Archive for February, 2007

I am now a full time real entrepreneur.  It is my primary source of income, and what I do for a living, but even before I was involved with real estate full time, I treated it as a business, not a hobby.  With the easy money no longer to be made, people are leaving the industry in droves.  From Realtors to speculators, the tendency has been to treat real estate as a hobby or a lottery ticket, a chance for big profits in a short time.  Speculators who have ignored the fundamentals of iinvesting, and banked on quick appreciation, are now sitting on vacant properties with negative cash flow, and becoming desperate by the day.  However, I believe there are opportunities in this market, and in any market.  They are just different opportunities from a few years ago.  To prosper in the long term, one must adapt like any other businessman in any industry.  You have to do different things in different markets, but the attitude you must take is to treat investing in real estate as a business you intend to grow over time, and position yourself to take advantage of new opportunities.  How do you treat real estate as a business?

What most people do not realize is that investing in real estate and directly owning real estate as an investment is vastly different than investing in stokcs, bonds, mutual funds, or any other sccurities.  The question is not wheter you want to invest in real estate, but rather do you want to run your own business?  Owning investment real estate is running your own business with unlimited profit potential, but also with all the pitfalls, and aggravation that comes with it like any other business venture.

A stock market investor is just that.  He invests his money, and hopes for a decent return on his investment.  However, he has little control how to achieve the desired returns.  He is trusting that to the management of the company, or the fund manager of the mutual fund.  The role of the coffee shop owner is different.  Buying the coffee shop is just the beginning for the coffee shop owner.  He has to actively work at his business to make a profit on his investment.  He is not merely a passive investor in his business, but an owner, and entrepreneur.  An entrepreneur has to wear many hats such as bookkeeper, accountant, laborer, customer service representative, and marketing manager just to name a few duties.  He is not merely an investor, or just a seller of coffee.

Similarly. the owner of real estate does not just own real estate. He is also an entrepreneur, and his duties include negotiator, painter, landscaper, financial analyst, and bookkeeper to name just a few titles.  Depending on the investing strategy the real estate entrepreneur chooses, he may have more or less  responsibilities.  He may even choose to hire others for certain duties, if he feels it is a more efficient use of his time.  However, he still has to be knowledgeable of every aspect of his business whether he hires someone to perform those duties or not, because ultimately it is his business and profit that is affected.


An investor in the stock market has the advantage of having his investment funds very liquid.  Buying and selling the security is fairly easy, with a phone call or a few clicks of the mouse on the computer, and you can buy and sell your security.  Even on the same day.  In addition, the transaction costs are cheap, as low as $5 per trade at some discount brokerages.  The coffee shop owner, and real estate owner does not have the advantage of such liquidity of their investments. The coffee shop own cannot just quickly sell when times get tough.  His funds are tied up in inventory, which cannot be quickly liquidated, and he has lease or morgage payments to make, as well as employee salaries to be paid.  Likewise, the real estate owner/investor has high transaction costs to be paid to sell his property.  There are brokerage commissions(6-10%  average), title costs, appraisals, and other closing costs.  Also, it often takes time to list and sell a property, and if you have to sell in a buyer’s market, you may have to sell at a loss.  All of which makes the investment for the coffee shop owner, and real estate owner very illiquid.  This lack oq liquidity means that for the coffee shop owner, and real estate owner, a commitment to staying in business for the long run is required that the stock market investor does not need to have.  As noted, the stock market investor can sell anytime the returns do not meet his expectation, or just when he needs the money.  As that is not an option for the real estate owner, and coffee shop owner, they must anticipate the tough times, and find ways to work through the problems.

Cash Flow

Cash flow is a major concern to the business owner.  It is the lifeblood of any business.  Positive cash flow is required by the business owner to pay the current bills, and to grow the business.  A long period of negative cash flow will eventually put the business owner out of business.  A business owner may be correct in believing their business or properties will appreciate in value over the long run, but without positive cash flow in the short run, their businesses will not be around for the long run.  Aside from dividends, a stock market investor does not have to worry about cash flow.  The value of their investment may fluctuate daily, but it is only a paper loss or gain until they sell the security.  Unless, they borrowed on margin to buy the security, there is no additional costs the stock market investor needs to be concerned with.  However, to the business owners, regardless of how much the value of their business has increased, there are bills such as mortgages, salaries, supplies, insurance, and taxes that must be paid each month, and it must be paid with cash.  A smart business owner will plan for reserves to be used in emergencies to cover vacancies, or slow business periods, but no business owner can do that indefinitely.  To a business owner, cash flow is king.


In addition to the responsibilities of operating a business, the business owner needs to commit time to be knowledgeable about their business and industry.  A business owner’s biggest asset is their knowledge,  and the creativity they have  in using that knowledge is the edge they often have over their competitors.  Anyone can grind beans and sell coffee, and anyone can buy real estate, but to grow that business requires special knowledge and skill.  Becoming knowledgeable, in order to take advantage of opportunities in your industry requires spending time beyond running the operations of the business.  The coffee shop owner spends time outside the regular store hours keep informed of trends in the coffee shop industry, new technology that will make their operations run more efficiently, labor laws, and what the competition is doing in his market.  Basically, any knowledge that will improve their business, and the bottom line, profits.  As a real estate entrepreneur, I read as much as possible about iinvesting, in books, newspapers, and online sources.  I invest in several state, and cities, so I read the online edition of the newspapers in the areas which I invest in, as well as in markets I am interested in investing in.  I network with other investors, and keep in constant contact with Realtors, property managers, and mortgage professionals regularly to keep up with real estate trends, and investment opportunities.  I often take classes or seminars to improve my knowledge of real estate investing, and I try to keep updated on changes in tax laws, and insurance regulations that would affect my current investments, or which may present new investment opportunities for me.  A stock investor will do research before making an investment, and be kept informed by quarterly, or annual reports, but the level of knowledge is not nearly as extensive or critical as it is for a business owner.


To be a successful business owner, the owner must have a vision of where they want their business to go.  A small coffee shop owner may be concerned with his daily operations today, and just trying to pay the bills, and stay afloat, but he is also thinking of where he wants the business to be years from now, and how to achieve that goal.  For example, he may want to diversify his product line to food products, or tea, or maybe cold drinks in the summer in order to increase revenue.  Maybe he can use profits from his coffee shop to start another one, or maybe buy the shop next door to expand his store.  In spite of the current demands of the business, a business owner is always thinking ahead.  A business plan will often lay out the initial vision of the owner, and the path they wish to take, but in the business owner’s mind, the business plan is always evolving as the market and industry is always changing, and the owner needs to constantly adapt.  Similarly,  a real estate owner/investor may own 1 small rental, a single family home, or a duplex with barely positive cash flow, but he is thinking  ahead to acquiring additional properties, and increasing his cash flow.  He envisions himself owner many properties, or bigger multi-unit apartments a few years down the line.  Maybe in the future he will own large commercial properties, or become a developer.  In the meantime, he is preparing his plan, gaining knowledge, while saving and raising funds to fulfill his vision.  A vision of the futrure is not necessary for the stock market investor.  He may not even own the stock a few months later, or even interested in investing in the stock market if he finds an alternative investment.  The business owner has a long-term vision, and is committed to the long run fulfillment of that vision.  A coffee shop owner is not interested in one good month, or year of sales, and the real estate owner is not interested in just one good deal, but building a long-term successful business that continues to grow year after year.

So, in spite of the seemingly easy profits being made in real estate by some people today, business owners know that in any industry there are good and bad cycles.  There are success stories, and failures, and all businesses experiences good and rough times.  Owning a business, whether it is a coffee shop, restaurant, or real estate business can be a vehicle for achieving wealth, and financial independence.  Owning a business has benefits that merely being a passive investor cannot obtain.  You may become rich investing in Microsoft stock, but you will never own the company, and you cannot make decisions or control it.  As a business owner your potential profit is without limit, and you can directly create opportunities for your business each day with the decisions you make using your knowledge, creativity, and hard work.  However, as one can see, the path to success is often long, and difficult.  In spite of what some real estate gurus will tell you, you don’t decide to go into the real estate business today, and become independently wealthy a year from now.  There is a lot of work, , and risks one needs to be willing to commit to, and accept.

Is the Real Estate business for Me? 

To decide if the real estate business is a good fit for you, you must first take a personal inventory of yourself.  Examine your skills, and personality to determine if you have the skills and desire to go into business for yourself.  Not everyone can go into business for himself or herself.  If you prefer structure in you life, and value security in your job, and investments, perhaps owning real estate is not the business for you.  If you want to simply diversify your investment portfolio into real estate, maybe investing in real estate investment trusts(REITs) is the easier, and safer route for you.  If you do think you want to own your own business, and think real estate may be for you, research and plan your strategy to match your skills and personality.  There are many investment strategies that can be used in real estate.  Choosing a strategy that matches your skills, and personality is your best chance at success.  For example, if you are a handyman, and enjoy working with your hands, perhaps buying and rehabbing homes to flip for a profit is a strategy for you.  Research the markets you wish to operate in to see what opportunities presents itself.  The good thing about real estate is that unlike traditional businesses, you are not confined to opportunities in a specific area.  If there is a strategy you think may work, but you don’t have the skills, or expertise for that strategy,  learn those skills, or partner with someone more experienced in that area.  Form a business plan on how you plan to operate your business, and set short and long term goals to grow your business.  Real estate is a capital intensive business.  Cash and credit are required.  Besides your knowledge, cash and credit is the most important assett you have as an entrepreneur.  You often have to put more cash into a venture before it becomes profitable.  You need to prepare to be able to raise cash and have the capacity to borrow funds for yourventures.  You need to get your personal ifnances in order.  Save and raise cash for your business.  Improve your credit scores as much as possible before you start your business.  In spite of what real estate infomercials will tell you, you do need cash and credit to succeed in real estate.  Without it, you do not have the tools to succeed. Finally, have realistic expectations about your business and realize this a business built for the long term.  Some people have made a lot of money in a short time in real estate, but the reality is that most business struggle  and often fail in the first few years.  Anticipate that, and be persistent.   Work through the rough spots, gain experience and knowledge, while keeping focused on the long term goals.  If you have a good plan, and are committed to making it succeed, the results will come.


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Free Stock Trades

Stock market commissions have been steadily been declining for several years, but now its free.  Wells Fargo has just come out with an offer for 100 free commission free online trades per year.  The only catch is that you have to have a combined $25,000 in bank, brokerage and loan balances with Wells Fargo.  You can count 10% of your loan balance towards the $25,000 requirement.  If you have a mortgage with Wells Fargo you should qualify.  Even without a mortgage the $25,000 is within reach for most people.  Even better is that this is not a limited promotion, but is the on-going commission rate.  Bank of America has a similar deal, offering 30 commission free trades a month.  Bank of America also requires $25,000 in deposits, but does not allow mortgage balances to be counted, but other than that is the same.  Also, startup Zeeco offers 40 free trades a month.  Charles Schwab the discount broker charges $9.95 to $12.95 as a flat rate per trade depending on the amount on deposit, and the amount of trading activity.

Why would Wells Fargo and Bank of America offer something for free?  As with most things in life, nothing is free.  The Banks obviously want you to increase your deposits at their institutions.  And there is really no downside risk for them.  If someone were deposit $25,000 into a Wells Fargo account to get free commissions on their stock trade, Wells Fargo would of course earn money on the spread between the interest paid, and the interest they earn on the deposits as well as fees and interest on their loan products.  The cost is obtaining these deposits is the free commissions, and that is a small cost.

Unless they are a professioanl trader, most people will not and should not trade 100 times a year or 30 times a month.  More likely, the average investor will not trade more than 5 times a year.  So, there is little chance the free commisions will be abused.  The professional trader who does trade more than 100 times a year is already paying pennies per trade, so there is little incentive for the professional trader to abuse the free trades.

For the consumer, is it a good deal?  Free is always good, but is it really free?  The short answer is that it is never free.  The real question should be  is it a good deal for you?  Forget the “free” factor and weigh the costs and benefits.  The key is to look at the overall relationships of your accounts, not just your brokerage account.  If you trade 5 times a year, the commission you would expect to pay at Charles Schwab would be around $10 a trade.  This is just an example as Charles Schwab is generally the highest priced of the discount brokers, and you could probably do better with other firms.  But for our example, assume it would cost you $50 to make those trades.  With free commissions, that would save you $50, but you have to look at your other banking accounts to see if this is a good deal.  If you transferred $25,000 to Wells Fargo to get the free trades, and the institution pays 1% more than Wells Fargo on those deposits, that’s $250 less you would receive.  By moving your funds to Wells Fargo to take advantage of the free commissions, you would be worse off by $200.  Not a good deal.  Of course, it’s a winner for Wells Fargo who will invest your $25,000 at higher rates, as well as any balances in your brokerage account.  This is just a simple comparison with 2 accounts, a deposit and brokerage account.  If you examine your mortgage loans, lines of credit, and credit cards, the difference could be much greater.

Its important not to jump on “free” deals, because we know its not free.  That does not mean it could not be a good deal for certain consumers.  It depends on how much they normally trade, and the rates they are receiving on their deposits, and paying on credit cards, and loans.  An example of chasing “free” deals at the expense of your overall financial picture is airline mileage cards.  Airline mileage cards will give you mileage for each dollar you charge on the credit.  You will receive a “free” airline ticket at 20,000 miles, but we know that’s not free.  That ticket has cost you $20,000 in charges, and you could have bought the ticket for its retail value of $300.  If you just focus on the “free” ticket, you will lose sight of what you actually spent on the ticket.  This is obvious to most consumers, but in the case of the free commissions, it is more subtle, as it is intended to be, but if we remember to focus on the costs versus the benefits, we can determine the true costs of any “free” offer.

As for me, I have determined quickly in my mind that it does not make financial sense.  First, I already pay very low commisions at Interactive Brokers.  I pay .005 cents per share.  If I trade 1,000 shares I would only pay $4.00, so even though its seemingly “free”, the difference between what I pay and free is not that much, that I can get excited about.  The service at Interactive Brokers is also very good.  If you are a professional trader, you should consider Interactive Brokers.  The execution and pricing is excellent.  Secondly, I would not be able to get as good rates on my deposits at Wells Fargo or Bank of America than I am currently getting.  The money market account at Wells Fargo is currently at 4.7%.  Not bad, but I am getting over 5% at Emigrantdirect.  At HSBC, you can currently get 6% on your deposits on a special promotion.  The difference is not that much, but the point is I would be worse off on my deposits if I transferred my money.  I don’t carry a credit card balance so that rate does not effect me, and the rates on my mortgage is low enough that it does not make sense to refinance.

So, while this free commission offer does not benefit me, it may be a good deal for someone else’s situation.  In determining the attractiveness of a “free” offer,  just remember not to be blinded by the word “free”,  and lose sight of the big picture of your finances.

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Happy Valentine’s day.  Although Valentines day is a big day to many people, as 17 billion dollars will be spent by consumers this year for Valentine’s day, it is a low key event for me and my wife.  Not that I am not romantic, quite the contrary, but I am not a fan of going to a crowded restaurant for an overpriced fixed menu dinner, and rushed out the door.  If Americans decided to celebrate Valentine’s day on February 13, or 15, that 17 billion dollars spent would probably be cut in half and they would get a more enjoyable dining out experience.   I also don’t like Hallmark telling me when I should be romantic and celebrating love, when we should be celebrating love every day with our loved ones.

However, those of us who are married or in a relationship, know a silent protest against Valentine’s day is not going to make life for fun for anyone.  But, instead of the usual Hallmark card, and candy, try a few things to shake up the 12 year routine.

Long Steam Roses:

If you are going for long steam roses,  go really long like these.

5 foot roses


Don’t buy the same See’s candies this year.  If your sweetheart has a soft spot for chocolate, than they will appreciate premium chocolates, not the ones you picked up from the grocery store on the home from work.  Here is a suggestion for premium chocolates.   Also, any connoisseur of chocolates knows that the optimal temperature to store chocolates is between 15-18 degrees Celsius.  Just like you would’nt store your fine cigars in your underwear drawer, fine chocolates need to be stored in a humidor at the optimal temperature to preserve its flavor and consistency.

Chocolate Humidor

I prefer this one, as it is more stylish and looks good on the night stand. 

So, that’s just a few suggestions to break the old Valentine’s day cliches.  Have fun, and remember that Valentine’s day is just one day out many in your life to celebrate love.



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Welcome to Living the Dream

I may be the last person to have a web page, but here it is in the form of a blog.  The Living the Dream blog will chronicle my career transition from government office worker to real estate entrepreneur.  I will be sharing my thoughts as I pursue various business ventures, entrepreneurial opportunities, and on random topics that pop into my head.  Hopefully I can do so in a insightful, entertaining, and light hearted manner, because while business and money are of great interest to me, there are a lot of other interesting topics that are worth touching upon.

A little something about me.   My name is  Al Young, and I live in Castro Valley California with my wife and two young kids, ages 4 and 2.  At the age of 40, I am making a transition from a financial analyst at a government agency, to the unknown, but exciting world of being a real estate entrepreneur.  Living the Dream is about living the life I wish to live, a job I am excited about and a good balance of time between work and family, and to be in control of my time.  After 12 years in a job I became increasingly bored with I began to plot my escape.  The good thing about a government job is that you have time to think while doing your job mindlessly.  I’ve had many years to think, and formulates many ideas in my head. 

The push to act came 5 years ago when my first child was born, and we decided that my wife should stay home to be a stay at home wife.  This pushed me to look for other sources of income to at least partially offset the loss of my wife’s income.  This started me in real estate because I needed a passive source of income.  Between my regular job, and family, I did’nt have time run another business.  Real estate was my financial vehicle of choice.  Actually, I have been studying real estate for many years prior, but did not commit to pursuing it until I was pushed to.

I began investing in single family houses out of state.  I chose to invest out of state because I could get positive cash flow, something I could not do in California, and I could certainly get more value out of state.  After investing in several cash flowing single family homes, I expanded into more speculative pre-construction investments.  With interest rates at historical low, I was lucky to be able to enjoy rapid appreciation in certain markets I invested in as well as positive cash flow in other less heated markets, and I was able to make a good profit in a short time.  In early 2006, interest rates began to rise,  the rate of real estate appreciation slowed, and talk turned to a real estate “bubble”.  I decided  to stop investing in pre-construction and use my profits to focus on more income producing properties in less volatile markets, as well as pursuing  other types of real estate opportunities in new markets.  I also used my profit to prepare for a career transition.

This is where I am now as a real estate entreprenur.  I am Living the Dream of spending my days with my children and family, as I pursue business opportunites I am excited and passionate about.  I’ll let you know how it turns out. 

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