Basically, I exercised my vested stock options when I left my last company.  Since the “market value” of the stock was more than my strike price I thought I might as well buy my shares.  This was all fine and dandy.  In the middle of last year the company issued a cash dividend on its shares, so I got a check for my shares.  That was also pretty awesome since the dividends covered about 1/3rd of the price I paid for the stock.

Now, since there was a dividend, the company issued a 1099-DIV for my taxes.  However, the funny thing is that they sent the 1099 with a letter that said that they OVERPAID dividends so there may be a corrected 1099-DIV coming in April.  I actually have never heard of this before.  So now my ex-coworkers and I are all waiting for this phantom 1099.

I am actually not quite sure what happens when a company overpays dividends.  They have not asked for any money back, but it seems that they have to account for the dividends a little differently on the 1099.  Does anyone know what is supposed to happen?

Anyway, since I do not have a tax refund, I am willing to submit my tax return as late as possible, but some ex-coworkers who are expecting returns are not so happy  about what is happening.  Private company stocks are really mysterious things, and I cannot find too much information. It is possible that I will just have to file and send in an amended return later, but it sure is annoying.

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Additionally, we also got dozens of disclosures, inspection reports, and the appraisal report.  I think the hubby is getting tired of reading all of these forms that explain to us what we’re getting into.  I find the disclosures very helpful, though.  Even though we are buying the home from someone we trust, we still need to know all the problems and issues the property has. I actually found out a lot of things I didn’t know previously about the house.  The hubby was reading the report and found a few surprises, too, but they were mostly minor.

The appraisal report showed six comparable properties and gave an appraised value range of $514k to $550k and I thought that was a fair estimate for the current market, but the appraiser did note in the report that the market could slip down further due to the tightening of credit and the amount of foreclosures in the area.  In fact one of the comparables he used was a bank owned property and it sold for $520k.   We’re technically purchasing it for quite a bit less than the lowest end of the appraisal so we will have some cushioning for the down market.  The good thing about the appraisal is that our lender should accept that the house is worth a lot more than the loan amount we’re seeking and we will not have  to get mortgage insurance.

Next, I did a lot of research into home insurance, and learned quite a bit about building materials and various natural disaster zones.  For example, the home has a concrete tile roof, which is considered one of the most long lasting roofing materials and some insurance companies actually give a discount for that.  The bad news is that the home is in a zone with high incidences of brush fire so a couple insurance companies actually refused to quote me.   In the end I settled with a policy sold by Nationwide, which offered the best balance of coverage and price.  I got more than ten quotes and the range of prices was from $440 to $1200 for varying amounts of coverage. Interestingly enough, the most expensive policy didn’t really cover more than some of the cheaper policies so I guess  it really pays to shop around when you are purchasing any kind of insurance.

Amidst all of this stock market turmoil, I am actually glad that I have this real estate transaction to focus on right now.  We are hoping to close in less than two weeks, and so far things have been going well.  I haven’t met any unscrupulous loan or real estate agents that some people say caused the current crisis.  The loan agent I dealt with was very straightforward and explained everything.  There were also many disclosures that are required by law that tell you what you are responsible for and that the real estate market doesn’t always go up.  So after going through this process I don’t think it’s fair to blame all the real estate professionals on the ground floor for the current meltdown.  A lot of them are people like you and me making an honest living.   Home buyers are really responsible for their own actions and everyone needs to do their due diligence before making any kind of big purchase or investment.
~

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When the last bubble happened I just started at UC Berkeley, so I missed all of the crazy IPOs and block parties. After I graduated, I did join a startup, but it was clear that it operated very frugally. It was profitable and maintained a positive cash flow with only one round of venture funding. This company is still operating right now. Since then I have joined two more small private companies and both operated the same way. Overall, I think the companies thriving in the Valley now are better quality businesses than those companies that shot up to $300 a share on the Nasdaq and then died in an ignominious fashion complete with auctions of office furniture.

As a result of the dot com bubble, even venerable technology companies became more frugal than they were and held onto their cash. This is why Microsoft and Hewlett-Packard are able to do stock buybacks this year. My last company actually issued a stock dividend because they had the cash to do so. At least technology companies became more aware of the importance of having a cash reserve for a rainy day, and it sure is pouring right now.

Another thing that happened in the Valley is that IPOs became as elusive as albino koalas. Again, I believe this is a positive thing because if there were rampant IPOs then companies would have overhired again and the fall would be very very hard. A more popular exit strategy for small companies was to be purchased by Google/Yahoo/Microsoft, and again, these large companies were able to do these acquisitions because they held onto oodles of cash.

I hope the housing bubble will serve as a lesson to everyone involved just like the dot come bubble did to the tech industry. The technology sector has become wiser and is now on more solid footing than a lot of other industries. We will all feel pain from the fallout of this financial crisis, but hopefully banks will return to better business practices and people will learn to live more frugal lives. That is actually exactly what happened after the Great Depression. We had a generation of extremely frugal folks and decades where the middle class prospered, but unfortunate history is often forgotten, and repeats itself over and over again.

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To make a long story short,  we are in the midst of purchasing my husband’s parents’ home  at a significant discount.  They are leaving the country to do long term missionary work in the Philippines in January 2009  and their income will no longer support the mortgage they have on the home.  So they were planning to put the house on the open market and sell it, but as you know, the current real estate market is pretty much in the pits and they are not guaranteed to sell the house by the time they leave.  So we decided that it is probably best to keep the house in the family somehow.  My husband really loves the house because he grew up in it and his parents has lovingly put in many improvements over the years.  His parents expressed that they wanted us to live in the house when they leave, but the one problem is that the house is in Southern California and our jobs are here in Northern California.

At first, we were just worried that we couldn’t afford the home, but since his parents agreed to give us a large gift of equity the mortgage will turn out to be about  15% of our gross income and that is pretty affordable. The price we are getting is basically 30% off market value so it is a fairly good deal.  We also found that California has a law called Proposition 58 which allows the present tax value to pass from parent to child so the property taxes will not be reassessed to the current value.  So after crunching the numbers several times, we found that by renting the home out for the current market value for similar homes we are able to pretty much break even.  We plan to keep the house long term as a hedge against inflation, and if his parents decide to return to the United States they could move back to the house they are familiar with and rent it from us.  The house is located in a very good upper middle class neighborhood with median household income of $103,000 per year and elementary school API scores of above 900 so we are pretty confident that we can get some willing renters.

We just entered escrow right now and plan to close by the end of October.  It is sort of sad that we can’t live in the house because we both like it very much, and it is really weird to be a landlord and renter at the same time, but it will definitely be interesting.  For now we are going to rent the home to my husband’s parents, but at the same time we will need to find a renter for the future.  I am learning quite a bit through this experience, and I will certainly write about it later.

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We are obviously in some tough economic times, and whenever there is disaster there is an inherent sense of self preservation. For the members of congress, all 435 of them are up for reelection in 38 days. Guess what? They want to keep their jobs and they are getting a deluge of pissed off emails and phone calls from their constituents to stop the bill. According to BusinessWeek, “in many Congressional offices, the phone calls and mail against the Paulson package is running 100 to 1 against the plan”. Voting for the bailout bill now is a very unpopular thing to do for a politician so most of them actually chose to listen to the people they represent. That is rather refreshing, but I think understandably it is out of self preservation since neither the Democrats or Republicans can afford to lose seats in congress right now.

Besides politics, this entire bill is based on the fear that there will be a total and complete meltdown of everything if it isn’t passed. I am very familiar with the idea of selling fear since I work in a security software company. When you try to sell anything related to security, you have to tell your potential buyer the worst things that could possibly happen if they don’t buy your system. That’s just good marketing, but once a company buys a security system, it is still up to them to implement it and roll out best practices all over the firm to get the best results. I think this $700 billion bill is marketed in the same way with a lot of fear mongering. There is so much panic and uncertainty in the air now and Paulson and Bernanke were simply pouring fuel on the fire in order to reach their agenda of passing the bill. However, even if the bill were passed it wouldn’t be a magical pill. If the same fools that created this mess are still in charge of the money and do not change their processes, then nothing good will come of it. It would be like a company that buys our software for a million dollars and just let it sit there and waste away.

So even though I am poorer today, I am glad that this bill as it is now has been defeated and more discussion will be done. I think ultimately many congressional members feared losing their jobs more than a total financial meltdown. In fact, right now there are grass root campaigns to throw out all of the members of congress who voted for the bill. Even without this bill, we are seeing market forces at work and small inklings that things will be okay. The stronger firms are swallowing up the weaker firms and becoming stronger, and the Federal Reserve just keeps on injecting money into the system anyway. I really think that the market overreacted today to this vote because as I have said, even if it were passed, there is no guarantee that a simple infusion of money would fix everything. It is up to those in power to implement a new process to prevent something like this to happen again. That takes time and careful planning, not a piece of legislation that’s hastily slapped together and pushed through with fear.

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