Our House Shot Up $100,000 in Value … And It Means Nothing

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**Note from Paula: You’re probably going to wonder how this article’s introduction relates to the headline. Just stick with me for a minute.
is good news always good? maybe

An elderly farmer and his horse tilled the fields for many years. One day his old horse ran away.

The man’s neighbors came to offer sympathies. “How unfortunate,” they said. The man shrugged and replied, “Maybe.”

The next day, the old horse returned, bringing with him three strong wild stallions that could work the fields. Again, the neighbors came. “How lucky!” they cried. The man shrugged and replied, “Maybe.”

The following day, the man’s son was thrown off one of the stallions and shattered his leg. The neighbors came by. “How unfortunate,” they said. “Maybe,” the man replied.

One week later, the military instituted a draft. All young men had to fight on the front lines of a bloody war from which few returned home. But the son, whose leg was broken, was awarded a draft exemption. “How lucky!” the neighbors said. “Maybe,” the man replied.

***
The story above is a Taoist myth. Today I had an experience that reminded me of the tale.

We’ve been trying to borrow against our triplex to buy another rental property. About four months ago, our broker asked us to hire an appraiser. The appraiser’s job is to decide how much our property is worth.

We paid $400 to have an appraiser visit our home. He sent us a figure that was $25,000 more than we paid for the house one year ago. We celebrated. How fortunate … right?

Maybe.

The mortgage broker kept requesting “just one more document.” This stretched for weeks. Weeks turned into months. We diligently kept sending in “one last document” and watched as homes we wanted got snapped up in the meantime.

Two weeks ago our broker informed us that the never-ending string of “just-one-more-things” had lasted for so long that our appraisal is now more than 90 days old. This means it’s out-of-date. We’ll have to pay another $400 for a new appraisal.

Ugh. How irritating, right? …. Maybe.

The second appraiser came to our home last Sunday. We heard the results today: Our house is valued at $100,000 MORE than we paid for it one year ago — a 45 percent increase in value. WHAT????

How fortunate, right?

Maybe.

In the foreseeable future, this is good news. It means we have more access to capital to buy more rental houses. That’s good news, if everything goes according to plan (strong cash flow and good tenants!). Of course, this also exposes us to additional risk, so perhaps it’s bad news. Who knows?

Any “good news” or “bad news” may have far-away consequences we can’t predict. So I’m not celebrating my sudden $100,000 boost in home equity, which is an imaginary concept anyway. (Home value is theoretical except on the day you buy or sell.) And I won’t get too glum if the house later appraises for less than what we paid.

In theory, the house is worth whatever the appraiser says its worth.

In reality, the house is worth whatever the free market says its worth, and since I never plan on selling, that number will always remain a mystery.

In the meantime, all I can do is scratch my head, shrug my shoulders and say, “Let’s see.”

Thanks to Sylvester75117 for today’s photo.

How Much Do I Earn a Year?

For the past week and a half I’ve been in the middle of the desert, far removed from internet access, mobile phone service, electricity, running water or sewage. (Sorry if I haven’t responded to your comments yet!)

Regular readers to this blog might notice I’ve taken a huge number of trips this year: I spent one month in New York this past spring, two weeks in the Caribbean this summer, and now I’m camping for 12 days.
how much do i earn a year
I balanced these “big trips” with lots of “mini-vacations” — I visited New Orleans three times this year (January, March and June), where I picked up a few lessons about time management, and I’ll be in New Orleans again in September just before I fly to Chicago for the financial bloggers conference.

I travel frequently thanks to the fact that I work for myself: I never ask for time off. My time belongs to me, and no one rubber-stamps how I spend it.

Unfortunately, the fact that my time off is – allegedly – “unpaid” startles too many people.

The concept of “paid time off” – if you’ll allow me to be blunt – is one of the greatest deceptions of modern life. I’ve heard countless friends say: “Can you imagine? I get paid while I’m on vacation!”

Well … no, you don’t. (Sorry to break the news!) You get paid a flat rate for committing 49 to 50 weeks per year to working for your boss. You boss “budgets” that flat rate into a series of payments that flow to your bank account at regular intervals.

You’re not “getting paid to go on vacation.” You’re getting paid to work. Period. Your boss schedules these payments in regular installments. Paid vacation is an illusion – a clever ‘marketing’ ploy that makes employment seem more desirable.

Doesn’t “paid vacation” sound more appealing than “getting paid in installments for work I’ve already done”?

RETIREMENT IS ALSO AN ILLUSION …

The same, by the way, is true for “retirement benefits.” Some people believe that a drawback of being self-employed is that you miss out on retirement benefits, such as a matching 401(k).

But pause and think about that for a second: fundamentally, a matching 401(k) is simply a “bonus” that you receive for participating in the retirement program.

Too many people think: “I get paid $50,000 a year plus a 401(k) employer match of up to 3 percent, plus 3 weeks paid vacation.” This is the wrong way to view your compensation. It’s too vague about what your time is worth.

Try conceptualizing your pay this way: “I earn up to $51,500 a year in exchange for working 49 weeks per year.”
how much can i earn
As a self-employed person, you’re not missing any benefits – you’re simply responsible for earning enough money to match, or beat, what you earn at a conventional job.

If you earn $50,000 at a conventional job — Can you earn $51,500 working 49 weeks each year for yourself?

If you earn $40,000 at a conventional job – Can you earn $41,200 working 49 weeks each year for yourself?

Earning $60,000 at your job? You need $61,800 working for yourself. Earning $30,000 at your job? Earn $30,900 working for yourself. You get the idea.

WHAT I SAVE ON GAS, I SPEND ON HEALTH CARE

To be fair, there are several disadvantages to being self-employed: no secure paycheck, no discounted health insurance, and no vibrant office full of co-workers telling jokes and trading gossip (which is what I miss the most).

The main drawback is the risk. Some months you’ll get paid well, other months you’ll make next-to-nil. Live below your means and you’ll be fine.

But health care is also a downer.

You can value your company health insurance as part of your “salary.” If your company pays your $250 health premium each month, then your goal as a self-employed person is to earn an additional $3,000 annually to compensate for this.

Unfortunately, buying your own health insurance is much more expensive than company group coverage – that’s just the nature of health care in America. There are two ways to deal with this:

#1: Raise your self-employment goal of bumping your pay from an extra $3,000 yearly to an extra $4,000 to $5,000 yearly.

#2: Figure out how much you save by not commuting to work or buying fancy office clothes (I blog in my pajamas). Add that to your health bills.

Let’s look at a conservative scenario that imagines you live close to your office and you drive a fuel-efficient car.

If you drive a meager 5 miles to your office each day – 10 miles roundtrip – this puts 2,450 miles on your car each year (10 miles/day x 5 days/week x 49 weeks/year).

At a low estimate of 25 cents per mile (this is less than half of the IRS cost-per-mile estimate of a whopping 55.5 cents per mile, including depreciation, but we’ll assume you drive a super fuel-efficient car that has already depreciated), this short commute costs you $612 a year.

Add another $600 for buying work-appropriate clothes, and you’re paying $1,200 a year – an extra $100 a month – for the honor of being someone else’s employee. Save this money by working for yourself and apply it towards your inflated health care costs.

The Bottom Line: Your job ‘benefits’ are worth less than you might think. The biggest benefit to your job is reducing the risk of not earning enough; the biggest drawback is eliminating the possibility of earning — or traveling — more.



The Shocking Reason Why My $10 Bottle of Wine is Better Than Your $100 Bottle

Welcome to AffordAnything’s Money Myth-Busting Series, where I poke holes in social assumptions. Today’s topic: wine.

Ever heard someone say, “I got this $100 bottle of wine” — implying, “I got the good stuff”?

I’m going to debunk that myth today.

One of my favorite wine regions is Tasmania, an Australian island originally colonized by the British in the 1850’s as a place to house convicts. (The jails in London were packed.)

But for most of my life, I had never heard of Tasmanian wine; after all, France, Italy, and California get all the glory. Once I started paying attention to wine regions, I noticed specific places that receive tons of wine press (no pun intended) like Malbec, Argentina and Marlborough, New Zealand. But Tasmania?

Why hadn’t I heard of it? Well, Tasmania is a bit of an “emerging” wine region within Australia — it hasn’t yet sealed its reputation on the international stage.

That’s why its wines are damn cheap.

You see, I’ve done a fair bit of – uh – “studying” on this topic. And you know what I discovered?

(Shhh. Here’s a secret.)

There’s actually very little correlation between quality and price.

Market Dominance Matters

Wine, like any other product, relies on its brand name and recognition. If you’ve got a well-established large vineyard that’s been producing decent wine for generations, you can slam a nice markup on your brand. If your vineyard is big enough to have an advertising budget, you price that overhead into the retail cost of your bottles — and add a markup, as well.

A few Tasmanian vineyards are well-known within Australia, and they charge a nice premium. Their wine is legitimately delicious, but the customers certainly pay for it.

If, however, you’re a mom-and-pop operation or a start-up vineyard, you’ll have trouble getting liquor store owners to return your cold calls. It doesn’t matter that your Riesling tastes like the nectar of the gods. You might produce the finest wine on earth, but you’ve got no marketing budget, no brand recognition, and no buyers network. You’ll practically be giving your bottles away.

It’s Not Just Wine …

This is true for all types of alcohol, not just wine. In TIME’s It’s Your Money blog, Brad Tuttle quoted a Reuters blog that noticed the same thing about vodka: while Grey Goose has glossy ads and brand recognition, there’s a lesser-known Polish brand called Wodka, selling for only $10 a bottle, that has blown the critics away. That same Reuters piece also reported that a New York Times blind taste test found that people preferred Smirnoff (a discount brand) over the higher-priced Ketel One or Grey Goose.

Want to drink fine wines, craft beers, or smooth liquor without paying the high-roller prices? Skip the brands that have an advertising budget. Skip the brands on prominent display shelves. Try the tiny bottle collecting dust on a back shelf. Better yet, go online and order a start-up brand that can’t get stocked at a store.

Who knows how it will taste? It might be awful. Or it might be the best you’ve ever had.