Carnival Of Real Estate

Welcome to the carnival of real estate, hosted at 1stMillionAt33. There are over 30 entries. Plenty of readings for anyone interested learning more about real estate. The entries are listed mostly in the submission order by the categories. Please check out the articles that interest you.

My personal pick of the week for carnival of real estate is Timeshares: Good Investments or Travel Scam? from Queercents.

TheLandJournal.com presents Rural land pricing will never look this good again to buyers, expect huge sales.

Getting Green presents The Many Faces of Mortgage Fraud & Rip-offs.

Investment Property Insider presents A Roadmap For Commercial Real Estate Syndication, Part 1.

Aridni presents Real estate that saves your wallet, but not much more.

Searchlight Crusade presents Vampire Properties.

Realty Thoughts presents Niche Real Estate Blogs.

YoChicago today presents Olympic Village is coming to Chicago, games or no games.

Chicago’s Home Weblog presents Urban Legend, The Top 10,000.

The Real Estate Guide presents Don’t Try To Time The Market.

investing

Dorky Dad presents Trying to get it right: Ben Stein is wrong about Real Estate Investing.

Queercents presents Timeshares: Good Investments or Travel Scam?.

BloodhoundBlog presents The Right Time to Buy: An Investor Perspective. With interest rates creeping up and home values creeping down, is now the time to make a large purchase?

RealProspex presents Commercial real estate buyers: 8 ways to find the right deal without searching

real estate market

Yahoo! Search blog presents Home Search Update Now with Schools.

Moneywalks presents 5 common homebuyer mistakes you want to avoid.

Big Time Real Estate Listings presents Rocker David Grohl buys 3rd home in Oxnard.

1SiliconValley.com presents How Much House Can I Afford? (Part 2 of 2).

No Down-Payment Home presents No Down Payment Home – How I Did It.

Leslie Pandey at Zillow Blog presents Hollywood’s Heartbreak Homes.

Salt Lake Real Estate Blog presents Housing Panic Disingenuous?.

Reasoned Audacity presents Are Children at Risk in Red States?

360Digest presents Shack Prices, referral fees, cherries and designer dresses…

1031 Exchange Lowdown presents 77 Surefire Ways to Increase Your Home’s Value.

real estate professionals

Mike’s Corner Web 2.0 For Real Estate Pros presents How Podcasting Impacts Local Search Relevancy.

Altos Research Real Estate Insights presents MeeboMe as Killer Real Estate Marketing Tool. Instant Customer Service & Lead follow up with Meebo

Real Estate Convergence presents Housing Glut Gives Buyers Upper Hand.

Mortgage Home Loan and Real Estate News presents Mortgage Loans presents: Mortgage Loan Shopping: LendingTree, E-Loan or Quicken Loans?

Renthusiast presents BrightSale defines what it means to be 2.0. Online Estate Agents BrightSale.co.uk give their definition of a 2.0 value system and why they feel ready to change the way the UK buys and sells property.

MiOaklandCounty.com presents The Answer to Everything Can Be Found On The Internet!!

Mike’s Corner Web 2.0 For Real Estate Pros presents Interview: Ken Brand – Exceptional Leadership Through RE Blogging.

The Most Opinionated Mortgage Broker presents Wanna be a Trust Deed Broker?

Clifford Jacobson presents Real Estate 2.0: High Tech, High Touch, or High-Tech Touch? Thoughts for Agents about Real Estate 2.0, High Tech and High Touch.”

Overseas Properties presents Bets on Brazil property as future favourite.

Transparent RE.com presents Cyberhomes and its future.

Thanks to all those who have participated in this carnival. Past posts and future hosts can be found on our blog carnival index page.

Carnival Real Estate (01-29-2007)

Welcome to the carnival of real estate, hosted at 1stMillionAt33. There are over 30 entries. Plenty of readings for anyone interested learning more about real estate. The entries are listed mostly in the submission order by the categories. Please check out the articles that interest you.

My personal pick of the week for carnival of real estate is Timeshares: Good Investments or Travel Scam? from Queercents.

TheLandJournal.com presents Rural land pricing will never look this good again to buyers, expect huge sales.

Getting Green presents The Many Faces of Mortgage Fraud & Rip-offs.

Investment Property Insider presents A Roadmap For Commercial Real Estate Syndication, Part 1.

Aridni presents Real estate that saves your wallet, but not much more.

Searchlight Crusade presents Vampire Properties.

Realty Thoughts presents Niche Real Estate Blogs.

YoChicago today presents Olympic Village is coming to Chicago, games or no games.

Chicago’s Home Weblog presents Urban Legend, The Top 10,000.

The Real Estate Guide presents Don’t Try To Time The Market.

investing

Dorky Dad presents Trying to get it right: Ben Stein is wrong about Real Estate Investing.

Queercents presents Timeshares: Good Investments or Travel Scam?.

BloodhoundBlog presents The Right Time to Buy: An Investor Perspective. With interest rates creeping up and home values creeping down, is now the time to make a large purchase?

RealProspex presents Commercial real estate buyers: 8 ways to find the right deal without searching

real estate market

Yahoo! Search blog presents Home Search Update Now with Schools.

Moneywalks presents 5 common homebuyer mistakes you want to avoid.

Big Time Real Estate Listings presents Rocker David Grohl buys 3rd home in Oxnard.

1SiliconValley.com presents How Much House Can I Afford? (Part 2 of 2).

No Down-Payment Home presents No Down Payment Home – How I Did It.

Leslie Pandey at Zillow Blog presents Hollywood’s Heartbreak Homes.

Salt Lake Real Estate Blog presents Housing Panic Disingenuous?.

Reasoned Audacity presents Are Children at Risk in Red States?

360Digest presents Shack Prices, referral fees, cherries and designer dresses…

1031 Exchange Lowdown presents 77 Surefire Ways to Increase Your Home’s Value.

real estate professionals

Mike’s Corner Web 2.0 For Real Estate Pros presents How Podcasting Impacts Local Search Relevancy.

Altos Research Real Estate Insights presents MeeboMe as Killer Real Estate Marketing Tool. Instant Customer Service & Lead follow up with Meebo

Real Estate Convergence presents Housing Glut Gives Buyers Upper Hand.

Mortgage Home Loan and Real Estate News presents Mortgage Loans presents: Mortgage Loan Shopping: LendingTree, E-Loan or Quicken Loans?

Renthusiast presents BrightSale defines what it means to be 2.0. Online Estate Agents BrightSale.co.uk give their definition of a 2.0 value system and why they feel ready to change the way the UK buys and sells property.

MiOaklandCounty.com presents The Answer to Everything Can Be Found On The Internet!!

Mike’s Corner Web 2.0 For Real Estate Pros presents Interview: Ken Brand – Exceptional Leadership Through RE Blogging.

The Most Opinionated Mortgage Broker presents Wanna be a Trust Deed Broker?

Clifford Jacobson presents Real Estate 2.0: High Tech, High Touch, or High-Tech Touch? Thoughts for Agents about Real Estate 2.0, High Tech and High Touch.”

Overseas Properties presents Bets on Brazil property as future favourite.

Transparent RE.com presents Cyberhomes and its future.

Thanks to all those who have participated in this carnival. Past posts and future hosts can be found on our blog carnival index page.

529: Planning An Early Retirement Part 2

In Part 1 I laid out the basic question we’re trying to address:

Since the money inside a 529 plan grows tax-free, is there a break-even point, beyond which it’s more advantageous to invest in a 529 plan than in a regular taxable account even after paying penalty.

I showed that the tax advantage of 529 plans are indeed sufficient to overcome the plan costs and given time would overcome the adverse tax treatment and penalties for nonqualified withdrawals, albeit after 30 years or more in most instances. In addition, it should be understood that higher current tax bracket and lower fees will tilt things more towards 529 plans, while tax-efficient investments in taxable accounts will tilt things the other way.

Dimensional Fund Advisors (DFA)
For reasons that will soon become apparent, we enrolled in West Virginia’s Smart529 Select plan last year. We did this before the birth of our daughter to take advantage of my state’s recent tax law change to allow a deduction for contribution to an out-of-state plan. One key reason for selecting the particular plan was its use of DFA funds.

DFA funds are backed by research done by Nobel laureates in economics. I first learned of them via Paul Merriman and Index Fund Advisors (IFA). They are probably the best index fund managers, only Vanguard comes close. Altruist Financial Advisors has a great comparison chart that I think every do-it-yourself asset allocators should study. Unfortunately, there is a catch. DFA funds are only available through financial advisors who normally charge a fee for assets under management. If you are lucky enough to have a million dollar portfolio, consider Evanson Asset Management who charges a flat $2000 fee, or 0.2%, which is among the lowest that I’m aware of. A more realistic choice for me personally is IFA, which caters to account sizes of $100k and up. Their fee is 0.9% for the lowest tier.

In comparison, West Virginia’s Smart529 Select plan that gets you into DFA funds at an annual expense rate of 0.55% must be considered a bargain. I ran the same calculation as before but the 529 plan now enjoys a 0.35% advantage in fees in addition to the tax savings. The results are quite different.

Now the 15% future bracket beats the (hypothetical) 10% future LT cap gain rate in only three years! It beats the 5% rate in 10 years. Even the 25% future bracket beats the corresponding 15% rate in 13 years! The DFA funds may be more tax efficient than I supposed, but the extra advisor expense makes the 529 plan very appealing.

Qualified Educational Expenses
Even though the examples I have given so far have shown 529 plans to have the potential to be a stand along retirement savings vehicle, they are best used as intended, that is, for qualified education expenses. IRS defines these expenses as

… the tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution (defined in the next column). They also include the reasonable costs of room and board for a designated beneficiary who is at least a half-time student.

When used for qualified educational expenses, the 529 plan is almost as good as a Roth IRA: there is an extra plan expense, off-set in part by possible state tax deductions. Many people plan on taking college courses in early retirement. As a matter of fact, numerous college towns around the country consistently rank as the best retirement destinations, so the 529 plan will come in handy then.

When the qualified education expense is reduced by a scholarship or fellowship, the earnings are taxable, but not subject to the 10% penalty. In this situation, the 529 plan acts like a non-deductible IRA. Unlike retirement plans, losses in the 529 plans are deductible, but subject to the 2% of AGI limit on Schedule A.

Rollover and Transfer of Designated Beneficiary
The 529 plan owns much of its flexibility to the freedom to rollover the plan or change the designated beneficiary to a family member of the old beneficiary. For this purpose, a “family member” is defined as

  1. Child or descendant of a child.
  2. Brother, sister, stepbrother, or stepsister.
  3. Father or mother or ancestor of either.
  4. Stepfather or stepmother.
  5. Son or daughter of a brother or sister.
  6. Brother or sister of father or mother.
  7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
  8. The spouse of any individual listed above.
  9. First cousin.

This is a far-reaching list, especially since multiple rollover/re-designation of beneficiary is possible (limited to one per 12 months in some cases). Assets within a plan can be used to pay for the education of your children and the excess amount can be left to the generation after. It is certainly possible for one to pay for the education of a family member out of the 529 plan for a return payment as a way to sidestep the ordinary income tax and 10% penalty. These possibilities make the 529 plan an excellent multi-generational planning tool.

One point of note: many financial planners advocate the grandparents (of the student) be the owner of the 529 plan because the assets of the parents count against the student in many formulas used to calculate financial aid. For the same reason, it’s usually not a good idea for the student to be the owner of the 529 plan. With proper planning, gift tax for skip-generation contributions should not represent a problem.

Implications for Investment Choices within the 529 Plan
I’m currently the beneficiary of the newly-opened 529 plan. The intention is, of course, to switch over to my daughter later. I have all the money in the most aggressive (all equity) option. Chances are the money will be there for a while.

Most 529 plans feature age-based portfolios which are similar to target retirement funds that increase the fixed income portion as the target date approaches. The rational is that return expectations should be sacrificed for shielding from untimely market declines. One cannot argue with that logic if the 529 plan is established to pay for the education of a single beneficiary. However, when the 529 plan is viewed as a multi-generational planning tool, its time horizon is easily 20-30 years longer, so that the investments can be left in the most aggressive option, where the expected return is the highest, for much longer.

To compensate for the extra volatility, I will increase my contributions slightly (perhaps10-20%) above originally planned. This will likely result in an account value exceeding the educational expenses for one person down the road, but as I have demonstrated above, this is not a bad thing after all.

I originally planned for a 2-part series; however, one reader raised an interesting question of comparison to a variable annuity. I’ll try to address that in part 3 along with the asset protection feature of 529 plans.

Oil Tanker

My quest for more dividend paying stocks led me to another category that my partner Frugal wrote about a while ago: oil tanker shipping companies. The short list he gave was: Nordic American (NAT), Frontline (FRO), General Maritime (GMR), and Knightsbridge (VLCCF).

Of the group, I like the current chart of NAT (yielding 15.9%) the most: It bounced off its 200 dma recently within the confines of a well formed triangle.

Cramer vs. the futures market
On the other hand, Jim Cramer has this to say about Frontline and the rest of the tanker companies (subscription required for the whole article)

Frontline and the rest of the big tanker stocks have yields that are can’t miss, right? I don’t think so. Bloomberg has a great story this morning about how the excessive building in tankers could lead to repossession of the giant ships when the new fleets, the biggest additions in 50 years, hit the market. Big yields are always seductive. I got caught up in one two years ago, Fording Coal, 12%; can’t miss. But there’s always a price to be paid for these things, and an outsized yield is often more of a red flag than a opportunity. I can’t tell you how many times people asked me about these stocks on “Mad Money” when oil was going up. They figured rates had to go up. But these tanker stocks are levered to tanker building’s supply and demand, not oil prices. Now oil prices are plunging and tanker rates are…

Depending on your opinion of Cramer, this could be construed as a positive for this sector :-) I couldn’t find the Bloomberg article he was referring to; however, my cursory glance at the Imarex tanker futures which go out to calendar year 09 did not reveal anything alarming. So I’ll leave you to decide who to believe.

According to its latest letter to shareholders, NAT currently operates 12 double-hull, suezmax tankers with a low break-even of $9,500 per ship per day. The single-hull tankers are facing mandatory phasing out by 2010 (remember Exxon Valdez?). Perhaps the “excessive building in tankers” is related? Anyhow, the chart by itself was convincing enough for me. Crucially, with a clearly defined trend line, it’s easy to figure out where my stop loss should be.

As always, please do your own research before making any financial decisions.

Switching To T-Mobile Prepaid

I don’t really use my cell phones that much. Since Cingular wireless is stopping the Free2Go service in March, and both of my phones are expiring, I have decided to switch to T-mobile prepaid. My phones still had $44 and $13 dollars credit near expiration. I have been simply rolling over the minutes, and spent just about $3 a month.

I’m posting this on a Saturday because I just found out that today is the last day for you to get $10 off on $50 T-mobile refill card in Target stores. And if you spend $80+tax for a total of $100 refill, you can become a Gold Reward member. A gold reward member just need to add $10 every year to roll over the minutes if you are not using cell phones a lot. Even if you do, it’s just 10 cents per minute (anytime minutes).

Also, on T-mobile home site, the before Xmas deal is back again. You can get a basic Nokia 6030 phone (which has speakerphone, tri-band, etc) for about $60, free of shipping, minus $30 rebate, and $10+$25 airtime credits or refill card. So that’s about a free phone plus $5 in your pocket before tax. Or you can get a camera phone with 4X zoom for about $50 more.

Now if you do decide to get this now, you could get the refill cards first at Target (which can be returned if you change your mind) before the end of Saturday, and order the phones online or by phone at T-mobile home site. These phone deals are not available at stores.

Between T-mobile & PagePlus Cellular from Verizon, I think T-mobile is much more widely used and cheaper for 3+ years for a moderate usage, assuming that they don’t change the good deal after a year or two.

Important Update: Precious Metal Market

As I have said in one of my previous posts, you should always heed the words from the smart people. One of the very smart people Boy Hoye that I follow has come out quite bullish on gold right at the end of the year 2006. I advise you to read his full article here.

Here is some excerpts from his article:

….This study concludes that the real price has set a cyclical bottom in anticipation of a lengthy new bull market. Within this, gold stocks should outperform the bullion price as the exploration sector becomes the equivalent of the junior tech stocks in the mid-1990s….

I contacted their firm once. Subscription to their reports will cost upward of some $1000, and if you are multi-millionaire or managing tens or hundreds of millions, they will charge more based on your portfolio size. It’s very very expensive, and they have all the right to keep their name as “Institutional Investors”. Truly suitable for big investors.

I’ve read ALL of their free articles on their site. Consider the latest article on gold as a great gift from them. If you have time, you should read all of those other articles too. They provide such great insights into investing. Their May 11, 2006 article called the top in gold/silver about 3 weeks in advance. It was an excellent piece of work. I wish I was reading the articles back then. Please note that I did mention that he does not seem to believe in the energy and commodity super-cycle. It makes me kind of wary, but no one can be right all the time nor forever.

So how to play in this gold market? Bob did say that exploration stocks are the way to go. But they are the MOST volatile and illiquid of all also. I have an article on how to invest in precious metals. In short, you could buy GDX which tracks HUI index or BGEIX which tracks XAU, or any other PM funds (not the one by Vanguard VGPMX which has sufficient amount of energy-related stuffs). I would also suggest UNWPX, but it seems to have higher cash than usual closing Sep 06. By the way, don’t be alarmed by the big drop of these precious metal mutual funds at the end of year 2006. In recent years, these PM funds have been paying close to 10% or more in short-term, long term capital gains, and/or dividends at the end of calendar year. Lots of actions going on obviously.

Please do your own due diligence before investing. Read a lot more from other websites before you do any investing. And don’t be greedy. Diversify. PM can swing by some 50+% from peak to bottom. You don’t want to get burned.

As for myself, I am always “conservative”. I won’t be scooping up much at all without some pullback, since I’ve got a handful of PM stocks already.

As of now, I move my neutral/slightly bearish outlook on gold to neutral/slightly bullish stance. I’m still a little worried about a potential top in stock coinciding with a short-term bottom in PM in the upcoming months.

529: Plan Early Retirement

A while ago, I wrote about 529 plans and new tax deductions in some states. Just to recap the basics about 529 plans:

  • Contributions are not deductible on federal returns; however, many states provide a deduction for contribution to in-state plans. Certain states even have deductions for contribution to out-of-state plans.
  • Although the state income tax deduction has an upper limit (e.g., for contributions up to $12,000), there is no overall contribution limit that I’m aware of. [You should consult a tax advisor here. This IRS publication states that the amount of contribution cannot be more than the qualified education expenses of the beneficiary, but I’m not sure how it is enforced. Most plans have an account limit of $2-300,000 per beneficiary.]
  • Inside the plan, money grows tax free. Qualified withdrawals for education purposes are not taxed.
  • Nonqualified withdrawals, however, have the earnings taxed as ordinary income with a 10% penalty levied.

This last point is what I want to address today. Two blog entries at MyPocketChange and RetireEarly started exploring this question:

Since the money inside a 529 plan grows tax-free, is there a break-even point, beyond which it’s more advantageous to invest in a 529 plan than in a regular taxable account even after paying the penalty?

Essentially, the interlocutor is asking whether the 529 plan can function as a stand alone retirement savings plan without contribution limits. This can be calculated quite easily if we make certain assumptions about the rate of return, current and future tax bracket, etc. But to gain a better understanding, let me rephrase the requirement into two separate conditions.

A. In each given year, the advantage of tax-free compounding must out-weigh the extra expenses for the 529 plan, viz.

R529 – ER529 > Rtaxable – ERtaxable – TRtaxable

Where R is the return; ER is the expense ratio; and TR is the tax expense for the taxable account. If this condition fails to hold, then compounding will only make things worse.

The current tax expense, TRtaxable, is given by,

TR = D * STportion * STrate + D * LTportion * LTrate

Where D is the distribution rate; STportion and LTportion are the fraction of D that are short term gains or long term gains and dividends; STrate and LTrate are the current applicable short and long term marginal tax rates. D also includes any gains realized for rebalancing.

Assuming the 529 plan has a wide enough choice such that R529 and Rtaxable are equal, you can tilt things in 529 plan’s favor by choosing a plan with low fees, choosing investments with high distribution rates and be in a high current income bracket.

B. The second condition is that you have to wait long enough for the money in the 529 plans to grow enough to offset the tax penalty.

P529 (1 – MR529) > Ptaxable (1 – MRtaxable)

Where P is the portfolio value; MR529 is 10% + future bracket; MRtaxable is the future long term cap gain rate. Again for things to be in 529 plan’s favor, you have to wait long enough and withdraw the money when your future tax bracket is as low as possible; or to be more exact, when the differential between MR529 and MRtaxable is as small as possible.

Putting the numbers together
Since no one can predict future tax law changes, an exact analysis is not possible. For example, it’s highly debatable whether the current low capital gains and dividend tax rates will be extended after they sun-set in 2010. The best we can do is to take the current tax rates and make reasonable projections into the future. My assumptions are as follows:

Portfolio annual return: 10% (As you’ll see later, I suggest investing with the most aggressive option. At any rate, it matters little when the returns of the 529 plan and the taxable plan are equal.)
Taxable plan fee: 0% (No extra fee besides the intrinsic mutual fund expenses.)
529 plan fee: 0.60% (e.g. the Nebraska program)
Current marginal tax rate: 31% (federal + state)
Current long term capital gains rate: 15% (ignoring any state tax liability here)
Early withdrawal penalty: 10%

Distributions and gains realized for rebalancing as a percent of the portfolio: 6%
– Of which are long term capital gains or dividends: 75%
– Of which are short term capital gains: 25%
TRtaxable: 1.14% (This is the amount of annual taxes to be paid from the taxable account. Since this is greater than the 0.6% expense rate of the 529 plan, condition A is satisfied. Given time the 529 plan will overcome the extra tax burden at liquidation.)

The output is in the table below. For each dollar invested in year 0, I computed the after tax (and penalty) liquidation value of the accounts as a function of the respective future tax rates and number of years invested. Some rows were hidden to make the table smaller.

It can be seen that a LT cap gain of 5% is pretty tough to beat. Even at a low marginal rate of 10% (+10% penalty), it takes 33 years for the 529 plan to catch up ($15.712 vs. $15.695). However, if the future LT cap gain rate goes back to 10%, the break-even occurs after year 20. Still a very long time but doable. The difficulty of the task grows if your future brackets are higher. It will take 36 years for the 15% future income bracket to break-even with a 10% LT cap gain. And if you are fortunate enough to be in the 25% income bracket in retirement, it will take a long, long time (54 years to be exact), to exceed the corresponding 15% LT cap gain.

At this point, you’re probably thinking, “Why bother!” Indeed, 401(k), Roth IRA or the traditional IRA, even the non-deductible kind are much better ways to save for retirement. It is only after those have been maxed out, does the 529 plan emerge as a potential alternative. As described so far, it’s applicable to only a very small segment of the population with high disposable income or a lump sum to invest early on.

If the story ends here, this would not have been a useful exercise. Fortunately, there is much more, both in terms of the 529 vs. taxable plan comparisons and ways of utilizing the 529 for qualified educational expenses thus avoiding the 10% penalty. Please stay tuned for Part 2!

When I Bought My Diamond Engagement Ring

AskMr.CreditCard.com sent me a post on buying diamond ring at Costco. And he asked me for my comments on buying diamond rings at Costco or at Tiffany. I definitely think it’s okay to buy the diamond ring from Costco. Well, guess where I bought my diamond ring for my wife? I bought it from an internet site! Back in 1997!!

Obviously I am not that trustworthy of everything I see, read, or buy from the internet. So here is the procedure that I followed, which I believe to be safe enough for me to do such transaction:

  1. ALWAYS use credit card or Cash on Delivery (COD) for internet transactions if possible, even if you need to pay extra 2%. This is true, especially for big amount transaction. The added cost far outweighs the consumer protection that comes along with credit cards. I will consider alternative payment methods only if the site is extremely well-established, such as Amazon.com, Buy.com, etc. MOST of the Ebay frauds occurred because people use checks instead of credit cards for transactions.
  2. After you do all of your comparison shopping in Carat, Clarity, Color, Cut, and Certificate, make sure to check out the merchant at www.bbb.org for ANY unresolved issues or bad records. I will NOT do any business with any companies that doesn’t have a clean record for jewelry-related products. There are a few kinds of business that may get more consumer complaints than usual due to huge amount of transactions (it’s percentage of complaints that count). Those are exceptions though.
  3. You should buy a bare diamond stone rather than a diamond ring if buying from internet. The reason is that you should get your diamond inspected by a local independent gemologist. For a thorough inspection, the diamond must be unmounted from the ring. You should always buy a certificated diamond if it is bought at internet. That way, you can match your diamond with your certificate specification. Your gemologist can also show you how it matches up in the clarity spec under a microscope. You should have him or her walk you throught the spec of the diamond. And most important of all, before you leave from gemologist, make sure you are taking your diamond home, and not a swapped stone. I think you could probably ask the gemologist politely to make the microscope inspection as the last (repeated) step, and/or diamond-test the stone before you leave. You can test the diamond-tester by bringing in non-diamond rings and/or anything else. Use the diamond tester on the non-diamond materials and you should get a negative response. And if you have some real diamond materials, you should get a positive response when testing it. Make sure that the diamond tester is not a fake one. When doing the tests on diamond tester, you should borrow the diamond tester and personally perform the test yourself. Unless that diamond tester is a fake one with remote controllability, you won’t be cheated. If you don’t know what a diamond tester is, go to a local jewelry store for some comparison shopping and personal education, and they will be more than happy to show you how the pen-like diamond tester works.
  4. And then, you will need to choose a ring and get it mounted too. When you find a jewelry store that will do it for you, you should make sure that the person who is mounting the diamond is at the OPEN & CLEAR (behind the transparent glass wall) location where you can personally watch him mount the stone. Again, you want to leave with your diamond, not a fake. Diamond-test your diamond ring again to make sure you’re leaving with a diamond. Again, don’t forget to test their diamond tester yourself with the same procedure above.
  5. After that, you should go back to your gemologist again for inspection, mounted or unmounted. The best is to negotiate a deal for the dual inspections that you will be requesting from the same gemologist.
  6. Yeah, a lot of work to save big money. You’re done! Well, hopefully that your darling will like what she sees, or better yet, talk with her first about your purchase process.

I followed pretty much the above procedure literally in 1997. That was the only way that I could trust what I bought. I paid about $5800 for a 1.03 carat, H color, VS2 clarity, pretty good cut, and GIA certificated diamond. Yeah, and I didn’t need to pay sales tax. I also paid about $50 to $80 for the gemologist. The ring that I got probably cost less than $300 including mounting only because it had two smaller low-quality side diamonds.

I think the price went down a little bit by maybe some $500 after a couple of years of even more vehement competitions on the internet. But I can tell you FOR SURE that you can definitely get a better deal than Costco if you buy your diamond from other big “wholesale” diamond sites.

Actually, so far in my life, that $5800 is the most expensive luxurious item that I’ve ever bought. I felt so uncomfortable about such purchase that I thought it could only be right if I donated some $2500 to ChildReach in 1998. I can and could never justify such a purchase based on my personal belief. ChildReach actually sent a representative who visited sponsors around the country to pay a visit to me & my wife. We paid for her $5 lunch when she visited us. She said she was surprised to see young and “generous” people. But I was too shameful to tell my wife and ChildReach’s representative about why I donated the money.

I’m not sure if my wife would understand, or others. I feel okay if I’m not donating big money when simultaneously I’m not spending big amounts on non-necessary items on myself or my family. But I consider diamond rings or any jewelries as non-necessary items.

In any case, I hope my diamond buying tips would be helpful to you. There had been so many diamond sites popped up after 1997 that I cannot really tell you which would be the best sites. I believe back in 1997, the better sites were named something like diamondcutter.com or wholesalediamond.com, or something like that. But whatever sites you’ve chosen to do business with, you MUST check it out at bbb.org, and get some references, and/or even their banking reference.

Well, the most important thing is that my wife really liked her diamond ring. It won’t do you any good obviously if your girlfriend insists on buying from Tiffany. But maybe you can tell her that Frugal also bought it from internet! My own personal experience is that once they see the ring and with the certificate, they fall in love, and won’t really complain.

P.S. Both my wife and I think it’s okay to get a diamond ring from Costco. Why? Every diamond is truly kind of unique. But once you classify them based on the 5 Cs (or the more common 4 Cs + certificate), they are really just another type of commodity. It makes absolutely no visible or even invisible difference between the two same quality diamonds if they are cut in the same way. Certainly, Tiffany sells most ideal cut diamonds. But you can also get ideal cut diamonds elsewhere. Make sure the ideal cut definition is the same if not very close. Some sites will have a more loose definition so you will need to get the exact dimensions of table width, girth, depth, etc. to compare to the ideal cut dimensions.