HMNY Time of Death 5:27PM February 12th 2019

My final post on HMNY and apologies to those who invested in HMNY. The company is indeed being delisted from the NASDAQ today and moving to OTC. It is rare for a company to come back from this type of episode, and even more rare that stockholders won’t be totally cleaned out even if they do return.

Here’s the official news.

What I Personally Learned Investing – or umm Gambling – on HMNY/Moviepass

I learned a lot on this one. I will now file it away in my never ever ever again pile and move on.

It’s a shame, but these things happen when you take a big risk. I wish it would have turned out different. So many obvious mistakes, and so easily prevented. Farnsworth was always a scumbag, but Lowe also falls to a new level of scam artist.

OTC is not the very end, but it is in my opinion close enough to call it. I did not liquidate my position as it was so small it was no longer even a rounding error for my account. Also I said I would stick through this for at least 5 years, so I will hold that commitment.

I don’t expect any miracle. This is death for HMNY and likely Moviepass as well.

The Math – Why Buying a House is Actually a Terrible Investment – Part Two of Three

As promised I am following up on my last post on why I think purchasing a home is a bad investment, and can derail your retirement dreams. First, I think it needs to be clarified how I think about housing. Housing is a lifestyle choice. It is really not that different than choosing what kind of car you drive, what kind of clothes you purchase, or how you obtain and consume food.

That is to say, when you buy a home, you are making a decision on what location you live in, how many square feet the home is, how new the house is, and what features you decide you must have. As I covered in my last post, you can go totally nutso on options, lot premiums and size of the home and push the price of a new home into the stratosphere. This is really all about choices.

The homebuilders, mortgage lenders, and real estate companies have done a magical job on convincing consumers that you should buy “as much house as you can afford“. There is constant talk in the media about using different formulas to figure out how much you can afford, be it 33% of you salary or some other made up figure the industry uses. There are home affordability calculators designed specifically to ferret out the maximum amount of money you can borrow to plunk down on a house. All of this marketing leads people to believe that it is actually a good decision to borrow as much as they can in order to buy the best house they can in the best neighborhood they can afford! Makes logical sense right? Not so fast!

Do you buy anything else the way that people buy houses? For example, would you go out and buy the most expensive pair of shoes you can afford based on your credit card maximum limit? Or would you buy your food this way, go to the most expensive restaurant in town based on your ability to pay for it with credit? Of course you wouldn’t. So why on earth would you buy a house this way. For many, the answer has been because they believe that housing is a good investment. I want to help open your eyes up to the idea that this is really not true. For others, the rationale is that this is where I live, and I want to be in a nice place. Fine answer, just realize that you are making a lifestyle choice, not an investment decision.

So lets now look at the first reason why I hate it when people think that buying as much house as they can afford is a great investment. Leverage! For those not familiar with the term or exactly what it means. The Wikipedia definition of leverage is: In financeleverage (sometimes referred to as gearing in the United Kingdom and Australia) is any technique involving the use of borrowed funds in the purchase of an asset, with the expectation that the after-tax income from the asset and asset price appreciation will exceed the borrowing cost.

When you buy a house, you are using leverage in a very extreme way. For many people it means borrowing 95% of the price of the “asset” (Your House) you are purchasing. Let that sink in a little bit. When you buy a house with just 5% down, you are borrowing 95% of the funds to purchase that asset. There is no other asset that any bank in the world will let you buy with that kind of leverage. Well maybe one – your car – which I will touch on in a later post – but a car is almost always a depreciating asset so it really does not count.

Ms Leverage – The Crazy Hot Girlfriend

Think of leverage like a crazy hot girlfriend. It can be really great or really terrible depending on the circumstances. And it can be risky as hell. First lets look at the positive side. Say you buy a house for $500,000 dollars, and you put down only 5% money on the home. So your down payment would be $25,000. And lets say you do really well and that house goes up 20% in value in the time that you own it. So in simple terms, that would be an increase of $100,000 dollars from your $25,000 dollar initial investment. That is a fantastic return of 400% or 4 times your initial investment. <<Now I am purposely keeping this example very simple here. There are a lot of other factors I will get into later that include things like the time value of money, compound returns, expenses etc. But for now lets stick to the simple math just on leverage.>>

Now let’s look at how that crazy hot girlfriend Ms. Leverage can really hurt you… Taking the same example of a $500,000 purchase price and 5% or $25,000 down. In this example, let’s say that you get caught in a situation where you have to sell and the housing market has gone down 20%. Don’t think that can happen? Check out the prices falling in the once red hot Seattle Realestatemarket. In fact, 20% declines in any asset class is not at all uncommon. A 20% fall of your $500,000 purchase would mean that you would lose $100,000 on that asset. So now your asset (your home) is only worth $400,000 dollars. In this case, your $25,000 of hard earned money is totally wiped out. But it gets worse. If for some new life reason you are forced to sell your house in the down market, you still owe the $475,000 mortgage agreement you signed up for! Meaning, you are now what is called underwater, by about $75,000 dollars. Yep, that’s right you would now have to pay the bank the difference between what you borrowed and what the house is now worth. If it were only that simple. Nope, it gets worse, because when you sell your house, you will also incur 10% selling fees on your home. So if you had to get out of that house in this down market scenario you are looking at paying up $40,000 to sell the house, plus the $75,000 you owe above what the house is now worth. Meaning your $25,000 dollar initial investment in your dream home just became your $115,000 dollar loss nightmare. That is when you decide it is time to leave Ms. Leverage for good!

OK – now you can see how fast things can go really bad with what you hoped would be a smart decision to buy as much house as you possible could with leverage. Now lets get real about the true cost of home ownership. I mean lets get really real and look at what nobody wants you to see when you are stepping up to the American Dream!

In this case, I am going to use a $1 Million Dollar price point. I know in some markets a Million dollar house is insane to think about, but on the West Coast, there are several markets where a Million dollar price point is nothing fancy or it is just getting started. I am going to use a neighborhood I am familiar with but pick a house at random from Zillow to illustrate the true cost of ownership of a home. Here’s a house that recently sold for $1,030,000 near my old neighborhood I lived in before I geo arbitraged my wait out of the Seattle area.

Example house pulled at random.

I love the example of this house, because the silly size of it, the rapidly increasing taxes, and built in 1988 it is one of worst possible ages of a house to buy. BTW- if you own this house, I am sorry, I mean no disrespect to you, and the home could make perfect sense for your lifestyle.

Now lets really dig into the math of owning an asset like this house. How much a year does it really cost to have a house like this? For this, I am going to do a complete look at the cost of ownership on this house on a monthly basis. I am going to try and be fair in the values I assign to the various costs, and because this is very near the neighborhood I once owned a home, I think I will be reasonably close in my estimates.

The first thing to look at is the cost of the down payment. For a 1 Million dollar home, let’s assume you were going to put down 10% or $100,000 dollars. Some people do more or less. But we will use $100K. When you write that check for $100K – that money is essentially gone, locked up into the house. I am going to use a conservative figure on the cost of losing that money and put it at a simple 5%. That is well below what the market can return to investors over the long hall, but I am going to use that to be very conservative. What that means is that if you had rented instead of bought this house, you could invest the $100K and receive $5,000 a year. Call that $416 a month money cost here. That is the cost of locking up your 100K downpayment.

Next we have to look at the monthly payment you will make each and every month. This typically includes the principal and interest on your own, the taxes, homeowners association dues and insurance. Sites like Zillow do a good job of estimating these things, and for this particular home, using a 10% down payment, Zillow works this out to be $5010 dollars a month at Today’s interest rates.

This looks like a fair accounting of monthly payment – too bad it is just the beginning of the cost!

Now this is where you are hoping the pain will end. It actually gets slightly worse. This house is 4010 SQFT on a .71 acre lot. As I mentioned earlier, the house was built in 1988. Like a car, the older the house is, the more maintenance it will require. This particular house says it has been remodeled, so some stuff is likely already done. But what likely has not been replaced is a lot of the mechanicals. For those who have not been exposed to homeownership. Mechanical is stuff like HVAC systems, plumbing, water heaters, garage door openers etc. When this stuff breaks, it is expensive. With houses this age, mechanicals break and need replacing often. A fair estimate is about 1-3% of the purchase price of your home should be allocated yearly to cover the basic upkeep of these kinds of things. This can also include things like maintaining your driveway, roof repairs, windows that age out (I was surprised how often that happens), painting the exterior, cleaning gutters (this was a job I really hated!). Power washing your hard exterior surfaces. This list goes on and on and on. I am going to be conservative here and put that cost at 2% of the value of the home per year. So that is $20,000 a year on a $1 Million dollar home. Call it $1,666 every month. If that sounds like a lot, it is because it is a LOT! But I am telling you, that is a very reasonable estimate having owned a similar but smaller home in this area. This one is really important for people to think about, because, when you own a home, 100% of the responsibility of keeping it up is yours. If you don’t do the proactive stuff, it will cost you even more later, and if you don’t take care of problems as they come up, it just gets way more expensive.

Next up, you have to add in all the costs associated with running a large house like this. Some of this expenses are the same as when you live in a rental, some are much more. Here’s an estimate I would give on this house.

Lawn Maintenance – this yard is big, and you won’t have time to do it yourself in all likelihood. Monthly cost $400 for Mowing and Trimming. Additional water bill in the summer and shoulder months $200 average for 6 months a year. Call it $500 a month.

Power gas and electric – a house this large will take $400 month to heat and cool.

Waterestimate $100 Monthly – not including irrigation mentioned above.

Garbage$75 Monthly . Oddly you will produce more garbage in a huge house. It just happens!

Internet and Cable –  $150 Monthly – you might be able to get buy on less than this, but being a chord cutter is hard in a huge house, most people don’t do it, this is a conservative estimate IMO.

I could go even more crazy here and explain how you will spend more on furnishings, artwork, rugs, stupid throw pillows, yard decorations and furniture. When you buy a big nice house, and all your neighbors have all this crap, you won’t be able to resist keeping up with the Jones. It just happens. But I will keep that out of my estimate because what you will see is the total form what I have is bad enough.

Here is what your monthly Total Cost of Ownership will look like.

Ouch!! That is a BIG number!!

$8317 a month is a pretty big number. That is just shy of $100K a year! To be exact – it would be it is $99,804 a year!

In my next post, I will talk about home price appreciation and if the gamble of betting on the price of your home going up while you are living there – justifies the cost of owning a home at these lofty prices. Spoiler alert! I don’t think it even comes close to being worth it. I will also cover the tax advantages of home ownership, and how that advantage has been significantly reduced by the last set of tax law changes from the Trump administration.

For now, I ask you to think about how much money the true cost of home ownership will cost you, factoring in everything, not just the monthly payment to the bank. And also think about if you really want to date Ms. Leverage, and if she is really that hot?

Why Housing Costs Can Kill Your Retirement Dreams & How Homebuilders Try To Sock it To Consumers

I have been thinking a lot about housing lately. Part of my personal retirement plan had always included moving to a more affordable area where I could get more house for the money. Before retiring, I lived in the Seattle suburbs area where housing was very expensive, I then relocated to Eastern Washington where housing is considerably less expensive. As it turns out, just about everything else is much less expensive there too. Eating out, going to the movies, yard care, handyman work, you name the service, almost everything is at a discount to Seattle prices. When I go back to visit Seattle, I always have to adjust to the sticker shock on everything I buy.

One of my favorite tools on the web is the cost of living calculators. has a pretty good one. It is not perfect, however. The housing costs in my case specifically were wildly wrong for my move. But the rest of the estimates were closer to the mark.

Relocating to a cheaper area was a good start. But I made the mistake of buying a house that was really way too big. It seemed like a great idea at the time, the house was so much less expensive than my house in Seattle, about half the price. But it is HUGE! Almost 4000 Square Feet, it is beautiful, but it is also a little bit tacky and obnoxious and doesn’t fit my new more frugal lifestyle.

I am NOT complaining! The place is a lot of fun, it has a pool, a really nice outdoor pizza oven, and a huge fenced backyard for my dogs to play in. It’s great, but I absolutely did not NEED the space and could have been equally happy in a smaller place, half the size without all the extras. No scratch that, I think I probably would have been happier in a smaller place that cost half as much, and less than half as much to maintain. For sure I would have been financially freer, and that is what this blog is all about.

I have been thinking even more about housing as of late because the wife and I (along with our two mutts)- have started doing the snowbird thing for our first time this year. We headed down to the Scottsdale Arizona area for a few months while it is bitterly cold back in Washington State. For our first time doing the extended stay down in the desert, we decided to rent a place vs. buy. We had a bunch of good reasons for this, most of all, we were not sure if we would like it yet. Visiting a place is one thing, staying a few months is another, owning a place – now that is a commitment at another level!

As it turns out, we love it down in Scottsdale, the lovely warm sunny weather is awesome! The area is full of hiking, biking, running trails, there are tons of great restaurants, arts, concerts, car shows etc etc. It’s a great place, except it is hotter than hell here in the summer. And it is getting bigger and more crowded every year. All this made me start thinking about should we continue to rent down here next year, or think about buying a place?

Because we have been having such a great time, we decided it wouldn’t hurt to start looking to buy a place. So we started going to a few open houses and checking out a few neighborhoods being built. Long story short, this little odyssey into considering a second home turned out to be a great way to look at the true cost of home ownership without a lot of emotional baggage attached to the decision, and it gave me a very good education on how new homebuilders are really trying to stick it to consumers today in a way I have never seen before.

I am going to first talk about what a total racket new home sales have become primarily because I think it illustrates how housing has become another area where conspicuous consumption can get quickly out of control and leave you with decades of costs that could easily kill your chances of financial independence. Then I am going to go into more detail on what a terrible decision it is to overbuy your housing if you want to be financially independent. Here I will try and put some numbers up to show how bad an “investment” in your home can really be.

Buying a New Home From a Homebuilder Like Toll Brothers is Now More Like Going to New Car Lot – Be Prepared To Get Ripped Off!

I was blown away at what a total racket new home sales have become. We visited two Toll Brothers locations near Scottsdale, they were both essentially the same experience, one that I can only describe as head-scratchingly bizarre. We drove out to a new Toll Brothers neighborhood called Verde River – located in a fancy golf neighborhood called Trilogy at Rio Verde.

Priced from $704,995 – Not so FAST!

There’s nothing inherently wrong with the neighborhood, other than it seemed a bit snooty for my taste. There’s a nice golf course and clubhouse, and pretty views of the surrounding mountains. Things don’t start getting weird until you go into the Toll Brothers model home and sales center. The minute you walk in that door you realize you have entered a bizarre world of bait and switch marketing, with a myriad of overpriced options, confusing multitiered pricing plans, and snazzy salespeople with endless dizzying lingo being thrown at you in every direction. It is exactly like being on a new car lot, only way worse, as the damage can be significantly worse, and there are no good websites like Car Gurus that can help you make sure you are not getting totally ripped off.

In our experience, we were interested in looking at an advertised model listed on the Toll Brothers website as “Priced From $841,995” That was more than we were interested in spending, but we thought why not take a look at it, as it looks fancy on the website and well who knows?! After a somewhat exhausting exchange with the phony salesperson, we found out that the home being advertised was actually for sale for closer to $2.1 MILLION DOLLARS! When I asked the salesperson incredulously, “how do you get from a base price of $840 grand to over $2 Million?” Her glib response was, “well, when you walk through it I think you will see”. Bitch please! I just drove 25 Miles to see a house you Toll Bros are advertising on your website for 840 Grand, now you are telling me that exact same house in the picture is $2.1 Million, and you won’t give me a reason other than, look at it and see!!? I saw already it on your damn website, that is why I am here! 🙂

What I eventually learn, houses are now truly sold like cars. You can get a stripper house sitting on a shitty lot for the “base” price advertised. Or you can load up a house with insane options to reach a ridiculous price point that couldn’t possibly makes sense to anyone.

You can see the particular home I am talking about here. Scroll down to the Rio Verde model.

Or tour it with me here! When you walk into the model home, it is impressive, but not in a way that makes any sense. The first thing that your eye is drawn to is the dining room that features a massive wine rack encased in a huge glass structure. I have no idea how many cases of wine the thing would hold, I can only think of how much time it would take to clean the glass.

Insane Wine Rack – I have no idea what that option costs!
I counted – It holds 280 bottles of wine! Or 40 cases in case your counting…

From there you stumble into the kitchen area where, and I am not making this up, you lay your eyes on a 17 foot loooong kitchen island. At this point, you are wondering if you accidentally took the wrong door and accidentally ended up in the clubhouse kitchen.

Luckily there are 2 dishwashers tucked into that 102 Sq FT Monster Island, because after downing all that wine you’re gonna need them!

Bewildered in the kitchen, you don’t really know which way to turn, the natural reaction is to try and run away or at least get outside where you can start making sense of the world again. But that is when things take a real turn to the overstated straight out of crazy town option pile on. A massive outdoor room with yet another full kitchen area, a huge swimming pool, and an indoor outdoor “game room” complete with 2 kegorators, a pool table, and yet another gigantic kitchen island.. No, again, I am NOT making this up!

In case your mega kitchen is not big enough, you get another one outside next to the pool!
But wait! 2 kitchens not enough for ya! How about another one in the game room!

OK – so I know what you are saying. Toll Brothers did a bait and switch on you, but this is a killer house and you are just jealous or mad you can’t afford it, right? Wrong option breath! Well, actually right about not being able to afford it, but wrong about wanting this monstrosity. The environmental damage done alone would be way more than enough to steer me away from this trophy home. But the thought of taking care of this beast is more than any potential homebuyer should ever have to bare.

So after you have exhausted yourself touring around the Toll McMansion from hell, you are forced to walk back out through their “sales center” where the now somewhat annoying saleslady is honing in on your to get your particulars, name, email, phone number – I think – dear god she is going to start chasing me down with spam mail and follow up cold calls.

In my final attempt to make any sense out of the experience I say, is there really anyway you can get the Rio Verde house model for the advertised price, this is where she tacitly admits, not really. You see there is this thing called a “lot premium” you have to pay, and you pretty much always have at least a few upgrades you will want to do. “Lot Premiums?” I say. “Yes” she says, here is a list of the lot premiums they range from around $20,000 to several hundred thousand dollars. At this point I am ready to be direct. “Lady”, I say, “I can’t for the life of me figure out what a house actually costs here, and I am exhausted from trying to figure this thing out. I am going to go now, thanks for the nice chocolates!” Hint for frugal visitors, sales centers in Arizona often have great free candy and ice cold bottled water. They are a great place to stop by after a hike when you are thirsty and need a treat!

As we walking out of the sales center and got back into the car, I said to the wife, “wow, I thought Toll Brothers was a good company… I can’t ever see me going back to another one of their neighborhoods, what a head scratcher”.

My takeaway, many homebuilders like Toll Brothers are now in the business of squeezing every last dime out of the consumer. With a myriad of confusing superfluous options and pricing plans, combined with teaser low rate in house financing options, we are seeing an unprecedented predatory new home sales process unfold. All of this will likely end up turning unwitting consumers new dream homes into nightmare purchases they will soon regret. Worse, we will likely end up with similar results to the last mortgage meltdown crisis as people try to bail out of these loans and leave homebuilders and their special financing arms full of bad debt when the next housing bust comes. History doesn’t always repeat, but it rhymes and this all sounds very familiar.

OK – if you are still reading this we are now on to part two of the story. You now know that buying a new home is a confusing expensive process that can almost certainly lead you to buy a ton of shit you don’t need or want and will never really make you happy. So the clear advice from me, don’t do it! If you insist on buying a brand new home, buy one that is already built, and the cost is very clear and can be negotiated.

The best answer may be to not buy a house at all!

For many many people owning a home is mistake. Because this post has already gotten way too long I will summarize why I think home ownership is a terrible idea for many, maybe even most people. In a follow up post I am going to go to math camp to wrap some very specific numbers around how much better the financial decision to rent vs. buy really can be.

The quick summary of why I really don’t like housing as an investment. First, housing is illiquid as hell. You can’t push a button and get your cash. Selling your house can take weeks, sometimes months. To make matters worse, you always have to pay big transaction fees whenever you sell your house. It averages around 8-10% of the selling price. That’s a crazy amount of money and it happens on what is typically the biggest asset people have.

Next, houses always cost way more than you think they will. The sales price of the home and getting locked up into 30 years of mortgage servitude is just the beginning of the financial woes that houses can bring to your life. Add in maintenance costs, renovations, the potential of increased property taxes, liability risks, buying more furnishings and decorations to fill the larger space, and the financial picture of owning vs renting just looks worse and worse. In my next post I will put some realistic numbers against this that I have seen, I promise it will expand your viewpoint on owning vs. renting.

Leverage! Yikes, people are getting leveraged to the hilt in this massive real estate bull market we have been having. I am constantly reading stories of finance companies still allowing people to buy homes with as little as 5% down on adjustable rate mortgages. That is insane leverage. Can you imagine owning any other asset class this way? Think about borrowing 95% of your stock holdings! You would NEVER do it, luckily nobody would let you do it, because that kind of leverage is totally insane! In my next post, I will walk through what a total financial disaster this kind of leverage can result in and why I would never recommend anybody ever get involved in highly leveraged mortgage deals like this.

Owning a house unnecessarily restricts your mobility. That is a BAD thing. In today’s employment environment mobility is of high value. Gone are the days of staying in one town for your entire career and raising your family in one place. Workers now commonly have multiple jobs, they change companies, careers, and locations often. The higher your skill level and specialization, the more likely it is you will have the opportunity to improve your earnings potential by moving your specialized skill set to new growth markets, wherever they happen to pop up. Getting tied down to home, that is illiquid and requires a lot of care and feeding, is a sure fire way to restrict your mobility in a world that really values more not less moving around.

So maybe this is enough to get you thinking twice about rooting down into that American dream, if not, in my next post I will try and convince you with math.

In the meantime, I encourage you to visit a Toll Brothers neighborhood near you, so you can see fist hand, what NOT to buy with your hard earned money, and to pick up some free chocolate and ice cold waters!

Moviepass is Still Alive

The “Ringer” offers a particularly interesting read into where Moviepass is today. The author offers a rare glimpse into what things look like at the company, and does a great job of pulling together a picture of an executive team that has gone from darlings to dolts over the past year.

The interview touches on everything from the ill fated photo of Lowe and Farnsworth in front of the AMC NY theater, to the 5 Million emergency loan last summer during the meltdown period.

It exposes the harsh reality of the half truths that were told by the company. And shines a light on the obvious issues that fraud and abuse were rampant with the way the service was constructed.

For investors it serves as a reminder of how totally dangerous it is to invest in early stage companies that don’t have a clear business model figured out. The chaos of Moviepass and the clear oversights of the management team are painful to read about. Everything from the lack of reliable fraud protection, to the stupid pricing scheme, to the cocky public attitude, wreaks of a Silicon Valley sitcom.

Obviously, there are a few ways you can interpret the piece. One, the company is just slowly dying and heading to the scrap heap of early innovators slaughtered by incumbents and stiffer competition.

Or two, the company has retrenched appropriately, and will rise from the ashes.

The interview makes it hard to determine if Lowe is a beaten man, or if he is simply frustrated from the last few months of failures and the public drubbing that came with it.

I have seen these things go both ways. I have witnessed miraculous turnarounds and total flame outs. My suspicion is that there is still enough belief and enough of a business left with Moviepass that Lowe and company will continue to push the nickel uphill with their noses. They still see light at the end of the tunnel and they believe they can build a meaningful business.

Luckily for them, they still have real subscription revenue to work with, albeit smaller and slower growing, with real revenue and managed costs they are likely close to sustainable.

That gives them some hope, and allows them some time to keep working through a plan that could work. If there was no hope, I think these guys would likely have thrown in the towel by now and sold the thing off for nothing and called it over. But I think they see hope and that’s why they are sticking to it.

I also know from experience, the new kinder and gentler attitude is probably only partially real. It’s more likely they still have long term dreams of totally disrupting the entire ecosystem. But they also now know that a Trojan Horse is a much more effective PR strategy than the “hey look at how cool we are!” strategy they had been employing.

It rarely makes sense to put a target on your head. When you walk around boasting how fantastic you are and how you are changing the industry, the industry will do all it can to make sure you don’t! So it’s not surprising that the PR strategy at Moviepass has changed to “get along to go along”.

But I seriously doubt that Lowe and company have left all their dreams behind. They are likely biting their tongue and biding their time and wondering if, just maybe, they can pull off something big still, but do it over the period of years not months.

If they lose hope, and the management begins to bailout, you will know they are done for.

I am sure it stings Lowe quite a bit that he now has to sit in some shitty office and talk to some smartass from the Ringer who is beating them down like a dead horse.

It is quite a fall from being the media darling hosted on CNBC and the national morning shows. Those guys now treat Lowe like a bad joke and a fraud.

Lowe wants redemption, and as a shareholder I sure hope he finds it!