Archive for December, 2011

MMORPG are Cheap Entertainment

I used to play Massively Multiplayer Online Role Playing Games (MMORPGs) a lot. With the recent release of Bioware’s Star Wars: The Old Republic, I thought it was appropriate to comment on how cheap MMORPGs as a whole can be for entertainment, even without being a “hardcore play.”

cataI probably played MMORPGs the most when I was in my teenage years, because I lived in a small town with literally nothing to do.  I remember the long days and nights with Diet Pepsi cans stacked all over my desk while playing games such as Ultima Online, Dark Age of Camelot, Everquest, World of Warcraft, and many more. The recent release of Star Wars: The Old Republic grabbed my attention because a friend picked up the game and was involved with their beta phase (testing phase before release).

Although I have certain seen the “dark side” that MMORPGs can take on an individual’s live… I also see how it can be a healthy and cheap form of entertainment. The “dark side” (pun intended with the new Star Wars release) is the social isolationism that an individual can develop with these type of games. To players it often becomes virtually their entire friendship network and the only channel for socializing with their peers – and as one can imagine, this habit is very unhealthy. These types of people develop habits such as skipping classes, work, social events, etc. to binge on the virtual world that is a MMORPG.

Many people think that these MMORPG’s are occupied by mainly children – and I’ll be the first to tell you they are not. The average age of a World of Warcraft player as of July 2007 (old data) was 28! Remember that you have a lot of kids pulling that average down. Another interesting fact is World of Warcraft was a highly successful game with females by having approximately 16% female and 84% male, it may seem low but I can assure you that many games have a much less flattering ratio.


Now let’s talk about why I think MMORPG’s can be a healthy form of entertainment. Believe it or not, a lot of people have crummy jobs, many of which pay low salaries. Imagine with me if you will that you are making $25k and your take home is just enough to pay your basic living expenses and you have approximately $50-$100 left a month for entertainment. An MMORPG costs about $50-$60 up front and then $15 a month to maintain a subscription – if you purchase a MMORPG every year, the monthly cost would be [($60 + 15 *12)/12] = $20 a month.

twentydollarbillIf you truly enjoy these types of games as many do, it would be hard to generate the same level of entertainment a month for $20. Let’s say you play the game 5 hours a week – that’s $1 an hour. I can tell you that most games on consoles such as Xbox 360, PS3, etc. do not typically generate the same $1 an hour level of entertainment (if fact I’ve had games that cost me $50 that I played 4 hours).

Of course this $1 an hour entertainment comes with a caveat, Do not make this into $.05 an hour entertainment (implying that you are spending 400 hours a month playing). There are great and yes even free things to do out there as alternatives. As for Star Wars the Old Republic, I purchased the game and I’m up to level 16 and I play about 4-6 hours a week.

If you choose to play MMORPGS, make sure it comes with a social balance, take it from a man who once did not find such balance.

My fascination with small housing knows no bounds. The idea of buying a small cheap house to save money is exciting to me. In Cincinnati we have dozens of neighborhoods, but sadly not all of them are created equally. There is about 6-8 neighborhoods that would make the “I could own a house here” rankings. I am not going to list them all, but Oakley, Hyde Park, Mount Washington, and Anderson Township (schools are good) are a few.

That last one sparked my interest in particular when I came across a house during my obsessive search through the real estate listings – a cheap house. Now when I say cheap, I’m thinking “live mortgage free cheap.” A house listed for about 180 days currently listed at $29,900 in a good school district.  Here is a public picture of the property.


Not exactly like what I live in now, but I am completely fascinated with this property. I want to first state that to obtain goals such as living without a mortgage – usually sacrifice is needed.

Let me start by saying there are so many con’s to this house.

  • The house is very close to a road that I believe is 45 or 55mph speed limit, which would be noisy
  • There is no garage just a driveway for 2 cars
  • You are extremely close to your neighbors
  • The house needs some work, I would guess $15k would make it to my standards, flooring being the largest part of the rehab budget. You could probably get by after tossing $8k in the home.
  • It appears one of the houses directly next to you is a rental
  • Would lose itemized deduction, but I would argue that is good since that means you aren’t paying taxes and/or high interest
  • The lowest level in this house is jerry-rigged
  • It has oil heating which I cannot stand, it’s a hassle to refill.
  • It’s 2 bedroom / 1 bathroom – I’m currently in 3 bedroom / 2.5 bathroom but it is completely excessive.

But let’s also not forget the pro’s

  • Taxes are about $700 a year – that’s right…. a year. I pay about 4.5 times that for my home now
  • It’s smaller, but you have to buy less stuff to fill that space
  • If you financed 20k and put down 4k (assuming you could get it for 24k) your payment would be roughly: $221
  • $122  for interest / principle a month
  • $40 for insurance a month
  • $59 for taxes
  • After the home is paid off (which is very do-able) your payment would be right around $99 a month.

  • Now that the new taxes from the previous election for my city have been assessed, I pay roughly $900 for my mortgage, insurance, and taxes. Assuming that everything else is relatively constant – the difference between what I pay and what I would pay if I financed the majority of the home would be ($900 – $221 = $679 a month maybe more if insurance is less on the smaller home). If I applied that $679 extra to the mortgage – the home would be paid off in roughly 28 months (2 years and 4 months). If I saved the money instead of applying it towards the mortgage, it could also be said I would have about $20,000 of cash in 2 years and 4 months.

    Now let’s go back to my current home. I recently refinanced and my pay-off date is Nov 1st, 2041. If I added an additional $300 a month towards principle my payoff date is Mar 01, 2027. That’s 16 years from now. Furthermore if I applied that extra $300 and the savings towards this cheap little home it would be roughly 20 months to pay it off – think about it, 20 months to live mortgage free.

    If I cashed out my currently home and walked with $20-25k – the dream of living mortgage free might be almost within my grasp, but would I be happy with the quality of the area and home – that’s the real question.  The thought of paying about $100 a month for your own home has such a strong grasp on me that it is important to not become completely blinded with the price tag.

    I couldn’t help but comment on something that is happening locally. Throughout this week the Bengals community has been buying up tickets to see the Bengals take on the Ravens for a chance at the playoffs. If they win, they are in and if they lose – they still might be in.

    All of that aside, my comments go towards the tactics they used to sell out the game – Buy one get one free. That’s right, the Bengals went BOGO on the NFL. If you would read the local newspapers earlier this week – it was if they had discovered a magical way to fill the 65,500 stadium. Believe it or not, when you offer NFL tickets at effectively half price, your audience is larger. There has been approximately 18,000 sales with this BOGO offer since Monday.

    The Bengal administration and the local newpapers need to stop acting as if this was a smart tactic. If anything this discount shows how pathetic the demand is for Bengals tickets. The Bengals have a real chance at the playoffs with a rookie QB and they aren’t confident enough they can sell out the stadium with a discount that would cause riots in a real city. If anything, that’s sad.

    I’ll be watching from home though. Go Bengals.

    Flipping Houses is Dead in 2012, For Most People

    How to Make Money Flipping Houses_InsertAh the glorious days of flipping real estate and climbing the property ladder. Buy a cheap home, toss some in some new paint, carpet, cabinets and maybe an air conditioner and furnace and pocket a quick $20,000 – $50,000.

    I for one think flipping is dead for the foresee-able future, but let me make my case before you condemn me entirely. I want to first acknowledge that there are ways for professionals to make a small margin on flipping, and that I am directing this post towards “normal everyday” people. 

    There are some good sides to having a downward economy when it comes to real estate of course. The biggest benefits that I can think of would be pricing, interest rates, and cheaper labor. After reading that last sentence you might think – cheap houses, lots of inventory to choose from, and easy to find labor – Sounds perfect for flipping…but not so fast.

    Pricing: The reason why prices are so cheap is because there are no buyers and there is an excess of inventory, which is perfect for you as a buyer – but terrible for you as a seller. You will have to complete for the few buyers that are out there with quality, location, and price. That means no cutting corners and maybe cutting into your margin to persuade buyers.

    Interest Rates: Low interest rates can be good, but they also can be a double edged sword. If interest rates turn around, it can hurt how much people can justify financing as a purchase price for your property. If you get stuck with a property for a substantial period of time and interest rates spike, you stand to get destroyed.

    Cheap Labor: Cheap labor is pretty hard to argue against, except for the argument before – which is that there is excess for reasons that don’t hint towards strength in the housing market.

    So let’s talk about hypotheticals.

    You find a house in a neighborhood listed for 180k, where a similar house in good condition is listed for $250k . The house only needs approximately 30k in work if you do some of the work yourself. You purchase the house for $180k and somehow manage to stick to your budget (which is rarely the case). Maybe you replace the kitchen and install new paint and carpet (which is 30k alone). Okay – now’s lets talk about your break even scenario.

    You have $180k in the purchase price + 30k in Work = $210k in the home

    You carried the home for lets say 2 months which cost you $3k and you had closing costs of $3k = $216k in the home.

    You opt into using a local broker and you list the home at 250k, assuming your broker takes the standard 6%, your break even is 216k = .94x, $229,787 assuming you sell it within the 2 months.

    Now’s talk about reality. Most likely you are not going to sell it in 2 months and most likely you are not going to get full asking price since there are other homes in your neighborhood listed as well. Probably you are going to have to shave off $10-15k off the sale price and it is going to take 6-12 months to sell at that reduced price.

    Factoring in $240k as the sale price and you hold the property for a more realistic 6 months (until time of closing) the numbers become: $240k – $210 (PP + rehab) – $9k (Carry Cost) – $14.4k (realtor fee) – $3k (closing) = $3,600 profit.  I would view that as almost a “best case scenario” as well, and would warn that its very easy for this situation to produce a loss. 

    The point of this is that people commonly do not take conservative estimates in how long it will take to sell, what they will actually get for a sales price, and how much money it will cost to get ready and to actually sell the house. Now let’s step back and think about this though. You are tying up a lot of cash (20% down-payment, 30k in repairs, closing costs, etc.) for an optimistic $3,600 profit. I think I could make a good argument that this attempt to earn this $3,600 profit is probably just as risky or even risker than going to Vegas and putting $3,600 on black.

    I eluded that *some* people would be able to flip still, so who can still flip? People who are able to find unbelievable prices through questionable means and people who can avoid fees on closing and selling.

    When I say “unbelievable prices” – I’m talking not listed on the MLS prices. Let me give you an example, you see those billboards and benches for “we buy ugly houses.” Those are people who can flip because they lowball people with cash offers, but you can argue where they are making the money isn’t on the flipping process – their services as a  real estate pawn shop are where the margins are generated.

    Avoiding fees, maybe you are a realtor yourself or have connections – if you have the ability to find ways to sneak in and out of real estate market without taking a 6-8% hit, you may have a competitive advantage.

    Sadly I must once again warn though that the real estate market has a lot of moving parts and a lot of variables and once you “put a pencil to it” – it rarely seems worth the risk. The stress, the labor, the idea of tying up such a large sum of money – no thanks. If the market does turn against you, be prepared to take a GIANT hit or become a landlord.

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