Math is not linear

Great presentation... echoing my thoughts about math, and education in general.

Math is not linear on Prezi

Math is not linear

Rent vs. Buy: One person's actual data

Recently, after doing my taxes and figuring out how much of a tax benefit I get for my mortgage, I thought to myself, "I wonder if owning a house really does pay out the way everyone says?" So I proceeded to tally up every expense and benefit owning a house had compared to if were to have rented a place at the same monthly payment. I've lived in my place for over 8 years. I figured it would be a great real life, raw hard core data example to share with people.

In a nutshell, after brainstorming everything I could possibly think of, it came out remarkably even. In other words, if I had rented a place for the same monthly payment I was making, I would have come up no worse for wear. In fact, I didn't even include any time costs, like mowing the lawn, weeding the yard, etc. Here's a breakdown of the costs I came up with:



The equity and appreciation that we hear so much about is offset by realtor and repair costs. What's this I keep hearing about "throwing your money away" when you're renting because you're not building equity? Well, too bad when you sell it you need a realtor. And when the roof needs fixing or the runoff water needs to be re-routed to the front because it's flooding the back, that comes out of your pocket too. Not that I have any personal experience of that.

Here are the assumptions I used to come up with the costs:

Years in house	8
Purchase Price	170000
Down payment investment	2.00%	Assumed rate of return if you had invested the down payment
Sold Price	184086	My own guess based off comps
Appreciation %	1.00%	Based off the sold price
Down payment	30000	20% of purchase price

Here's a breakdown of all the costs that went into the graph, and some more detail:

HOA fee	-150	per year	I live in a house, so this fee isn't too bad
Closing costs	-3000	one time
Insurance	-400	per year
Maintenance/Utilties	-38	per month	Garbage, water, and sewer
Down payment opportunity cost	-600	one time	Earnings if I had invested the down payment
Tax benefit	1050	per year	After the standard deduction, and 25% tax braket
Repairs	-9400	one time	See chart below
Realtor costs	-11045	one time	6% of sold cost
Appreciation	14085	one time	Based off my own estimate of comps
Equity built up	150	per month	Average over the 8 years

And here are all my repair costs, in gory detail:

Siding and wall damage from storm (deductible only, insurance covered all)	$1,000
New roof (plus deductible minus insurance)	$3,000
Roof boots (3X)	$300
Reroute runoff and drainage	$1,100
Landscaping	$1,200
New carpeting	$2,000
New drywall from fixed leaks	$800
Total Repairs	$9,400

These repair costs are even before anything a home inspector might come up with when I sell the house. Plus I need to re-seed my yard, it's looking a little sickly. And the back fence needs painting. Again, I didn't count the money I paid my neighbor kid to mow my lawn, or the hundreds of dollars of mulch, or fertilizer, or the tree I had to cut down that died... I better stop and continue this analysis before I lose everyone.

So what happened to all the great benefits that my parents and everyone else told me owning a house had? I tried to figure out what went wrong. The answer, as you might expect, is the housing market. I had a 1% appreciation per year over 8 years. I did a little sensitivity analysis... if I had gotten a 3% appreciation per year, I would've been $30,000 ahead! Whoa. OK, so let's say it was -1% (where it was in a lot of markets I bet). And the answer is... -$25,000. I think that's what everyone calls "underwater."

So this whole idea of owning a house as an asset boils down to how well the housing market does. And it's a huge swing. This is what economists call leverage... you borrow money to invest in something. So owning a house is an investment. It's owning a very risky investment. Would you put down $30,000 and buy shares of any stock? How about borrowing $170,000 on that $30,000 and buying up that stock? So why would you do the same on a house?

Here's raw data. Buying a house is a very risky investment. All the equity built up and the tax benefits gets sucked up in realtor fees and repairs.

Yes, it's the American dream. I plan on selling this house, but I will probably buy another one in the future. It's great to own your home so you aren't at the mercy of a landlord or a lease. But go into it knowing it's very risky, and be able to mitigate that risk by having a LOT of money in reserve. Buy a house because you want to live in a house, not because it's an investment. And make sure you can truly afford everything that comes along with it (see above).

Rent vs. Buy: One person's actual data

An update

Thought I’d give an update since my last posting. In a nutshell, I’ve been focused on NOTtheBookStore.com and less on the violins e-commerce site. Last quarter I tried expanding to the University of Cincinnati, with a little help from their marketing club student organization. UC’s quarter ended this week, which meant a whirlwind turnaround for textbooks. And the marketing club has gathered steam and started doing their promotional fliers and other activities.

This semester will be very interesting. UC is four times bigger than Xavier, where I had previously been targeting and have been breaking even (most of the costs are for marketing). UC is a pivotal test to see if the idea scales to bigger schools. So far it’s been slow, but with Xavier it took about a year before things took off to the point of breaking even. If UC takes off, it would give me enough confidence to hire someone to revamp the site and improve the design and flow.

The violins site has taken a back seat for the last month or so. My contact with the Chinese supplier has been quiet. She’s a family friend, so I’m confident that if I took the time to contact her again she’d help me out. I did some initial work with a Shopify site, but I wish it were more of a drag and drop. Most sites I’ve worked with, the drag and drop part of it is too simple, but programming with CSS has been too difficult. Google’s Blogger so far has the easiest to work with from a layouts standpoint. There’s still a skill gap there. Another gap has been the use of Photoshop or Illustrator to design graphics. I could really use that skill so I can update the graphics on the site easier.

I’ve started reading the book “The Other 8 Hours” based off of Adam’s recommendation. It’s inspired me to continue to do a little every day, even if it’s as small as 10-15 minutes. Hopefully the time will add up and eventually I’ll get something successful! I’ve deleted all my back episodes of CSI and took it off my DVR. Hopefully this will buy me the time I need every day!

An update

Go away grammar police

I received a comment from my “The bigger they are the harder they fall” entry recently. It was from “Anonymous” and he/she said:

“I’d prefer it if you said ‘have to’ instead of ‘hafta’. It’s just childish and hurts credibility.”

I remember grammar and its role in blogs being a topic of debate from other blogs. Here are my thoughts.

First of all, I’m very happy that someone reads this blog and is inspired enough to post a comment on it. I hope this person is a regular reader and gets something out of this blog. But I kinda – sorry kind of – doubt it. This person chooses to pick on grammar instead of commenting on content. This person would have much more credibility in my mind if he/she said “Interesting insights on how small companies can compete with big ones. Oh by the way, I’d prefer it if you said…” The other thing that tells me this person isn’t a real reader is he (I’ll use “he” from now on) almost takes personal offense to it. He uses “I’d prefer it” instead of “The right way to use it is…” And calling it childish is another clue (yes, I know starting a sentence with “and” isn’t grammatically correct either).

I know my grammar. I probably know it better than 90% of the people in the US. I did well in English class. I know my subjects and predicates, pronouns and antecedents, and parallel structure. But there’s another part of English class that people forget: the “arts” side of English, like poems, prose, and different styles that don’t follow grammar rules. Remember Catcher in the Rye? Have at it grammar geeks. My blog, and I bet most blogs out there, don’t aspire to be New York Times articles. There’s more Catcher in the Rye type poetic license. So what do you hafta say about that? 

Go away grammar police

The foray: Step 1

Thanks to the people in the blogosphere (does anyone use that word anymore?) for the help. I had some pretty interesting tidbits, from some offerings of wisdom to some recommendations.

@kvr said: "Besides if you don't see a way to earn back $25 a month then maybe your in the wrong business." That woke me up. 

An anonymous commenter suggested a site to check out, which I did. It talked about general things to look for in an e-commerce site host.

@Adam McFarland said: "It sounds like you have a good 'in' to get these violins at a good price from a company that not everyone has access to. That's a huge competitive advantage to start with." I hadn't thought of the connection with China as a competitive advantage. I still revert to thinking only about the product and not the business holistically. 

@nethy on Adam's blog suggested Weebly. I checked it out, it actually was pretty neat... drag and drop web designing. For a product with a high price point like violins, may not be the best. But I definitely see a use for it for future endeavors. 

What put me over the top was a post on Neville's Financial blog about how interest rates in a savings account were laughably low. I'm losing money by it sitting in a savings account that pays interest rates below inflation. So now's a good time to invest it! Neville responded to my comment and offered up a post he did about starting his e-commerce site. I actually had read it a long time ago, but I plan to do it again now that I've got $25 sunk into it. :)

So... I just signed up for Shopify. And for good measure I entered their e-commerce contest where the top selling site got $100,000. Just for fun. Thanks all for the encouragement. The first baby step is done. The next one will be to figure out how to make the site look professional. 

The foray: Step 1

A foray into e-commerce

My dad, who works a lot with China, one day asked me if I had any interests in selling violins. He had a contact who manufactured violins, and since I'm a violin player myself he figured he'd ask. I was intrigued, since I had just bought a new violin (the first since high school), and someone told me it was actually made in China. Turns out Chinese-made violins have gotten pretty good.

I got a catalog from the manufacturer, and the prices seemed low enough to get a good margin. My parents, who happened to be heading to China for a visit, bought two sample violins and lugged them on the plane back. Over the holidays, I played it and had a violin teacher friend of mine play it too. He confirmed the market price would be something where I could make a nice margin.

But how do I go about selling violins? I had no interest in setting up a retail store. So I figured starting by selling on-line was the way to go. There are lots of questions. Are people willing to buy a violin on-line? Who do I market this to? How do I set up an e-commerce site? I had an idea... why not sell Chinese made violins to Chinese people? Not to propagate stereotypes, but that's quite a large market (I myself belong to the Chinese violin playing demographic). It would be pretty easy to target advertising, and you'd think the trust factor would be there.

I was pretty pumped up about this over the holidays. I even got a fortune that said "An interesting musical opportunity is in your future." (Apparently taking pictures of fortunes with the iPhone doesn't work that well.) Recently, I figured I should take the next step... which I believe is to set up an e-commerce site. I'd ideally love to set up a cheap, if not free, site where people could click on a "buy" button. Then I could at least test the idea to see if any traffic was generated.

But this proved to be a little dauting. I asked Adam McFarland on his blog, and he suggested Shopify. I checked it out, but it was $25 a month. So I did some Google-ing, and found a tutorial on how to set up an ecommerce website with Wordpress in 5 minutes. Then I discovered the difference between Wordpress.org and Wordpress.com. I needed to host my own site in order to set up the e-commerce plug in. After way too many hours of researching hosting sites, I paid $80 or so to set up a bluehost.com site for a year.

It took me about 2-3 hours to set up the Wordpress e-commerce site (had to do a little debugging). I then had trouble customizing the site to look decent. So it was back to the drawing board.

I checked back on Adam's site and @nethy suggested I try Weebly, which allowed you to drag and drop your way to an e-commerce site for free. I tried that out, but I wasn't happy with shopping cart because it dumped me off on Paypal. I figured if someone was going to pay that kind of money for a violin, it'd hafta at least look like the cart was on my site. So back to the drawing board again.

I looked at Godaddy's e-commerce solution... $9 a month. It got bad reviews. 1and1's web hosting was $9.99 setup fee, and required a year subscription. Its reviews said it was hard to use for newbies (that's me!). Yahoo was like $30+ with a percentage of revenue too. I think my next step is going to be Shopify, Adam's original suggestion.

I keep wondering if I'm overcomplicating this process. I'm already out $80 for hosting. I'm to the point where I think I need to just suck it up and try one of these sites, thinking I'll never learn if I don't try. And now I'm wondering if this is even a good idea. Any advice from the experienced crowd out there?

A foray into e-commerce

Richard Branson: Life at 30,000 feet

Richard Branson is the definition of the serial entrepreneur - but what I love is that while he keeps launching businesses he doesn't just sell them off and move on - he continues to build his portfolio of companies. I also love that he is a dreamed - as evidenced by Virgin Galactic - one of the 1st space tourism companies! Richard Branson's companies employ 55,000 people with revenues of $25 Billion. He has obviously become quite rich but has also given back by providing so many employment opportunities to others (see list below). Enjoy this interview with "Sir Richard."

Richard Branson talks to TED's Chris Anderson about the ups and the downs of his career, from his multibillionaire success to his multiple near-death experiences -- and reveals some of his (very surprising) motivations.



Virgin brands (under various ownership)
(source: wikipedia http://en.wikipedia.org/wiki/Virgin_Group)
AirAsia X — long-haul budget airline operating from Malaysia (20% owned by Virgin Group)
Oüı FM — rock radio station in France and Asia
V Festival — two-day music festival held in two separate locations in the United Kingdom
V Festival (Australia) — an Australian version of the V Festival
Virgin Festival — a North American version of the V Festival
Virgin Active — a health club chain in South Africa, Spain, Portugal, Italy and the UK
Virgin America — a United States budget airline based at San Francisco International Airport
Virgin Atlantic Airways — an international carrier based at Heathrow Airport, London
Virgin Balloon Flights — a hot air balloon operator
Virgin Blue — an Australian-based airline operating in the South Pacific
Blue Holidays — The holiday program of Virgin Blue, now a joint venture between Virgin Blue and Zuji
Pacific Blue — a Virgin Blue subsidiary based in New Zealand
Polynesian Blue — a Virgin Blue subsidiary based in Samoa
V Australia — a planned Virgin Blue international subsidiary set to offer flights between Australia and the USA
Virgin Books — publisher, retailer and distributor of books
Virgin Brides — bridal wear shop in Manchester, UK
Virgin Charter — a private jet online marketplace
Virgin Comics — comic book producer
Virgin Drinks — drink manufacturer
Virgin Cola — carbonated cola soft drink
Virgin Vodka — alcoholic beverage
Virgin Experience Days — corporate and consumer experience events
Virgin Flowers — Internet florist
Virgin Galactic — a venture to market and operate commercial space flights, using spacecraft designed by Scaled Composites
Virgin Games — online games and gambling
Virgin Green Fund (originally known as Virgin Fuels) — venture capital firm for investing in petroleum alternatives
Virgin Health Bank[2] — a business enabling parents—to—be to store their baby's stem cells
Virgin HealthMiles
Virgin Holidays — UK travel agency and tour operator for worldwide destinations served by Virgin Atlantic and its partner companies
Virgin Holidays Cruises — UK cruise holiday agent
Virgin Limited Edition — exclusive hotel operator
Kasbah Tamadot — exclusive Moroccan holiday destination
Lady B — luxurious Catamaran available for Caribbean charters
The Lodge — ski lodge
Natirar — private spa located in Somerset County, New Jersey
Necker Island — exclusive island in British Virgin Islands for private hire
The Roof Gardens and Babylon — 1.5 acres (6,100 m2) open air gardens, venue, nightclub and restaurant in Kensington, London
Ulusaba — exclusive game reserve in South Africa
Virgin Limobike — passenger bike service in London
Virgin Limousines — chauffeured limousine service in San Francisco and Northern California
Virgin Media — provider or home telephone, cable television, broadband and mobile services to the United Kingdom
Virgin Media Television — a British television network, made up of Virgin 1, Trouble, Bravo, Living TV & 50% stake in UKTV
Virgin 1 — a general entertainment channel on Freeview, Virgin Media and Sky Digital
Virgin Mobile — brand used by several companies providing mobile phone service around the world
Virgin Mobile UK — provides mobile phone service in the United Kingdom, now part of Virgin Media
Virgin Mobile Australia — provider of mobile phone service in Australia
Virgin Mobile Canada — provider of mobile phone service in Canada
Virgin Mobile South Africa — provider of mobile phone service in South Africa
Virgin Mobile USA — provider of mobile phone service in the United States
Virgin Mobile France — provider of mobile phone service in France
Virgin Mobile India — provider of mobile phone service in India
Virgin Money — providers of financial services
Virgin Credit Card
Virgin Nigeria — international, regional and domestic Nigerian airline
Virgin Play — a Spanish publisher of video games, once part of the now defunct Virgin Interactive.
Virgin Radio — Virgin branded radio stations around the world.
Virgin Radio Asia — collection of station operating in India and Thailand including Virgin Soft, Hitz, Easy FM and Oui
Virgin 99.9FM - a Canadian radio station, broadcasting a hot adult contemporary format at 99.9 on the FM dial in Toronto, Ontario. The station is owned by Astral Media. Formerly branded as 99.9 Mix FM, it adopted its current brand on 2008-08-25, pursuant to a licence from the Virgin Group.
Virgin Radio (France) — -(Lagardère Active) a rebranding of the "Europe 2" radio station
Virgin Radio Groove — (TIML Golden Square Limited) soul, motown and disco music station broadcast on DAB, internet and Satellite TV
Virgin Radio Italia — (Finelco) An Italian radio station
Virgin Records — record label now owned by EMI
Virgin Spa — shop chain retailing Virgin Cosmetics product
Virgin Trains — a railway operator in the United Kingdom
Virgin Unite — charitable foundation
Virgin Vacations — U.S. travel agency
Virgin Vie At Home — retailer of body care, cosmetics, homeware and jewellery products through the Internet, direct selling and Virgin Vie stores
Virgin Vines — A Californian—based company, created in 2005 and producer of Red and White wines
Virgin Voucher — gift voucher scheme, also functions as a staff reward scheme
Virgin Ware — clothes brand and retailer

Richard Branson: Life at 30,000 feet