And… bailing out.

Dave Farquhar Investing

Scratch one investment property.

Running the numbers, it might have still been possible to make it work. But a lot would have to go right, and this particular property didn’t have an especially good track record.We had a plumber come out and look over the biggest problem. He came back with a best case scenario of $5,000. He called this morning with what he thought was a more realistic figure: an eye-popping 15 grand.

Well, there’s a problem. The property easily needs another 15 grand worth of work. And most of it isn’t stuff that a do-it-yourselfer ought to be doing. It was overzealous DIY work that got the house in this mess in the first place.

According to the books we’re reading, we could afford to put $33,000 worth of work into the house, based on what it should rent for. But it’s easy to see how one project going over budget could blow the whole thing out of the water.

And, frankly, doing that much work would cause more debt than I’m comfortable carrying.

We’ll lose some earnest money. But the risks are starting to outweigh the benefits.

We’ve learned some expensive lessons. But at least we’ve learned. We’ve gone and looked at a couple of other houses already. And we noticed things we hadn’t noticed before.

Not only that, in one case we liked what we saw. The question is, how many other people have seen it and liked it too?

End of the innocence

Dave Farquhar Investing , ,

Honeymoon’s over. The purchase is getting rocky. I’ll tell you about my troubles so you hopefully don’t repeat them.Mistake: We used the mortgage broker our realtor recommended. She got us preapproved quickly enough for us to get our bid in… barely. The rest of the process to get approval went at a sloth’s pace. And then? She slapped us with a 5.625% interest rate and $2,600 in closing costs. She had a vaguely plausible explanation for both, but the closing costs were highway robbery and the interest rate was half a percent higher than it could have been.<p>

Having been lectured by my accountant once about closing costs, I tried to negotiate. Everything’s negotiable, he said. Nothing’s negotiable, she said.

"So I really should just pay cash for this house?" I asked.

She laughed. "If you can." She thought she had me over a barrel and she was going to take advantage of me.

Hopefully she learned a lesson, but I doubt it. Don’t give a Scotsman reason to reconsider parting with money, because once you do, you’ve lost him.

I was out of fight at that point, but my wife called the bank we use most of the time. She told the agent about our 5.625% interest rate and $2,600 closing costs, and asked if she could beat that, and if she could, how we get out of the bad deal.

She talked to us about our goals and our finances and suggested a Home Equity loan. The rate would be low, the payments would be flexible, we could get approved quickly, and there would be no closing costs.

It’s an unconventional answer to the problem. But for a first property, with uncertain expenses, it gives some flexibility. Let things stabilize for a year or two, then get a conventional mortgage if need be. The conventional mortgage gives long-term flexibility, but a HELOC gives short-term flexibility.

So it pays to call around until you find a loan officer with some creativity.

And true to her word, we had approval on the HELOC in three days. That’s how long it took sloth lady to get us just a preapproval.

The house: Now I know why the house was cheap. Superficially, it looked good. But when we started poking around with an inspector, we found out the house was an Uncle Louie Special. Uncle Louie re-did the wiring, the siding, the plumbing, and almost everything else in sight. Uncle Louie did a reasonably good job of laying tile and painting, but when it came to anything else… Well, the inspector said, "He sure didn’t let not knowing what he was doing get in the way of him finishing a project."

He said a few other things too, but it’s probably best not to repeat them.

Unfortunately, it’s going to take professionals to fix most of Uncle Louie’s work. And it won’t be cheap.

The inspector’s advice: Make the decision with the numbers, not with your heart. Which is good advice. The realtor’s job is to make you fall in love with the property. The inspector’s job is to bring you back to reality.

Sometimes the reality isn’t what it first seems. But sometimes you can still make it work anyway.

That’s what we have to learn next.

Installing Windows off USB

Dave Farquhar Windows , , , ,

I sure wish I’d seen Wintoflash a few weeks ago.

It’s simple. Insert a Windows CD or DVD (anything from XP to Windows 7). Plug in a blank USB flash drive (or one you don’t mind erasing). Answer a couple of questions, and after a few minutes, you have a bootable USB stick that installs Windows. It will be much faster than CD or DVD because flash media has much faster seek times.

So what could be better? Well, slipstreamed and customized Windows of course.First, go get ctupdate and run it to get all the current hotfixes and service packs for whatever version of Windows you use.

Next, use Nlite to easily slipstream in all those service packs and hotfixes. While you’re at it, you can remove whatever non-optional inessentials you want. All the games, Media Player, Movie Maker, Outlook Express, and stuff like that are fair game. If you feel brave, you can even (horrors!) remove Internet Explorer.

Rebuilding a PC used to take most of a weekend to do, but with an up-to-date installation on a USB stick, I think the task could take an afternoon, as long as the target computer is new enough to support booting off USB.

And to a tinkerer, it could be very nice. Speeding up installation and modification would allow a tinkerer to be more aggressive with Nlite in terms of changes. Make a fatal change, and it’s no big deal–just back out of the change and reinstall, and in about 15 minutes you’re up and running with a new configuration.

Diving into real estate

Dave Farquhar Investing , , , , , , ,

You’re not going to believe this. This week my wife and I applied for a mortgage.

Not on our primary house. We’re buying an investment property. I’m still struggling with the mortgage bit.The greatest real estate investment books of all time (for mere mortal working class people, at least) were written by a man named William Nickerson, starting in the 1950s. Nickerson took one and only one shortcut in his investing. He saved up 25% for a solid downpayment, and bought property. Usually property with something wrong with it. He liked small apartment buildings and humble single-family houses.

Then he fixed the property up. Depending on the situation, he’d sell it if it made sense, or more likely, he’d rent it out, then sell when the right opportunity arose.

And when he had enough money to buy another property, he’d buy another one. An outright sale usually would yield enough to buy multiple properties. Or if he could make a trade that made sense, he’d trade properties.

His initial $1,000 investment (which would be more like $10,000 in today’s dollars) grew to $1 million in property by the time he wrote his first book, to $3 million by his second edition in the late 1960s, and $5 million by his final edition in the mid 1980s.

Nickerson argued that his method was the safest investment in existence. He had a point. Land is the one thing God isn’t making any more of, but God is still making new people. People who need land to live on.

But how do you find tenants? What if the house sits empty for a long time? After all, my Dad rented out a property for several years and it was a nightmare. It sat empty a lot, and his tenants trashed the place.

A couple of months ago, I saw a house for rent two miles from me. The asking price was $900. Two days later the sign was gone. Now there are cars in the driveway. So someone rented it. I looked up the house on Zillow. You could buy the house for less than that, if it were available at current market value.

I kept watching. Rentals in my zip code don’t stay vacant long. So when a HUD-owned home a couple of miles away came up at a price we could afford (my wife found it), we went and looked at it. We liked it. It needs work, but that’s why it was cheap. We made an offer, and now we’re a few steps away from buying.

We have some luxuries Dad didn’t have. We’re in a hot market, so we don’t have to rent to the first guy who asks. We can get a family with references. We live close, so we can keep an eye on the place. We can use a management company to help keep everything smooth. We’ll pay more for that privilege but it’s probably worth it. And the mortgage payment is low enough that if it sits for a few months here and there, it won’t break us.

Where house flippers–at least the ones you see on TV–seem to get into trouble is dealing in big, expensive homes and being too leveraged. If the market for $200,000-$500,000 houses goes south, they’re stuck.

This house will never be on TV. Well, the Extreme Makeover guys would love to tear it down and build a sprawling, awkward castle on its L-shaped lot. It’s a low-end house, the kind of place a young family would buy or rent, live in for a few years, and then probably vacate once the kids are done with grade school–if not a bit sooner.

People want large houses in outer-ring suburbs, but they don’t need them. But a young couple that’s outgrowing an apartment does need an affordable house for a few years, and when they outgrow that, there’ll always be another family in the same situation, ready to move in.

So why don’t they just buy the house we had our eye on instead of us? I’m sure some do. But not all of them can afford the downpayment and the money it will take to fix it up.

A friend and I discussed the ethics of buying a down-and-out person’s house, back when Robert Kiyosaki was at his peak in popularity. Kiyosaki appears to have no qualms about it. We were less comfortable about that.

As far as I can tell from the records easily available, this house finished up the foreclosure process in May. A bank somewhere in New York had it for a couple of months. Then HUD ended up with it. I don’t completely understand the process yet.

As it stands now, the house is no good to anybody. HUD’s doing the bare minimum to keep it from getting much worse. It’s eating up taxpayer dollars and making the neighborhood look worse.

The best thing for the house and the neighborhood is for someone with money and who knows what he or she is doing to come in, make it inhabitable again, hopefully make it look a little better, and get someone living there just as quickly as possible.

In my wife and me, they got someone with a little money. We’ll have to learn what we’re doing on the fly.

We’re taking advantage of the former owners who got in over their heads, but when I go to work every day, I’m taking advantage of whoever made the decision to replace a working, reliable computer system based on VMS and Unix with a sprawling monstrosity based on Windows. And my wife would argue that they take advantage of me.

By buying a fixer-upper below market value, fixing it, and renting it at market value, we’re taking advantage of the house’s situation and the future tenants. But the future tenants are taking advantage of us, because they get to live in a house they couldn’t otherwise afford.

I’m not crazy about all aspects of the situation but I’m comfortable that I’m doing more good than harm.

Now, back to that mortgage question. I’m still arguing how quickly and how to pay that off. The math suggests I could ultimately pyramid at least seven properties, using rents from the first two to pay the mortgages on all of the others. And a few short years ago, a bank would have been more than happy to lend me the money it would take to do that.

One latter-day follower of Nickerson makes it his goal to pay off one of his properties per year.

I like the idea of fixing a property, holding it for as long as the tax code encourages you to hold it, then selling and using the proceeds to pay cash for more than one property to replace it. The growth is theoretically smaller, but I really don’t like debt.

But that’s really a question for another year.

Password pain

Dave Farquhar Servers and Networking , , ,

ChannelInsider bemoaned bad password policies and practices late last week.

It’s a problem. Security (unfortunately) is my specialty, so I know it’s a problem. But it’s going to get worse before it gets better.There was an old User Friendly cartoon where a helpdesk operator spitefully changed an annoying user’s password to something like !Qoh&32;[ or something like that. Unfortunately, we’ve gotten to the point where the industry-standard password policy requires users to have passwords like that–only twice as long.

Let me tell you about one of my clients. Their policy is especially draconian. The passwords have to be at least 15 characters long and have two uppercase, two lowercase, two numbers, two special characters, and two umlauts (OK, no umlauts required), but then they add some other restrictions on top of that. These restrictions make the passwords considerably harder to remember, but they also significantly reduce the number of possible passwords (which is why I won’t disclose the restrictions–and no, I won’t disclose the name of the client either). So the end result is that the passwords look really secure, but really aren’t any more secure than the 8-character passwords they were using a few years ago that had fewer restrictions.

There are several unfortunate results to this situation. One is that it takes several days to come up with a decent password. As a result, passwords get passed around. “Does anyone have a password that works right now?” is a common question I hear. Yes, passwords get passed around. Or, slightly less worrisome, they become collaborative works. Someone hands over a slip of paper with something cryptic like 1977-22@MINal.296 written on it and wants to know why the password policy rejects it. If the first person can’t figure it out, someone else looks at it.

Personally, I think if that password had more umlauts, it would probably get through the policy. But that’s just me.

And then the password age keeps getting ratcheted down. It takes almost 30 days to memorize these stupid things. But by then, the passwords expire and the whole cycle starts over again.

Ultimately the solution is going to be ever longer and ever more complex passwords with ever-shorter lifespans. Maybe 32 characters long, with four upper, four lower, four numbers, four special characters, and four foreign language characters (stuff you have to type by hitting ALT and a four-digit keycode on the numeric keypad). I hesitate to say this, because someone’s going to think that’s a great idea and adopt it. So maybe I should patent the idea to prevent that from happening.

And the result will be ever greater resentment, more password sharing, more passwords on sticky notes attached to keyboards and monitors, and even greater willingness to exchange a password for a piece of chocolate.

Loosen the restrictions a bit, cut users a bit of slack, educate them on the importance of good passwords, and the result can only be greater security. Until then, things are only going to get worse, on all fronts.

It’s too bad Secure Channel didn’t think of all that.

Running a marathon with no plan

Dave Farquhar Saving money , ,

Yesterday I commented on a popular financial blog about using a debt snowball to pay off debt. Another commenter said she would never use such "psychological aids" or some other derisive name, if she ever found herself in debt.

I commented back, saying she could call it whatever she wanted, but I’d call it what it is: a plan. And if you’re going to pay off debt, you either need a plan, or some phenomenal luck.

Just deciding to pay off debt without a plan is a lot like me deciding to run a marathon. A couple of people told me I’m pretty quick running short distances, so hey, I might be able to win, right?

Well, every time I’ve tried to run long distances, I took off and usually built up a pretty nice lead early on. But since I didn’t pace myself, not only did I fall behind, but usually I was struggling just to finish. What about winning? In my dreams, maybe.

And that’s why the debt snowball works. It sets a pace. Follow the plan, focus on just the next month rather than on the big numbers, and whether it takes you six months or seven years, you eventually write that final check. And then you’re debt free.

Sure, you can argue about which debt to pay first and all that, but it’s just details. Do it wrong, and you pay your debt off a month or two later than if you do it optimally. That’s not so bad. You still save thousands, whether you do it right or wrong.

My critic said she got out of debt by selling a condo she’d been renting out. That’s great for her. Unfortunately, five years ago I didn’t have a condo to sell. I still don’t. And neither do most people.

I could have waited for a windfall. But if I had, I would still be in debt.

A serious case of one-downmanship

Dave Farquhar Hardware, Windows , , ,

While researching nLite (I’m thinking about rebuilding a PC), I found a page about two Germans exploring the true minimum system requirements of Windows XP.

I won’t spoil the ending, but one of them managed to accidentally discover the world’s slowest Pentium.I used to enjoy that kind of tinkering but really don’t have time for it anymore, especially when you’re talking boot times of 30 minutes.

At any rate, it was very interesting to see what these two tinkerers could do, even if I’m not too keen on running XP on anything less than about 1.5 GHz these days. I run a Pentium D system at work, which probably runs around 2.6 GHz, and it’s a slug. But that’s probably mostly because they insist on foisting Office 2007 on us.

But sometimes that work PC feels like one of the PCs on that web site must.

Review: D-Link DSL-2640B

Dave Farquhar Hardware, Servers and Networking , , , , ,

I’ve had DSL for right around 10 years. I would have ordered it sooner, except it wasn’t available in my area any earlier than that.

Over the years I’ve owned several modems. I started out with an Alcatel, then after I moved a mile down the street I owned a couple of different Speedstream modems. Each would drop connections every so often, and each had a different (and undocumented, of course) ritual to get it back online.

The highest praise I can give to the D-Link DSL-2640B is that I haven’t discovered such a ritual yet. If the phone line and electricity are working, it finds a way to stay online.

There’s nothing especially flashy about the 2640B. It’s an unassuming black and silver box, similar in styling to modern PCs, with jacks in the back. It’s a combination modem, gateway, and switch in one package, so in my case, it replaced two boxes–my Speedstream modem, and my Linksys WRT54G. Many ISPs have been distributing all-in-one units made by companies like 2wire in recent years; the D-Link is similar to those, but a bit smaller than many of them.

Setup is trivial for someone who’s set up devices like my old Linksys. Those who’ve never done such a thing may need assistance. I can’t vouch for the quality of D-Link’s customer service because I didn’t need it. Before I plugged the unit into my phone line, I plugged a laptop into the D-Link, brought the two units over to my desktop PC where I brought up my Linksys configuration, and I checked all my settings against the Linksys. About 10 minutes later, I plugged the D-Link into my phone line, it connected to my ISP, and it’s been online ever since.

The nicest feature is its ADSL information screen. It tells me the modem speed (downstream and upstream), number of errors, and other diagnostic information. I’ve seen my speed range from 1.5 megabit to as low as 256K (upstream stays steady at 384K), but it’s never dropped. I’ll take speed fluctuations over dropped connections any day. If the quality of my phone line deteriorates any further (or maybe I should say, “when”)–I’ll be armed with some good information. Southwestern Bell/SBC/AT&T have always been able to dismiss my complaints in the past. I imagine that’ll be harder to do when I can tell them exactly how many tens of millions of downstream errors I have, versus 96 upstream errors.

Despite those connections, the modem keeps on trucking. I’m impressed.

My sole complaint is that the DynDNS client doesn’t pass my domain name to my internal network. I had to put an entry for my DynDNS name into my hosts file. This won’t be an issue for anyone who isn’t running their own web server, but it’s a little aggravating for those who do. Less aggravating than a dropped connection though.

So if you need a new DSL modem for whatever reason, I recommend the D-Link DSL-2640B. It isn’t flashy, but it works and keeps working.

Update 10 October 2010: I’ve been using this unit for about 15 months, and it’s still going strong. So I can recommend it even more strongly than when I wrote this. It’s out of warranty now, and I didn’t even notice.

Firefox vs. Chrome

Dave Farquhar Software , ,

I used Google Chrome this week while I waited for Firefox 3.5.1 to come out. I like both browsers but still prefer Firefox by a slight margin. But Chrome is nice to have for those times when Firefox has unpatched vulnerabilities.Popups: Chrome wins hands down. Firefox doesn’t block all popups, but in a week of using Chrome, I had zero popups. None. That was nice.

Searching: Firefox wins. Most people don’t mind hitting ctrl-f to search, but I’ve grown used to Firefox letting me search by hitting the / key. It’s faster and easier and now that I have the feature I hate not having it.

Blinky crap: Firefox wins. I can disable animated GIFs in Firefox and I can use Flashblock. Maybe I can get Chrome to disable animation too, but I know where to look in Firefox. Firefox will stay near and dear to me as long as it lets me block all that blinky crap.

Speed: Chrome runs Google Maps and the new Yahoo mail faster and on a marginal PC it scrolls text a bit better. But I think Firefox finds sites faster. Both are much faster than IE though, and after suffering through 8 hours of IE at work every day, either one is heavenly.

Search bar: If all you do is search Google, Chrome is better. I routinely search Amazon and eBay, a lot. Chrome’s way of doing it is clumsier than Firefox even though it uses less screen space.

Frankly I like both browsers but I’m glad to have Firefox back. I may find myself alternating between the two based on whatever I happen to be doing.