Small Home Based Side Business Idea Part I

Investing, Home Based Business Ideas 2 Comments »

As I have mentioned in the past that there are only two ways to have more money, making money and saving money. So today I want to give you an idea for a small home based side business you can implement quickly, easily and cheaply. So the object of today’s lesson is to supplement your income with a side business that only takes a small amount of time each week, very little overhead and investment, and that can produce a few hundred dollars (perhaps) per month. I have personally used this system to generate some extra cash on the side.

Storage Auction Sales

Yep, that’s right. It’s not selling oxygen and water on Mars, it’s simple. Buy low, sell high. Easy huh? Well that is what everyone will lead you to believe. But this system actually is pretty easy. Are you going to have to work? Yes. Will it be worth it? Yes. Here’s the idea:

When a person rents a storage unit, and then later cannot pay for it, many times they will abandon their belongings. When this happens, the storage unit will advertise an auction of the delinquent customer’s items to cover back rent and other fees on the unit. They are required to advertise the auction time and place in the local newspaper, generally under the “Notices and Legal” section. This is where you come in.

All you need to do is show up for the auction with cash money, and bid on the unit. I recommend having a couple hundred bucks on you, just in case there are some really good auctions. From my experience, the majority of the time the storage business wants to sell the entire unit all at once. There have been times when they have just auctioned off individual items, but they usually want to sell the whole unit of belongings, as it is just much easier for them to do it that way.

A Quick Rundown of the Auction Day

On the day of the auction, make sure to show up a few minutes early. Talk to the clerk about the auction, and find out what their procedures are for administering the sale. Often, you will be allowed to “peak” into the contents of the unit, but not allowed to go in and thumb through individual items. But just being able to look in should give you a pretty good indication of the type of person/stuff they might have in the unit. Then determine your top price for purchasing the unit. Buy the unit, and get your truck ready to clean it out. Usually the storage unit will give you a deadline to get the unit cleaned out.

Continue to Small Home Based Side Business Part II


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One Easy Way That I am Saving Money on Food

Budgeting 1 Comment »

It’s getting late, and I haven’t had a chance to get much done today, but I wanted to give you a quick tip.

Building relationships and working deals are the key to getting anything done. In this particular instance, I have built a friendship with an older man, who likes to go fishing. I like going fishing too, and so he has had me go along with him several times this year. I help him with launching the boat, and any tough issues like today when the lanyard on the trolling motor broke (that wasn’t very fun fixing). So for just a short 15-20 minute drive, I am able to go fishing, and catch dinner.

If you like eating fish, you know it is expensive to buy at the grocery store. So catching it under circumstances like mine is very cost effective. I just had to pay for a fishing license, a few lures that I have lost while out on the water and gasoline to get the boat ramp. My friend takes care of the rest. Now don’t be too quick to judge here, he would go out without me. In fact he has been going out for years mostly on his own, but having me there to help him launch, etc. is very nice for him. This is what I mean by building relationships. Try to create win-win situations, and you can get a lot of things done.


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Simple Tips to Having a Birthday Party for Your Child on a Budget

Budgeting No Comments »

This article outlines some simple and cheap tips for creating solid entertainment for your young one on his or her birthday. With ideas for invitations, games, and goody bags, you will have a good start on throwing a quality birthday party on a budget. In this world of increasing inflation and stagnant or decreasing income, we all have to find ways to get the budget down, and save money. Even with something like a birthday party, it still makes sense to think smart before spending several hundred dollars for outlandish things your son or daughter may forget anyway.

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Allocating Your Inheritance: A Specific Situation Addressed

Paying Off Debt, Budgeting, Investing 3 Comments »

In this post, I would like to outline a question that I received via email. Someone very close to my demographic wrote back and forth with me, and basically wanted to know how to allocate a sum of money they received from an inheritance. The basics of the request are as follows:

Hi there, was wondering if you could perhaps give me some advice.

My mother passed away in 2005, leaving me with both a 401k inheritance and life insurance. However, the passing was unexpected as I now have a lot of student loan debt that she would have helped me pay back. Regardless, I have come up with an idea that I would like to assure is not a bad move.

Me: 21
Assets: 401k ($125,000) and remaining life insurance ($80,000)
Debts: $90,000 student loans ($4,000 of it Federal), $4,500 credit card

I was looking to not even touch the 401k and begin adding to it once I began my career as a Police Officer in July. I wanted to use the life insurance to pay off the credit cards and federal loans in its entirety, and bring down the private one to $45,000, leaving me with a $15k liquid emergency fund/savings (after living expenses for the remainder of my time in college) This would then be my only debt, manageable at about $300 or so a month, maybe less once I consolidate. I just wanted some input on if this is a good idea, especially with the loan-pay down. Seeing as how the gov loans have a lower rate, I’m not sure if I should use the $4,000 directly in addition to the private pay down while keeping the gov loans open. Please let me know what you think, thank you.

Credit Card: Just one, at a rate of just under 10% (9.8), with a 5k limit (so practically maxed out)
Federal: Not completely positive since they are not due for repayment just yet, but approx. 5.6 since I last checked
Private: Has hovered between 7.6-8% (Since our economy is in shambles, it has been at the lower end for the past several months)

As of now, all student loans are on a 20 year plan. If I choose to consolidate the privates for a lower rate, I have the option of jumping to 30 year.

I would like to begin by saying that this gentlemen has a level head and some good ideas about how to allocate the funds. But I would like to elaborate on the best financial way to attack this issue. Now, if you have been following this personal finance blog, you are aware of my staunch hatred for debt of any kind. However, in some circumstances, carrying some debt can be more beneficial than paying it off. But let’s dive in and break this situation down:

Regarding the 401k Money

I believe that keeping the money in the retirement account is indeed the best use of this money. Without question, breaking into this money would have serious consequences, mainly Uncle Sam taking a gigantic bite out of the money. Plus, with being so young (age 21) and having 38.5 years to go before retirement (assuming he retires at age 59 1/2), and assuming he could average 8% per year in mutual funds, the $125,000 would grow to $2,419,494.28 without any additional payments into the account. That is a pretty solid retirement wouldn’t you say?

So bottom line, I would definitely keep the 401k money in the 401k account. Let it grow tax deferred (or tax free, if it is a Roth IRA).

Allocating the Life Insurance Money

On this point, I would have to recommend a slightly different strategy than the one he outlined in his email. Starting with the easiest decision, I would pay off in its entirety the credit card debt. Beating 10% interest on the stock market or any other kind of moderately risked asset is going to be hard to consistently do. So with regard to the credit card balance, yes, pay it off.

With regard to the federal and private students loans, I have a different suggestion. I believe that the rates you are paying on these loans are too high. I am fairly confident that you can obtain a consolidation loan to get all of your student loans condensed into a single loan, and you can probably get the interest rate down considerably. I consolidated my student loans back in 2003, and have since paid them off completely. At that time, I was able to consolidate at a rate of 3.5%. Now I understand that the market today is a little different, but let me give you a couple of approaches on how to get the best deal on a consolidation loan.

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Need Help Paying Medical Bills?

Budgeting No Comments »

It’s bad enough when a tragic accident happens, or a loved one gets sick and has to have an extensive hospital stay. But after all the turmoil with family and friends, in come the bills. And in today’s world, paying medial bills is an extremely expensive proposition. I want to dedicate this article to folks that need help paying medical bills, with a focus on a singular point - negotiating with the hospital/health care organization. I do not intend to provide any links to services, companies, or government aid in paying for health care, this is a self help focused article.

America has drifted in to a price taking, lazy, “gimmie, gimmie, gimmie” nation. People do not want to work hard to earn money, and if they are able to make a little money, spend way more than they make. But enough ranting, I want to elaborate a little on what I mean when I talk about negotiating with the health care provider.

Did you know that many insurance companies, Medicare, Medicaid, and other big organization customers have pre-arranged, set rates that they pay hospitals and other health care providers? They do. I worked at a hospital before deciding to venture off on my own in the internet business and real estate investing/property management. While I was there, I was shocked to learn that some of the larger health insurance companies paid 60%, 70%, or 80% of what was billed to them. Does that make any sense? When you get a monthly bill in the mail, such as a bill for cable TV or phone service, are you allowed to pay a fraction of the bill, or the whole amount? Well obviously, the entire amount.

But you see, it is different in the health care industry. In fact, Medicare pays based on what they call a Relative Value Unit (RVU), or a fixed amount per unit. And depending on the service rendered, they will pay a certain number of RVUs. So what this means is that the health care provider is going to get a fixed payment, so there is not much incentive to go the extra mile. So the bottom line of what I am saying is this, almost every entity that pays a health care provider is paying less than full price.

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Budgeting for a Future Purchase

Budgeting 1 Comment »

Whether you want to go on vacation, get that big screen TV, buy a boat or a new car, or anything other high dollar item, you will need to begin budgeting for that future purchase. In this edition of Personal Finance Resources, I want to give you some simple tips that you can implement to help you budget for a future purchase. Anybody that has a little bit of income can put aside enough money to buy most any one item they want, but the key is being disciplined and diligent to get there. And bottom line, you will have to WAIT. No…I said a dirty word…wait. The problem we face in America is our lack of patience, we have to have everything right now; there is no discipline or patience. This leads to debt, and more debt, and ultimately for many, bankruptcy. But let’s get into some of the simple ways of budgeting for a future purchase:

  1. Making small sacrifices to put back a little extra.
    This is very hard to do. Not buying the coke at the vending machine, eating lunch at home or taking lunch to work/school, giving up vices (like smoking and drinking - it would be so much better for your body if you did this :) ) and other small cut backs on a daily and weekly basis can create additional savings. I recommend every time you don’t buy that item, put the money into a jar or safe, and “pay” yourself for not giving in.
  2. Save early, and often.
    Often we look for big things that we can cut or save in our budget. While it is great if you can find these things, you will usually have more success if you look for areas in your budget that small, and overlooked. Once found, create a saving schedule that is daily or weekly at the longest. The savings will become a habit, and seeing a nest egg building is fuel to help you continue to contribute to the fund.
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Real Estate Investing for the Long Run, and Taking Action

Real Estate Investing No Comments »

This is a good article on getting into real estate investing, and it lines up very similar to my strategies regarding buying and holding. There is an interesting point about today’s lenders looking at the title history on the house you are trying to sell. If it is only a few months ago, it could be flagged as a flipper, and according to this article, that could be a real problem. It would be worth doing some investigation of your own to find out if you lender would have any problems with you flipping a house, or if they have any problems in general with a house that has been purchased recently when evaluating the loan of a new buyer.

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Buying Mortgage Points Follow Up

Mortgages, Buying a Home 3 Comments »

Yesterday, I talked about Buying Mortgage Points and the potential money that could be saved using this loan structure. I received a comment basically stating that you would be better served by investing the money you would have spent buying mortgage points into something else that would yield a better return on your money. While this is true, yesterday’s post was geared toward buying the points, and then financing those points back into the loan. This is where the real benefit of buying mortgage points pays off. In this scenario, you are not spending any extra cash up front. You are merely restructuring your loan to provide the lowest possible overall cost.

But not only the comment I received on that post, but I also was researching and found that most people who buy mortgage points (and pay for them up front at the closing table) often do not keep there house long enough to reach the break even point, and therefore don’t justify the cost of buying the points. After seeing that, I felt inclined to extend the example I presented yesterday, and give you a formula to find out just how long it will take to “break even” on the cost of buying points. Here’s a quick recap on the example:

PMT on $100,000 at 6.5% = $632.07 (Principle and interest only, based on a 30 year loan)

PMT on $100,000 at 6% = $599.55 (Principle and interest only, based on a 30 year loan with 2 points)

So that is a difference of $32.52 per month. But the 2 points cost you $2,000 at the closing table. Therefore, we can determine how many months, and the corresponding years it will take to recapture the initial $2,000 investment.

$2,000 / $32.52 per month =  61.5 months / 12 months per year = ~5 years

So what that means is that you will need to own your home for at least 5 years just to get back the $2,000 you invested in your home. So if you are considering buying points up front, make sure you plan to stay in your home longer than the break even point. Otherwise, as I suggested before, ask your lender about financing the points back into the loan, and you will start saving money immediately on the loan (in most cases, be sure to follow my calculations and verify the numbers with your lender). If you are wondering how I came up with the payment calculation, just use the PMT function in a spreadsheet program like Excel to determine the payment. Here are the variables I used:

Rate:  6.5%/12
NPER: 360
PV: -100,000

Stay tuned for more great personal finance help and resources to come.


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Buying Mortgage Points

Mortgages 6 Comments »

Ever thought about buying mortgage points when you go to your lender to buy a home? You should. Buying mortgage points is a fantastic and easy way to reduce the total amount of interest paid to the bank over the life of a home loan. I have been involved in more than one deal where the buyer has purchased points, and does not regret it later. Among other things, buying mortgage points offers the following benefits:

  • Points are tax deductible.
    This has to be done on a depreciation schedule, but nonetheless, it is another item you can add to your itemization schedule for your taxes. This is above and beyond the deduction that you get for mortgage interest every year.
  • Points cut down the interest rate you pay on a loan.
    In the deal I have done, it seems that buying one point is about the equivalent of reducing your interest rate by about 1/4 of a percent. Thus, if you are quoted a rate of 6.5%, you would be buying it down to 6.25%. The banks have a formula on how they come up with the percentage equivalent of the point bought, so it vary depending on your lender.
  • Often, points can be financed.
    In other words, if you were to buy a point on a $100,000 loan, you can roll the cost of the point back into the loan, thereby increasing your loan amount to $101,000. I will explain in more detail in a moment.

Buying Mortgage Points Example

Now that I have covered some of the benefits of buying mortgage points, I would like to go through an example so you can see how this works in the real world. Let’s look at a $100,000 loan amount with two points (often banks will limit you to only 2 points - I guess because they will lose too much money if you buy more :) ).

$100,000 * .02 = $2,000

Each “point” is priced at 1% of the loan amount. So in this case, it will cost you $2,000 to buy two points. So let’s see how that will affect your mortgage payment. Let’s say that you were approved for a 6.5% loan and the bank took 1/4 of a percent off the interest rate for each point.

PMT on $100,000 at 6.5% = $632.07 (Principle and interest only, based on a 30 year loan)

PMT on $100,000 at 6% = $599.55 (Again, principle and interest only, based on a 30 year loan)

So that is a difference of $32.52 per month, which is $11,707.20 over the life of the loan. Neat huh?

But what if you don’t have an extra $2,000 at closing to be able to pay for these points. Well, as I mentioned before, ask your lender about financing the points as well. If they did, here is what the principle and interest payments would like for the same 30 year loan amounts.

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When to Refinance

Paying Off Debt, Mortgages No Comments »

If you are on the fence about when to refinance your home mortgage, then consider these several factors. I have done a lot of real estate investing and property management, and have a good deal of knowledge when it comes to mortgages as well. There are many things you need to be careful to consider other than just a better interest rate when it comes to refinancing your home. First, ask yourself these questions:

  • How long do I plan to stay in the home?
  • Do I plan to use this home for a second home or investment property after I leave?
  • Am I looking to get cash out of the new loan, or am I looking for a lower payment?
  • If I am looking to get cash from a refinance, what will I use it for?
  • When is the best time to capture the lowest possible rate?

Length of Time in Your Home
These, among other questions are good starting points before shopping rates, etc with your local lenders. The most important question is how long you are going to be staying in the home. If your kids are graduating high school and you are planning on moving, refinancing is not a good option for you. Even if you can get your closing costs down to $2,000-$3,000, you are still having to pay for 2 sets of closing costs - 1 when you refinance, and another when you sell the house. The fees to procure a new loan are just too high if you do not plan to own the house for very long.

On the other hand, if you plan to stay in the home a long time, then look at the potential savings this new lower rate will provide. You have to consider more than just the monthly savings, because you are getting a new 30 year loan, and so your payments are going to be extended by the same number of years as you have already been paying on your home (if you have been paying on your house for five years, and you get a new 30 year loan, the total amount of time paying on the house is now 35 years).

Keeping the Home After You Move 

If you plan to keep the home after you move, you should consider refinancing for a lower rate. My philosophy in holding rental properties is to get the most amount of money possible in rental income every month. Some investors look for appreciation over time, but I want to see results right away. So to me, the risk involved with an investment property (tenants and damages, vacancy, etc) merits getting paid as soon as possible. Over time, the rental unit will gain equity, and can still be sold later for a profit. So when it comes to long term second homes and rental properties - yes, go for the lowest payment possible. The renter is paying all of the interest anyway, so interest charges don’t really matter in this case.

The Dangers of Cashing Out Your Equity 

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