Thursday, April 29, 2010

Harry Potter And The Mountain Of Paperwork

Last week, I wrote about my decision to try to move all my documents to electronic format. I've spent the last week converting some of them. Luckily, several of the companies I deal with provide access to electronic statements online, even if you had not signed up for them in the past. This means I was able to download, for example, the last 10 years of my brokerage statements from Charles Schwab. That saved me a lot of scanning. For the things I couldn't download, I have slowly been scanning documents. I've gotten through about one and a half drawers of my 4 drawer file cabinet. Here's a picture of the documents I've converted to electronic form so far:


In case you can't read it, that's a tape measure hanging off the pile. It's showing the stack is 9 inches tall. I just waved my trusty scanner at the pile and Reducio! Gone! Now I've got lots of shredding to do.

My online backup has also been proceeding over the past week. It's currently backed up about 60% of the 50 GB of data I have selected. (Since I have unlimited storage, I selected others things to back up besides the  electronic documents I am creating, such as my photos and MP3s.) Once this initial backup has finished, subsequent backups will be almost instantaneous.

In real estate-related news, it would seem the market in California, or at least one part of Calfornia, is recovering. The property I made hard money loan #11 against is finished being rehabbed and is now on the market. It was put up for sale on a Monday. By Saturday, the seller had received seven offers at or above the list price! We figured it would sell for $700,000, but it looks like the seller may be able to get $725,000 for it. If the seller accepts an offer and all goes well with escrow, the loan should be paid off by mid-June.

I also finally got everything all finished in setting up my self-directed IRA. I opened a bank account for the LLC yesterday. Now I just have to wait 1 week for the bank to release the hold on my deposit check and I'll be able to start hard money lending with my IRA!

Tuesday, April 20, 2010

Taming The Paper Beast (Updated)

I have three filing cabinets in my home – a tall four drawer letter size model for personal stuff, a two drawer lateral file cabinet for my real estate-related documents, and a two drawer letter size filing cabinet for my hard money lending documents. The four drawer cabinet is full, the lateral cabinet is getting there, and the two drawer one is still relatively empty. I’ve thought about going paperless before, but have always been somewhat afraid to pull the trigger. I did not want to give up the security of a physical bill or invoice. Over the past several months, I’ve become more comfortable with electronic documents, as I’ve used them more and more. And now, I’ve been inspired by Cliff to try to go paperless as much as possible. This means not only signing up for paperless statements from my utilities, brokerages, etc., but also converting my existing documents to electronic versions. The benefits are too great to ignore – I can rid myself of reams of paper and at the same time, create records that I can store longer and move easier than paper records.

I already have the needed equipment – a legal-sized scanner with auto-feed capability, a shredder (for destroying documents after I have scanned them), and a computer. The second important piece of this puzzle is a method for backing up the electronic copies. I currently have an external drive that I back up  my computer to daily, but I also want an off-site backup location in case my house burns down. I think I’ve decided to go with SOS Online Backup. They are definitely not the cheapest – they charge $50 a year for 15 GB of storage, whereas most other companies give you unlimited storage space for the amount. What swayed me to them was their great reviews from PC Magazine and what seems to be their ease of use. I also like that they can back up files that are in use, which is important because I leave my email client open all the time and the .pst file will still be able to be backed up. In addition to my electronic documents, I will also be backing up my digital photos, which are priceless. Right now, I have about 8 GB of data. That leaves another 7 GB for my new scans. I figure if I need more and SOS can’t provide it, I can always switch to another online backup provider.

An added benefit of switching to electronic records is that now everything will be searchable. Windows Search can, with a plug-in, index the contents of PDF files, which is the format my electronic records will be in. The old documents I am scanning myself will not be indexed because I will just be making images of them and not running any OCR software against the images, but going forward, the documents I get from the companies I deal with will be searchable.

The final step of this process is deciding on a filing method. How will I organize these files on my hard drive so that I can find what I need quickly? I actually read an article about this a week or so ago, but I can’t find it again. I can’t even remember if I read it online or in an actual magazine. Anyway, the typical choices in how to file come down to two methods – grouping by date or grouping by type. In other words, should I put all my invoices from January in one folder, or all the invoices from my electric company in one folder, all from the gas company in other, etc.? I’ve opted to go for the later method. I’ve also broken it down somewhat more by breaking out documents I only retain for one year and those I want to retain forever. Here is an image of the folder structure I’ve come up with. It’s not perfect and there are some holes – for instance, what if I get a combined bill for different services, such as internet and television from one provider? That doesn’t really fit into this scheme (unless I made a new folder labeled “Entertainment”), but I currently don’t have any situation like that, so I’m not going to worry about it. This will probably change a bit as I add items, but I think it’s a good place to start.



I also want to come up with a naming convention that makes it easy for me to identify what the contents of the document are without opening it. I’ve decided on the following: Company-N-Description-MMYYYY. “Company” will be the company the document is from, “N” is a single letter that will indicate if the document relates to me, my wife, or my daughter, “Description” will be a brief description of the document, and “MMYYYY” will be the month and year of the document. For example, a scan of my Roth IRA statement for this month would be named “Schwab-S-Roth IRA-042010.pdf”

With all the planning out of the way, I’ve started contacting the companies I have accounts with and switching to electronic records where possible. The longest part of the process will be scanning in all my old paperwork. And I still won’t be completely paperless. You’ll notice in the above folder structure that there is no spot for tax returns. I’m still hanging on to those in paper form for a while. Old habits die hard.. I also do not have any spot for my business documents – real estate buying and selling contracts, my business banking statements, etc. Those I’ll add in later. For now, I’m going to concentrate on my largest pile of paperwork, which is personal stuff. After that, I’ll move on to my business stuff, and then, hopefully, to stuff like owner’s manuals and documents for big ticket items I’ve purchased like entertainment systems, televisions, washers and dryers, etc. And at that point, I may be able to get rid of a filing cabinet or two!

And in other news, as I predicted a little while ago, hard money loan #4 has been paid off. I received the final payment yesterday.

Update: I tried the free trial from SOS Online Backup and have decided I don't like it. My first attempt at backing up files resulted in a status message that said "xxxx files backed up, 8 files not backed up. They will be backed up next time." What? They didn't say why or which files were not backed up. Their software does not have a log viewer. They have a log, but it simply gives the date and time of when the last backup was run. I was able to hunt around on my PC and find a more detailed log that listed the files that were skipped, but that info was buried amidst a bunch of other stuff. I have instead gone with Carbonite. That is the vendor my work uses, so I've got some experience with their product. For $55 a year, you get unlimited storage. I also like that their software gives you an option to put a colored dot on file icons. Green means the file has been backed up, yellow means it has a back up pending, and no dot means the file is not being backed up. If you are interested, Google "Carbonite coupon code" and you will find a link you can use to get a 10% discount.

Wednesday, April 14, 2010

Self-Directed IRA Almost Ready To Roll

I received my LLC paperwork package in the mail two days ago. Today, I received confirmation that the LLC creation notice has been published in a newspaper of record (as required by law). My next steps are:

  1. Send the IRA custodian instructions to issue a check to the LLC for the purchase of membership shares. This is where my IRA takes ownership of the LLC, thus giving me a self-directed IRA.
  2. Return the membership roster and member share certificates to the company that set up the LLC for me. (The company is related to the IRA custodian, but not technically the same company.)
I could go open a bank account now using the LLC documents I have, but I will wait until I get the check first, since I don't feel like trying to see if I can open a checking account without making a deposit. Why complicate things?

I'll get all the forms mailed out tomorrow, so I figure it should be a week before my check arrives and I can open a bank account.

Friday, April 9, 2010

One loan ends, another starts.

Sometimes everything just falls into place at the right time. Hard money loan #10 was paid off and just a day or two later, another opportunity came up. I can roll my funds into that one with no time spent not earning interest while searching for a deal.

The new opportunity is a single family house, 5 bedroom, 2.5 baths,  in a nice area of San Leandro (Northern California). The borrower is a well-experienced borrower who we have done business with in the past. At the height of the real estate boom, this property sold for over $800,000. Of course, that’s pretty much a worthless number now and I am always amused when I see such figures in the analysis data that gets sent to me. The more important numbers are as follows: The property was bought at auction for approximately $475,000. The buyer is putting  25% of his own money into this and we are lending the remaining. After repair value of the property is approximately $560,000 with an average days on market of just over 1 month. Using the ARV of the property, our LTV is 63%. Using the buy price, it is, as mentioned, 75%. Nearby and similar properties rent for just over $2,700 a month, so if we foreclose, we are looking at $33,000 gross rental income per year. It is in a stable neighborhood (few other houses for sale).

Here is a picture of the front of the property. There isn’t much fix up needed and the property is already vacant. We expect this loan will be paid off in 3 to 6 months, although the loan term is for 1 year. Standard deal – 10%, interest only, 1 year balloon, no pre-pay penalty. This will be labeled hard money #12.



All is not quite so rosy with the apartment complex in Houston. The last month I have data for, February, showed a decline in revenue, even as occupancy increased. This was due to increased concessions to get people to move in. Occupancy is fluctuating between 88% and 90% as the area continues to be hit by poor economic conditions. Cashflow is running breakeven. Management expects it to remain this way through the end of the first quarter and to pick up in the second quarter, as occupancy is increased.

Hard money loan #4, the motorcycle loan I did for a co-worker, should also be paid off in a day or two. I was told the payoff check was mailed yesterday.

The self-directed IRA is proceeding slowly, mainly due to a comedy of errors. First, I filled out the wrong paperwork to get the thing started. The company I am working with created an LLC for me. They were waiting for some paperwork to be mailed to them from the Arizona Corporation Commission. But the ACC mailed the paperwork to me, because I am the manager. It wasn’t until a month went by that I found out they were waiting for paperwork I had already received. I faxed it over to them last week, and I think that is all they need now. They have to send me my LLC documents, and then I can go open a bank account.

On a personal note, my wife and I each picked up a new 2010 Prius two weeks ago. We are both loving the cars. I’m averaging 53 miles per gallon, despite having a daily 66 mile round trip commute, mostly at highway speeds. I love being able to fill the tank less often and for less than I did with my old Avalon, which took $42 to fill up. The Prius takes $21. We each got the solar package, which uses a solar panel in the roof to power a fan to exchange the air in the car with outside air while it’s parked in the sun, keeping it cooler. Here in Arizona, that’s a huge benefit, especially since we haven’t gotten the windows tinted yet. With the purchase of the cars, we went from having no car payments to two car payments, so the passive investing income I’m getting will come in handy.