Silence. It’s just good business.

December 23, 2010
Tenant with eviction notice

How bad is our tenant? This is an interview with our prospective new tenants, a family of Gypsy bear herders

The Control Your Cash authors own an office building. In a couple of weeks, the tenant is supposed to start the 3rd and final year of the lease. It calls for a fixed annual rent increase.

The tenant was late with the rent once before. That time, the good-cop author waived the 10% late fee after listening to an excuse from the tenant’s octogenarian chief financial officer. The good-cop author stressed that this would be a one-time-only thing.

A few weeks ago, the tenant asked that the rent not go up next year. He offered nothing in return, he just hoped he’d get $6000 by asking for it. Maybe he thought he had leverage – the building’s been half-empty for some time, leading him to believe it’s a renter’s market. Perhaps, but a contract is a contract.

We refused, and December’s check never arrived. The bad-cop author left a polite and unambiguous voicemail with the boss and spoke with the CFO, who refused to give a straight answer to the complex and nuanced question, “Did you send a check?”

The tenant himself called the good-cop author a few minutes later, claiming that the bad cop threatened and disparaged the CFO (he didn’t.) The tenant added gratuitous lies, such as “the CFO thought he meant January’s rent.” The bad cop overheard this, grabbed the phone, stated his position, and the tenant started spewing profanities and, swear to God, asked if anyone would be interested in “tak(ing) it outside.”

Indisputable conclusions:

-in Western society, the standard strategy for requesting a favor involves groveling and pretending to like the person who can dispense the favor. Berating and threatening are almost never part of that strategy. Therefore,
-the tenant has no intention of sticking around past December.

Additional points: the tenant opted to communicate exclusively via text from that point, and exclusively with the good cop. In fact, one of the texts stated that the bad cop “is not to contact us anymore.” Yes, the delinquent tenant is making demands while stealing office space.

Also, the tenant stated that he’d refuse to pay the 10% late fee. He asked the good cop if she really wanted to “destroy this business relationship” and if she’d want to “lawyer up” in lieu of caving into all the tenant’s demands. These would include, apparently, refusing to pay the current month’s rent. Nowhere in his diatribe was there a word about where December’s rent check is.

In the later chapters of Control Your Cash: Making Money Make Sense (available at Amazon and Barnes & Noble), we argue that if you’re going to invest in houses and rent them out, hire a property manager and pay her 10% to assume control of your headaches. Commercial property doesn’t typically work that way, and shouldn’t, but we at least weighed the benefits of hiring a property manager while dealing with this idiot tenant.

We didn’t get mad. We sent a cold and impersonal email to an eviction company and hired them. They charge $200 to put a notice on the door telling the renter he has 10 days to pay the balance (which just got $200 larger) or get out. The renter would still be legally obligated for not only December’s rent, but the remaining year on the lease. The security deposit we initially collected covers only a small part of that.

So he started using intermediaries. We got a call from the broker who originally engineered the deal, a quasi-friend with no dog in this fight. This is the equivalent of having an argument with your significant other and placing a call to the person who introduced you. We didn’t bother calling back the broker who, to her credit, had only two things to ask the renter: What am I supposed to do about this? and Did you pay your rent?

Then yesterday, a voicemail from someone we’d never heard of. Another real estate broker, but one who talked as though she was representing the tenant in court (“Mr. Smith really wants to pay the rent, and hopes both parties can agree to a mutually beneficial solution.”)

Huh?

If the tenant’s talking to other brokers, he clearly wants out of his lease. Which we’d grant, as soon as he cuts a $70,000 check for the entire remainder of the term. His threats to “lawyer up” notwithstanding, his would be one of the weakest cases in the history of jurisprudence. And why the tenant chose an intermediary whose very identity shows his hand made no sense at all.

The point of all this is manifold for people who want to make money by selling their goods and services to others (which is the only ethical way to do it):

a. If you’re going to be in a position where people can potentially owe you thousands, you need a written contract. (We did.)

b. When previously semi-reasonable vendors/customers/clients/tenants start acting irrationally, sever the relationship before they have a chance to. At least then you’re in control. Even if this tenant had never been late with the rent, why extend the lease of someone so bellicose? Let alone give him a price break.

c. STAY EMOTIONLESS. Take feelings into account in your personal relationships, not your professional ones. If you don’t, you will stay as poor as someone who buys lottery tickets and puts them on her credit card. Crap, this idea is so profound that it should have been a chapter in the book.

We could have made forceful but non-threatening calls to the tenant. We could have shown up (tempting, given his offer of a fight). We could have done what most people in these situations do, which is engage in unproductive conversations that don’t change anything (“When are you going to pay the rent?” “What do you mean you’re not going to pay the late fee?”, et al.) As if he’s going to give worthwhile answers.

Instead, put the phone down and don’t answer his calls (or any intermediaries’.) Because unless he says “here’s a cashier’s check for the full amount”, which he won’t, there’s nothing to talk about and anything beyond that is a waste of time. Hiring a pro and having the law on your side (plus a personal guarantee, agreed to at the start of the lease) makes life a lot less hectic.

**This post is featured in 2011’s First Carnival of Money Stories**

**This popular post is also featured in the Carnival of Wealth #19**

Filed Under: Bad Examples, Estate Planning, Finance, Investments, Rental Property Tagged With: , , ,

Our Anti-Couple Of The Year

December 6, 2010
Control Your Cash: Anti-couple of 2010

75 is the new 125

In 5 weeks we’ll give out our Man Of The Year award. There’s no formal set of criteria for it, but it’s fair to say that we give it to someone who does a lot with less than a lot.

Nor are there formal criteria for nomination, but we recently discovered the least qualified candidates in existence (non-government category.)

If you read Control Your Cash with any regularity, you’ll know that our opinions on gambling are unambiguous. Don’t.

Meet Violet and Allan Large of Truro, Nova Scotia, who spent $11 million of their gambling winnings in 3½ months. And people are commending them for it. If you needed any further proof that Canadians are monotonal, obsequious milquetoasts who enjoy being acted upon, this is it.

The Larges played Canada’s iconic Lotto 6/49, in which you pick 6 of the first 49 positive integers. Odds of winning are thus 13,983,816 to 1. The Larges nailed it and took home $11.2 million. Canadian lottery jackpots aren’t subject to tax, the eminently reasonable argument being that you paid the tax when you bought the ticket.

Ma & Pa Large “took care of family first”, according to an amateurishly written story that doesn’t specify how many family members that entails. The story also claims the Larges “don’t gamble”, leaving open the question of what activity buying a lottery ticket should be classified as. Then, the Larges cut checks (excuse us, “cheques”) to firemen, churches, hospitals, cemeteries (cemeteries need money?), the Red Cross, the Salvation Army, etc.
If a pro athlete did this with jewelers instead of cemeteries, hack sportswriters across North America would proselytize against it. Bob Ley would devote an ESPN Outside the Lines special to it. But if some astonishingly dull couple does it, people want to beatify them.

The Larges kept $200,000, or $100,000 apiece. Let’s assume Violet dies in the next couple of years: she doesn’t have the hairstyle of a woman with a lot of time left. Is the remainder really going to be enough to keep everyone comfortable? Self-made multimillionaire Paul Stanley put it best:

“ALRIGHT! I KNOW EVERYBODY’S HOT! EVERYBODY’S GOT…ROCK AND ROLL PNEUMONIA! SO LET’S CALL OUT – DR. LOVE!”

Sorry. He did say that, but more to the point, he said:

“The best part about having money is not having to worry about having money.”

Contrast that with Violet Large:

“What you’ve never had, you never miss.”

The self-contradictory old kook borrows her philosophy from ancient bromides and fortune cookies, adding that “Money can’t buy you…happiness.” If the recipients of her largesse share that belief, they aren’t acting as if they do.

Were Control Your Cash an ordinary personal finance site, this is the part of the post where the author would write, “Would you give away $11 million? What would you do if you won the lottery?”

We don’t care. Here’s what you should do.*

Sell liabilities. Buy assets. No matter how much money you have, that never changes.

At least the Larges don’t appear extravagant. (No, really, they don’t. In case you didn’t notice.) We can only hope, maybe assume, that they own their house free and clear. And it’s true that staring at each other across the kitchen table costs little.

If you’ve got any kind of overarching debt that incurs large interest, and you come into a windfall, pay that debt off in its entirety. If you need the cash to capitalize on an investment with a larger return than the return you’re giving the lender on whatever it is you’re borrowing, then maintain the status quo if it involves a spread you feel comfortable with. In other words, if you finance a $50,000 car at 11%, but you’ve got $50,000 in an investment with a guaranteed 12% return, enjoy your annual $500 profit. But such examples are rare in the real world. When you’ve got the cash, it’s almost always better to pay the debt off, start again at 0 instead of at -11%, and start looking for an investment that pays you more than a net 1%. Which shouldn’t be hard to do.

And if you’re so devoid of ambition that you can’t think of a single exotic place to visit or an experience to enjoy that requires you to spend a few bucks, join the Larges in Nova Scotia and together you can watch the ground freeze.

P.S.: They’re still buying lottery tickets.

*Someone, possibly that disagreeable Nancy woman from that one blog, is reading this and saying “How dare those arrogant people tell us what we should do with our hypothetical money.” Fine, we’ll refund your blog-reading fee.

Filed Under: Bad Examples, Economics, Estate Planning, Making Smart Choices Tagged With: , , ,

MAILBAG!

November 22, 2010
Mailbag

Oh no, that's not a European male carry-on at all. Very masculine.

Where do you suggest buying hard assets like gold or silver?
John, Las Vegas

Let’s start with someone who clearly read one of our previous posts.

Two ways to go here – ingots or coins. You’d think ingots would be the more liquid, easily transferable form. They aren’t always, and here’s why.

National governments issue coins, which means they come with some implicit guarantee. Should the gold market bottom out, your $10 American Eagle gold coin will still be legal tender. A bar is easier to fake. Even if you know a bar is real, a seller won’t and will insist that you pay to have a dealer examine and verify it if it doesn’t come with an assay certificate. That’s less likely with a coin, which is harder to counterfeit.

The U.S. Mint sells coins at huge markups – like, 20% (or 36% if you buy in tenths of ounces.) Better to go through a private dealer like Goldline or Monex, which sells at a smaller markup (around 4%).

The latter will also sell bars, which are forged privately. They’ll carry the logo of the manufacturer, stamped right on the bar. Johnson Matthey, a UK company, is a big one. So is Credit Suisse.

Your local bank might sell you gold over-the-counter, too. Not surprisingly, your chances are better with a big national or multinational bank than with a community bank.

My company takes $x per pay period and puts it in a 401(k). They match up to $x that I contribute. What is my company doing with my money?
Donnie, Austin

They’re doing exactly what you told them to, whatever that is.

Your company almost certainly uses just one provider to handle its employees’ 401(k)s. If your company’s big enough, once a year someone from that provider shows up and tells everyone where they can invest their 401(k) money. The provider will probably let you choose from a bunch of mutual funds – some that focus on growth, others that focus on dividend income, etc. You selected one and with your next paycheck, the money started going to whichever 401(k) instrument you chose. The money your employer matched your contributions with went to the same place. So ultimately, that money probably ended up with Hewlett-Packard or American Learning Corporation or Overland Storage or Burlington Northern Santa Fe or whatever. Or all of the above. But again, it’s only going there because you specifically asked for it to.

I love being grandfathered into the SARSEP plan I set up for my company before Billy Bob Clinton abolished them. No reason to look to get out of that, correct?
Andy, Indianapolis

No.
A SARSEP is, was, a Salary Reduction Simplified Employee Pension Plan. As you can tell, the IRS took acronymic license with that one.
As Andy mentioned, SARSEPs went the way of the passenger pigeon 14 years ago. Under a SARSEP, if your business had under 25 employees, and most of them agreed, you could direct part of their pay to an Individual Retirement Account. SARSEPs were a special class of the SEP-IRA, which is a little more relevant to our discussion.
A SEP-IRA is a way for small businesses to circumvent the rule that an employee can only contribute $15,000 annually to an IRA. (You want to be able to contribute a lot, as that’ll lower your tax liability today.) The maximum an employee can contribute under a SEP-IRA depends on how much the company earned. A SEP-IRA is essentially a profit-sharing plan. The most you can contribute on an employee’s behalf is either
a) ¼ of his salary, or
b) $49,000, whichever’s less.
That latter number rises annually. If you work for yourself, substitute 1/5 for ¼ and factor in the self-employed tax deduction. Isn’t accounting at the government’s behest fun?
One more thing: if you work for yourself, you know what the maximum you can contribute is? It’s a percentage of net profit.
20%?
Lower.
19%?
Lower.
18%?
Higher.
18.587045%?
Yes! And you read that correctly; the functionaries at the IRS actually drew the percentage out to 6 decimal places. Because if they let you contribute 18.587046%, which is an extra 1¢ on every $1 million, it would be unfair to some interest group.
How many examples have we given of the tax code needing to be imploded and started again from the ground up?
An aside: what’s the breaking point? At the rate we’re going, the IRS code will exceed a billion pages in the lifetime of some of us. Would a code that size be long enough to make taxpayers agree that the process under which their money’s confiscated is too confusing? Would the politicians of that era care enough to do anything about it? Is this as futile as trying to stamp out corruption or get everyone on the planet to quit smoking?
We do a mailbag whenever we get enough good, legitimate questions. Send yours to info@ControlYourCash.com.

Filed Under: Estate Planning, Finance, Healthy Living, Investments, Making Smart Choices Tagged With: , , ,
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