Learned The Hard Way

The advent of internet marketing and “instant online car insurance quotes” was most definitely a turning point in how car insurance was compared, marketed and purchased. The first player to the game was Progressive Insurance.  I remember it well [major digression coming….]  Since 1991, I have been fascinated by the internet as we knew it today, but years earlier a dear friend named Paul- who went to U.C. Berkeley introduced me to dial-up message boards. This was back in 1986 if I remember correctly. We would place our push button phone’s receiver into a special cradle connected to the computer. We would then dial into the board and download the messages. Our replies would be posted similarly and before we knew it- we were hooked.

Anyhow, my earliest recollections of shopping for car insurance online involved visiting Progressive’s site where I requested an online rate. This was way before the decision to tie credit ratings into the purchase of car insurance and the process was pretty smooth. Then along came a few others like Electric Insurance, 21st Century and a few others. The buggy interfaces soon gave way to improved versions and better features. Then Geico came onto the scene and somwhere inbetween aggregators like Insweb.com, Netquote.com, 4freequotes.com, 4insurance.com to name a few. The line became a bit blurry between the aggregator sites - which worked with both agents and carriers - and the actual insurance carrier web sites. Most have thrived, weathering the bubble burst of 1999-2000, but one of them-{begin rant} Insweb.com has fared so poorly in such a tremendous marketplace, that one has to wonder how they went public in the first place. How do you spend 100 million plus over 8 years and not figure out how to turn a profit? This eludes me. If only someone had invested $100 million in my ideas, the game would be over… {end rant} :o)

Since those days in 1994, the market has matured considerably and you can now make changes online, purchase insurance online using a credit card, even get a loan online, purchase a car right there, then insure it a few minutes later. Simply amazing in terms of the amount of legwork that has been removed from the average consumer’s search. It’s getting late.. will continue this line of thinking tomorrow.

We’ve all heard the horror stories about Rottweilers mauling children, other dogs and the like, so I’d like to share our experience with a big, strong, harmless female Rottweiler named Sasha.

We picked Sasha out as a 9 week-old puppy from a breeder called Kimbertal Kennels. They were great people and after hearing about the fact that we had to put down our previous male mix which we got at North Shore Animal League, they brought out this massive Male. Jolly Roger was his name. He was 151 lbs of muscle and scared me to death. Never judge the book is what I learned, for he was gentle and kind- the type of dog you want sitting next to you for hours with his head on your lap. Sasha was his daughter and thankfully, was a chip-off-the-old-block! The breeder said “go ahead, pet him.. ” which I did reluctantly, but Jolly Roger paid me no mind and I became more comfortable. They explained that you want a dog that you can do anything to(within reason of course) and it will not react negatively.. I sat in awe as they opened his mouth, flopped his ears, even covered his eyes. “Amazing”, I thought… But it was a function of breeding and training. This was a sound dog.

Sasha grew to be 125 lbs by the time she was a year old and we learned that Rottweilers don’t reach adulthood until about three. She had plenty of feist in her, but not a single time did she get out of line with a family member or friend. Sasha played with our oldest daughter so gently, you couldn’t believe it was possible and no matter what Sharon did to her, Sasha never so much as raised her voice. Sasha had this really deep growl that was her way of communicating with you. No teeth mind you, just a low growl. It was her way of getting our attention if we chose to ignore her and I miss it terribly. She contracted nose cancer of all things at age 7.5 and we had to put her down rather quickly. If cloning was around then, I would have paid $30,000 for another of her. She was that good. She made believers out of the worst skeptics with her big smile and warm heart. All Sasha needed to do was lean on you and you could just sense her power, yet she never abused it. God do I miss her.

So if you’re considering a Rottweiler, I would say this to you:

1. never buy a puppy unless you can meet the parents and see for your self what their temperament is like- for this is paramount. My brother had a Rottie that had to be put down after biting several people and we saw the father first-hand… he was absolutely insane and would have ripped us apart if he could have gotten out of the cage. IF the sign was anymore obvious, it would have bitten us. Shame on us. Backyard breeders should be avoided at all costs unless you can meet the parents and have a chance to see for yourself!
2. Do not kid yourself- a Rottweiler is a strong, incredibly powerful dog with Jaws that can crush your skull. If you are a weak person by nature, do not get a Rottweiler. I don’t mean physically weak althought that plays into it as well… I mean mentally weak. Followers need not apply! A Rottweiler will take over your house if you are not in full control at all times. Ask any Rottie owner. Sasha used to chew rocks into little pieces and these huge muscles would bulge from the top of her head.. a testament to the jaw power she possessed.
3. GET A TRAINER! I cannot stress this enough. A trainer who understands Rotties is essential. We were fortunate to meet a fellow named Tony Filippone who was an incredible trainer. He trained three of our dogs and had such a presence that the animals dared not disobey him.
4. NEVER TAKE A ROTTIE TO THE LOCAL DOG RUN where others run loose. You are asking for a disaster here even if your dog is as good as Sasha. Dogs are pack animals and the last thing you want is three of them teaming up on a yellow lab who is sweet. It happens all the time
5. Never leave a child alone with a Rottweiler. NEVER
6. Socialize your Rottweiler from the moment it has receive all of its shots and is cleared by the Vet. The more people, dogs, cats and uniformed people he meets, the better your life will be.
7. You are responsible for all of his actions, so teach him well and be a strong leader.
8. If you cannot spend a lot of time with your Rottweiler, do not get one. They love their masters and are pained by long separations. They need plenty of exercise.
9. Do not buy them Soccer balls. They last about 4 seconds… :o)

How many times have you heard a person or accountant say “don’t pay off your house, you need the writeoff”? Too many if you ask me. Here’s what I figured out and my accountant shook his head in disbelief when confronted with it.

Let’s use the following parameters:

• 100,000 annual income
• 27% effective tax bracket
•  $16,000 in annual interest income.

By paying $16,000 in mortgage interest, you receive a $16,000 deduction. Simple enough. By taking this deduction, you actually save 27% of the $16k or $4320.

• Pay $16,000 in interest
• Take $16,000 deduction
• Save $4320 in taxes

Now let’s get this straight: Why the hell would anyone pay $16,000 to save $4320? You have lost $11680 just to get a $4320 deduction. Who perpetrated this fraud? It has to be the bankers. The same people who used to work until 3pm while you and I couldn’t leave our desks until 5pm when the bell rang. The one caveat here is that a $16,000 deduction could move you down a bracket, but even at that, you cannot break even unless you drop your effective tax rate 12% with a $16,000 deduction… I don’t believe this is possible unless you have a total of 71,000 in deductions on your $100,000 income.

If you have the ability to pay off your mortgage or not take one to begin with, why would you take a loss just to have a deduction???

Updated 5-29-07: Another scenario…

Let’s say you have $200,000 in mortgage at 6% and inherit $200,000 from your late uncle. Should you pay off the mortgage or put the cash in the bank?

Facts on the mortgage:

• The mortgage payment on a 30 year, $200,000 note at 6% is $1199.10 monthly (14389.20 annually).
• This provides a $14389.20 deduction your tax return for mortgage interest. The net savings is 27% of this number or $3885.08. Thus, the true cost of the money is $10,504.17.

Facts on the cash:

• $200,000 in a taxable CD earning 5% annually will earn you $10,000 annually in interest.
• The tax on this interest is 27% of the $10,000 or $2700, netting you $7300.
• HOWEVER, if you leave the cash to compound and pay the taxes out of pocket, this number will compound earning you a bit more each year.

Let’s consider the after-tax outcome of the above scenario:

$10,504.17 paid in mortgage interest
$7200 earned in interest on the $200,000.

Net cost to hold onto $200,000 in cash: $3304.17 or just about $275 per month.

What does all this mean? Your net mortgage cost is $275 per month, plus you have $200,000 in the bank! So when friends ask what your mortgage is monthly- the answer of course is $1199, but the reality is you have $200,000 in cash and make a net payment of $275 per month after realizing the interest on your money. Not too shabby. This is why the rich get richer.

There are many facets to buying a house. I am not a professional home buyer, nor do I pretend to be. Back in 1999, we decided to purchase a new home, so, in good faith, we contacted the agent who sold us our prior home and said we’d like his assistance finding a new home. He immediately pushed for the listing on the current house and since he was so helpful during the purchase of it, we had no problem with that. We’ll call him Jim, because that’s his real first name! After a few questions, Jim put together a list of properties to see. All of them were just above our range and nice enough homes. None really fit our needs. One had a yard that was entirely a pool, another had three baths that needed to be redone and we just finished a year of work on the existing house. In short, we were in no mood to rip out all of the bathrooms. This house however, had 4 fireplaces in the basement. Something I had never seen before and three years later had doubled in price. Should have bought it.. but that’s not the lesson here.

 The lesson begins with the next house. It’s a beautiful Tudor owned by a doctor and is out of our range. When I say beautiful, I mean old-world beautiful, with redone everything. We go into the house and my wife just about passes out. Talk about the lack of a poker face..  :0) . They’re not ready to move and an open house is scheduled for the following weekend. We love the house, so we call the agent and tell him we’d like to make an offer. We meet at his office and sign a binder and provide the customary good faith check.  We are to meet at the house later that evening and the agent is to present the offer- this is his duty.

Fast forward a few hours… Jim meets us at the house and we begin discussing the offer and really hit it off with the owners. They agree to the price and didn’t really want an open house anyway, so this saves them strangers walking through their house. Here’s where the fun begins. Jim states, “ok, you have a verbal binder”. Well boys and girls, there is no such thing as a verbal binder in the sale of real property and I state this to the owner and Jim. The owner looks to Jim and believe-it-or-not lies stating this is incorrect. I inform him of the law classes I have taken and bet him an obscene amount of money that he is lying. He says he left the binder at the office along with our check. I say “go get it or pull out another one and I’ll give cash with it”.  Jim causes a scene, then calls an assistant at the office and tells her to bring over another one. We fill it out and they sign along with $100 in cash. We leave the house feeling uneasy because the greedy agent is pushing for the open house the following weekend. ALWAYS FOLLOW YOUR GUT INSTINCT. IF YOU FEEL UNEASY ABOUT SOMETHING, ACT ON IT.

You can probably guess what happens next. We get a call after the open house with some bad news…. There have been 4 full price offers and two over full price- all cash. The owner of the house has been persuaded by the agent (and the extra cash) to terminate our binder- showing a great deal of bad faith- and take one of the higher amounts. I threaten to sue them both and call my attorney. We wanted the house and were approved for the mortgage and ready to set a closing date before the damn open house even happened. I found out later that once it went to contract, backing out would be much harder for them. Then they question our ability to purchase the house and this was at the beginning of the internet boom and we certainly had the ability to purchase it. I am livid to say the least. They say that karma has a way of working things out and the owner calls a few days later to state that the deal fell through and that he wants us to have the house. We are relieved to say the least. Given the fact that Jim had the listings for both houses, we were in no way going to let him keep our listing after pulling this crap. This is where it gets really ugly. Jim states that if we don’t allow him to keep the listing on our house, he will kill the other deal. One call to my attorney and that was put down fast. Being new to this kind of crap, I wasn’t going to take any chances and paid for the big dogs to take care of him. The entire conversation was relayed to the owner of the new house in writing and he assured us that would not happen. He wanted us to have the house. We got the house, but not without losing some sleep and a few bouts of high blood pressure.

The lessons: there is no such thing as a verbal binder on real property in NY; do your homework before buying a house- have all of your finances in order so that you are assured that when you make an offer you can close; if you feel uncomfortable with your agent, get a new one! Seven years later, it still feels like yesterday and I can see his smug face telling me I have a verbal binder. Karma got him too as the agency he owned failed… Funny how things work.