Saturday, February 29, 2020

Don't Let Covid-19 Stop You From Making Smart Money Decisions!

On my January, 31st post, What's A Value Investor To Do In This Market?, I sort of wished the stock market would catch Covid-19, more commonly called, Coronavirus.  Apparently the saying, "be careful what you wish for..." is not just a saying.  Wow...did the fear fever spread last week!  I was all cash at the time, fortuitously, and waited until mid-week to start small positions in a few beat down stocks.  I grabbed some Carnival Cruise (CCL), Delta Airline (DAL), Ford (F) and even Vanguard's Total Stock Market ETF, (VTI).  I scooped up some more shares of these same stocks as the market rout ensued Friday morning.

The market lost 10.8% of its gains since the hysteria began.  This brings me to a question?  Are we at a "Bull-trap"?  Sure, the market can continue to drop next week.  But maybe it rallies and reaches "The Lower-high" before starting a downward trend again as concerns over a global recession mount.  I still have plenty of firepower (cash) on hand to keep dollar-cost-averaging in the event of a continued sell-off.  My advice for people is to not go all in...ever!  If you're going to buy some of your favorite companies next week, do yourself a favor and start small.  Rome don't need conquering in one day.

This is a great reminder that life goes on.  Yes, we may all be a little scared about the inevitable spread of Covid-19.  After all, it's a novel virus that has the potential to kill.  There's plenty of uncertainty wound up in this Black Swan event to keep us all biting our finger nails.  Damaging your nails is one thing, stopping your investing or personal finance mind from working because of fear of the unknown is a whole lot stupider!  Look people, it is what it is.  Yes, you or I may catch Covid-19 one day, but until then we have to live out our lives as normal.  Case in point:

Last week, I was listening to CNBC on my way to work.  I heard that Mortgage rates had plummeted to near their all-time lows.  Why?  Covid-19 of course!  Some guy was being interviewed.  He was the CEO of some REIT (Real-Estate Investment Trust) or a Real Estate based company that worked with Chinese investors.  He said some of his rich Chinese clients couldn't close their deals in the U.S. because they're essentially stuck in China.  Trump isn't letting any Chinese land on U.S. soil.  So this CEO lost some deals and money.  He claimed the real estate sector would take a hit.  Well, maybe it will.  But it hasn't quite yet.

From Barrons magazine 3-2-20 edition

That was all good information, but what's it got to do with you and me, right?  If you own a home and haven't refinanced, you're an idiot!  I had tried to refinance last year, but my home didn't have enough equity at the time to get the 80% LTV just right.  Meaning, I didn't have at least 20% in equity.  But then real estate in San Diego county kept rising.  After hearing the news that rates had dropped yet again, I went online to and investigated.  I decided to fill out their online form and shop for a low-rate.  My home's value has risen enough, I reasoned.  Let me try to refinance again, I said to myself.  People, you gotta be persistent!

So my mortgage rate is currently 5.125%.  The rates spit out from its partners were in the mid 3's.  Ally Bank came out on top.  Followed by Blue Spot Home Loans.  I clicked on Ally Bank's link and was taken to its online application.  I got to say, Ally Bank's initial application process is awesome.  As an owner of several rental properties, I hate having to populate the section on assets because it takes so damn long.  But Ally has a feature where you can enter the home's address, and other private items and aspects about the loans (like how much you pay each month), pop out automatically.  Within 30 minutes I had a full disclosure of a potential loan for me.  The rate I got was 3.37%, but the cash to close was disappointing: over $7,500.

That's one hold-up for many people looking to refinance.  They don't want to pay any cash to close.  I didn't either!  Luckily, I was being phone bombed by companies galore, all looking for my business.  I don't like getting everyone and their mom calling me to offer their services as possible lenders or brokers, etc.  But that's the price we all have to pay for entering our info online.  Luckily for me, one person from Blue Spot Home Loans texted me a nice message.  I let him know I was still shopping for the best rate and terms.  He asked me to give him a chance to match or do better.

Part of your closing costs are things you can't control.  For example, lenders have to pay a portion or all of your impounds up front.  Things like your property taxes and home owner insurance.  That's usually what drives your closing costs higher.  And of course these lenders want to make some money of their own for their services.  This is the negotiable stuff.  You can ask for more in "lender credit."  I worked this angle with the person at Ally Bank.  But the closing costs were still going to be upwards of $6K.

I went back to the person that was helping me at Blue Spot Home Loans.  I sent him a screen shot of the Ally Bank declaration.  He countered with..."I can do the 3.375%.  My fees would be $1954.  Lender fees: $315, Appraisal $500, Title and Tax: $1139.  I would be giving you $870 in lender credit so only $1084 total fees."  Okay, he got me interested.  Fast forwarding to the part where we are today, I'm going to end-up paying a grand total of $0 to close.  How?  Get this...

They took my word for the value of my home.  Meaning, they waived the appraisal process.  This gave me enough equity to use for better loan terms.  Part of the equity is going to be used to pay my portion of the closing costs (taxes, insurance, etc.).  I don't have to spend any money on an appraisal!  He was also able to give me $1500 in lender credit.  Summing it all up, my rate is 3.37%, my new payment will be $2,895 per month ($-237 from the one I had), and the best part, since I didn't do a cash-out refinance, I get to keep all my home's remaining equity.

I don't know if it's just my experience, but it seems like lenders are willing to move a bunch of obstacles out of the way to ensure they make your deal happen.  So if you couldn't refinance before, try, try, again!  Especially now with Covid-19 making rates fall again.  If you're thinking of buying your first home, then now is a great time.  Rates are low.  Inventories remain low too, but you can't have your cake and eat it too.  You can wait to see how Covid-19 might play out.  But you might miss an opportunity of a lifetime if you do!  And I'm out!!!  

Friday, February 14, 2020

Why Kobe Bryant's Death Was A Wake Up Call

Kobe Bryant's premature death was hard for many people, including me.  I'm not a Lakers' fan, but while attending UC Santa Barbara in the late '90s, I got to see the Lakers scrimmage at the Thunderdome (the Gaucho's event center).  This was early in Kobe's career, but already he was a superstar.  Living in Santa Barbara also enabled me to catch many Lakers games when they played my team, the Golden State Warriors.  Despite my support of the "Dubs," I was a Kobe fan.

As we know, Kobe Bryant didn't die alone.  His daughter, Gianna Bryant, as well as other people, tragically met their end when the helicopter they were flying in crashed.  It's been a few weeks now since the tragedy.  The Kobe Bryant Memorial Services are next week at the Staples Center.  The last I read, it appears the event will be huge.  Kobe was loved.

There's an inherent flaw in all of personal finance.  I've read countless articles on topics galore relating to PF.  The authors of countless blog posts and books (myself included) all assume one thing: that you will make it to retirement.  Those who are proponents and practitioners of the FIRE (Financial Independence Retire Early) have one thing going for them, early retirement.  In other words, by saving half their income or more, and investing mostly in safe vehicles like mutual funds with great track records (so they preserve capital), these individuals want out of the workforce by their 30s or 40s.  Done!  About the only thing I personally like about the FIRE movement is being young at retirement.

But no one is safe from the Grimm Reaper.  This is why Kobe's death was a wake up call to all of us.  Sure, young people die all the time.  Some from natural causes, and others tragically.  Some of these deaths make the news.  We may lament and feel awful for the surviving family members.  But the impact Kobe made in life magnified 100 times over or more, his premature death.  Kobe was not only a Hall of Fame NBA player, he was a successful businessman with quite the fortune.  Kobe had all of his affairs in order.  No doubt.  His family won't have to deal with extended family or quarrels.  But for every Kobe, there are 60 people who die every day without a Will or a Living Trust.

Image result for estate planning

According to a 2017 AARP survey, 6 in 10 Americans haven't done a will yet.  I'm one of them!  My wife, Jessica, and I were at our annual tax appointment with our EA yesterday.  We asked him about his Living Trust service.  It's going to cost us $1,500 to set up a Living Trust, and $175 for each rental property transfer.  Ouch!  Oh well.  Whereas a will goes into effect upon your death, a trust goes into effect as soon as it's created.  Another key difference between a will and a trust is that a trust avoids the courtroom, saving everyone time and money.  You have to figure out what works best for you.  A living trust works best for my family.

Okay, so you may be doing great saving for retirement.  That's not the norm in the U.S. as many people struggle just to make ends meet.  But I bet you haven't considered your death or potentially failing health, as much as you should.  Do you have a health care power of attorney?  Do you have term life insurance so your loved ones don't struggle without the loss of your income?  Do you have a trust?  You don't?  Then what the heck are you waiting for?

Do you think Kobe thought he was going to die at 41?  Obviously, no!  My wife and I go out on date nights, leaving the kids with a babysitter.  What if we get in a car accident and die together?  The what?  We feel incredibly fortunate to have several rental properties as assets and our residence here in coastal CA to leave to our two kids, but we feel like idiots for not having a living trust yet.  We left the EA's office with the forms in hand and are going to sit down this Presidents Day weekend to start working on them.  Perhaps it's time you talk estate planning with your significant other too.  Do it for Kobe!  Mamba Mentality.