Back in 2006, getting a mortgage to buy a home was about as easy as buying a tub of butter. Except, well, you actually had to PAY for the tub of butter upfront, whereas you could get a loan for the house. Even for the self-employed, there were NINA (no-income no asset) no-doc loans, or SISA (stated income, stated asset) loans that with the right credit score, you could qualify for. Heck, even with a bad credit score, you could still get a loan (granted your interest rate was higher).

Now that times have changed, what can a self-employed person do to even have a chance at getting a home loan?

1. Lots of Cash to Put Down

20% is the new 0%

2. Perfect Credit

The days of getting a loan without good credit with a conventional mortgage are over. Your only, and best bet if your credit blows is an FHA mortgage.

3. Documents, Documents, Documents

Lenders are going to want to see not only your last two years tax returns, but they may even ask for bank statements for the last 12-24 months of your business. You need to be able to show without a shadow of a doubt that your income stream is going to continue to be profitable into the future. If your business is less than 2 year old, you’re probably out of luck.

I actually talked with a bank loan officer last summer, just to look at the possibility of ever buying a home again. I just gave up after the meeting. In another year or so, I may go back and look at the possibility again, but for now at least, even getting a mortgage would be impossible for me.

I hate stocks.

Well, I don’t really hate them. But they’ve caused me a ton of grief in the past, and thus, going forward with any “investing” I do, I am going to avoid stocks, mutual funds, forex, really anything that could be traded in the short term. Just not my cup of tea.

That leaves me looking at alternative investments for building up my networth. I currently am keeping a good chunk of change in my SmartyPig account, and that earns 2.01%, but I think I can do better and still sleep at night. I used to live for a risky investment, now I want to avoid that feeling if at all possible.

Possible Alternative Investment Options

-Land
-Real Estate
-Gold (nope, too risky in my view)
-Businesses (buying a franchise or small business, etc)
-Social Lending (Lending Club, Prosper, etc)
-Fine Art
-Wine
-Classic Cars
-Municipal Bonds
-TIPS (Treasury Inflation-Protected Securities)
-Fixed Annuities

Lets take a look into these, one by one, and see if any might be appropriate for me (and you!) in 2010.

Land

They aren’t making any more of this. But is land really a good investment? As with many investments, it looks like, “it depends”. Land tends to be very illiquid (which is OK for me to some extent) and can take a long time to sell. But I wouldn’t be looking to sell the land anytime soon. If anything, I’d want to buy a piece of land I could one day build a house on out in the country. It’s a crazy dream of mine, but I’ve always wanted like 5-10 acres for a small ranch, with some riverfront.

Cost? $250,000 in an area I would want to buy.

Risk: Medium

I could see myself making an “investment” in land when I am older, but right now it doesn’t make sense. No matter how cool it would be to own my own patch of dirt.

Real Estate

The classic story of the down on their luck person who gets into “real estate” investing and makes it big is so cliché I hate even bringing it up.

While owning and renting out real estate might sound like a blast for some people, I have little desire to be a landlord. I’m not super handy, and while I would like to learn to fix up a house, I just don’t have the time right now.

Risk: Medium

While I may purchase a home again someday, my credit history is pretty beat up, so I don’t see this as an option until at least 2011.

Gold

Gold prices have gone nuts in the past few years, and I think buying gold right now would be about as risky of an investment as I could find. So I’m going to stay away. Gold bugs will say that Gold will always hold it’s value, but with the run up it’s had, it’s just too risky for my blood

Risk: High

Buying a Business

This is one that intrigues me a bit. I have quite a bit of business experience now, my current software biz has 6 employees now, and I’ve finally figured alot of the operations side of running a business out.

Buying say a local restaurant definitely appeals to me. But, having not ever run a restaurant, I’d probably pick something else, but you get the idea. I know the failure rates for businesses, but I think there is opportunity here that I would really enjoy.

Risk: High

If I could find the right type of small business, that was local to where I was, and I could run as an absentee owner (ie, have a store manager run the day-to-day operations), I might consider it.

Social Lending

I’m a big fan of social lending. I have a small account funded at Lending Club, and so far, my returns have been great, just over 8%. Heck, I even worked part-time at Lending Club last year, which was a blast.

The two major players in the social lending sphere are Lending Club and Prosper.

Risk: Medium

For me, I need to start putting more of my cash reserve into Lending Club, maybe even 20%. I feel confident in the Lending Club team and their processes to keep defaults low.

Fine Art

I read up quite a bit on “investing in art” and it seems very, very risky. Sure, the market has had some great returns, but it seems mostly on very high-end dead artists stuff. And even still, the market seems to depend on the wealthy too much.

I like investments that I have some control over. Art is not for me. Not liquid at all, and I’d rather just support some local artist and buy something I really really enjoy.

Risk: High

Wine

Here is one where I think for some people (wine lovers!), this might be worth looking into.
Me?
I just don’t like alcohol all that much. I rarely drink wine, and don’t particularly like it. So, investing in wine is out for me. But for those who invest in Bordeaux wines, apparently the risk isn’t terrible. Also the New York Times thinks now is the time to invest….

Risk: High

Don’t get drunk on this investment!

Classic Cars

This is another alternative investment option that seems unlikely to payoff unless you know the niche well. I know nothing about cars, but I’m sure there are lots of people out there who could identify value in classic cars. Just not for me.

At least with this type of “investment” like wine, you get something you can be proud of. But that’s not a good reason to invest in something. I want to invest in numbers, not the number of waves I get out on a sunday drive.

Risk: Medium

Municipal Bonds

Muni-Bonds are bonds issued by local governments to fund anything from schools to roads to a general budget. Looking up some Municpal bonds in Washington State I found a bunch for some of the Ports around here as well as many of the counties. Most yields were in the 5% range on average.

Muni-Bonds are often non-taxable, which is nice, especially if you are in a higher tax bracket.

Risk: Low-High (depends on the Bond Rating)

This is something I would consider investing in. I think a well diversified muni-bond portfolio could be a pretty low-risk investment, but it’s something I want to do some more research on in 2010.

TIPS

TIPS are Treasury Inflation-Protected Securities, which, are pretty much exactly what they sound like. Government sold by Treasury Direct (or your broker), TIPS are issued in 5, 10, and 30 year terms and payout interest twice a year. Interest is subject to federal income tax, but not state or local income taxes.

If inflation occurs, your twice yearly interest payment will increase (market to the Consumer Price Index). Likewise if deflation occurs.

Risk: Low

These look interesting, but the yields are not great right now (shocker) with the 10 year yield near 1%. Ouch. I’d rather just put my money in a high yield account.

Annuities

Oh boy. Now we are getting into some controversial stuff. Depending on who you ask, Annuities can be a great income stream, or an absolute ripoff. The advantages seem to be that you get a fixed return…that’s nice. But at what cost? The high costs of annuities and the general complexity of them are enough to keep me away

Risk: Medium

Alternative Alternatives?

Staying away from stocks, mutual fund, et. all….what other alternative investments might be worth pursuing? Alpacas? Beanie Babies? : )

No really, what can you think of that is outside the box?

I remember the plastic bag I carried into Toys R Us very vividly. It was a concoction of $1 bills and coins, with a little dust thrown it for good measure.

My allowance at the time was .50 a week, and the squirt gun I wanted to purchase was $20.

It was the earliest “saving experience” I can remember, I was 6 or 7 at the time.

It’s funny how little has changed now that I’m grown up. I still get an allowance (payday!), and I have goals that I’m saving for. The only difference now is the numbers.

At some point growing up, I switched from a “saver” to a spender. I believe it was around my 18th birthday. It’s only in the last 3 years, really since I started the blog, that I’ve reverted back to my “saver” mode. I spend significantly less now than I earn, which has allowed me to make some huge strides in paying back my debts this year.

Some thoughts that parents could use to encourage saving:

1. Be a saver yourself

5. Set savings goals (ala smartypig)

Are you a saver or a spender? Did your parents encourage saving?

If you’re a visual learner, you’re going to love Lending Club’s new statistics page.

The new page takes all the granular, nitty gritty data that Lending Club collects on it’s borrowers and lenders and turns it into a beautiful, almost sensory, colorful experience.

Lending Club's new stats page

Data Highlights

• 79% of Investors are earning returns between 6% and 15%
• Lending Club has issued over 61 million in loans to date
• 58% of Lending Club borrowers use their loan to consolidate or payoff credit cards
• The highest returning loan purpose? Renewable Energy Financing at 10.58%
• The lowest returning loan purpose? Moving Expenses at 4.59%
• “E” credit grade borrowers are providing the highest average return of 10.88% (“A” credit grade is the highest)

Get $25 to Lend at Lending Club

Lending Club is still giving you $25 to lend if you sign up using this link.

My Lending Club returns

My current return with Lending Club is at 9.15%. I’m going to be moving a decent chunk of my cash fund into Lending Club in the next month.

I’ve been thinking quite a bit lately about why I was such a terrible day trader.

I think the number one reasons was that I was using money that was borrowed, and money that I couldn’t afford to lose.

I also had no clue about risk management.

But it got me thinking, should one ever borrow money to invest?

No, silly, Never Borrow

I don’t think you should, at least not for “investing” in stocks or options or anything risky like that. You trade differently (worse, just look at me) when you are trading with other people’s money. Losses don’t sting as bad as they should (until you run out of money completely).

So, when might it be a good idea to borrow money?

Maybe it’s OK

If you are a startup or small business owner, I think you could make the argument that borrowing money to “invest” into your business can make sense.

If you can get a 0% loan, I think that might be worth taking and at minimum stick in a savings account or I’d put it in my small lending club account and do a little interest rate arbitrage. This used to be a pretty popular technique when 0% credit cards were abundant and interest rates on savings and cd’s were much, much higher.

I can’t think of many other good times to borrow money to invest. Maybe if you were sitting on a million in cash or something, and it was somewhat illiquid, then you could get a secured loan.

What do you think? Borrowing ever a good idea when it comes to investing?

Your Nest Egg--Is It Working For You, Or Waiting?

Sadly, no such thing exists when it comes to planning your retirement.

I knew that retirement planning was important and enrolled myself in my 401K at one of my very first jobs. It had a cushy match. 4% of my salary directly deposited in lieu of pension, and then a 50% match up to 8%. I contributed 8% and got the full match each year.

I rolled this 401K over from employer to employer, and then after being laid off last fall, I wanted to get my retirement investments out of the company-managed plan (that particular plan had very high fees, and the employer had changed administration companies several times, each time there was a conversion fee to the accounts).

I took my 401K information to my financial planner and asked what to do now.

I was going to be self-employed and no longer have a match.

Low and behold, the fees on the 401K and all of the switches between administration firms were wolfing down my contributions as fast as I could sock them away.

I was nervous about a ROTH IRA because I have to “buy in” to all of the funds I wanted to invest in. Initially, this cost me about $680, but there’s never a fee to maintain my account unless I buy more shares or sell some shares and rebalance my investment.

Since I prefer to let things sit and rebalance 1x to 2x per year, this worked out to be a great investment and is saving me over the long term.

Another plus is that on my ROTH IRA, I’m paying taxes on the money going into the account (the small money) not the money coming out (contributions plus interest compounded over 30+ years). Alternatively, had I stayed with a 401k, I would have paid income tax in my retirement years…. What’s the fun of retiring if you have to pay gigantic income tax payments on YOUR money?

I’d like to retire early and we think that’s possible. My 401K wouldn’t have allowed me to withdraw until I was 59.5 and would have required a withdrawl by 70.5. I like the freedom that the Roth provides—I can choose when I’m ready to take my payments.

An important consideration on IRAs though is that the maximum contribution is just $5,000 a year, so it likely won’t be the entirety of your retirement savings. You’ll want to have some other investment going. A 401k allows you to contribute over $16,000 a year, which is especially good if you’re beginning your investment later in your career.

For those with excellent 401K and 401B programs available to them at work, you’ll have to get out your calculator or hire a financial planner to do the math for you, but like me, you may just find that your nest egg is better off in a Roth than in the corporate 401k.

I woke up with my heart pounding. My palms were sweaty and I wasn’t sure if it was real or not.

Looking around my small bedroom, I saw a pile of clothes, laundry that I hadn’t finished from yesterday.

Whew. Just a dream.

In my dream I was down $10,000 on a $30,000 bet I had placed on a currency overnight.

It’s not a good feeling to be down $10,000.

It’s a great feeling to wake up and know you don’t have any “bets placed”.

I sleep much better now than I did 3 years ago. 3 years ago I would have been up every other hour checking the latest news from the federal reserve and checking my charts. Not a healthy lifestyle.

Fast forward three years to today and I still have the occasional day trading dream. Last night’s was actual different than my normal day trading dreams. My usual dream actually goes like this:

I have some highly leveraged play going. Usually in the forex market. I’m chatting with a friend, when suddenly some news breaks and my position starts to be profitable….like hundreds of thousands of dollars profitable.

And then it happens. The trade starts to turn. I desperately try to sell, still saving a huge profit. Something doesn’t work. The trade won’t go through. My “profit” is going down the tank and I can’t get out.

I panic.

It’s nice not being a day trader anymore. It was mostly just gambling for me anyway.

It’s nice for me at least not even being a traditional investor. Maybe at some point I will buy stocks again, but I think it’s unlikely. Why play with fire?

I don’t care what the market did yesterday. I could care less what it did today.

I like my sleep.

I’m kind of obsessed with Real Estate lately.

It’s been two years now since I had to do a short sale on my first home purchase (a dumb one!), and I can’t help but look at the much more attractive prices in the Seattle area now.

Of course, I won’t be actually buying a house in Seattle any time soon. But, sigh, I love looking. It’s like my gossip magazine. You know it’s pointless, but it’s fun.

There are two sites I use when looking for homes in Seattle:

1. Redfin.com

I love Redfin’s interface. It’s slick, big, bold and beautiful. My only gripe would be that they still have some formatting issues to work out when using the site in Chrome (my browser of choice for speed). Also, they don’t cover the Portland market, so that’s a bit of a bummer. But for Seattle, heck yes I love you.

2. Trulia.com

Trulia is my catch all site. I can look up homes in Portland there as well as Seattle. It’s not as fancy as Redfin, but it’s a great workhouse. A lunch-pail, dependable type site for my real estate search wanderings.

I would love to someday be able to get into real estate investing a little bit. There is just something about owning a piece of a building and real dirt that appeals to the farmer in me.

Did I miss any other great real estate search sites? What do you use?

The fine folks at Lending Club are hosting a Webinar tomorrow, Thurs. Jun 11th, at Noon PST

To register for the webinar: Click HERE

If you haven’t opened an account at Lending Club yet, it takes about 7 minutes to do (really, I’ve timed it!).

Why Invest At Lending Club

Well, for one, it works. They recently released stats for their entire lender members, and they are impressive. The average net annualized return is 9.91% as of today (check out the homepage to see the stat updated daily).

I invested in a number of notes over the past year or two, and my average return so far is 9.34%…not too shabby at all.

Invest Now

Setup your account now. Click the button to become a lender at Lending Club.

I was browsing around CNBC today and noticed an interesting ad for a bank I had never heard of before, Ally Bank.

Ally = GMAC Financial Services

Their website design is quite modern and I spent some time digging around the site. Apparently, Ally Bank is the new branding for the old GMAC Financial Services.

GMAC will use the new image as a way to attract retail deposits, which will be a key funding source during the continuing credit squeeze as it tries to fill an $11.5 billion capital hole, as revealed by bank stress-test results, the newspaper said. – From upi.com

Nice Savings Rate

They are offering a 1.95% online savings account which is nearly .25% better than what I’ve seen from the major online banks. That’s pretty sweet….but from GM? Would you really trust your money there? Of course it’s FDIC insured…but still, it makes me a little wary.

Well, I like the design, so kudos there. And hopefully that 1.95% rate won’t drop like a rock like most savings accounts have in the last year. See Ally Bank CD Rates.

Sign up for a 2.00% savings account at Ally Bank: >>Click HERE

or earn more like 9% (that’s my average earnings rate so far) at Lending Club.