Wrapping up MM101

[Graphic added by AJC]

I’m interested in hearing what other readers have to say about Ryan’s “upside down mortgage” … after all, that’s what we’re here for: new perspectives on age-old problems! Other than that, sounds like Ryan’s pretty happy with where he’s sitting … what do you think?

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In wrapping up our discussion of MM101, Adrian has asked us the following questions to make sure we have properly vetted our current situation and are ready to move on the next step of our number journey:

1. What, if anything you will change in relation to your current financial situation?

If I could wave a magic wand, I would not be upside-down on my mortgage, but that will correct itself over time as we are not planning on moving soon. That (our mortgage) is the only MM101 related item we are currently dealing with and…

2. How / when you intend to go about it?

…while we could short sell the house and rent, we will not likely do that. We are emotionally tied to the house and would not, in my opinion have much upside with a rental because we would have to either float the note on our mortgage or pay the taxes on the difference on a short sale, all to pay MAYBE $1000/month less and not have the mortgage interest to write off come april 15th.

3. What results you are hoping to achieve?

An appreciation of our home of around 5%/year starting in 2010, bringing us back to an equity position around 2012.

4. If you haven’t specifically addressed debt in your response/s to 1. – 3. (above), what (if anything) you intend to do about your current debt?

NA

BTW: if you are planning to increase/decrease your current debt via a debt snowball, avalanche, bazooka, cash cascade, all, none, or I don’t know … this would be a GREAT place to discuss it.

NA

Take note of Ryan’s list of 5 things that he has learned from this ‘grand experiment’ so far … they are all important observations. Ryan may be surprised to learn that I am equally risk-averse and DO advocate a safety net …

As Ryan asks, what advice can you give to Ryan? I’m sure that he’d love to hear from ALL of our readers, not just the  other MITs …

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I’m sure there are a lot of ways to get out of debt. I’m so sure because I see ads everyday on T.V., hear them on the radio, and see books packing the shelves of Barnes & Noble all about how to do it. What you don’t see in any of those places is a reputable way to get from debt free to wealthy.

That’s why I’m part of this experiment and it’s in that area that I’m learning a lot from this blog and from those of you that are kind enough to continue the discussion in the comments section of each post.

Things of note that I’ve learned so far include:

1.) Consider the percentage of compound growth you need to reach your number – and, by when – for the investment decisions you make.

2.) As with #1, just because something (i.e.- 401k) has good tax advantages now, doesn’t make it a good investment. If it doesn’t pay out until well after you want to retire, what good is it? (Though I probably will continue my existing 401k, on the back burner, and may or may not make SMALL contributions just in case!)

3.) I can’t get to my number with stocks, bonds, and real estate alone.

4.) If you “strike it rich” without a pre-established goal or “number”, you won’t know you’re there!

5.) The 25%, 20%, and 5% rules.

I’ve also learned that risk aversion may be my biggest struggle in my personal journey. I have confidence in myself that I will succeed and rarely think about failure. That said, I have a wife and two kids and need them to be and feel secure, so I will probably have more of a safety net than Adrian might suggest.

The other big question I currently have is which investment vehicle to go with next while I develop my intellectual property. I want to buy either a rental property or commercial office/retail space and would love to hear from any of you that have experience with either.

Now you know what I’ve learned, and what I want to learn near term. Here is a look at my current financial situation at networthiq

And Here are some clips from my monthly financial spreadsheet:

Note:

I usually use about $14,500 as an average after tax monthly income for planning purposes.
Intend to use surplus funds for commercial or residential RE and potentially develop IP

So what stands out to you? Any advice?

Photo credit: hubpages.com

Debt Free!

(except the over half a million dollar mortgage!)

Ryan, Dave Ramsey would NOT be happy … he would want you to pay that l’il ol’ mortgage off. But, what do you want to do? What do our readers think you SHOULD do?

I would also like to know more about the mortgage (interest rate; fixed/variable; etc.) …

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A short time ago I was deep in debt, and constantly stressed and worried about it. I wasn’t (and my wife definitely wasn’t either!) going to live like that anymore. So I took action to aggressively pay down all my debt and find a job that paid significantly more than I was making at the time.

Since that time (about five years ago) I have paid off all of my debt (including student loans, credit cards, and cars totaling around $60,000) except our house.

Granted the mortgage on our house is $665,000 and our home is worth around $600,000, so technically that puts us about $65,000 in the hole. We don’t, however, plan on selling anytime soon, so that loss is not yet (and hopefully won’t ever be) realized.

Photo credit: loanswithrob.comt

Home Sweet Home

I have to admit that I admire those who jump in early … writing these posts is no exception: by posting first, Scott – and now Ryan – are taking a chance. But, taking chances is what life is all about: jump in and see if the water’s fine … find out for yourself, don’t wait for somebody else to tell you

I think there’s a flaw in Ryan’s reasoning around the 20% Rule – but, I’ll have to double-check his NetworthIQ profile to be sure – in the meantime, can anybody else see it?

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I purchased my house in February 2007 for $685,000. It was just after everyone knew the bubble had popped, which is why we were able to purchase it for $65,000 less than it had previously been listed for (what we thought was a great deal!). Since then, it has dropped in value to around $630,000 (Yikes!), and we have paid off $20,000. This means we owe about $35,000 more than our house is worth.

My monthly “nut” for this house, including everything, is $4700 (hence the picture at the top of the post!). This is 34% of my net income, BUT, because my home is large enough to serve as my office as well (large dedicated space for storage of product, meetings, etc.), I do not have to lease another office. Therefore, my corporation pays me $1200/month for the use of that space, taking my gross house liability to $3500, or 25% of my net income.

As for the 20% rule, I would be right on with $101,000 net worth and $20,000 of mortgage paid off. BUT, the value has gone down, so technically the 20% rule says I should pay off $55,000 more, right? Though if that is the case, I would probably not follow the 20% rule due to my adherence to the 25% rule and not seeing any additional return on that investment (of course, my payment would go down, but it’s only at 5.25% and I can write off the interest). What do you guys think? What would you do?

As for our plans with this house, we will likely live here for another 8 years or so, until I retire with my number!

IP or Bust?

Ryan definitely wins the image award for the best photos used on a post on any of my sites! I see a strange family resemblance in Image # F … now, if only I knew what it represented

Reading between the lines, Ryan has an idea in his mind – perhaps it’s already beyond and idea? – for a ‘medical device’, but it’s a good idea for him to develop (at the very least) an investment line, as well.

Ryan should also go back and read the article about [another] Scott, who is a prolific inventor and was the inspiration for my Perpetual Money Machine series …

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As an exercise to clarify our abilities, passions, likes, and money making history, Adrian has given us the following table to complete:

The images above are films of patients (none that I have any known affiliation with) with screws and other implants used to fuse their spines and/or correct a curve in their spine. I used these images because they represent what I currently do, sell spine implants, and what I hope to accomplish in the near future, develop IP (intellectual property) for a surgical implant and sell it or develop a business around it.

The prospect of developing something that will be used in surgery to improve people’s lives (and only if you can’t fix them first, Scott!) is really exciting to me. It also is probably necessary for me, in order to accomplish the type of growth that I need to reach my goal.

The problem I see is that it is by no means certain, and there really isn’t a “system” (that I know of) to accomplish this task, though I have made connections with medical device engineers, manufacturers, patent attorneys, and spine surgeons. I also don’t believe this will be tremendously cost intense (though there will certainly be costs for prototypes, paper work, and legal fees).

Therefore, I believe that I should also have other investments to carry me to the promised land of my number and the retirement I want/need.

In analyzing my table, I think that my desires and abilities lend themselves well to owning real estate (problem solving, home improvement, learning new things, deal making, networking), and if I had the abilities in my “wish I had” section, pro athlete or rock star, it would make things a lot easier!

But, I REALLY like Diane’s idea of using this great community we have to help me analyze my table and come up with other suggestions, and BIG ideas to jump start me on my journey. Thanks to everyone in advance for your help!