Monday, May 18, 2015

Renting - Letting you scale up and down your housing as needed


Renting - Worth another look?

This is the second in a series of articles about Housing as a Service. Recently my wife and I sold our condo and started renting again. I believe everyone over the age of 30 at my work owns their own home. Everyone in the local Toronto area, that I took engineering with owns their own home. However, reading other blogs, and my own recent personal experience, has me wanting to research renting more.

How much house do you need in life?

Did you buy as big a house as you could afford in the area you wanted? This is a pretty common behavior. Do you really need that space, for all of the time that you have it?

Consider the following assumptions and graph of how much housing you really need
  1. Children move out when they are 18
  2. Each child has their own room, from the age of 1 (some would consider this a luxury, but let's assume we want to do this)
  3. You have 3 children 
  4. You only need a 1 bedroom dwelling as a single person, and a 2-bedroom as a married couple with no children

This graph is initially based on my own life, where I lived by myself from 2003 until 2012, albeit I had a 2 bedroom dwelling because I drank the real estate "Buy as much as you can" Kool-Aid.

As you can see, your housing requirements definitely move up and down throughout your life. Again, it may be a luxury for each child to have their own bedroom, but let's start with this as an assumption.

Below is a graph of what many people do who buy their "forever" house. Of course, the problem with a forever house... is you're buying enough space to last you forever, whether you need that space right now, or later once your kids have moved out or not.


The Forever House is based on the following assumptions/ideas:
  1. Once married, we can't live in a 2-bedroom apartment, we have to live in a house
  2. We have to buy a house big enough for all future children we want, so a 4 bedroom place right away
  3. We can't move once the kids are moved out, this is home!
Looking at the 40 year period from 2003 to 2063, we see the following:
  1. The 18, out the door strategy requires: 154 bedroom years
  2. The Forever House strategy requires: 222 bedroom years
This is a difference of  44%, which can work out to hundreds of thousands of dollars

How Does Renting Make a Difference?

We've just seen, that a "Forever Home" is inefficient because you are carrying a lot more house than you need. This leads to higher costs for cleaning, maintenance, and property taxes. If you consider that a home is "wearing out" or needs to be completely renovated regularly to not look dated, then owning more home than you need just means you have more to renovate!

But what does this have to do with renting? There are two strong reasons for a "Forever House", one is transactional cost, the other is "a sense of home". If you insist on owning rather than renting, your transactional costs are very high whenever you sell or buy a new home. Transactional costs are things like:
  • Real estate agent fees (often 2.5%-5% of the cost of the home)
  • Land transfer taxes (currently $32,200 on a median $1,000,000 home in Toronto)
  • Real estate lawyer fees
  • Staging and furniture rental fees
  • Home inspection fees
  • Moving expenses
In contrast, if you rent, and move to a new dwelling your transactional costs are:
  • Moving expenses
The much lower transaction fees, make it possible that you would move as you need more space and as you need less space.

The second reason many people have a "Forever Home" is they are emotionally invested in the home. Many refer to this as the "Pride of Ownership". When you're renting, it's much harder to get emotionally attached because it's not your property. While you may become attached to the community you live in, the house isn't yours and you know it. You're also unlikely to do any renovations on a property that isn't your, so by not being able to completely put your own personal stamp on it, you don't become as emotionally attached.

Conclusion:

Renting drastically lowers your transactional costs, which makes it concieveable you would move to a larger home as you need, and a smaller as your children move out on their own.

Renting also reduces the risk of emotional attachment to a home, which reduces the chance you remain in a place much larger than what you really need.

Monday, May 11, 2015

Efficient Single Serving... Tea!

 Save Money / Time / The Earth Itself!

Well, maybe I'm exagerating slightly, but if you just want one serving of something, why make more?

These tea cups from David's Tea, offer a way to make a single serving of tea. This means:
  1. You only boil enough water for one cup of tea, or the minimum level of your tea kettle (whichever is lower)
  2. You use exactly how much loose leaf tea you want when making the tea
  3. You only use enough tea for one cup of tea, so you're not wasting tea
These mugs provide all the advantages of single serve coffee, except in tea form which a much lower cost than a single serve coffee machine.

Cleanup is also easy, since most of these mugs go in the dishwasher! Completely automating your cleanup.

In my house, we actually bought three of these mugs because we don't run the dishwasher everyday.

How does it work?

Each mug has a stainless steel infuser and a lid. The infuser keeps the loose leaf tea inside the cup, but let's you lift it out when the tea has finished brewing. The lid, let's the tea stay hot when it's brewing and also acts as a place to put the infuser after you're done.




What About Cleanup?

Here's a picture of my dishwasher, with both the David's Tea mug, as well as a teapot and conventional mug. As you can see, the spout from the teapot takes up considerable space.



I'm viewing the diswasher photo in Paint.Net, which is am amazing piece of free software. It has some very powerful feature, keyboard shortcuts, layers, and blurs, but is extremely easy to use. When you select an area, at the bottom of the screen it tells you the number of pixels inside that area, based on the selection, we can see the top footprint of my dishwasher is approximately 4.2 million pixels


 This isn't completely accurate, but it gives you an idea.

Now, by selecting the David's Tea accoutrements, we can see their area: is 480,000 pixels

Similarly, by selecting the teapot, the area is 870,000 pixels, almost double!!


Clearly, the David's Tea mug is a winner for more compact dishwasher storage.

 Conclusion:

If you live by yourself, or if fairly often only one person in your house wants tea, then consider a mug with an infuser. This let's you only use enough tea, and hot water for one person, while the user of a dishwasher safe mug automates cleanup.

Friday, May 8, 2015

HaaS - Housing as a Service

HousingaaS vs. SaaS

How things used to be...

A growing and growing trend in software, is Software as a Service (SaaS). While it's a little old, there's a good high level, non-techy White Paper by Grant Thornton here. Microsoft's Office 365, which is a subscription based service that runs partially in the cloud, is an example of SaaS.

In the olden days of software, if you needed a program, ie. something to track your customers and your sales people, then you would:
  1. Buy a computer or computers to run the software on, maybe servers or mainframes if this is software that an entire company uses
  2. Buy the software
  3. Install the software on the computer and configure it
  4. Maintain the computers that run the software
So now, just to get the sales tracking software that you wanted for your sales people, you have to have an IT department which maintains servers and has to have somewhere to physically put these servers. If for some reason you need to have more users accessing the software then maybe you need to go out and buy more servers.

What if you don't have anyone who knows about computers in your company? Or you don't care? All you really wanted was some sales software and now you've got a full IT department in your company. IT may not be a strong point of your company, but now your company's success may hinge on how well your IT department can deliver.

Software as a Service

The modern solution to this, is software as a service. Instead of hosting the software on your computers, the software company runs it on their computers. This is most likely done over the Internet, so continuing with our sales example, all you have to do is give your sales people computers that can get on the Internet and from there you just pay a monthly fee for each person who needs to access the application.

If you company needs to rapidly expand no problem, just call up the software company and tell them you need more accounts this month. You don't need to worry about your existing server capacity, or whether you have enough IT people to keep it all going. You also don't need to worry if you've bought 500 copies of the software for your 500 employees, and then after layoffs only need 380 copies, leaving you with 120 licenses that you paid for but aren't using. By paying for things as a subscription, rather than buying licenses outright, you can add and remove licenses as needed.

If you decide that you don't like the software and want to switch to something else, you haven't invested in it beyond a monthly fee. You haven't spent thousands buying software licensing, and aren't necessarily financially locked into one vendor.

You leave the IT heavy lifting to the software company, rather than having to do as much (or any) of it in-house. This lets you stick with what you're good at, and have the ability to rapidly expand (or contract) the amount of software you're buying.

HaaS - Housing as a Service - the 21st century name for renting

Canada, specifically Toronto and Vancouver are in the midst of a real estate boom. In Toronto, where I live, the average home cost is now $601,500, with many first-time buyers unable to get into the market without help from their parents. Anecdotally, I've heard radio ads for house flipping seminars, and all the young people (23 year olds) at work are dying to enter the real estate market. Two 23 year old guys at work, who aren't romantically involved, are looking at buying a house together to make it more affordable. Another young guy at work, says "why would I need a tax free savings account? I want to buy a house". Interest in real estate is very high versus other types of investment. The conventional wisdom seems to be: "renting is throwing your money away".

This is the first post, in a series on HaaS. For some of the same reasons that it makes sense to buy Software as a Service, shouldn't it make sense to buy HaaS?
  1. What are the maintenance costs associated with owning a home? Are these high for you to keep your one home, but low for someone who would have economies of scale by maintaining many properties/dwellings?
  2. Is maintaining a house something that's very far outside of your core competencies? Like our example of a sales organization now having to add IT just to get sales software to run, is keeping your home together something you're really not good at, so it costs you more and you wind up doing a poor job?
  3. Does owning prevent you from scaling up, or scaling down your housing needs as required?
  4. Does owning prevent you from changing housing when you want to? Due to bad neighbours, job change, traffic changes, etc.
What about some of the risks and issues with HaaS?
  1. Your housing is now 100% provided by an outside service, what if they don't respond to maintenance issues? What other risks are there?
  2. What happens if your landlord goes bankrupt?
  3. Is there an inability to customize as much as if you owned the place? How important is this?


Wednesday, May 6, 2015

Lessons from Baby - Forget the baby, sell to parents


Forget the baby, Sell to the parents (Forget the end user, sell to the buyer)

I'd like to claim credit for this one, but this is purely my wife's idea.

We've been blessed with a baby girl, and we wanted to get her a mobile. After much searching, my wife picked the Freddy the Firefly mobile. It seems obvious, but if you put yourself in the baby's perspective, lying on the crib looking up, then a 2-dimensional mobile makes perfect sense. Our daughter really loves looking at it, both when it's active and the wings move up and down, and when she wakes up in the morning and it's not moving.

However, looking at this mobile from the side view, it's somewhat lacklustre. If you were a parent, and you saw one on display in the store, you might ignore it. If you climbed under it and looked up, you'd agree with our daughter and think it's awesome!!!

Prior to writing this, I went to the Lamaze website to look for more information about Freddy and some of their other products, I was very surprised to see their new mobile, Shearamy Sheep Sleeptime Mobile, looks this:





I contacted them on 2015-04-26 via customer care, asking as follows:

 Hello,

My wife and I purchased a "Freddy The Firefly" mobile via eBay because it was not available in Canada. My baby daughter very much enjoys the mobile. I'm actually preparing a review of the mobile on my website, www.findingoptimal.com. The mobile is much better designed, than many because a flat 2-dimensional design works perfectly when viewed from below by a baby. This is a great example of user design, and paying attention to the end user's ergonomics.

Unfortunately, it looks like Freddy has been discontinued. When I click Freddy from your website here, it asks me to login
http://tomy.com/search/all/mobile

When I go to Amazon, it says that Freddy the Firefly has been discontinued.

Looking at your new mobile, Shearamy Sheep Sleeptime Mobile, it seems you have gone away from the 2-dimensional, baby view approach. Is this true?

Thank you,

David McKenna
www.findingoptimal.com


Here's the response:

Thank you for your inquiry David. The Freddie Firefly mobile was sold out in January 2014 and unfortunately we no longer have any units available anymore since it is a discontinued item.
Best regards
Consumer service
Karen


Conclusion:

The people at TOMY Toys are smart. It's their business to make the right toy, that will sell the best. I'm sure there's lots of research and careful effort spent on deciding what product to make. If they've chosen to change their mobile design, it's because it's right right thing to do, to sell more mobiles.

So next time you're making a design decision, consider whether it will be appreciated by the buyer or by the end user - especially, in the case of a baby, if your end user can't speak!!

Monday, May 4, 2015

eReaders and the Library - Save time and money!

 

Feel Like Star Trek

Yes, that's what downloading a book from the library for your eReader will feel like. It'll feel like Star Trek. It'll feel like you're in the future saying: "Computer, get me that new book by Tim Ferris".

Imagine, being able to get a new book, with a few clicks, for free, delivered near immediately to a device that has a battery life of weeks. Not only that, but an eReader is comfortable to read on for hours and hours without an eyestrain. The future is here, or at least it's been here for a while, but just now I'm getting around to telling you about it.

Why Would I Read Books? I have the Internets?

When I tell friends and colleagues about the amazing world of eReaders and public libraries, I'm surprised at how little interest I get. Most of my friends either claim to "not have the time" to read, or prefer to surf the web. I'd challenge the time part, since most people are probably able to find time to watch television or use alternate media. If you can't find the time, then perhaps an eReader can help you Make The Time, through clever use of a satchel.

If you don't believe in reading, versus browsing things on the Internet, consider the following:

  1. If the websites you're reading are 500 words, or 1000, even if you read many of them, how in depth can the author ever get?
  2. If (1), doesn't this mean you're only ever getting snippets of information?
  3. If it takes you 30 seconds to read a webpage, but 5 seconds to find it or to browse from the last page to the next, aren't you spending 5/35 =   14% of your reading time finding the next thing to read?
  4. If (3), then wouldn't you have all of that time back if you found a book and spend a continuous 3-10 hours reading it?
  5. Do you believe that you don't know what you don't know?
  6. If (5), then isn't there great value in reading a large amount of material, that's been sorted, and ordered by an author, over a period of months or years to get it just right?

Perhaps I haven't persuaded you, but consider these points, books are pretty awesome and an eReader makes books even more awesome.

Ok, How Does It Work?

 Step 0: Does my library support eReaders

Before going out and buying anything, check that your library support eReaders. If it does, confirm what type. The Toronto Public Library doesn't support Kindle, but does support Kobo or any device that reads ePub format.

 Step 1: An eReader

So, if you're going to be reading much, I recommend an eReader. I have been very happy with my Kobo eReader. I actually have the original, first generation Kobo, complete with a button to turn the pages. It's not fancy, and newer models, including inexpensive models, are much better, but it gets the job done.

If I can be happy reading on a 2010 reader, then you'll find any modern device great.

Step 2: Library Card

You'll need an active account at your library, google how to do this. In Toronto, you need to go to the library with a bill or something with your Toronto address on it.

Step 3: Do It!

The Toronto library's online download website is called Overdrive. here's getting started guides here and other resources available.

Conclusion:

Getting library books with an eReader let's you:

  1. Never pay late fines again, since the books "automatically" return/expire
  2. Check books out 24 hours a day, 7 days a week. So you're not constrained by the hours physical libraries are open.
  3. Read books on a device that's lighter and smaller than a book.
  4. Save time, and potentially gasoline, by not having to go to the library in person
There is a Kobo Touch model for $79 , although it's no longer in stock on the Chatpers.ca website. Higher end models like the new Kobo Glo HD are $129. Either way, the advantages of eReading definitely outweigh the costs.

Friday, May 1, 2015

Donate to Charity Efficiently!

 Combine Multiple Years Donations Together - And Save

Well, it's tax time in Canada again, so here's one last tax related article for a bit.

Many of you probably use Ufile, TurboTax or some other free software to file your taxes. The Canadian Government is pushing these, by no longer mailing out paper forms, and take a look at the website where you can download forms:



My family and I have been using UFile for over years now and for $20 to do 4 returns, it does save a lot of time. Prior to this, my parent's, and I all filled out paper forms, which involved lots of calculation by hand and transposing numbers from page to page. Ufile by contrast, is more like a "wizard" where you click next over-and-over, answering interview questions and entering information from paper tax forms.

Unfortunately, using a "wizard" to enter tax information, doesn't let you see how things work under-the-covers. The credits for charitable donations are a perfect example of this.

How Cash Charitable Donations Are Calculated

Before reading too much into this, please note that if you choose to donate investments (stocks, mutual funds, etc.) it can be much much more efficient than donating cash. That said, let's get started.

Please also note: I'm not a tax professional, there are some other wrinkles to this material, like limits on the maximum amount you're allowed to claim as a donation (if you start donating a large percentage of your net income). Do you own research or talk to someone else if you're making very large donations.

I'm also ignoring the "First Time Donor Super Credit", because I'm assuming you've donated to charity once within the last 7 years.

For 2014, looking at Schedule 9 - Donations and Gifts, the section on donations is as follows:


I've added the red highlight. If we were to write this algebraically it would be:

If Donation Amount is $200 or greater, credit = ($200 * 15%) + (Donation Amount - $200) * 29%
If Donation Amount is less than $200, credit = Donation Amount * 15%

Conclusions

So, the cash donation credit is only 15% on the first $200, but larger on the subsequent money. Therefore, it is a lot more efficient, which allows you to donate even more or pocket the difference, to make fewer, larger donations to charity rather than regular annual donations.

Each year you donate, the dollars in the first $200 are generating a credit (29%-15%) = 14% less than they would if those dollars were part of a larger donation.

Example: $200 per year vs. $1000 every 5 years
In this example, you have 4 years of $200, that are going to make 14% more credit than if you donated every year. That's a total of $112. It costs 11% less to donate $1000 every 5 years than $200 per year. That's quite a savings!