Financial

The “lease renewal” ritual

We have a couple of properties.  One is located in the Seattle area managed by a property management company; the other is in the Washington, D.C. area and managed by us remotely from Paraguay.  Each year about this time we go through an odd mating ritual known as the "lease renewal."  We would love to have long-term tenants in both places, but alas, we have to lease them from year to year.  Our Seattle property is leased by a company that provides corporate housing for a major corporation.  They take good care of the house and are dependable, although they keep us on the hook from year to year and renegotiate at the last minute.  The property management company does a decent job taking care of our Seattle place, but they charge a large fee up front each year for "finding" a tenant that renews the contract each year, and they charge a monthly service fee to boot.  It adds up.  We don’t have many headaches with the place but don’t see as much rent as we would like. 
 
Because we manage the Virginia property ourselves, we don’t have to pay a property management company to manage the property (we retain a local legal representative as required by law but manage it virtually ourselves — well, I do anyway).  The tradeoff of course is that we have to manage the property remotely.  We rent to our colleagues and have developed rapport with each of them, allowing to work together in the event of difficulties with the home.  Nevertheless, owning a rental and managing it yourself is a challenge, especially if you live thousands of miles away from the property.  Whenever the tenant needs a repair, we’re on the phone right away to get the house back in order.  Finding a new tenant is another challenge entirely.  So far we’ve been very fortunate to have lined up tenants fairly easily.  Because they’re our colleagues, we can advertise within the greater community and find someone whose timing and price match ours.  We have been very fortunate over the past three years.  We’re negotiating with prospective new tenants right now and should be able to work something out with them.  This happens every year, and each year I wonder whether I should just throw in the towel and hire a local property management company.  Then I think–why would I every want to spend so much for some company to do so little?  Doing it myself is worth the trouble.

Is your heart in North Dakota?

This seems to be my week to focus on finance and economics, especially real estate.  The topics on this blog tend to rotate depending on my mood.  Maybe I’ve been so disenchanted with Spanish lately that my focus has shifted to investing.  That’s not far from the truth.  Now isn’t the time to be distracted–my Spanish test is at the end of the month.  One can only cram so much language into one’s brain.
 
I couldn’t resist passing this Yahoo! news article on to you, Dear Reader.  Of course, the rumor about Microsoft’s possible buyout of Yahoo! was even bigger news today than the one I’m about to share.  The purported YahooSoft rumor apparently isn’t true, so it’s not worth mentioning…yet.  It might come to pass, in which case I’ll probably blog about it.  Here’s the article I really want to highlight:
93-year-old selling heart of North Dakota town  
If the thought of buying a cattle ranch in Paraguay or a former U.S. Embassy building overseas, then maybe owning a historical piece of North Dakota could intrigue you.  For no more than $500,000, you could own the heart of Sibley, North Dakota, a town founded by a family who saw the opportunity to build a town in 1954 near a popular fishing lake not far from Fargo.  They paid about $2,000 to buy the land–you’re going to have to pay for the value they added to the area.  It reminds me of when I passed through Jordan, Montana a few years ago and noted that the town gas station/convenience store was for sale at a bargain price of $350,000.  I thought checking out and managing the store in this quiet eastern Montana town that is a transit point for fisherman en route to Fort Peck Lake.  I’m not sure why Yahoo! felt it necessary to feature this news article.  In fact, many quirky real estate-oriented "news" articles have been popping up lately (ala yesterday’s Washington Post article).  Perhaps the real estate market has been such a downer with looming bankruptcies and subprime travails that media outlets have no other recourse than to publish articles on the fringe. 
 
Speaking of media, I recently subscribed to "The Economist."  It’s the "in" thing to do, apparently.  You aren’t running with the big dogs unless you read it.  I can’t bring myself to read "The New Yorker" or "The Atlantic" quite yet, because I’m still an East Coast transplant and have limited bandwidth to read weeklies.  "The Economist" is cool, though.  I’ve read "BusinessWeek" for years, but I realize that it doesn’t have the international scope that its British counterpart does.  Interestingly, there is probably a simple explanation for this.  "The Economist" limits its coverage of the United Kingdom to about six pages.  If it focused on Great Britain as much as "BusinessWeek" concentrates on United States, it would be a small magazine indeed, even pamphlet size.  There is only so much you can write about on the British economy in a weekly magazine.

We’re, Incorporated

I did something yesterday I’ve been thinking about doing for about three years.  I filed to incorporate our investment portfolio into a limited-liability company (LLC).  Brilliance Equity, LLC (BE) will serve as our primary investment vehicle in real estate, private equity (startups), equities, and bonds.  I will gradually roll most of our personal investments into this LLC.  It is currently a sole proprietorship, but in the future it could expand to become a full-fledged private equity firm.  I’m currently working on a business plan to turn it into a multi-partner firm.  I consider this my hobby now, but I also want to make sure that if or when we jump off this international merry-go-round I’ll be able to do something I enjoy doing.  I dread having to jump back into the private sector working for a company doing a job I don’t really like.  There’s no better job for me than the one I’m doing now.
 
I waited to pursue incorporation because I thought it would be difficult to incorporate, but it’s surprisingly easy to do.  The firm’s address in Houston, Texas offers us a virtual presence in the United States.  The LLC will actually be incorporated in the State of Delaware, where more businesses incorporate than any other.  Why incorporate?  There are actually many reasons, but here are a few:  http://www.corporate.com/should-i-incorporate.htm.  I used another company to incorporate, so that’s not a sales pitch for corporate.com.  Research your options if you decide to incorporate.  Some are cheaper than others.  You can do it for a few hundred dollars.  Make sure though that you have a reason to incorporate–that you have enough assets to justify incorporation.
 
I was inspired to incorporate by Steve Feinberg, who founded Cerberus Capital Management.  Founded in 1992 with $10 million, Cerberus’ holdings in 2006 were approximately $24 billion.  If it were a public company, it now would be one of the largest companies in the U.S.  Is incorporating about getting rich?  Of course, building wealth is a factor, but more than that, it’s about finding fulfillment in doing the best job you can at something you love.  Incorporating provides you more benefits than being unincorporated if you have a sizeable portfolio.  I already have another full-time job, and I will do the best job that I can at that job, but I also enjoy investing and am intent on maximizing my investments’ potential returns.  It’s wholly possible to succeed at private equity and keep your day job.  You just have to be smart about your investment choices.