Peter's Blog

Finding Riches in the Rubble!

It was my 8th birthday, only no one seemed to care. It wasn't the first time that my birthday came and went without acknowledgement. I actually didn't even know when my birthday was or what it meant to celebrate one's birthday.

When I think back, it was perfectly normal for the time and the place. It was 1970, in Montenegro (a state of former communist Yugoslavia), we lived in a small village with no electricity or running water. Our house was 2 rooms, about 300 SF with dirt floors and no heat. It seemed so big to me at the time even though there were 5 of us living in it. I remember when my father built it (I was 5), before that we lived in a barn. Food was scarce, stores were far, transportation non-existent. It didn't matter though, there was no money anyway. So under those circumstances, birthdays were just as ordinary as any other days.

Well, on my 8th birthday things would be different. We were immigrating to "America". As we were climbing up the boarding stairs I looked at the plane in amazement and read the letters B-O-E-I-N-G. I recognized each letter but had no idea what the word meant. I didn't know how to speak a word of English. It didn't matter because those letters stayed imprinted in my mind. Later in life, I learned what those letters spelled, only they had a different meaning for me. The word spelled BOEING, but the meaning was "America, the land of opportunity". It gave me a sense of purpose, we weren't just moving, we were looking for opportunity.

Growing up in "America" (actually the Bronx:-), was very difficult. My parents, uneducated and unskilled, struggled to provide for us. For me and my 2 brothers, I can't say it was too difficult, but there were negative influences all around us. We continued to grow up poor, struggled with the rough environment of the Bronx, yet managed to stay focused enough with our education to broaden our options.

We've all since grown, worked hard for the opportunities and are all living in our own suburban homes, with our own families. As each day passes, and my own children are growing (ages 11, 15 & 16), I continually remind them with each of their passing birthdays, how great this country is and how we struggled to get where we are. Many times they say, "yes, we know" and they act like they don't really care. But I know that at some point in their lives it will all make sense.

Last summer we took our first family trip back to Montenegro. My children needed to see where I was born so that my stories would have relevance. It was a long time, things changed, even in Montenegro. Our house had fallen in a major earthquake (luckily we were in NY), neighboring houses now had electricity, running water and most people even have cars.

Montenegro itself was now separated from Yugoslavia (as communism fell) and has become the newest country in the world under a new democracy. As a result this undeveloped land seems to be a diamond in the rough and although our house now is just a "pile of rubble", our land seems to have great value.

Even though things changed in Montenegro, I knew that I had to take my children there because growing up in the suburbs of NY, I could no longer impress them with Disney World, I had to find another way. When I came to America, I was impressed with things I had never seen, they needed to be impressed with things they had never seen. This was the trip, they saw the fallen house, the "rubble" that will forever be imprinted in their minds.

Location! Location! Location! . . . . for a Domain Name?

Being a Realtor® you already know that location is everything! If you read one of my previous blogs, you know that Domain Names are becoming the Real Estate of the 21st Century. So if this is true, how do you factor in location?

Does the Internet even have anything to do with location? Well, a website can reside in any computer anywhere in the world as long as it is connected to the Internet. Because of this, geographic location (a location that can be found on a map) is not necessarily important, but a virtual location (that can be found by your browser or a search engine) is very important.

The .com DNS (Domain Name Server) stores all domain names which end in .com (every single domain name must be unique). So if you were in the business of selling cars, you might have domain names such as chrysler.com, mercedes.com or toyota.com. What if you sold many different cars or cannot register one of those domains because they were registered by their respective auto manufacturers. You could register a generic name like cars.com. That would be a great name, right? Yes, except we're all a little too late in registering this domain name. Because this is such a great, common and generic name, it would be easy for search engines to find it and people to remember it, so it has great value. In other words, cars.com is prime real estate on the Internet.

The .com suffix of domain names is equivelent to New York City real estate. Our example of cars.com, is like Park Avenue. There are other suffixes to consider such as .org, .biz, .net, .tv, but these would be considered more like class "B" or class "C" properties. If you recently tried to register a .com domain name, chances are it was either not available or the price was really high. Did you know that diamond.com recently sold for $7.5 mil dollars? Location! Location! Location! . . . of the Internet.

So the next time you hear that domain names are like real estate of the 21st century, you'll know why. If you'd like to read more, do a google search or read this nice article on Realtor.org by Michael Russer.

Investing in Real Estate, Rule of 72

If real estate prices increase at the same pace as inflation (aprox 3%), then leveraging a property is sure to make you money in the long run.

Rule of 72: A rule stating that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72. The result is the approximate number of years that it will take for your investment to double.

Rule of 72 (Investopedia.com)

So, if we divide 72 by the rate of inflation (3%), we get 24 or (72 ÷ 3 = 24).

Formula: 72 ÷ % = Years
72 (the rule) divided by x% (rate of return) = the number of years for value to double

This means that a house will double in value in (aprox) 24 years due to inflation alone. I know this doesn't sound too enticing but when we leverage, it changes everything.

If you buy a house for $100,000 and put down 25% with a 75% mortgage (leveraging) our rate of return changes drastically. In 24 years your house will be worth $200,000 but the return on the investment will be 4 times your initial investment of $25,000 (or $100,000).

Since the return will be 4 times greater, we then divide the 24 years by 4 to see that our investment will actually double in just 6 years (24 ÷ 4 = 6). Going back to Rule 72, we divide 72 by the number of years and you'll see that our rate of return will be 12% (72 ÷ 6 = 12).

By leveraging, at inflation levels alone, we get 12% returns.

If you're not impressed with a 12% return, think about the rate of return you get from your bank (much lower I'm sure).

What if real estate increases at a higher rate than inflation? Let's take a conservative number like 7.2% (it works well with Rule 72 and I beleive it is fairly close to historical rates). This will cause real estate to double in 10 years which will give you a rate of return (based on same percentages as above) of 400% (or 25% annually) on your intitial investment.

Use Rule of 72 to calculate returns on potential investment property. Keep in mind that when a property doubles in value (aprox 10 years), it is the entire property that has doubled (not just your cash investment). So if your down payment is only 10% with a 7.2% annual increase in real estate? Your return would be 100% per year on your initial investment.

You think this can't happen? What would you think if I told you that I bought an investment property at the height of the real estate market (November of 2005) and my returns have been 100% annually on my inititial investment for the first 2 years (with a 25% down)?

What's in a Domain Name?

Haven't registered your own domain name yet? No problem. You did register it, right? but have no idea what to do next? No problem. Wait, you registered your domain name but you don't seem to have any control over it? That's a problem.

First, let's try and understand what a domain name is. Simply, a domain name is like a telephone number. You cannot, ever get a telephone number that someone else is already using. Every single telephone number has to be unique. Otherwise when you call someone, how else can the telephone company ensure that you reach the person you intended to call?

The domain name works the same way, only it is on the Internet. If you enter the address www.activerain.com, you are guaranteed to reach this site. So if it's that simple, why are we having so many problems with this?

Remember when we only had one telephone company? If you wanted to get a phone, you called "The Telephone Company", we didn't have any other options. Now however, we have a whole bunch of options. There are dozens of companies for all categories of calling (business, local, long distance, wireless, VOIP, etc.) Today, getting a phone is more complex than ever.

As simple as domain names are, it seems more complex because the Internet and computers are still relatively new to most of us. In addition, there are thousands of companies who want to provide service for you. So where do we start? Many of us have no idea what to do except what some service provider is telling us that is best for us. In reality, we don't know if it's best for us or best for them.

My suggestion, if you have not already registered a domain name. Go to a Domain Name Registrar, this is a company dedicated to providing domain names and holding them in a Domain Name Server (DNS). Their primary business should be to do just that. Here's a list of just a few Domain Name Registrars (there are many others):

enom.com
godaddy.com
networksolutions.com
register.com

I like register.com for researching. If the name you are looking to register has already been taken, they recommend a list of similar names that are available to register or buy. They also provide a "whois" link, which tells you who owns the domain name (in case you're interested). Godaddy.com seems to be very popular these days, I've never used them, but I'm sure they are one of the better ones and should have everything you need to register a domain name.

Now that you have a registered domain name, what do you do? The most important thing is to maintain control and ownership of your new domain name. Don't give out your username and password to anyone, treat it like your house key. There will never be a need for anyone else to keep it, use it, move it, etc.

There are 2 other major components of a website. One is, "who will build your website?" and the second is "who will host it?" Neither of these 2 things have anything to do with ownership and registering your domain name. Your domain name should be residing at some independent Domain Name Server (DNS) that is controlled by you.

3 major components of a website: