A House in the Cloud

A House in the Cloud


This article is commissioned by Microsoft Corp. The views expressed are the author’s own.

My husband and I applied for a home loan recently. It was painful. Lenders these days require just about every personal artifact except blood and urine samples.

During this process, I couldn’t help but wonder why the home loan industry isn’t utilizing the cloud to provide a better customer experience. The same goes for other business-to-consumer (B2C) industries, as well.
Our lender emailed a checklist of documents that she would need and we laboriously emailed them back, one-by-one. We attempted to link her to a Dropbox folder with all of her required docs, but that was apparently too forward thinking. She either did not receive or understand the Dropbox folder invitations and asked that we use e-mail “like everyone else.”

While enterprise and business-to-business cloud computing is going strong, business-to-consumer doesn’t have the same momentum just yet, despite the tangible benefits.

Coldwell Banker is one of the few real estate outfits with a cloud solution. Its program, HomeBase, provides a personal account that gives you and your agent access to all of your documents, detailed updates on your transaction’s progress, and access to these documents in perpetuity, even after your escrow has closed. This was built internally by Coldwell Banker and, according to Darrin Friedman, branch vice president of Coldwell Banker Residential Brokerage, it cost big bucks.

These services are intended to simplify and speed up each transaction, enabling agents to make more deals and make them faster. Despite the high price tag, you might think the return on investment would be fast and obvious.

“I wish I could tell you that were the case but adoption has been slow,” Friedman says. “But I can tell you that for the people that do use it, they don’t know how to ever be without it now. They can literally sell a house and never have to print anything out. I do have a few agents that do business this way.”

The adoption rate is likely the reason other brokerage firms have been slow to build their own cloud solutions.

“I would say the rest of the industry is about two to three years behind,” says Friedman. “Because if they don’t have to use it, they won’t use it. They will go kicking and screaming.”

What may ultimately drive better consumer-facing cloud services is customers who expect improved service as technology improves, whether or not they even know what cloud computing is.

“There are several examples of the consumer using the cloud without them knowing it,” says John Weigelt, national technology officer for Microsoft Canada. “For instance, TellMe voice services. We’ve been able to help customers using a cloud service for voice recognition. The customer speaks to a computer, their words are translated to text, and that improves the voice telephone interaction. People don’t think of that as a cloud service but it is.”

Which may mean that a successful B2C cloud service is one in which the customer never has to understand that they are in a cloud. You might call this kind of cloud solution “nebulous.” Pun intended.

Of course the cloud won’t suffice for everything in the home-loan process. Our lender continues to request increasingly personal documents for our loan. If she does end up needing those blood and urine samples, I don’t imagine I can upload them to the cloud.

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Dumb Money Moves to Avoid

Dumb Money Moves to Avoid

My 28-year-old niece and I were recently talking about money. She's (finally!) become interested in accumulating more and spending less, and because I've been in the personal finance business in one capacity or another since before she was born, she logically assumed that I've always done everything right and know exactly what to do at all times.
Confession time: I've blown it big on more occasions than I care to mention. In fact, most of what I've learned about money I didn't learn in books or by being a CPA, stock broker, or financial reporter. I learned it the hard way — by making stupid decisions and missing opportunities.
So for her sake, and maybe yours, I've put together the following list of 10 mistakes — most of which I've made — that you really should try to avoid.

1. Not having a goal

Whether sitting in your car or standing at the airport, you'd never start a trip without a destination in mind. The same logic applies to money. You should decide exactly what it is you'd like to accomplish, then remind yourself of that goal early and often. Are you trying to buy a house? Become self-employed? Save for your kid's college education? Retire in your 50s? Whatever it is, write it down, picture it and share it with anyone else who you're counting on to help you accomplish it. Your goal isn't money — money's paper. Create goals — both short-term and long-term — then decide how much money you'll need to reach them. Take it from someone who wandered aimlessly for years: goals work.

2. Not having a spending plan

If you have a job of any kind, you can bet that your employer tracks every dime they make and every dime they spend. Granted, they have an incentive to do so — both income and expenses affect their income taxes — but it's only logical to want to know where your money is coming from and where it's going.
Tracking and categorizing your expenses with a budget — or spending plan, as I prefer to call it — is the single greatest tool you have to accomplish your money-related goals. A plan that includes what you intend to spend on things like entertainment, food, housing, etc., vs. what you actually spend allows you to fine-tune your finances and find places to save. Not doing this is like driving with your eyes half-closed: You might reach your destination, but you're certainly going to take more time getting there.
If you're not writing down every penny of money coming in and money going out,
go to this page and download one of many free budgeting worksheets we link to there. Then read 4 Reasons Budgets Fail and How to Create One That Won't.

3. Attempting to derive self-esteem from possessions

Although we all know that money doesn't buy happiness, very few of us act that way. Instead, we seem to go out of our way to appear successful by driving the right car, living in the right house, and wearing the right clothes. Nothing wrong with nice things — if you can afford them.
But here's something that life has taught me. It's a quote from my most recent book, Life or Debt 2010: You can either look rich or be rich, but you probably won't live long enough to accomplish both.
Attempting to derive self-esteem from possessions is dumb on two counts. First, it's expensive.
More important? It doesn't work.

4. Doing what everyone else is doing

One of the world's wealthiest men, Warren Buffett, said, "Be fearful when others are greedy; be greedy when others are fearful."
During the recession-induced stock market rout that began in the summer of 2008 and bottomed in March of 2009, the Dow Jones Industrial Average plunged all the way from 10,000 to 6,600. It was at that time that I bought most of the stocks I now own in my online portfolio. I didn't buy then because somebody on TV told me to — the "experts" were as fearful as everybody else. I bought then because I'd missed similar opportunities in similar downturns before, and I was determined to learn from that mistake this time.

Likewise, when the housing bubble was at its zenith, many of my friends were buying as many houses as they could possibly borrow for, even though it should have been apparent that prices were over-inflated. Now they're broke — and I'm shopping for real estate. Again, not because I'm smart, but because I've also missed that opportunity before. Hence this recent story Why You Should Buy Stocks and Houses Now.
It's common knowledge the economy runs is cycles of boom and bust — yet when times are good, everyone seems to believe that trees grow to the sky. When they're tough — like they are now — the same people stand like a deer in the headlights.
If you're convinced the economy is going to zero, buy guns and canned goods. But if you can reasonably expect a recovery some day, invest — even if that day is a long way away, and even if it's possible things could get worse before they get better.

5. Starting to save large and late rather than small and soon

If you're 25 and you save just 5 bucks every day ... call it $150 a month ... and earn 10 percent, by the time you're 55, you'll have $340,000.
If you wait till you're 45 to start accumulating that same 340 grand, you'll have to save $1,700 every month for 10 years. True, you can't earn 10 percent today, at least without risk.
But over time and by taking a measured amount of risk, you can.

6. Paying interest to buy things that drop in value

There are only two situations where paying interest makes sense, at least mathematically. The first is when the purchase goes up in value at a rate greater than the rate of interest you're paying to finance it. Example: You borrow money at 5 percent to finance real estate that you think might return 8 percent on your overall investment. Other examples might include a business loan or a student loan — in other words, something that's going to return more (at least potentially) than it costs in interest payments.
The other situation where paying interest makes sense is when you can earn more on your cash than you're paying in interest. Example: After taxes, I'm only paying about 3.5 percent to finance my house. Since I think can make more than 3.5 percent after-tax in the stock market, I'll forgo paying off the mortgage, even though I have the cash.
Obviously there are times when we have no choice but to borrow. The point is that unless the math works out, the less you borrow, the better.

7. Turning down free money

If your employer is offering matching money when you participate in your company's 401k or other retirement plan — and you're not participating to the extent necessary to get the full match — you're literally refusing free money, not to mention ignoring an opportunity to get a tax deduction and grow your retirement savings tax-deferred.
There are only two kinds of people who turn down free money: people who really, truly can't afford to put up the money to get the match, and people who aren't thinking it through.
And yes, I've been one of those people.

8. Buying a new car

Everyone knows that cars drop 15-25 percent before you get them home from the showroom. Which makes it odd that so many people continue to buy one. My girlfriend just bought a 2009 BMW that still smells new for $26,000 — about $7,000 less than a new one would cost, and they look pretty much identical.
This is one mistake I can happily say I haven't made — I've never spent even that much on a car — or owned one that new.
If you're buying a car for transportation, it doesn't have to be either new or fancy. Cars are depreciating assets: the less you spend on one the better, especially if you're borrowing money to do it.

9. Buying more house than you need or can afford

It's practically gospel: spend 25 percent of your gross income on a mortgage, regardless of what size house you really need. While spending the maximum possible amount you can afford will make real estate agents happy, will it make you happy? When you buy more square feet than you're going to actually live in, you're required to insure them, furnish them, clean them, heat them, and cool them. All of that costs money, time and stress.
Buying a big house makes sense if you're trying to make a leveraged bet on the future of housing prices — or if you're trying to impress your friends.
If you're not doing either, buy what you need and put the money you save into more productive things, like meeting your financial goals.

10. Not protecting your good credit

Credit is like lots of things in life: simple to screw up, a bear to fix. And even though you may think it doesn't matter, some day it might, and probably will. If you've already messed up your credit, take the time and steps necessary to fix it and then keep in good shape.
That was my list of dumb moves to avoid, but I'll bet there are plenty of things that you could add. So let's hear it!

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A Retailer That's at Home Abroad

Ask most people what images the words "Caribbean" or "Latin America" evoke, and they might say "beaches" or "rum punch." But ask a PriceSmart executive, and the answer might be "a huge and rapidly growing market."
The San Diego company, effectively the Costco of the Caribbean, is the region's largest operator of warehouse stores. It is also, its chairman says, probably the only U.S.-headquartered retailer without a single outlet in the States. With just 28 stores in 11 countries plus the U.S. Virgin Islands, PriceSmart is tiny, compared with rivals BJ's (BJ), Sam's Club (a unit of Wal-Mart) and Costco, all of which require shoppers to pay an annual membership fee, as PriceSmart does. Yet the company has big ambitions, including opening a store this year in Colombia and, maybe eventually, Brazil.

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Courtesy of PriceSmart

A PriceSmart in Escazú, Costa Rica. The company's stores, while spacious, generally are smaller than warehouse outlets in the U.S.

Growth has been in PriceSmart's genes since its founding by the late Sol Price, a visionary who in 1954 created the first membership-based warehouse retailing chain, FedMart. His son Robert is PriceSmart's chairman. After FedMart was sold to a European firm, the Prices launched Price Club, another membership warehouse chain. It merged with Costco in 1993. But different strategic visions among the executives of the merged company led the Prices to depart shortly after the deal closed; they soon founded PriceSmart. It was a relatively friendly divorce. PriceSmart is now Costco's largest customer, says Price. The relationship's so good, rumors periodically percolate that Costco (ticker: COST) might take over PriceSmart (PSMT). While some insist Wal-Mart Stores (WMT) would be a better fit, a deal with either would require the support of the Price family, which has a large stake—and publicly has expressed no interest in such a transaction.
While the global recession knocked down PriceSmart sales, they rose 11% in both fiscal 2009 and '10 (its fiscal year ends in August.) Fiscal 2010's sales came in at $1.4 billion, and for fiscal 2011, they're expected to be up 17% or more. Even more impressive, same-store sales have advanced by an average 17% in each of the past 12 months.
Earnings have beaten forecasts in each of the past five quarters. After rising 15% in fiscal 2010, to $1.65 a share, in this year's first and second quarters, they jumped 42% and 30% from the year-earlier levels. For all of fiscal 2011, $2 is likely, although bulls see $2.10 to $2.15 as a possibility.

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"The opportunities remain immense in the Latin emerging markets," says Robert Price. "Our stores are smaller than in North America, but they are 'tropicalized.' The food courts offer local specialties, along with hot dogs, and typically, half the produce in a store will consist of local and regional products." They also sell goods such as kitchen appliances, tools and baby strollers.
Says David Hodgson, a portfolio manager with Toronto-based investment firm Gluskin Sheff: "Whereas Costco has a merchandising gross margin—which excludes income from membership fees—of 10% to 11%, PriceSmart delivers 14.5% to 15.5%, owing to less competition in its markets and its ability to sell unique products with leading brands. The Ebitda [earnings before interest, taxes, depreciation and appreciation] margin for Costco has averaged 3.5% to 4% over the past several years, which compares to the most recent 6.5% for PriceSmart." And, he asserts, "We are still very early in the warehouse-shopping story in the Caribbean and Central America, and there is more growth there. But the really big potential is in Colombia, where the company plans its next stores."
So far, PriceSmart has one store planned in Barranquilla. Oil-rich Colombia is South America's fourth-largest economy, after Brazil, Venezuela, and Argentina, has estimated gross-domestic-product growth of 4.6%, and boasts growing middle class. Also, its GDP is larger than other countries' in PriceSmart's existing markets: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panamá, Aruba, Barbados, the Dominican Republic, Jamaica, Trinidad and the U.S. Virgin Islands. "Since its new stores typically cost under $10 million, the company's $35 million of annual free cash flow could finance over three new stores a year," says Hodgson.

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Home Equity Loan vs. Line of Credit

Home equity line of credit or a home equity loan: Which is right for you?

If you're a homeowner, you can borrow against the value of your house through either a home equity line of credit (often called a HELOC or a line) or a home equity loan (often called a HEL or loan). Both are essentially a second mortgage.

What's the difference?

A HELOC is a form of revolving credit similar to a credit card. It allows you to draw funds, up to a predetermined limit, whenever you need money. There is generally a minimum payment due each month, with the option to pay off as much of the line as you want. With a HEL, you receive a lump sum of money and have a fixed monthly payment that you pay off over a predetermined time period. In each case, the amount you can borrow is based on factors such as your income, debts, the value of your home, how much you still owe on your mortgage and your credit history.

Benefits

The appeal of both of these types of loans is their interest rates, which are almost always lower than those of credit cards or conventional bank loans because they are secured against your home. In addition, the interest you pay on a home equity line or loan is often tax deductible (consult a tax advisor about your particular situation).

Which is best for you?

Generally, a HELOC is a good choice to meet ongoing cash needs, such as college tuition payments or medical bills. A HEL is more suitable when you need money for a specific, one-time purpose, such as buying a car or a major renovation.

Comparing the costs

Both HELOCs and HELs usually carry a higher interest rate than that of a first mortgage. With a HEL, you may choose either an adjustable rate that fluctuates according to variations in the prime rate, or you may opt for a fixed rate. A fixed rate enables you to budget a set payment monthly without worrying about increasing costs should interest rates rise. With a HEL, there are also closing costs that you should consider.
A HELOC usually carries a lower initial interest rate than a HEL, but its rate fluctuates according to the prime rate, so there is more interest rate risk. Unlike a HEL, where your monthly payments are a set amount, a HELOC enables you to borrow funds as needed and repay as little as interest only each month. In addition, there are generally no closing costs when you open a HELOC.
Keep in mind, your home is the collateral for both a HELOC and a HEL. If a HELOC's easy access to cash tempts you to run up more debt than you can repay, or if you fail to make your payments, you risk losing your house.

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IMF Board Approves $36.8 Billion Loan to Portugal

The International Monetary Fund approved a 26 billion-euro ($36.8 billion) loan to Portugal as part of a joint bailout with the European Union in the latest effort to stem the region’s sovereign debt crisis.
The Washington-based institution will make 6.1 billion euros available immediately, the fund said in an e-mailed statement today. The IMF followed European officials, who on May 16 endorsed the 78-billion ($110 billion) joint package.

“The Portuguese authorities have put forward a program that is economically well-balanced and has growth and job creation at its center,” Acting Managing Director John Lipsky said in the e-mailed statement today. “It addresses the fundamental problem in Portugal - low growth - with a policy mix based on restoring competitiveness through structural reforms, ensuring a balanced fiscal consolidation path, and stabilizing the financial sector.”

The backing for Portugal comes less than two days after the resignation of Dominique Strauss-Kahn as managing director, who was indicted yesterday in New York on charges including attempted rape. French Finance Minister Christine Lagarde emerged as the leading contender to replace him, with officials including Angela Merkel arguing that a European is needed for the job because of the region’s debt woes.
The loan to Portugal has a duration of three years, the IMF said.
“The financing package is designed to allow Portugal some breathing space from borrowing in the markets while it demonstrates implementation of the policy steps needed to get the economy back on track,” the IMF said in the statement.

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How Much Can You Afford?

Start out with a budget so you can determine your price range 

If you're like many first-time homebuyers, chances are you've been spending your weekends driving around visiting open houses and new model homes. This is a great way to get a feel for what you want. The problem is that what you want isn't always what you should get.
Before you start touring homes for sale, it's important to start off with a budget so you know how much you can afford to spend. Knowing what mortgage payment you can handle will also help you narrow the field so you don't waste precious time touring homes that are out of your reach.

Where to begin

The key factor in figuring how much home you can afford is your debt-to-income ratio. This is the figure lenders use to determine how much mortgage debt you can handle, and thus the maximum loan amount you will be offered. The ratio is based on how much personal debt you are carrying in relation to how much you earn, and it's expressed as a percentage.

The ideal ratio

Mortgage lenders generally use a ratio of 36 percent as the guideline for how high your debt-to-income ratio should be. A ratio above 36 percent is seen as risky, and the lender will likely either deny the loan or charge a higher interest rate. Another good guideline is that no more than 28 percent of your gross monthly income goes to housing expenses.

Doing the math

First, figure out how much total debt you (and your spouse, if applicable) can carry with a 36 percent ratio. To do this, multiply your monthly gross income (your total income before taxes and other expenses such as health care) by .36. For example, if your gross income is $6,500:
Next, add up all your family's fixed monthly debt expenses, such as car payments, your minimum credit card payments, student loans and any other regular debt payments. (Include monthly child support, but not bills such as groceries or utilities.)
*Your minimum credit card payment is not your total balance every month. It is your required minimum payment -- usually between two and three percent of the outstanding balance.
To continue with the above example, let's assume your total monthly debt payments come to $750. You would then subtract $750 from your total allowable monthly debt payments to calculate your maximum monthly mortgage payment:
In this example, the most you could afford for a home would be $1,590 per month. And keep in mind that this number includes private mortgage insurance, homeowner's insurance and property taxes. To determine the price of home you can afford based on this amount, use a home affordability calculator.

Exceptions to the 36 percent rule

In regions with higher home prices, it may be hard to stay within the 36 percent guideline. There are lenders that allow a debt-to-income ratio as high as 45 percent. In addition, some mortgage programs, such as Federal Housing Authority mortgages and Veterans Administration mortgages, allow a ratio higher than 36 percent. But keep in mind that a higher ratio may increase your interest rate, so you may be better off in the long run with a less expensive home. It's also important to try to pay down as much debt as possible before you begin looking for a mortgage, as that can help lower your debt-to-income ratio.

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