FAQs On My Rent vs Buy Calculator

This page will serve as the main page for the Rent vs Buy Calculator for any future update or user questions. For the most part, you shouldn’t need to read anything from this page, until you get into some very minor details.


  1. The following 3 input boxes are co-dependent: Down payment, Down payment %, Loan amount. Down payment + Loan amount always equals to House price.
  2. Marginal fed+state tax bracket is used to calculate the after-tax return from the before tax investing return rate.
  3. You should get your Tax benefit average rate on property tax+interest from my tax calculator, plus any additional tax benefits from the state taxes. The input percentage should be calculated as total tax benefits divided by total amount of the sum of property tax and mortgage interests.
  4. All the numbers in the yearly comparison table are ACCUMULATED to that particular year, except Deductibles and House Value columns.
  5. The numbers in every column gets increased year after year, using the after-tax investing return whenever applies.
  6. The last 5 input fields: Property tax rate, Other property-related tax, Home insurance per Year, Home owner association due per Month, Commute cost difference per Week, will go into the calculation of Other cost column in the yearly comparison table.

Known Problems:

  1. You need to use screen capture tools such as SnagIt to print anything for now.
  2. Save/Load buttons don’t work (yet).
  3. If you use TAB key to goto the next input box, the input field gets changed but the yearly comparison table will not get updated because of the change. You should press ENTER key once in a while to get the table updated with the latest inputs.
  4. You cannot switch between case 1 and case 2 yet, for the yearly table below. Currently, the table always calculates using the information from case 1.
  5. At the end when the mortgage is paid off, the calculator currently has a slight error if the last remaining balance is not exactly zero. It’s not zero because the mortgage payment is always rounded UP to the nearest cent. This error is bigger if you put in a non-integer number of years of the loan term.
  6. A constant tax benefit average rate is assumed throughout the life of the mortgage. In reality, this is not true. Most likely your tax benefit rate will keep decreasing and hit 0% once your itemized deduction is not greater than your standard deduction (which gets indexed to inflation). Because of this error, the final result is biased towards benefiting the case for Buying.

A Leveraged View On My Asset Allocation

As of last Friday on June 9, 2006, my networth & portfolio looks like this:


Net Value


My Company



My Home






For the explanation of why the percentage numbers don’t sum up to 100% in the column of Control/Leverage, please read my post A Different Percentile Look on Leverages of Your Networth. Obviously, due to the stock options that I hold in my company, my networth can still be dramatically affected by the up & down of my company stock. When the general market falls like this time, the negative contribution on my networth will be the biggest from my company holdings. Vice versa, when the general market rallies, the positive contribution will be the biggest too. However, if you look at the percentage from the value column, I have sufficient assets from other sources so that I don’t need to be forced into liquidating my company holdings. From the leverage column, I’m still overall long in this market, even when you consider my commodity holdings as a negative holding against the general market. In fact, one of the reasons that my own investment is so focused in commodity sector is to partially serve as a hedge against my company holdings. Since commodity market is less correlated to the general stock market, more often than not, when my investments do well, my company holdings don’t do well, and vice versa. Of course, synchronous rising has happened before, and synchronous falling like this time happens too. But my overall portfolio benefits from this diversification. I have a very distinct advantage compared to other, of not needing to invest in the general market to benefit from the rising trends of the general market (well, if there is any).

To maintain a good diversification, I have sticked to a strict discipline of not buying ANY high-tech related stocks so that I don’t increase my further exposure in that area because of my stock options. Also, due to my real estate holdings, I don’t buy ANY financial or real estate related stocks either. Any buys (if at all) in high-tech, financial, or real estate stocks will be very short term trades in probably less than a month. I will not hesitate to liquidate those positions if the trades don’t work out, to maintain my exposure discipline. The sectors that I focus on for my personal investment are energy, commodity, healthcare/pharmaceutical, and sometimes consumer staples.

Due to recent market turmoil, I have also decided that going forward, I may even initiate short positions to directly hedge my real estate and company holdings. Unfortunately, any such hedging can only be done in a very limited basis, due to the amount of money that will be required to initiate a full short position.

Home Office Tax Deduction

When I started blogging, I talked to my accounting friend who is a CPA about taking home office tax deduction. Besides the trouble of maintaining and documenting the exclusitivity of the business usage, and sending a warning flag for audits, he advised me not to take any such deductions for the following financial reasons:

  1. If you own your home, the expense items that you can claim for such deductions are mostly mortgage interest, property taxes, insurance, and utilities. The biggest items are usually mortgage interest, and then property taxes, both of which can already be fully deducted through itemized deduction on the schedule A for your personal tax. Unless you rent, and have very big utilities bills, the total deductible amount that is otherwise not available in personal taxes, will not be very significant, especially after pro-rating of business usage area to the total.
  2. Any amount of depreciation of the home office will need to be re-captured as business gain at the time of the sale of your home. If no business conversion of the home is taken, your gain is tax-free if it’s $250K for singles, and $500K for couples. Those business gain can be defered through more complicated loopholes of 1031 exchange. But this 1031 exchange that involves both home & business will not be as straightforward as a regular 1031 exchange.
  3. Home office deduction is limited to your net business positive earning. You simply cannot use home office deduction and increase your business loss to offset against your other income like salary wages. Although you can carry forward the deductions that you cannot take in the current year, it is of no use if your business cannot produce significant income to take advantage of those deduction. You can check out form 8829 for home office deduction and Schedule C for business income.

Here are some other useful links for more information:

  1. Directly from IRS: home office deduction.
  2. From Quicken: Factors to Consider Before Taking Home Office Deduction. This article is very informative.
  3. A very good online calculator for home office deduction.

A Million Dollar Goal Comeback!

Clint at the old MillionDollarGoal blogger site has made a full comeback blogging again at AccumulatingMoney. His website was taken down by Blogger, a warning to all those who want to blog based on blogger’s platform. There are several other free platforms out there, including WordPress, and a flexible platform graciously provided by Jonathan’s mblog.

Congratulation to Clint. He was down by not out, and now he is back with one of the best blog designs. A simply amazing and remarkable recovery in such a short time. With such preseverance, I have no doubt that he will succeed at his new blog. So well said by his tagline: “Because money is better than poverty, if only for financial reasons.” And a comeback is better than quitting. Why don’t you pay a visit to learn from such a brave man?

Looking Back At My First Year In Investing

When I just started investing in 1998, I started out by day trading stocks. I didn’t have much. Majority of my investing capital came from my parents. I had about $30,000 which was also the majority of my entire networth. Life was in the fast lane, day trading stocks in and out.

Since day trading relies on making money on a very small percentage spread, I splitted my $30,000 to roughly only two transactions, each transaction worthed about $15,000 so that even on a 0.5% gain, I could net about $75 – about $25 round-trip commission = $50, a decent profit for me. If I was able to day trade two stocks in two transactions successfully, that would be $50 x 2 = $100. I figured in the most optimal case, $100 per day x 52 weeks x 5 days = $26,000 annual profit. That would be a really decent gain per year.

But it was obviously not that easy. There were days that I could get $100, but there were days that I would lose $100. Overall however, I was making forward progress by small steps. Since my “day trades” were more like days trades every now and then to take advantage of special closing/opening prices, one night I placed a low-ball limit order for next-day morning (like I often did because I couldn’t wake up that early for east coast). The next morning, I woke up with my limit order filled, but just to discover that the stock that I bought had just tanked right through my limit order price. Although I put my limit order at some 3% to 4% lower from previous closing price, the stock tanked some 15% right at the market open. So the stocks that I bought was immediately in red for about 10% loss. I couldn’t close out my trade with a 10% loss, and so, I did what most people do, held on to my losing position. And the stock just kept going lower and lower.

Eventually, after making several other big mistakes, I closed out at the end of the year with a big 40% loss. Obviously I was quite depressed about how much I had lost. What made it doubly depressing was that I was losing the money that my parents gave me as gifts. That was a substantial amount to me, especially when you compound that amount at some 4% or 5% for maybe 50 to 60 years ahead of me. I sat down long and hard, reviewed all of my mistakes, and tried to learn my trading and investing lessons. My wife asked why I was doing it at all, waking up at 6:00am PST for so many mornings for trading stocks, and had nothing to show for it, but a big hole in the pocket. It was a good question, and I had an uncommon answer.

My answer was “I prefer to lose 40% now at my twenties, rather than losing 40% at my sixties. If I learn my lessons early, I would not make the same big mistakes much later. Today, I’m managing and investing some $30,000. One day, I will be managing and investing one million dollar. I can afford to lose 40% of $30,000 now, but I won’t be able to afford to lose even 20% of a million dollar.” Yeah, I was in pain from my deep loss. But I was so determined in continuing my stock trading & investing, and I was confident that one day I would be managing a much bigger amount. Since I knew I would be investing for the next 50 years or more, so I was just going to learn how to do it the earlier the better.

Today, my stock portfolio is not a million yet. But my networth has increased dramatically. I definitely did not expect things to happen this soon. Fortunately, each of my past investing and trading mistakes has continued to help me to become a better investor and keener trader. My big loss of 40% in the first year has made me a much more cautious and knowledgeable investor. I think some of the lessons you can never learn it from books. Those lessons just need to be learned from painful mistakes. I believe that investing and trading are those kinds of lessons. And I continue to learn and re-learn my lessons as a forever student of the markets. My only modest goal is not to be stupid enough to lose some 30% of my networth when I’m least affordable for a big loss, such in my old age and in retirement.

Lists Of High Yield Dividend Stocks

Here is probably the standard list of dividend stocks that pays 4.0% or above that you may find from other sites. The table is based on Jun 16, 2006 Friday’s closing price, using the last paid dividend projected forward for one year which is the way Yahoo display the dividend yields in the basic information. By the way, this list is mostly from Dow Jones Industrial 30:

Stock Symbols














I don’t know about you, but when I look at this short list, I almost feel depressed by the low yield. In fact, out of all these stocks, I would probably only suggest buying VZ, PFE, and just maybe MO (if you don’t care about the ethical ramification). Financial stocks are usually the higher dividend-paying stocks these days. However I don’t like financial stocks because I believe going forward financial stocks may constitute a lesser percentage in terms of market capitalization of the total market (which means that they may underperform).

Okay, here is my list:

Stock Symbols





foreign tax due



foreign tax due



foreign tax due



foreign tax due



pays royalty



pays royalty



MLP partnership



MLP partnership



MLP partnership



MLP partnership



MLP partnership



oil tanker



oil tanker



oil tanker



oil tanker



foreign tax due

This list doesn’t include any REIT, which are historically good dividend paying stocks except now. I hope you find this list useful. And if you do make money off this list, please consider donating something here through PayPal (I can’t imagine you doing that now, but maybe after you’ve earned your first $5K dividends….), and/or at least leave a comment for appreciation. This list is actually part of my recipe for my yet-to-be money management company, in respect to the part for the high dividend yield investments. Aren’t you glad you just save 1% for the management fee either from me :P or from someone else?

This list is by no means exhaustive. You can use them as the starting point of your research to find more similar business and stocks. At the minimum, you must look at the dividend paying history to get a feel of the true dividend paying rate, because some stocks may potentially have a distorted higher or lower dividend yield shown above due to a temporary high or low dividend payment. Also, please DON’T rush out and buy the highest yield stocks on this list. Here are some of the things that you should heed:

  1. The yield is usually proportional to the (downside) risk. The best example to illustrate this is SGU falling 80% in a single day on Oct 18, 2004. Right before the fall, SGU was paying 10.8% dividend yield.
  2. Pay attention to diversify among stocks from various sectors, so that the probability of getting hit on all stocks all at once is smaller.
  3. Plot out the yield curve & stock price on the same chart if possible. It will tell you whether stock prices went up because of increasing dividend payouts or because of a shrinking yield due to reasons such as investor frothiness (PTR & ERF used to pay out 11% to 14%). In the latter case, your current entry will be more riskier when the investors change their expectation for worse.
  4. You can potentially run into having too much foreign dividend and end up getting 15% less from the yield that you deserve. (No, I’m not kidding here. I’m forced to cut back and sell my dividend stocks so that I don’t hit the limit in respect to this tax rule. At 13.4% yield, investing $30K will exceed the limit.)

I’m not providing any performance numbers because I believe one must always do one’s own diligent research before buying stocks. But I can tell you from my own experiences that I made a lot of money from these stocks, more than $11000 in actual dividends (not including any non-dividend distributions such as royalty payments) in the year of 2005. Most of my dividend stocks return in excess of 15% annualized, and many exceed 20% or more due to stock price appreciation besides dividends. By the way, if you find some names on this list that don’t have such a great overall return, I’ve only included them simply because their short-term setbacks may actually be good buying opportunities.

Also, if you blog on any stocks on this list or similar stocks to them, I appreciate that you respect my contribution since it took quite some time & resources over past two years to collect these information. A link in your article that links back to this original post will do.

As the final conclusion to my dividend series, here are all the previous posts related to my dividend investing. There are many different tax issues involved and discussed in the series. That’s part of the invisible price that you need to pay for investing in such stocks:

  1. My dividend investing ($11775.91 for 2005)
  2. Master Limited Partnership – Great Dividend Savers
  3. Royalty Trusts – Get Paid Royalties w/o Paying (Much) Taxes
  4. REIT as an Alternative Dividend Investment
  5. Foreign Taxes Withheld Problem (this is not part of the series, but most likely you will face the same problem.)

And I apologize to not giving this list to you sooner since my very first original post, which only gave out good and general information, but not much details. It served only to catch your eyes. I wanted to complete this series sooner, but I have been simply overhelmed by all of my blogging and non-blogging activities. Since the stock market seems to be reaching a bottom here, it is actually better that I’m providing this list at such time.

A quiz: do you know which stocks tend to go up, and which stocks tend to go down a little when the stock market have a strong bounce up? If you have studied my dividend investing series carefully, and have been watching these stocks for sometime, you should be able to answer this question confidently. Okay, a hint for you, what are more like bonds?

Just repeat of my legal disclaimer here: I don’t assume any responsibility for your investment decisions based upon anything on http://www.1stmillionat33.com/. The advices here are provided “AS IS”, and readers are advised to obtain further research or consultation.

Buy and Sell Your Extra Shares To The Market Makers

When I used to daytrade long time ago, I learned some trick from a real dot com story (sorry, I can’t find the link now). The story is about army of traders going against market makers of the stock market. A market maker of the stock market bring together the buyers and sellers of the market closer by posting bid and ask that are closer to each other, reducing the spread. The bid and ask they post are based upon all the information from limit orders in the queues that normally one cannot see, unless one subscribes to Level II quote. The gist of the story is that the army of traders drove up the dot com stock price by hitting market makers either when the market was less liquid. Since the market makers were forced to post an ask price even when there is no one who want to sell, these traders basically continuously hit the ask posted by market makers, and forced the market makers to be shorted of the dot com stock. The money amount was so large, and the buy orders so organized that market makers were forced to cover their large short positions, and ended up driving up the stock price even higher.

So how does one tell from a bid/ask by market maker from a real order by some other traders? When you bring up the bid/ask size, if you see something like 1×7 (100 shares bid x 700 shares ask), or 6×1 (600 shares bid x 100 shares ask), the 1 which represents for 100 shares is very often the order posted by market maker. Unless the stock is very thinly traded, there is usually more than 1 market maker. If there are 2 market makers, then both of them will be posting 100 shares at the given price. But on your trading screen, it will still show only 1 (either for bid or ask size). Now here is the real difference between market order and limit order. At this time, let’s say if you place a market order, what you will get is 100 shares at the quoted bid/ask price, and then the rest of shares will come off from the hidden queue of the limit orders which often can have a substantial price difference from your very first 100 shares. But if you place a limit order right at the bid/ask price, you can actually get MORE than 100 shares at your desired price if there are more than 1 market maker. Essentially you will be either buying/selling directly into the hands of these multiple market makers.

I have tried this several times myself. Most of the time, I would get two or three separate 100 shares filled when I placed an order to hit at the 1, and then the rest of the shares became another limit order in the stock market (which you could cancel immediately if you want to). And once I cancelled my limit order, very often I would see that the market makers refuse to bring the bid/ask closer for fear of being hit again, and simply let the next highest bid or lowest ask to show up. The bid/ask would suddenly widened at that time, until market makers feel that they have sufficient information to post their bid/ask without incurring more risk, or that the trading volume picked up without the need of orders posted by market makers.

So next time if you really want to buy or sell, but finding that there is not enough size for you to get in or get out, try this. I’m pretty sure that you will be pleasantly surprised. Paying an extra commission for your limit order may worth your money. (Exceptions are of course that there is only 1 market maker, or that 100 shares are a real 100 shares by a buyer/seller, in which case no market maker orders will exist. And I am not sure that the same scenario applies to option orders.)

Definition Of Being Frugal

Very early in my adolescent life, I’ve learned a wise Chinese saying: “When you must spend, you spend; when you could save, you save.” It’s a short and plain sentence. It may not strike any accord to your mind, if you simply scan through it. But for me personally, it has taught me everything about the delicate balance between spending and saving money. It defines what frugalness truly means.

The choice between spending and saving money is always a personal one. For many people, it’s a constant fight against one’s material desires. For some people on the other extreme, it’s a default choice of saving, a tedious time-consuming almost-love affair of pinching every last penny. Where is the proper balance? How should a person deal with his or her money? For the most part however, the choice to spend or to save is not really a choice, but just a part of the personality. But that doesn’t mean that a wise choice cannot be made under different circumstances.

Contemplating over the Chinese saying, I’ve come to realize that the keyword for the spending choice is in “Must”. By default, one should save money. But what exactly constitute as a MUST situation? Certainly, if the MUST is simply driven by one’s own internal desires, then it is a materialistic spending. It’s not wrong of course. It’s simply a personal choice. But the MUST can also be driven from external factors such as healthcare expenses, etc. Under those circumstances, obviously, you don’t have the saving choice. You just have to spend the money.

Furthermore, the saving choice is qualifed by COULD, an opportunistic and voluntary word. If such chances or choices exist, then you should save. Although it doesn’t say that you shouldn’t go out of your ways to save money, the choice of saving money is essentially an opportunistic and voluntary action. If it’s easy to save some money on certain things, in fact, it’s almost stupid to do otherwise. Why in the world you want to spend extra for exactly the same or similar thing, if it takes roughly the same amount of ease and time? Some people say it’s because of the stores are not like malls. Some say it’s an inferior brand. Some say it’s an inferior quality and that’s why they don’t want to save on it. Out of all the above, I think only an inferior quality makes sense to me. And I must emphasize that brands don’t equal to quality, although that is usually true and widely accepted.

For me, being frugal is saving money opportunistically without miserly not spending on the necessary things. The earned money is to be spent, not to be hoarded forever. When the circumstances dictate spending, then you must spend. Not spending the money when you must simply defeat the very purpose and utility of money. On the other hand, if you don’t save much and spend your money for every “must” circumstance, then I have another Chinese saying for you: “for those people who don’t contemplate the consequences in the far future, they must have troubles awaiting in the near (term).” Why? Because they didn’t think nor prepare for their present situation in the past either.

A Strategic Trade In The Housing Market

Given the housing market this high, what should the renters do, and what should the home owners do? Don’t you wonder everyday in life, whether you should sell out to rent for homeowners, or whether you should bite the bullet and buy-in for renters? Here is what I project for what’s to come in the housing/rental/mortgage market:

  1. Near short term in this month or probably less than 30 days window, the 10 & 30 years treasury bond yields may make a temporarily low. This is the time to refinance and cash-out if you own your house. I contemplated exactly the same move last October when 10-year bond yields just cracked 4.5%. I just couldn’t make the move because my cash position was about 25% of my cash+stock porfolio. Since I didn’t know or didn’t want to invest more of my cash into stock market, I thought getting more cash out of my house will be simply paying useless interest money to banks.
  2. Rents may be moving up just as the housing market cools. This is showing up in yesterday’s CPI figure already. The owner’s equivalent rent went up by 0.6%, much higher than the rest of the core rate of about 0.2%. US government is paying for its past sins of tempering the CPI by using rents instead of housing price for calculating the inflation rate. I project that the rents may be catching up and moving up by a total of some 20% or more in the following 5 years (including this year), averaging probably about 4% to 5% increase annually. The increase may come at the face of stagnant wage and economic growth. If you’re a renter, and if it’s possible, I would suggest you to find a place that you like, and lock in your rent for the next 3 to 4 years. Why 3 to 4 years? Because in 3 to 4 years, you will be buying your home. 95% of the ARM loans will be recast in 5 years. Since starting 2003/2004, the ARM loans became popular, adding 5 years to it, gives you 2008/2009. And that’s 2 to 3 years from now. Give it 1 extra year for the housing market to fall, I arrived a timeframe of 3/4 years for locking your rent. How about ARMs in 2005? I think if those people did 3-year ARM, they will collide with 2003+5 people. If they did option ARM, then they may “perish” before reaching 2008/2009 due to the rise in the interest rate, or burned by the affordability issues.
  3. The big picture going forward is mortgage rates going up, rents going up, and housing prices going down. The mortgage market is showing increase in the spread to the treasury market already, and further increase may be possible. From this Washington Post’s article, growth in Fannie Mae and Freddie will be restrained. What does that mean? It means LESS money to chase mortgages. Less demand equals lower price for mortgage bonds, and equals higher rates for mortgages. I was surprised to see this spread widened so much on 10-year treasury. Last October, 10-year was at 4.5%, and 15-year mortgage was at 5.125%. Now 10-year is at 5.0%, but 15-year mortgage is at 6.0%. I was going to go for 15-year mortgage in last October, but now I will opt 30-year, which is only 0.25% above 15-year mortgage.

So what would be the best moves if you’re a renter, or if you’re a homeowner?

  1. For renters: lock in your rents, and save your money for 3 to 4 years later to buy a house.
  2. For homeowners with repaying ability: refinance and cash-out your current mortgage into a fixed 30 year mortgage. Park this cash at a safe place, and you can buy another house in 3 to 4 years using that amount of cash. At that time, the rental market will catch up somehow. Renting out your existing home will probably be cash flow breakeven or positive at that time, and the profits will increase along with inflation going forward for the next 26 to 27 years. And then you can get another house for yourself at a lower price with your refinanced cash for down payment. Assuming that you can at least breakeven on renting out your current home, you should be able to buy another house, either partially with that loan proceeds at 6.25% (instead of 7.5%?) or financed by your salary. Got it? The summary of this strategic move is to borrow NOW for another purchase that is 3 to 4 years later.
  3. For other homeowners: Sit tight. Don’t dream of becoming a millionaire (at today’s dollar) from your home, nor retire upon your piggy-bank house. I don’t think it’s going to happen. Just pay down your debts according to the amortization schedule. And if you have an ARM, refinance it now. If you can’t afford the refinanced payment, I suggest that you should sell NOW, or you may want to…I don’t really want to share this with you this secret since it’s you who drove up the home prices, but…you should refinance your ARM into another ARM (assuming no pre-payment penalty) which has another 5 years before it recasts. That way, you won’t collide with the 2008/2009 dumping traffic. You can postpone your reckoning day until 2006+5=2011. Unfortunately, the interest rates will surely be higher at that time. If your income situation doesn’t improve by that time, you will still be a deadbeat.

Of course, you can always sell your home which is the BEST and most simple way of taking advantage of the height of housing market. But in case you don’t want to go through hassles of moving around, you could consider the above options.

Just my two cents.

My Portfolio Went On A Last Minute Shopping Spree

Alright, changed my mind again after backing out. Picked up a couple of stronger mining stocks. Spent about 33% of my readily available cash, or 18% of my total cash, or 8.6% of possible cash if I decided to mortgage my house, while at the same I am borrowing cash overseas to increase my total cash by another 21%. Whichever ways you look at it, I’m IN, and I won’t be OUT. I’m going to outnumber the value of my existing PM portfolio, if I have to.

Yeah, and if the economy goes back up, and both $US & US stays as the center of the world capital, I will be more than happy too. I’ve got quite a leveraged position in my stock options, that I should cover all of my PM losses from there.

Of course, the worst case is what’s happening now, a simultaneous big drop in both markets.

This will be the LAST update for my moves in my portfolio. I move in & out so fast that I think it’s more confusing than useful to anyone. If you ever want to know what I’m doing, just check My Networth page. It’s updated everyday. Most of time however my moves are not detectable from day to day, because each of my position is probably less than 2% of my entire networth, and market changes are often bigger than the adjustment to my portfolio. You may need to save up the old pages to compare over the time, if you’re really interested.

Good luck trading.