Him: No. You’re stupid.

Watching that got him thinking. He rode the train downtown every weekday, during rush hour, and he hardly saw a transit cop. He mused that he could count on one hand the number of times he’d ever been asked to produce his ticket during his few years of transit riding. So he came up with an experiment.

He stopped buying a transit pass.

Calgary’s rail system is somewhat unique, since turnstiles essentially don’t exist. The entire system is based on the honor system. You’d still have to show a bus driver your ticket, but there’s nobody consistently checking train tickets.

Back then, a transit pass would set you back $60 a month, and the fine for being caught without a ticket was about $85. Now the numbers are approximately $95 and $150, respectively. It isn’t really that big of a punishment if you get caught without a ticket.

So what happened? He went 9 months before he got caught. He was nice when he finally got busted, and the transit cop said he would have let him off with a warning if the boss wasn’t there.

The tally: One $85 ticket, $540 saved on transit fees. He was so thrilled with the results that he immediately tried it again. He had a kid and therefore stopped talking to everyone after that, so I’m not sure how his second attempt ended up, but I have a feeling the transit cops would eventually realize he wasn’t buying a pass and singling him out.

Also keep in mind that he was a clean-shaven white male, which clearly worked to his advantage. It’s kinda racist, but it’s true. I wouldn’t recommend this strategy if you’re hobo looking with dreadlocks. I’d rethink the dreads in general, but that’s just me.

Want another example? Gather around kids, I’ll tell another story. Are you all still awake after the first story? DON’T ANSWER THAT.

Here in oil-lovin, homo-hatin Alberta, we have a distracted driving law. If you get caught driving and talking on your phone, or texting, or even putting on your lipstick. The fine is $172, and here’s a complete list of crap you can’t do. You can have a radio, but not an MP3 player. You can’t talk on the phone while holding it up to your ear, but you can if you use bluetooth. I’d say it was a dumb law, but then I’d probably get arrested. I LOVE THE NEW LAW, ALBERTA GOVERNMENT. PLEASE DON’T READ MY EMAIL.

Anyway, I was talking to a Realtor, who readily admitted he ignored the law. He was a busy guy, you see, so he didn’t have time to deal with the inconvenience of bluetooth. We all know that excuse is kinda BS, but is there a bit of logic there?

Assuming he’ll earn $10,000 in commission while negotiating deals and driving at the same time, isn’t a $172 ticket a pretty reasonable price to pay? Studies have shown using a handsfree device isn’t any safer than holding the phone to your ear, since it’s the conversation that distracts you. He’s no more dangerous than you or me, especially you. You drive worse than a (insert Asian minority joke here).

Can anyone else think of reasons why you’d intentionally break the law? Wall Street firms have gladly just paid the fines when the SEC gets mad at them, and so have oil companies, industrial companies, and Mosanto has probably been fined a time or two as well. Any other examples? Comment away, bitches.

The post When It Pays To Break The Law appeared first on Financial Uproar.

If you followed me on the Twitter, you’d know that I ended things with my internet girlfriend, Young and Thrifty, when she bought that Vancouver condo. It was hard, and I had some really hard nights filled with sleeplessness and tears, mostly after I accidentally hit myself in the nuts with a grilled cheese sandwich. Let’s not talk about that.

Now I need a new internet girlfriend. She needs to be someone who has her financial poop in a group, is attractive, and has to enjoy being accosted on Twitter/on my blog like I’m some sort of desperate weirdo. Debt is okay, as long as there’s documented success paying it off. Here are the top 4 finalists:

1. Mochi and Macrons – Consistently posts good content, comments on this very blog quite often, has enough of a net worth that she could be my sugar mama for a while, and hates Americans with a fervor and passion that few can muster. She has a boyfriend, but like I’m going to let that stop me.

2. Makin’ Sense Babe – She’s Kathryn, and she’s my babe. She’s located far enough away that I can continue to creepily hit on her knowing that we will never accidentally pass on the street. She’s got a couple of bucks to her name and recently quit her job to blog full time. It’s okay Kath, I support your crazy-ass dreams.

3. Young and Thrifty – Why is she still here?

I’M SORRY TAKE ME BACK BABY PLEASE.

(Composes self) I mean, uh, maybe we should entertain the idea of getting back together. I mean, you know, if she isn’t busy.

4. Afford Anything – Paula is based out of Atlanta, but she’s probably somewhere fun and exotic, so she could come and visit me, assuming I move somewhere fun and exotic. The internet is exotic, right? My history would dictate that it is. (Ed. note: You mean erotic, you dummy)

The winner clearly is me, since I’ve got 4 excellent ladies just dying to receive my unwanted internet love. But I will choose…Makin Sense Babe.  We will go out for milkshakes and talk about how awesome I am. Congratulations, Nelson.

Song I Like And Therefore You Should Too

Johnny Cash, via Trent Reznor, via…I don’t know. His brain?

Simpsons Quote

Ned Flanders: I’m not thinking straight, why did I have that wine cooler last month?

Gambling Is Fun

PLAY THE CELEBRATION MUSIC. NELSON HAS RETURNED TO MEDIOCRITY.

After another 2-1 week last time, I’m back to the ever elusive .500 mark. I am the very definition of an average gambler.

Hey, let’s go with Miami (-1.5) to beat the Spurs, the Braves (+1.5) to beat the Giants, and the Blackhawks to cover (-1.5) against the Bruins in the Stanley Cup Final. We all know I’m going to drop below .500 this week, but let’s all act collectively surprised when it happens.

Overall record: (gasp!) 115-115-9

A Post You Might Have Missed

Wasn’t it Krusty who said “book reviews are death?” Let’s assume it was, since there’s no time to check.

I reviewed Superfreakanomics, which seems like a nice enough way to piss away an afternoon probably better spent cutting the grass.

Nelson’s So Funny

Twitter followers, let me tell you something. Getting a tweet favorited is kinda like sex with your sister’s mediocre friend. Sure, it’s good because it’s sex, but you’d rather have the hot friend. The hot friend is a retweet.

Does anyone speak bird? I’m looking to translate “shut the hell up, I’m trying to sleep” into their language. Thanks in advance.

— Nelson Smith (@financialuproar) June 13, 2013

The More You Know

No time for preamble. Except for this preamble. NO MORE PREAMBLE.

John Henry Denig (September 8, 1838 – December 10, 1876) was a United States Marine Corps sergeant serving aboard the USS Brooklyn during the American Civil War. He received the Medal of Honor for his actions in 1864 during the Battle of Mobile Bay.

Denig was born in York, Pennsylvania, on September 8, 1838.^[1][2] He joined the Marine Corps from Pennsylvania in 1861 and served as a sergeant on the USS Brooklyn during the Battle of Mobile Bay, Alabama.^[1] Mobile was the last Confederate-held port on the Gulf of Mexico east of the Mississippi River, and its capture would complete the Union blockade in the area.^[2] In the August 5, 1864, attack, Brooklyn engaged Fort Morgan and the CSS Tennessee (1863). Throughout the two-hour battle, Denig fought “with skill courage”, for which he was later awarded the Medal of Honor.^[1] Twenty-two of his shipmates also received the medal for their part in the battle, which ended with a Union victory.^[2]

Denig died of health complications at age 38 and was buried in York’s Prospect Hill Cemetery.^[2] He is one of two Medal of Honor recipients interred in the cemetery, the other being Charles H. Ilgenfritz.

He was 38 when he kicked it? I’m almost that old. Yikes.

Dirty Word In Words With Friends

Shat, whored, and anus, all played within about 6 turns. I have the best words with friends friends.

Me + you + Words With Friends = sexy times. My user is ‘nelsmi’. Play me, yo.

Babe Loosely Related To Finance

Until my new internet girlfriend Kathryn starts sending in pictures to The Chive, we’ll just have to find another random chick with more looks than brains.

Thank you, woman who craves the admiration of anonymous internet perverts.

Time For Links

Let’s give some link love to the finalists of the internet girlfriend competition – The lamest competition of all-time. (TM)

Up first is Makin’ Sense Babe, who points out the fallacies with the ‘buy your age in bonds’ advice. She interviews some people who aren’t me, for obvious reasons.

Over at The College Investor, JT points out why the gold miners are especially poor places to invest your money. Although buying gold for your lady might be a good investment if sex is the intended return.

Even though I don’t exactly care for tipping, I enjoyed Darwin Money’s look at ways to increase your tips as a server. Spoiler alert: be a hot woman with big breasts.

Control Your Cash points out that drinking excessively is a pretty dumb thing to do if you’re looking to get ahead financially. And I agree, except for chicks who I might want to sleep with.

Speaking of chicks I want to sleep with, Young and Thrifty has some tips on how to get a decent net worth by 30. If only she’d post some tips on how to get over her.

Next up is Paula, who’s dealing with her boyfriend’s car getting stolen. Uh, sorry Paula, that was me, trying to get your attention.

And finally, Mochi asks why are people happiest earning $75,000 a year. Why ask why?

Have a good week everyone. 

The post Sunday Afternoon Dump: New Internet Girlfriend Edition appeared first on Financial Uproar.

My hand started to quiver as I stared at the screen. All I needed to do is fill in my password and click ‘ok’, and it would be done.

I paused.

Could I do this?

Various thoughts raced through my head. I’ve never actually shorted a stock before. What if I was wrong? Whenever I go long, there’s always a built in margin of safety. The stock usually is trading under book value, usually with very little debt, which fills me with some sort of confidence that the company isn’t going bankrupt. There is no built in margin of safety with this trade. It’s very much an all-or-nothing deal.

What about all the people I know who own houses? Most Canadians have very little in wealth besides the equity in their homes. I thought about my one friend, T, who has diligently paid off his house over the past 7 years, finally getting to the point where it’s almost paid off. I thought about other friends who have been spending money improving their house, investing in the sure thing because they just don’t understand enough about the stock market to trust it. I even thought about myself, since I, like the majority of you, have a big chunk of my net worth tied up in real estate.

Can I really bet against the wealth of all my friends? Did I really want to profit if their houses fell?

Then I thought about Daisy, who bought into a market that is overvalued using every metric, and didn’t even bother to spend 15 minutes analyzing it. She just put her blinders on and moved forward, fundamentals be damned. I thought of Young and Thrifty, who clearly bought a condo without crunching some numbers and realizing that she could invest her down payment and rent the same condo and end up thousands of dollars ahead every year.

And then I got mad.

When both these girls were thinking of buying, I waded into their comment sections and warned them. I gave them the condensed version of why they’d be screwed if they bought now, and how they’d be almost certain to lose money. I did my civic duty, and they didn’t listen. Daisy went as far as insulting my intelligence when she wrote the ‘I bought a house’ post, implying that my opinion didn’t matter because I never went to university. Daisy’s expert opinion came from a professor, which is delightfully ironic.

Then it was easy. I clicked the button, and soon enough, it was done. I ended up being short 4 banks, Royal Bank, TD, BMO, and National Bank. I only sold BMO a handful of days before I went short.

—

I can’t take credit for the title. It comes originally from The Big Short, Michael Lewis’s tale about a handful of hedge fund managers who, collectively, made billions betting against the U.S. housing market in 2005-07. Specifically, it comes from a bond salesman from Deutsche Bank, Greg Lippmann. In 2005, when Lippmann was beginning his crusade to convince as many people as possible that the U.S. housing market was collapsing, he was accused of being a “chicken little” when it came to the economy. The title is his response.

—

A warning before you commit too much time to today’s post. It’s going to be long, and may get fairly technical for some of you. The comment section is all yours if you want to ask any questions. I promise I’ll actually get around to answering them.

If you’ve been around here for a little while, you know I’ve been bearish on Canadian housing for some time. I’ve made fun of other bloggers for buying a place while ignoring the underlying fundamentals. I’ve outlined a potential way for average investors to short the market using options. I’ve probably wrote about it in other ways too, but I’m too lazy to link back to them. Don’t worry about clicking on those links, since this post will cover most of the information covered in those, along with a bunch of new stuff. Consider this my penultimate piece on the matter.

I intend to show you, the average investor, why the market is overvalued, and how you can profit from it. Unlike some bloggers who only outline their trades once they’re finished, I’ll let you guys know exactly how I’m playing this, the exact price I paid, and we’ll track the success and failure of this together.

—

There are a half a dozen different paths I want to explore, each one further proving the market is overvalued. Let’s start with price to income and price to rent ratios.

What’s a reasonable price to rent ratio for real estate in 2013, in a low interest rate environment? I’m greedy, I wouldn’t buy a rental property that traded below a 6x P/R ratio, which is a 15% gross return. I bought 3 properties between 2001 and 2004, all easily qualifying. And then, in my town, values shot up. The market increased some 50% between 2005 and 2006, and my 15% return requirement became nothing but a pipe dream. So I stood on the sidelines.

I watched cap rates continue to decline. As I type this, the gross return in my small town maxes out at about 6%. Once you factor in expenses, you’re looking at a 3-4% return, which is about the same as a basket of corporate bonds. How about nationally?

As I outlined in one of the earlier posts, Vancouver has a price to income ratio of 40x. To put that in perspective, it would take 40 years for a renter to pay for the property, and that’s assuming the landlord wouldn’t pay a nickel in maintenance, and the property would never be vacant. When I was buying property, I was looking at a 6 year payback, assuming ideal conditions. One of those buyers has a built in margin of safety, which is essential in real estate. The other one needs capital appreciation to make their investment work.

Right now Toronto has an average price to income ratio of around over 30x, and most other major centers in Canada aren’t far behind. This chart is from 2011, but things haven’t changed much since then.

Notice the difference between my earlier Vancouver number and this one

The bottom line? People who buy a property in a major center in Canada are speculating that the price will continue to go up. They will never make money on cash flow alone, and they will get absolutely hammered when interest rates go up.

Meanwhile, we have price to income ratios. Much of what I said above applies there too. Price to income ratios are at record levels across Canada. The average property in Vancouver costs more than 10x the average income. Toronto isn’t far behind, at about 8x. Calgary is right there too, at just about 7x income. Montreal is up there too, coming in at 5x income. Canada’s 4 largest cities, home of approximately half our population, are all significantly overvalued compared to historical norms, which is right around 3.5x income.

There’s one problem with comparing price to income to historical norms, and that’s the level of debt most Canadians have. The average Canadian owes 164% of their disposable income. This is above even what Americans owed when their real estate market peaked in 2006. The average consumer cannot afford all their debt once interest rates start to go up.

Here is a national price to income chart for Canadian real estate. The trend is about as obvious as my crush on Taylor Swift. This data is only current until the end of 2010, and it’s only gotten worse since, albeit not be a whole lot.

Debt Levels

Staying on the topic of Canadian debt, we are, collectively, maxed out. And mortgages are a big part of that. It’s not that Canadians are recklessly taking on all this consumer debt – we are, but not at levels exceeding the U.S. – it’s that a large portion of our overall debt growth is mortgages, including the silent killer, HELOCs. More on those later, assuming any of you are left reading. Let’s look at a chart.

(Source)

This chart is a year old, and doesn’t show the recent gains up to over 160% of debt to disposable income. I used it because it shows the U.S. peaked at just a hair over 160% as well.

People often cite the amount of equity Canadians have in their homes as a reason why a U.S. style housing correction won’t happen here. Up here, Canadians own, on average, about 70% of their homes. Unless things get really bad, Canadians will still have equity in their homes. It’s all fine and good, except that number is highly affected by the large number of Canadians that own their home outright.

In fact, 50% of Canadian homeowners have less than 20% equity in the homes. These days, the average down payment for first time buyers is a paltry 7%. We are a nation of some financially responsible people and a bunch of financially irresponsible people.

Plus, the equity numbers don’t factor in HELOCs, the ticking time bomb mentioned above. The growth in home equity lines of credit has been absolutely staggering, and they’ve covered all sorts of financial sins. Get in too much credit card debt? Just replace it with a HELOC. Want to buy a car? Borrow against your house. Plus, all you have to pay every month is the interest. Who cares about paying down principle, we can do that when we sell the house.

Seriously, look at this chart.

Still think you shouldn’t be concerned with HELOC growth?

First Time Buyers and Condos

Next up is home ownership rates. As we stand, Canadian home ownership rates stand at right around 70%. In 2006, in the United States, they peaked around… wait for it… 70%. (Are you detecting a pattern yet? You should be.) Every now and again a bank will trot out a survey saying a certain percentage of Canadians intend to buy a house in the next 5 years, (the latest one, from  BMO, pegs the number at 48%) but all that does is measure the sentiment of the average Canadian. This is the same person who has watched their house go up in value, borrowed heavily against said house, and probably has the majority of their net worth tied up in that house. But hey, keep thinking the average Canadian’s opinion matters about housing.

Canada is running out of first time buyers. And what do first time buyers usually buy? Condos. Too bad the condo markets across the country are clearly rolling over.

Why would anyone buy a condo? We’ve already established there’s no money to be made renting them out. There are barely any first time buyers left. Even speculators are beginning to get out of the market. I read one estimate that 50% of Toronto’s condos are owned by “investors.” If you own a condo that barely covers the expenses, you’re not an investor. You’re a speculator that’s hoping for a huge capital gain using someone else’s money, and I’m happy to profit from your misfortune.

How about the health of condo markets across the country? Well, Toronto has 55,000 condos coming on the market over the next 2 years. Over the first 3 months of 2013, 4,133 units moved, and there are currently over 7,000 condos on the market, not counting the thousands that are listed privately on Kijiji and Craigslist. It’s already a buyer’s market in Toronto, and that’s without the giant glut of upcoming inventory.

How about other markets? There are record condo listings across the country, including Montreal, Quebec City and Ottawa. The only reason Vancouver isn’t joining the party is because sellers are simply taking their property off the market. The only market across the country that is showing any significant strength is Calgary, and I can’t figure out why it’s so strong.

If you own a condo in Ontario, Quebec, or in Greater Vancouver, you are especially screwed. I’d advise you to sell, but you should have really done that six months ago when I first started talking about this.

The Economy Runs On Houses

We are, as an economy, increasingly dependent on real estate and real estate related activities.

More than a million Canadians are employed in construction, with housing being the main pillar of the strength in that sector over the past few years. The ranks of real estate agents and mortgage brokers have swelled as well. I’ve seen estimates that real estate and related activities make up anywhere from 12-27% of our GDP.

Then it becomes a perpetual motion machine. People work in real estate, make money, use that money to buy houses, watch those houses increase in value, and then borrow against those houses to buy other stuff. It keeps going and going, eventually stopping in the worst of ways.

“Prudent” Canadian Lenders

Canadian lenders are often cited as being more prudent than their American counterparts. So called “liar loans” didn’t exist up here, and we made sure we lent money to people with good credit ratings. It’s often touted that Canada doesn’t even have a subprime market. And that’s kind of true. We had alternative lenders come in and do deals big banks wouldn’t touch, but they never captured a significant part of the market. That’s because we used CMHC to make subprime lenders more attractive to our big banks.

I spent time as a mortgage broker, and I can assure you borrowers pull out all sorts of tricks to get loans they have no business qualifying for. Here are a few examples.

Co-signers are common, especially among those with damaged credit. All somebody needs is a relative (or friend, or person who can fog a mirror) to lend their good credit to a deal. Suddenly the guy with a garbage credit score qualifies at the same interest rate as someone with a pristine rating.

Gifted down payments are common, especially among first time home buyers. As long as a relative signs a letter that states there’s no expectation of repayment, a borrower is free to use it as if it was their own. Often there is an expectation for repayment behind the scenes.

Banks giving borrowers cash back for their down payments was common up until 2012, when the practice was stopped by OSFI, the big boss in charge of Canada’s banks. You can still borrow the down payment though, as long as you get it from different sources and disclose it. Or you can do with some people do, and that’s borrow your down payment 3 months in advance, stick it in your account, and not bother to disclose it to the lender. Since the bank only asks for 3 months of bank statements they’d never know.

Mortgage brokers quickly figure out which lender is a little lax with documentation, and will often send their borderline deals to that one particular lender. Thanks for making my life easier, Scotiabank! Whoops. I mean, uh, unnamed bank. Oh hell, it’s not like anyone is still reading at this point.

Condo speculators will often borrow against their existing property to buy condos that aren’t even built yet. They put down their 5% deposit and then sell the unit as it nears completion. Assuming you did this on two $400,000 properties, you’d have a grand total of $20,000 of your own cash controlling $800,000 worth of real estate. Bear Stearns went down at less than a 40-1 leverage ratio.

One last thing about the underwriting process. Hardly any properties that get insured by CMHC are physically appraised. Certain values are input into an automatic valuation system (called Emili) and it instantly spits out a value. It’s pretty easy to see the weakness in that system, and people in the industry know it. Emili is ridiculously easy to scam if you know how.

Everybody lauds the lending practices of Canadian lenders compared to American ones. It’s a flawed comparison. Comparing yourself to the American banks is like being 5’3″ and weighing 250lbs, and saying “well, at least I’m skinnier than this chick.” Saying something is better than the worst thing ever is hardly a testament that it’s great.

Naysayers

I’ve spent 2500 words explaining why I think the Canadian real estate market will fall. Others share my opinion, notably Ben Rabidoux (who’s site, The Economic Catalyst, was a terrific source of information, and is worth a few minutes of your time) and Garth Turner, who was the guy who originally sold me on the idea Canada was overvalued.

Now us on the other side of the fence are starting to gain popularity. People are starting to see things our way. National newspapers and magazines are putting this story on their front page. Ben and Garth are doing media because people think they’re right, not because they’re some amusing sideshow.

And still, the naysayers are everywhere. We are still a minority. A vocal minority, but still a minority.

I don’t mind. After all, if everyone agreed with us, there’d be no money to be made. Everyone would be short the banks and we’d all be waiting for the inevitable crap to hit the fan. Debate is what makes a market, and it’s more fun to be proven right when you stand alone, against the crowd. It just bugs me when naysayers say stuff like this, from the National Post.

…said Mr. Booth. The investors betting against the Canadian banks “have no idea of the difference between the Canadian and U.S. housing markets.”

That quote comes from Laurence Booth, a finance professor at U of T, so we know Add Vodka is already taking his opinion as gospel. With respect to Mr. Booth, that quote is an insult to the intelligence of everyone who has actually gone out and researched the market and found out just how overvalued it is. There are huge differences between the markets, but the underlying fundamentals are the same. By every metric, house prices are expensive.

The Juicy Part. How To Short Them

Congratulations, you’ve made it to the good part. Or you’ve just skipped ahead, looking for the reward without doing the work. I like the cut of your jib.

There are various ways to play this. You could short Genworth, the private alternative to CMHC. You could also short Home Capital, Canada’s largest alternative lender, which lent a whole bunch of people money who didn’t qualify for CMHC insurance. They keep all their loans on their own balance sheet. It could blow up.

Instead, I want you to short the banks. Not in the traditional way, but by using options.

It’ll be Monday morning when you read this. If you buy the Royal Bank January 2016 $50 puts you’ll pay right around $5. Or you can buy the $46 puts for around $4. I own the $46 puts at a slightly lower level, $3.50 per share. What does that mean?

If the share price goes down to $45, you’ve broken even on your $50 puts. If it goes down to $40 you’ve doubled your money, if it goes to $35 you’ve tripled your money, and so on. However, if the price doesn’t reach $45, then you’ve lost all your money. Unless you sell the option sometime in between now and January of 2016.

I also own the National Bank $70 January 2016 puts. I paid $8.50 per share for those. Considering the weakness I see in Quebec and their exposure to Le Belle Province, I think this might be my favorite play of the bunch.

I own smaller positions in TD and BMO. I paid $7.50 for the January 2016 $56 puts for BMO and $9.40 for the $78 puts from TD, for the same expiry date. There’s really no reason to spread yourself around as much as I did, buying Royal Bank would be sufficient.

The banks are a somewhat imperfect way to play this. Home Capital Group would be the ideal way, but the longest put offered on it expires in January. I’m considering it, but I think this takes up to a year to really shake down.

That’s it. Thanks for your patience and for actually wading through 3,000+ words. Again, the comment section is open for your questions or for you to tell me how wrong I am.

The post F— You, I’m Short Your House appeared first on Financial Uproar.

Stop me if you’ve heard this before. Actually, don’t stop me. I’m kinda on a roll.

You’ve been living in a house for a couple of years, and life is good. Your girl constantly walks around naked, there’s throw pillows all over the place, (which, for some reason, you’re not allowed to use as actual pillows) and it mostly keeps the bugs out. You have a booze cupboard and a chips cupboard, and maybe even a basement. But then, one day, you get an awesome job offer in another city. It turns out Berlin needs a guy to walk around the red light district and make sure the hookers are attractive enough. What a job, right? Ah, if only real life was as interesting as my fantasy world.

So you look to sell your house and go buy a new place there. You invite your friendly neighborhood real estate agent over, (just kidding, they are all THE SPAWN OF SATAN) and she tells you the place is worth $20k less than what you paid for it. You’ve got one of two options. You can ask the bank for debt management help, but I’m not sure that’s going to happen. Or, you can do what many people are doing – especially in the United States – and that’s renting out your underwater house.

Many personal finance bloggers are taking this route, choosing to keep their current houses and rent them out. And, as an actual landlord, it kind of amuses me. As Holy Potato once pointed out, somebody who rents out a former home is more of a speculator and less of a landlord. They’re just kind of dabbling in the arena. As long as they make enough to cover the mortgage, they’re happy.

And hey, I understand there are different motivations for someone who is just dabbling in the space compared to someone like me who actually makes money at it. Which is fine and good, but that still shouldn’t stop you from actually profiting from this endevor. So, for your viewing pleasure, here are some ways amateur landlords screw up. Once you read these tips you owe me 5% of all your future rents. NO TAKEBACKSIES, SUCKERS.

Unnecessary Improvements

Being a landlord is kind of like walking a tightrope, except without the fear of a certain death if you slip up while scratching your nose. You want to make as much money as possible, but you still want to have a place where people want to live.

What most people do wrong is they look at the place from their perspective, rather than a renter’s perspective. They look at carpet that’s in fair shape and think “I have to replace this because I wouldn’t want to move into a place with kinda crappy carpets.” Meanwhile, a renter will look at the same room and might not even notice the carpet. It all depends on what price range you’re looking at. If you’re somewhere in the middle of the market, renters will tolerate small imperfections. Plus they’re hoping you won’t notice when they spill stuff on it, because we are all disgusting slobs.

Here’s the deal. While renters are a generally respectful bunch, nobody is going to treat your place as well as you treat it. You own it. They just rent it. When your renter moves out, you will notice a whole bunch of little things – dings on the wall, stains, stuff not cleaned that well – and they will drive you insane. Fixing all these little problems will cut into your profits. Remember, this is a business.

Not Doing Proper Paperwork

There are some bad people out there. Did you know there’s a whole subset of the population that insists on eating Chunky Soup with a fork? DIE IN HELL, MONSTERS.

There are also professional dirtbags who prey on unsuspecting landlords. They get into a place that’s managed by somebody who doesn’t have a clue, they pay one month’s rent, and then they don’t pay another dime. It takes months to get them out, especially if you don’t know what your doing. Chances are you’ll cry over it, and nobody wants that. I’d give you a hug, but I’m not really a hugger. Fine, I’ll shake your hand. Weirdo.

How do you protect yourself from people like this? Simple, do your homework. Have a detailed application form. Take copies of ID. Actually check his credit rating. Insist on references, and actually call said references. Call your applicant’s employer and ask his boss what her opinion is. (Just kidding. Like a girl can be the boss.) Get to know your tenant. If he’s a professional dirtbag this will scare him off.

Also, while I’m on this topic, make sure you do an inspection when they move in. If there’s no inspection when your tenant moves in, there is zero proof any damage is caused by the tenant. Plus, if you ever go to court, the judge will ask for it. And then he will ask you to put on pants. I’m not very good at court.

Vacancy

Unless you live in a crummy market, there’s no excuse for vacancy.

I don’t care if you’re doing renos. Show the place during the renos. Don’t procrastinate getting your place listed, do it THE DAY your current tenant gives their notice. If you’re on top of these things you shouldn’t have to go a minute without a renter and those sweet, sweet rent cheques.

Property Managers

Property managers are great for the amateur landlord. They take care of everything and usually you’ll still make some money after they get paid. They screen the tenants for you, and they’re not too bad at it. You’ll save a bunch of work and a bunch of reading up on tenancy law, which is worse than the typical Yakezie blog. For the most part, hiring a good property manager is something you should do.

There’s one big caveat though. Remember, property managers want a place to rent quickly and without hassles. Which means they’ll often push you to change things that might not need changing or they’ll set the rent a little under market. Their motivations are different than your motivations. Remember that and you’ll be okay.

Is This Thing Over Yet?

Here’s the deal, wannabe landlords. Start looking at your rental house as a business, not as something you do to make a little extra cash. Minimize cosmetic repairs, eliminate vacancy, and maximize your profit. Nobody wins if you half ass it.

The post Renting Out Your House Doesn’t Make You A Landlord appeared first on Financial Uproar.

Well, it’s official. My laziness has reached an apex. I will celebrate by doing absolutely nothing and maybe then farting. Ladies, you know you want this.

The other day, as I was lamenting the growing pile of dirty dishes in my sink, I had an epiphany. What if, instead of using regular dishes, I just bought disposable ones? I’m already pretty good at minimizing dishes when I cook, mostly by doing stuff like cooking a lot on the barbeque and making a crapload of baked potatoes in my microwave. If there was a Top Chef for that and frozen pizza, I’d do pretty well. And then Gordon Ramsey would yell at me and I’d cry.

While shopping the other day, I priced out plastic plates, glasses, and cutlery. I figure that’s all I really need. Napkins? Nah, that’s why you have sleeves on your shirt. I can just use the fork I’m going to use later to stir something that needs to be stirred, or to poke holes in my baked potato. And we all know you don’t need any cutlery to eat chips. Hell, I don’t even use my hands I just tilt my head back and start pouring.

Let’s look at the prices:

Plates: $4.69 for 100. 4.7 cents each

Cutlery: $3.49 for 96 assorted. 3.6 cents each

Glasses: $3.99 for 50 beer cups. 8 cents each

My eating habits go a little something like this:

Breakfast – Toast and penis peanut butter. 1 knife, 1 plate, 1 cup

Lunch – Subway

Supper – Frozen pizza, pasta, bag-o-salad, steak, baked potato. 1 fork, 1 knife, 1 plate, the same cup as the morning

Over the course of a day, I’d use 2 plates, 2 knifes, 1 fork, 1 cup. If I was feeling ambitious, I could even use the breakfast plate for two or three days, since it would only be covered by bread crumbs. Assuming normal use, we’re looking at 28.2 cents per day I’d spend on disposable dishes.

This wouldn’t eliminate dishes entirely, but let’s say it cuts them down 35%. I do dishes about once a week, usually once my sink fills to capacity. They take about 20 minutes, once you factor in scrubbing and the inevitable water fights I end up having with myself. What? I look GREAT in a soaked t-shirt. It really shows off my man boobs.

(Aside: I would seriously give a woman [or dude, but let's get real] free rent at my house if she would cook and clean for me. I wouldn’t even insist on the sex as well. I’d certainly ask, and would pout if she said no, but I’d get over it. That’s how much I hate cleaning. My dinners would be much more interesting too.)

Instead of 20 minutes, dishes now take 13 minutes. It would cost me approximately $2.00 per week to save 7 minutes of dishes doing time. I, uh, guess that’s okay. It’s not great. Plus, I’d have to probably double my garbage taking out time, adding another two minutes per week.

You know what? This is so stupid. Stop focusing on crap like this and just go out and make some more money.

The post Is It Cheaper To Use Plastic Dishes? appeared first on Financial Uproar.