Month: February 2022

Year in Review: Part 1

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Just over a year ago, I decided it was time to put more effort into sharing what we’ve been through. When I’m looking to learn something new, I like to find examples of how other people handle it. I want to know the places they struggled and how they learned. I find it a better way to form my opinion than by reading an article that doesn’t have any meat in it, only providing an outline.

In the last year, I learned that blogging wasn’t as easy to keep up with as I thought it would be. I have a list of topics still to cover, so it wasn’t a matter of content. But raising two kids hinders my ability for an uninterrupted thought process to write an article, unless I get to it before they wake up.

The blog was started by Mr. ODA in 2018. He wrote a few posts, and then it sat for two years. I decided to pick it back up in January 2021. During 2021, we published 65 posts. Each month, I wrote a post about our financial update; I included any major expenses, how management of rental properties was going, and how our personal spending may have changed month-to-month. I shared our purchase of 11 out of 13 of our properties, our sale of one property, refinancing mortgages, paying off mortgages, renting properties, maintaining properties, etc. I also shared just general life decision making along the way.

Part 1 for my year in review will address what happened with our rental properties. I’ll dive into our personal finances in Part 2.

As a quick recap, we have 12 rental properties. Nine of them are in Virginia, and three of them are in Kentucky. Two of the houses in Virginia are owned with a partner because we still had cash available to buy more houses, but at the time we had the maximum number of mortgages allowed by Fannie/Freddie (max is 10). The houses were purchased between February 2016 and September 2019. All 3 houses in Kentucky are managed by a property manager, who gets 10% of the monthly rent each month. I manage 5 of the Virginia houses personally, and then we have a property manager who manages the remaining 4, who also gets 10% for each house.

RENTAL PROPERTY MORTGAGES

In January 2021, we completed a refinance of one property, and then in December, we completed three cash-out refinances. The loan balances on these 4 properties increased; one increased because closing costs were rolled into the loan balance, and the other 3 included $190k worth of equity taken out from the houses and creating new loans.

We went from 11 mortgages (two of which are actually owned by a partner) down to 8. House 6 had a balance of $26,447 coming into 2021, and that was paid off by June. Two other houses had a total balance of $157,500 at the beginning of the year. Their balances dwindled through regular monthly payments and one lump sum payment right before we completed the cash-out-refis and completely paid them off.

We have been working on paying down another mortgage that is owned with a partner. Between the two of our families, we paid off about $44,000 additional principal for that mortgage. We’re matching each other’s additional principal payments so that the math is easier to follow, so we can only make additional payments in line with what he can do also. We each owe about $10k on this mortgage now.

Even though there were so many mortgage-related transactions in the year, our overall loan balance only decreased by $6,000.

The market has continued to rise due to the limited supply, and so our home values on the rentals actually increased over $500k over the last year.

RENTAL PROPERTY LEASES

We turned over 1 property the whole year! The tenant that was living there had already told us that they were renting until they found a place to buy, so we knew they wouldn’t be long term tenants. We had a relationship with them from a previous house, when they had moved out of the area and then back. They had a poor experience renting in another area and reached out to us since they appreciated us as landlords. They found a house towards the end of their first year, but we let them out of the lease early. Their lease was slated to end October 31, 2021. We don’t usually have leases that start/end in the Fall if we can help it, but we had let the previous tenant out of her lease early to purchase a house also. The tenant said she was able to be out at the end of August, and we preferred moving the lease closer to the summer months anyway.

We raised the rent on 6 properties.
– The one house that was turned over went from $1200 to $1350 per month. However, we added a property manager who gets 10%, so our cash flow only increased by $15 per month.
– Two of our properties have long term tenants; the rent is significantly below market value, but we value not having to turn over the house. These houses are on a cycle where we increase the rent $50 every two years.
– Our KY property manager tried to increase rent on the 3 properties she manages. One was increased by $25, another by $5, and the other one cried that she couldn’t afford an increase. That’s the one where we plan to increase by $75 next month, and if she doesn’t accept, we’ll turn it over and get $75-$100 more per month.
– We increased rent by $150/month for one of our properties that we have with a partner. It was a risk, but this is a house that claims 3 people live there, but they have 5 queen size beds in the house. We figured either they leave and we get several big things fixed up that have been deferred because of all their things in the way, or we make up for all the years that we didn’t manage their rent and didn’t increase it. They accepted the increase.

RENT COLLECTION

We were very grateful that we made it through those initial months of the pandemic without tenants not being able to pay rent. We had a few people let us know that they were laid off or unable to work (e.g., restaurant business), but we learned most of our tenants worked in the health care field. So while we made it through 2020 without many issues, 2021 brought more challenges. Nothing was insurmountable, and it wasn’t debilitating financially, but it was still something to manage.

We had some big struggles with non-payment of rent on one house. She was 31 days late paying August rent, then she didn’t pay September’s rent, and then she applied for rental assistance to cover September, October, and November, which we didn’t receive until February 2022. That was all on top of her generally being a week late in paying through the beginning of the year too. She doesn’t maintain employment, she doesn’t communicate, and we’ve just had something new and different pop up as an issue every few months. We eventually received January 2022’s rent, but we still haven’t received all of February’s rent – just in time for March rent to be due.

We have another property (the one that was raised $150 per month) that is perpetually late. They eventually pay, and they’re getting better about actually paying the late fee (when they pay rent 20+ days late…), but they were late for 10/12 months of the year.

Everyone else paid their rent on time. In general, we’re lenient with late fees and issues. If you reach out to us and mention that there was a hiccup and you’ll need one more pay check to pay rent, our response is typically: please pay what you can now, pay the rest next week, and don’t worry about the late fee. However, when you don’t communicate and/or you’re consistently weeks late and we’re having to carry the expenses, there needs to be a consequence to incentivize you getting back on track.

RENTAL EXPENSES

We replaced the flooring in House3 ($4,000), hot water heater in House9 ($1,500), HVAC in House10 ($3,300), washing machine in House10 ($250), and HVAC in House12 ($3,900). We also had various electrical and plumbing work that needed to be done in several houses. We also spend about $7k per year in property management fees.

Usually turn over is an area that requires us to put a lot of money into a house. Luckily, the one house that we turned over this year only required some paint work, and we didn’t have any other turnovers.

While it’s nice that our assessments have increased and our housing values have increased in our net worth calculation, it comes at a price. Our taxes have increased on all the properties. In total, they’ve increased over $2,500 in just the one year (meaning, that doesn’t include all the previous years worth of assessment increases that have occurred!).

GOALS

In this year, we hope to add one more rental property to our portfolio. We’ve been actively working on it, but this market is crazy! We’re not willing to overpay on a property and get into a bidding war just to be done with the search. It’s interesting to see that we haven’t bought a new rental property in almost 2.5 years, when we had purchased so many all at once. We had gone back and forth with saving for another down payment or just paying off more mortgages after we paid off House6 in June. Once the cash-out-refi was a possibility, we decided to go ahead with purchasing another property. We’ll self-manage whatever we acquire. We had been looking in Virginia and Kentucky, but have started to settle into a Kentucky property (I like the laws for tenant/landlord relationships better in Virginia) so that we can save the 10% management fee and the expensive leasing fee, since housing prices are significantly higher than what we’d prefer for the rent ratio we’d be getting.

We have 8 houses that still need negotiation and/or lease termination coming this year. Two houses have already agreed to their rent increase, and we just need to get the new lease signed. Five houses will be offered a new lease term with a rent increase (averaging about $50 per month on the increase). One tenant will be asked to leave at the end of her lease term.

We want to remove the tenant from House2 at the end of her lease term. She has been a concern in numerous legal ways, does not hold steady employment, and the house is well under market value rent. Turning over that property will require us to go to Virginia to work on it. It’ll need repainted, the carpet will probably have to be replaced, and I worry that she’ll do some damage when we tell her we’re not interested in renewing her lease.

SUMMARY

I like to look at the details of the rental properties all at once in this format. Sometimes, I get caught up in all the things that I need to get done, and I feel like it’s so much work. In those moments, I forget that there are most days of the year where I don’t even think about the properties. Even when expenses seem to be piling on top of themselves, to look back and see that our expenses totaled less than $15k over 12 houses is encouraging. We’ve also reached the point where we’ve replaced most HVACs and several roofs, which are areas that can create problems that compound on themselves, whereas a replacement is expensive, but then I don’t have to get all the calls that something went wrong.

Tax Season

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W2s and financial statements are arriving in the mail. It’s time to submit your taxes. We file our own taxes. And that surprises people every year.

We have 12 rental properties, two of which are owned with a partner. Mr. ODA works full time. I work random jobs, but produce income that requires filing. This sounds like it can be complicated, but it’s not.

Mr. ODA projects out our tax liability all year long, and he makes adjustments in his W2 paycheck to account for what we’ll owe. Our goal every year is to owe. Our philosophy is that if we get money back, that’s just an interest free loan the government has had from us all year. I can make a whole post on how getting excited for a tax return shouldn’t be a thing, but I’ll just leave it at. But you can’t owe too much, because then you have to pay a penalty. It’s a careful balance that I entrust Mr. ODA with and don’t ask any questions.

This post focuses on having business-type expenses. If you file just W2 income, then it’s not something you need to manage all year long, but you can still do your taxes on your own!

BUSINESS EXPENSES

The key to getting through tax season is knowing that it takes work all year long, not just in the one week crunch time to file your taxes. Schedule E is going to require you to put your income and expenses, per property, not as a whole, so it’s important to have expenses assigned to a particular house. If you record income and expenses as they occur, it’s less of a hurdle when the year is over. By recording the activity all year, it then becomes a verification process when the year is over, thereby reducing the possibility of missing something or recording something wrong.

At the beginning of every year, I create an Excel workbook to track each property’s expenses. I use it as a projection of income, a projection of expenses, and a way to keep track of re-occurring expenses (e.g., stormwater utility bills I can’t assign to the tenant for payment). I set up each property on a separate spreadsheet within the workbook to identify all known costs for the coming year.

Not all of these categories apply to each property (e.g., HOA, prepaid points), but I found it was easier flipping between each spreadsheet if they were uniformly set up. There’s also a chance that you’re carrying appliance depreciation costs. Appliance purchases aren’t captured as a one-time cost in the year of purchase; the purchase is required to be depreciated over its useful life (e.g., a $500 dishwasher purchased on January 1 is depreciated over 5 years, so it’s $100/year worth of an expense claimed on your taxes). As I incur expenses or need to adjust my income, I record it per property.

After the end of the year, I then verify what I’ve recorded. I make sure that I have the right income for each property (e.g., were there late fees collected, were there rent concessions granted, were there non-payments). Then I go through each property’s paper folder I have filed to make sure I’ve recorded anything I have a receipt for. Then I go through my electronic folder for each property, and this is where nearly all my record keeping is (e.g., I have Lowe’s and Home Depot automatically email me receipts for a purchase, and all my contractor work is billed via an invoice emailed to me). I’m verifying that I have a receipt for any expense that I incurred and recorded already. I’m also verifying that I haven’t missed recording an expense that I have a receipt for.

Once I have everything verified, I let Mr. ODA know that the business expenses are ready. Inevitably, we’re waiting for some final investment account documentation to be available before we can input our data, but we’re mostly ready to go.

TAX SOFTWARE

Each year, we hunt for deals on websites that will allow us to pay nothing or a minimal cost for filing our taxes. We’ve spoken to a couple of financial people to see whether having a CPA do our taxes would be better, but they always agree that inputting in Schedule E is the only way to go, which is really straight forward. If we’re trying to not pay to file our taxes online, then we don’t want to pay someone to enter the data on our behalf if they’re providing a benefit outside of that. I know several people who use a tax accountant to file their taxes, and they rush around looking for all their documentation to provide that person. That seems more overwhelming to me, and it just seems faster to be on top of it myself than gathering receipts and being ‘on call’ to answer questions.

Filing our taxes is usually a 2-3 hour process. It’s not complicated, but it’s time consuming. We’ve found the best way to do it is having Mr. ODA input the data, as I pull the information he needs. I keep a tax folder to file all the paperwork we receive around this time of year (mortgage statements, investment account statements, etc.). I have that file handy, as well as all our account log-ins. I’m trying to pull information as fast as I can while he’s entering it and clicking through the software. Sometimes there’s something that trips us up because there seems to be a change each year, but we mostly have a groove by now.

If you haven’t filed your taxes on your yet, take this as a sign to give it a try!

“Comps” in Appraisals

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You hear this term in real estate often. “What are the comps?” “Have you run the comps?” It’s short-hand for “comparables.” These are the houses that are similar to the house in question (whether you’re trying to list a house for sale or purchase a new house) can be used to determine the value of a property. It’s touted as if it’s difficult, and I’ve seen several comments in a “moms” group that told me more people need to know about appraisals.

An appraisal is an expert’s estimate in the value of something. It can be something small like a piece of jewelry or something big like a house. During a closing process that includes financing, the bank issuing the loan is going to request an appraiser evaluate the property being purchased. The bank is using this as a mechanism to verify that the property is worth the contract amount.

A recent appraisal we had done stated the following (for context). This report is based on a physical analysis of the site and improvements, a locational analysis of the neighborhood and city, and an economic analysis of the market for properties such as the subject. The appraisal was developed and the report was prepared in accordance with the Uniform Standards of Professional Appraisal Practice.

If your real estate purchase is through a loan, the bank is going to require an appraisal. Have you ever looked at the appraisal? The lender is required to give you a copy.

Let’s dig into one of mine.

THE APPRAISAL

This particular appraisal was completed for a refinance of a loan. It was done in December 2021 and is 37 pages long, granted a lot of that is teaching documentation.

First, the appraiser identifies the property’s characteristics. Things like the address, plat number, taxes, house size and details, utility hookups, and neighborhood demographics are filled out. Here are a few snapshots with that information. All appraisal reports I’ve seen have looked like this (across multiple states).

Once the appraiser identifies the property’s details, he moves on to finding nearby homes that have sold recently. The comparable sales are of similar age, construction quality, and condition. There are formulas available to the appraiser to determine how differences between the property he’s appraising compares to the similar nearby homes. For instance, having another bedroom increases a property’s value by a certain amount, having a garage could increase the property value, having a fence affects the value, etc. Here’s a snapshot of one of the comparable sales for this appraisal. The first ‘description’ column contain the details of the house being appraised. The second ‘description’ column contains the details of the address he’s using as a comparable. Then there’s the adjustment column to identify how those differences affect the value of the home. This home being used had sold for $255,500. Each difference is calculated to account for a value of the home had it been even more similar to our house. So this house having a porch instead of a stoop is affecting the value at $3,500 (I don’t know how these values are determined, but I assume it’s all a software calculation that keeps it consistent).

This appraiser used 7 comparable sales. We’ve historically seen 3-5 houses used, but this market has created more options than usual. The appraisal was determined by removing the value of the land (since that’s calculated by the tax records regardless) and applying the average price per square foot amount to our house. The valuation came in at $230,000. We purchased the house for $117k 5 years ago, so that was a nice surprise. We were able to take out a loan for up to 60% of the appraisal’s value.

YOU CAN DO A RUDIMENTARY APPRAISAL YOURSELF

The point here is that an appraiser is using the specifications of nearby, similar real estate transactions to determine the value of the house in question. Since the concept of an appraisal is straightforward, you shouldn’t feel like you’re incapable of doing your due diligence on a purchase or determining the sale price.

It’s important to note that you’re focusing on houses that have SOLD. You’ll see houses nearby listed for sale at different prices, but that doesn’t mean that’s what the market deems a “fair market value.” You want to focus on the sold prices because that means someone was willing to pay that for that type of property, and a bank likely confirmed the value with an appraisal.

In this “moms” group I mentioned, several people told a person that she needed to hire an appraiser before listing her house. An appraiser is about $400-600. In a house sale, the buyer is responsible for the appraisal. Therefore, as the person listing the property, you’re not “ahead” in any way by paying for an appraisal up front because it wouldn’t have been your cost to bear anyway. Instead of paying someone to perform an appraisal, you look at houses nearby that sold recently.

Back in 2018, we were using sales for 6 months to a year prior to the date we were searching. The housing market hadn’t changed all that much year-to-year that you couldn’t use sales from a year ago. These days, you need to be looking at houses that have sold in the last 3 months, and maybe go back to 6 months if you don’t have any good options. If you need to use sales from a year ago these days, then assume a hefty inflation (in most areas) from the price it sold at, but it’ll at least give you a good starting point on the price.

For recent sales you dint, you’re looking for properties with the same number of bedrooms and bathrooms, approximately the same square footage, and approximately the same size yard. You’re hoping for pictures too so that you can evaluate if the condition of the property is objectively better or worse than the property you’re considering.

PERSONAL EVALUATION EXAMPLE

We’re currently on the hunt for another rental property to add to our portfolio. Things are moving fast, so we’re doing quick evaluations on the fly with best guesses of value. We have the benefit of doing several of our own real estate transactions, including plenty of searching for options outside of the ones we did purchase. Therefore, we have the knowledge to be able to eyeball the value. In the beginning, it would probably work best if you write down the details (similar to what’s found in the appraisal screenshots above) to identify the appreciable differences between your options.

We were looking at a property that was in poor condition. The listing even stated that they were offering a $3,000 flooring allowance as part of the sale, acknowledging that the condition was poor. The house is 3 bed/1 bath (colloquially referred to as ‘a 3/1,’ and was listed at 169,900. The listing photos showed a scratched up floor, but otherwise looked ok.

Not bad, right? Well, I don’t know what filter they used, but these colors are a lot more vibrant than the condition of those cabinets and appliances were in person. The photos didn’t capture the gouged walls or layers of paint that weren’t properly painted between coats. And, unlike popular HGTV shows would you have you believe, the paint color isn’t something we’re caring about. It’s a bonus if it doesn’t need a coat of paint before we rent it, but we’re generally expecting to paint a house after we buy it. The photos also don’t portray the filthy bathroom with the mismatched patchwork tiles in the shower. We stepped back and seriously considered flipping this or improving it and using it as a rental still.

I opened my Zillow app. When I’m looking for quick information, I’m focusing on price per square foot, rather than actual purchase price. This house came to $151/sqft. In the Zillow app, on the upper right corner, click ‘Filters.’ I always click ‘Reset’ before I start a new search because I never know what I last changed in the parameters. I chose the ‘Recently Sold’ toggle, left everything the same, and then at the bottom I changed ‘Sold in Last’ to ‘6 months.’ In this area, if I looked at a broader spectrum of recently sold houses, I’d have too many to look at, and the prices in 2019 would be drastically different than what’s currently happening in this market. If I still had too many results, I would have filtered down to 90 days. However, it’s January when I’m looking, so there hasn’t been too much activity in the last 3 months, and I want to capture more options that sold during the summer months.

Then I just started clicking the yellow bubbles of prices. I want to first focus on the ones closest to the house I’m looking to buy. As I get further away (or cross major roads), I’m probably looking at a different school district, or different crime levels, or different ‘feel’ of the neighborhood; be careful how far out you look.

Here are my thoughts on the first comp I found. The parentheses identify how it relates to the property I’m viewing: either it’s the same (=), my property is better (+), or my property is worse (-). It’s a 2 bed (+), 2 bath (+), with low curb appeal (+), smaller lot (+), nicer floors (-), covered deck (-), stainless appliances (-), kitchen cabinets were original and the stove’s vent hood was outdated (+), the master bathroom needs a facelift (+). This house sold in September 2021, so it’s a fairly similar market to what I’m looking in now. It sold for $117/sf. With the difference in the number of bathrooms and bedrooms, it’s hard to compare. Subjectively, the house I’m interested in is worse than this house, but it has another bedroom and a bigger lot. I decide that this comp doesn’t get me close to $151/sf for the house I’m looking at.

Comp 2 is around the block. It’s very close to the size of the house we’re evaluating (=) and is a 3/1 (=). It’s adorable, with great curb appeal, so it draws me in. Then I start noticing some things that are red flags. The roof doesn’t appear to be in bad shape, but my eyes are drawn to a water stain on the living room ceiling (+). It appears to have laminate flooring in the kitchen and carpet elsewhere, whereas the house we’re looking at has hardwood everywhere; our hardwood is beaten though, so this is hard to compare. I see that there’s old vinyl in the laundry closet that wasn’t addressed when new laminate appears to be laid, there’s some poorly laid wood flooring in just the entrance to the master bedroom, and there are several stains in the carpeted bedrooms. The backyard has power lines running through it (+); I see several issues with the vinyl siding on the house (+), but it has a covered deck (-). They had tried to sell this house from July to October, which tells me that plenty of people were drawn in, but those defects were clear (and probably more) in person. They started their listing at $166/sf and ended up selling at $146/sf. While this house looks to be in better condition than the one I’m evaluating, this tells me that I’m probably looking at the $140s/sf for the one I’m looking at.

There’s a 3rd ‘comp’ that caught my attention right behind the house I’m evaluating. Zillow claimed it was sold for $334/sf. Interesting anomaly. Our Realtor was able to pull the MLS and see it actually sold at $150k, so about $115/sf. So moving on.

I found a brick ranch around the block, so I’m excited that it’s very similar to the house I’m looking at. It’s a 3/1 (=). It sold in September 2021 for $149/sf after having first been listed at $163/sf in July. I dive into the pictures. The floor isn’t destroyed (-)! There are mismatched, yet updated, appliances in the kitchen. It’s frustrating, but they probably have a better lifespan that what’s in the house I’m looking at (-). The bathroom has been updated recently, but it’s small, and there’s no picture of the shower side of the bathroom (concern, but still better than the house I’m viewing) (-). There are minimal pictures, but at least one of every room. After comp 2 went for $146/sf, and this is better condition at $149/sf, I’m now putting the house I’m evaluating below $145/sf.

There’s a brick 3/1 next to Comp 4 that sold for $162/sf. But there are no pictures and it was for-sale-by-owner, which tells me someone probably overpaid for a higher list price because they were desperate. I’m throwing this out and not using it as a true comp.

At this point, I’m just standing there trying to evaluate whether this is worth pursuing or not. I can do detailed looks at comps later on a computer with a pad and pen. I decide that $145/sf is my highest value of this house and it’s horrible condition. However, even with that, I don’t want to go that high because of all the work that needs to be done right away on the house. The comps told me that’s the value of other homes that needed some work, but looked livable from day 1. I decided to sit on it. Well, the next day, it went under contract at a reduced price of $146/sf. I won’t know the actual price of the contract until it closes, but for now, it looks like someone bit on the $146/sf.

Now this is really important if you’re evaluating for a purchase. Do not overpay for a house. Do not feel pressured into needing it now. We’ve put in several offers on houses, but we’re not going to get into a bidding war. We also put in an offer on one house, and the seller said “raise it $5k and state the offer isn’t contingent on an appraisal, and you have a deal.” No. Requesting the appraisal clause to not be checked says we were probably overpaying even at the offer we made. So thank you to this man for letting me know that it was time to walk away.

SUMMARY

You can typically rely on your Realtor to provide you comps through the MLS. If you have questions about their valuation, ask for the details. I have an instance where I didn’t agree with my Realtor on a list price of our last personal residence. In this particular instance, I had better knowledge of the housing market where our house was than he did, because he focused on sales within the nearby city limits, and we were in the suburbs. He ran comps based on basic metrics (number of bedrooms, square footage). I had the benefit of knowing details behind some of the sales he was using or how some houses weren’t a good fit to use as a comp to the house we were selling. I was able to sway the list price to even higher than he suggested, and we were under contract that weekend.

I know how it works. I’ve taken the time to research and understand the process just enough that I can protect my finances and interests in these transactions. I’m not sharing this as an example to fight your Realtor on their suggested list price, but as a way to show you need to be an informed consumer.

February Financial Update

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This month is basically just story telling, from insurance tidbits to mortgage annoyances, while not addressing the decline in the market and our investment accounts. 🙂

It seems all my mortgage payments are increasing on 3/1, so I’ve been managing those changes. I mentioned recently that one of our houses had the escrow analysis done incorrectly. Luckily, that was addressed, and the increase in our mortgage payment is only about $100 instead of nearly $200. Our personal mortgage increased by $16, another property increased by $52, and then our last 3 mortgages were all refinanced in January and this ‘first payment’ has been a bear. The information out of the refinancing company has been contradictory, they requested a bunch of information weeks after closing to support all the money they already gave us, and it’s just been rough. Rough enough that I ran to the post office to get a check in the mail at 4:48 pm today, only to get home to an email saying that I had to send that check (due tomorrow) to a different address. Ugh.

I was excited to share some positive news this month, but that got overshadowed by these mortgage payments! Anyway, we came home to some surprises after our vacation.

First, I had a medical procedure done in January. It was originally scheduled for November, but the week of the procedure, I had my heart go crazy on me. That cancelled my procedure because I couldn’t go under anesthesia until they knew my heart would be OK. We got my heart sorted out enough that I was cleared for the procedure, but once I was able to reschedule it, it went into 2022 ….. a new deductible year. They said that I needed to pay half the cost of the procedure before they’d schedule it. Since I had been waiting since September for this, I wasn’t going to question anything, and I gave my credit card number for $1200. Well, my insurance hasn’t processed the procedure yet, but I guess since I paid in advance, some sort of system review showed I had overpaid, and they refunded me $1196. I don’t know how they decided to keep $4, but I’ll cross that bridge when I see my claim is processed on my insurance website.

Second, I’ve mentioned before that you need to stay on top of insurance! I received a bill for my heart-related-ambulance-ride for over $900. The last time I was in an ambulance, I ended up owing the full bill, which was $500 at that time. When I saw $900, I figured, gosh 10 years later and a new jurisdiction, and THAT is what I owe. It said “we billed your insurance, and this is your balance.” Hmmm. Log into my insurance website and see there’s no claim history for an ambulance ride. I then learned, for the first time ever, how to submit my own insurance claim. I let the fire department know I submitted the claim, and then they said they’d do it for me! Why did your paper say you already did?! Well, the surprise I got was that my insurance covered all but $46 for the ride!!! I couldn’t believe it. That’s the happiest I’ve ever been to spend $46.

The most random thing that happened was a check from our electric company from our Virginia house. We sold that house in September 2020. Our mail forwarding isn’t active anymore and it was sent to our old address, so I really have no idea how we got it. It was $31.09 due to a required review of all accounts every 3 years. It’s not anything crazy or life changing, but that was truly a surprise!

RENTAL UPDATES

We had our usual suspects not pay rent earlier this month. One flat out said they won’t pay until the 23rd. I’m not even sure how to handle them anymore. I keep reminding myself that we raised their rent $150/month to get them to leave, but they accepted. So at least we’re in a good position there? The other paid us $700/$1150 on Friday (late). She at least emailed us with the awareness that we shouldn’t have to hunt her down for rent payments, so she got a pass because I was about to send the default notice at 12:01 am on the 6th. I’m also once again in a position of tracking down a rent relief payment on another house that’s supposed to cover December, January, and February. While the tenant ended up paying December rent, we’ve still been floating the January and February finances. The approval of their application (that was submitted in November) was January 10. As of today, no information from the State and no check in the mail.

I got a tenant renewal processed this morning. We increased their rent by $50/month (starting 5/1 when their current term ends), after it having been steady for 2 years. Our usual baseline to keep a good tenant is a $50 increase every 2 years.

We gave two property managers notice to increase rents on 2 properties that are up for renewal on 4/30. We do 60-day notices. It’s not entirely necessary, but I look at it as a way to negotiate with the tenant for a month, and then if they don’t agree to new terms, we have a month to get it rented. One ‘cried COVID’ last year, and we let her by. She’s been there 2.5 years at the same rate, and she even got the house under market value originally because it was November (bad timing). She’s at $875 and we said we’d go to $950. That’s a larger increase than we usually do, but the market rate for the house is $950-1000. If she balks, we’ll manage the turnover and get a new tenant in there. For another house, they’re at 1025 and have been since October 2019. They even negotiated a discount back then for an 18 month lease, so they’ve been under market. Despite our efforts to grieve our taxes, the City thinks this house is in an affluent neighborhood and has charged as such. We’re offering them a bump to $1100. Again, more than our usual $50 increase, but it’s been more than 2 years and $1100 is under market value. Then we had a 3rd person say she wants to stay in the house, but her lease isn’t up until August. She’s been there since August 2017 and has been at $850 rent since then. We’re looking to increase her rent to $900. She’s an awesome tenant that never needs anything, and I know she’s in grad school without much money. We’ve made her so happy for the last several years by renewing her without an increase, so I hope she understands the need to increase it now.

I paid the insurance on our townhome, which is a property we own outright, so I need to manage the escrow-type transactions. That was $210.

After our cash-out-refis in January, we have been looking for a new property to purchase. We’ve made 4 offers that have been out-bid. Mr. ODA has been trying to work the off-market angle. We made a full price offer for one of the houses contingent on seeing it, and the guy said that he’d now prefer to sell off his portfolio as one instead of each individual house. He declined our full-price-off-market offer. Sketchy. Then another guy said he wanted to wait until the new flooring was installed in his house before letting us see it, and then he won’t respond to messages now a week or so later. Interesting. We’re now trying to work another off-market deal through our Realtor, but the seller and our Realtor are out of town. I ran the comps on it and come to $235ish, while they were expecting $250k. I don’t deny that they’d get an offer in this market at $250, but I don’t know that it’s worth it to us. Then again, to be done with this driving around, seeing houses, making offers, and losing out, may all be worth an extra $15k.

PERSONAL TIDBITS

This month, we went on a trip for just about a week. The flight was paid for in a previous month, so that’s not captured in our spending. We stayed with a friend, and she made us nearly all of our food. We paid for our brewery visits with her. It was a great trip, and I definitely recommend Bend, OR! We did a last minute change from Touro for our rental car to a ‘regular’ car rental place at the airport, so that charge shows up in this month’s finances. We also booked 2 last minute hotel rooms, once for the night of our arrival and one for the night of our departure (we flew in/out of Portland, which is about 2.5 hours from Bend, so it was easier with the kids sleep schedules to be near the airport those two nights instead of arriving really late or leaving really early).

We bought Hamilton tickets. We were late on that band wagon until we finally found a friend with Disney+ who wanted to watch it with us even though they had seen it 257 times. Since December 2020, we’ve watched Hamilton a whole lot. We got on right when tickets were being sold and were about to accept the $200+ ticket price until Mr. ODA found the ticket sales through the actual venue were only $130! It’s not until June, but that’s something to look forward to!

We finished our basement over the last year and have been using for the last month now. We had a projector on hand that we used as our TV down there, but it started to die shortly after we hooked it up. We bought a new projector and have been really happy with it, and I was happy with it only being $270.

While our electric bill was surprisingly low last month, it was surprisingly high this month. They did an estimated meter reading, putting the estimated kWh usage at the highest it’s ever been. When I questioned their estimation process and shared the current meter read, they said that next month will probably be an actual reading and since it’s not more than 1000 kWh difference, they’re not going to change anything. Sure, I can afford this $414 bill that may be offset next month, but many people can’t. Their estimation process shouldn’t put the projected energy usage at an all-time-high, thereby dumping surprisingly large bills on people. Regardless, it’s something that works itself out, and isn’t something I’m going to fight any harder on right now. It’s just annoying knowing that our energy usage was high last year because we had a broken unit without our knowledge, and then with a working unit, they’re estimating that we’ve used more than ever.

Mr. ODA changed one of our credit cards, so I’ve been all out of sorts here now. The credit card was a travel-related card, and they increased their annual fee by $100. He ran the numbers and determined the benefits didn’t outweigh the cost increase. Instead of closing the card, they agreed to change the type of card. However, all the things we used that card for are now on different cards, and this change “activated” an old card of mine. Our credit card usage is convoluted; perhaps I’ll do a new explanation and update my last post on it (and then maybe that’ll get me to remember all the changes!).

NET WORTH

Our net worth dropped about $15k from last month, but that was due to the market. While not fun to see those numbers go down, it doesn’t affect our day-to-day. Our cash balance is really high right now while we keep cash liquid for a downpayment while finding another investment property.

Escrow Analysis Update

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I posted about how one of our houses updated the escrow calculation and claimed our new mortgage payment needed to be $185 more than it had been to cover an escrow shortfall. Our escrow balance was negative, so it wasn’t a surprise that the amount was increasing, but that seemed to be a drastic increase. Most of what I said was right, but I did the increasing math incorrectly. The concept was there, but not the details.

Here’s the current escrow analysis from the mortgage company. It’s similar to what I did on my own. I knew that the new escrow amount to cover just what we owe in the year is $199.25, which is the same. I knew that there would be a shortfall in May of $256.89. This next step is where I was wrong in my calculation.

I took $256.89 and divided that specific shortfall by 12 months to come up with $16.60. Instead, I needed to take that shortfall and add it to the required balance of 2 months worth of the escrow payment. Therefore, $199.25*2+$256.89=$655.39. Take that number and divide by 12 to get the monthly payment to cover the shortfall, which comes to $54.62 (rounded).

The new payment is the new base amount plus the shortfall coverage. So our payment actually increases by a total of $96.95 because our previous escrow payment was only $156.92.

Reaching Goals

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Whether you have a lofty goal of paying off a mortgage or a short term goal of not struggling to pay rent each month, it helps to establish a plan. The first step should be learning your relationship with money instead of mindless spending paycheck to paycheck. Last month, I mentioned budgeting and how it can lead to overspending instead of spending wisely. I also mentioned the envelope system and not liking it.

The envelope system is where you establish your spending categories and put cash in the envelope each month. When the money is gone from the envelope, that’s it. Don’t borrow from another envelope. If there’s money left over in an envelope, it can be added to next month’s envelope to increase your spending, or you can use that money to treat yourself to something. In few articles that I read did I see that the extra money should be put towards your goal.

THE GOAL

The first step is to write your goal down. What is it? How long do you think it will take to reach it? I’ve learned that establishing interim goals helps reach the bigger goal that may seem too lofty.

The second step is to track your expenses. Look at what you’re spending your money on. Start categorizing your spending. Can you see that you’re spending more than you thought on something other than essentials? Is hitting up the drive through several times a week costing you more per month than you realized? Have you purchased decorations for your home that aren’t on display, but you’re scraping together rent or mortgage for the beginning of each month? Are you paying up-charges and delivery fees for a meal delivery service instead of going to pick it up yourself (or cooking your own meal)?

MONEY RELATIONSHIP

I have experience living paycheck to paycheck. It’s not like we’ve always been in a position where we’re not worried about how to pay our bills. I thought if I shared two defining stories from our finances, it may trigger an idea for you.

College

I lived on campus for the first two years of college. My parents were paying my tuition, and they said that either I needed to take out a loan to pay the following year’s room and board, or I had to be a Resident Assistance to get free boarding. I didn’t want the responsibility and having to be in my dorm so much to be an RA (I never researched it; I was just 20 and knew everything.). I decided the best approach was to live off campus because I’d be able to pay my living costs monthly instead of in two large chunks at the beginning of each semester. If I broke down the monthly cost of the ‘room and board,’ it was $1533 per month (and only for 9 months of the year). I figured I could live for less than that, while paying month-to-month as I earned income, if I moved to an apartment. My rent off campus that first year was $650/month. My utilities were about $150/month in the winter. I don’t know how much I spent on food, but I know it was the bare minimum. It wasn’t that I was purposely trying to be debt-free and a hero; I just simply didn’t know how to get a loan, so that wasn’t an option to me.

I had a job at JCPenney. I was making 5.15/hour (minimum wage in 2006), and I worked outside of my school schedule as much as I could. I was able to pay my rent every month because that was my priority. I dipped into my savings from my summer jobs, but I mostly changed my lifestyle. I packed my meals with peanut butter and jelly sandwiches for when I was working. I ate pasta for dinner. I didn’t go to restaurants often. I wasn’t in a phase of life where I wanted to go to bars, so my social life was hanging at my boyfriend’s house, where he lived with 3 other guys, drinking cheap beer and watching tv. I made sacrifices in my spending so that I could pay rent every month. I didn’t want to pay a late fee every month. If I could just barely afford $650, I certainly didn’t want to owe an extra $65 because I couldn’t pay rent by the first of the month.

There is one caveat in my story that first year. Since I was making just what it took to have a roof over my head and food in my stomach, I chose to forego heat. Do you know where Albany, NY is? It’s into freezing temperatures in October. It was fine – I had sweatshirts, sweatpants, socks, slippers, blankets. I lived on the first floor of a two story home, so that helps keep the temperature reasonable into October, but I knew I couldn’t last through the days of teen temperatures without eventually turning the heat on. My parents found out that I didn’t have my heat on, and they sent me $100/month to cover that. So I did get assistance. They sent me that for 6 months to cover my utilities, and that was the last assistance I received.

My parents paid my tuition, which was $2,175 per semester in 2004. Yes, less than $5,000/year for my college education.

Buying a House

Mr. ODA and I wanted to buy a house and settle down. We had each been part of a training program at work that would end with our placement anywhere in the country, so we weren’t in a good position to purchase a house in Albany, NY. Mr. ODA got placed in Pennsylvania, while I was still employed in their NY office. It wasn’t handled well, so we started looking for other options. I accepted a job in Washington DC, and Mr. ODA went to Sterling, VA; we moved to an apartment in Fairfax, VA to live in between those two places. We chose an apartment because we didn’t know anything about Virginia and needed a place to live while we scoped it out.

This wasn’t a scenario where we couldn’t afford to live, like my college example. This was a situation where we set a goal, and to achieve that goal, we needed to spend less.

Mr. ODA was saving and preparing for a house in the $150-200k range, not the $350-500k range as a first time home buyer. So we needed a plan to come up with over $70k worth of the downpayment and closing costs.

We set a goal of spending no more than $5/day/person on food. We ate a lot of peanut butter and jelly sandwiches, pasta sides, chicken nuggets, canned vegetables, etc. That threshold meant we weren’t paying to go out to lunch at work. We were eating the bare minimum at dinner. We were eating any leftovers that were in the refrigerator. We didn’t have a desire or lifestyle where we would want to go out for a drink or buy a lot of things, so it wasn’t hard to scale back in that area. After a month or so of doing this, we decided that happiness should be part of the equation too, and we started going out to a restaurant no more than once per week.

This isn’t a magical story where we went from $10k in savings to $75k in 6 months, but we were able to increase our savings a decent amount. We each took a residential loan from our retirement accounts, and we borrowed $5,000 from Mr. ODA’s parents. We didn’t expect to find all the funds needed, but we were able to decrease the amount of money we had to borrow from our retirement accounted by changing our spending pattern.

Our rent at the apartment, including utilities, was over $1800/month. When we purchased our house, our mortgage was $1576 and our utilities averaged $150/month.

REACH THE GOAL

If you don’t know where your money is going, you don’t know how to get your money to work for you. If you don’t take the time to evaluate whether or not you’re spending wisely, then you don’t know if there’s wiggle room in your budget to put you in a position that you’ll be more comfortable. Create a relationship with money. Know where each dollar is going. Determine if you should make changes to your spending to reach the goal, or if you should find a way to create additional income.

There’s usually a way to create more room in your budget with your spending. Some examples are to eliminate alcohol purchases, reduce your restaurant spending (whether it’s not going to restaurants as often or it’s changing how you order – do you need the steak; do you need a soda, or could you get by with water and drink a soda at home), reduce your home decor type purchasing, put your heat down a degree or two.

Instead of complaining that there are bills to pay, change your mentality to take control of your money instead of it controlling you.

Expense Tracking

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In January, I mentioned how I have a very detailed spreadsheet to track my expenses. I started this spreadsheet concept in 2012 when my husband and I started combining living expenses. We also moved from NY to PA to a VA apartment to a VA house in a matter of 22 months. I needed to have a way to make sure I didn’t miss any bills. I didn’t want to rely on receiving the bill itself in the mail or in my email before paying it. I chose to develop the spreadsheet based on our pay check dates, which were every 2 weeks.

Here’s my sheet, in essence. Pay no attention to the actual numbers in this screenshot, as I didn’t take the time to make sure they were made up but still proportioned to each other. The format is exactly as I use it though. I set it up at the beginning of each year.

For the entire year, I record the pay check receipt across the top of the sheet. The dates are based on the day the money hits our account. This has changed over the years, as we used to get paid on Tuesdays, but now Mr. ODA’s pay check shows up in our account on a Saturday.

The first section, which is all gray, is the rental income. I then record all the rental income near the 1st of the month. If a pay check isn’t near the first of the month, I record it for any pay check date that shows up in the first 10 days of the month. Realistically, I receive the majority of our rent on the 5th of each month, so it doesn’t make sense to record it as a projection any earlier than the 1st, and as near the 5th as I can. The ‘Net PM’ is because I don’t collect rent on our KY houses; the property manager collects rent, removes their expenses, and then we receive the net by the 10th of the following month.

The next section is the light green, which captures routine expenses on the rental properties. I record the HOA due date every 3 months, each month’s mortgage payment, the payout to our partner (I take in all the rent each month and then pay him out his half plus our half of the mortgage payment), and then the VA property manager’s expenses.

The white section covers all our personal expenses.
– The bottom two gray lines are simply an indication to me that those affect Mr. ODA’s account and not our main checking account.
– I pay our personal mortgage near the 1st of the month (some time between the 1st and the 10th, but I typically prioritize this getting paid as close to the 1st as possible).
– Our personal residence’s HOA is only due one per year, which is why there’s nothing on that line for this particular snapshot.
– Then I have all our credit card payments. For the year, I project based on the previous year’s average bill. As I get closer to the statement end period, I update the projection. If I project that a credit card bill is going to be $1000, but as we spend through the month, we had more expenses than I thought, I update the projection on the spreadsheet to reflect that. So where it said $1000, I may put $1700 to cover my savings projection.
– I project our my utilities too. I know that I have an electric and water bill each month, and I have a cell phone bill that I pay in 3-month increments to my sister-in-law for a family plan. When setting up the sheet for the year, I simply keep the same numbers from last year for the utility lines. While I can log into my account and see the details, it’s easier if I already have it laid out like this. Then I can see, “last year, for this month, my bill was only $40; why is it $70 now?” One caveat here is that I usually keep the lines on this sheet to those items that are going in or coming out of our checking accounts. The water bill can now be paid by credit card (since we moved to KY last year). Technically, I should remove that from the sheet because I track bill due dates separately from this part of the sheet, but since I’m used to tracking the water bill’s due date like this, and I like seeing how the bill changes from last year’s amount due, I’ve kept it on the list.
– I have our IRA contributions listed as well, since that’s a big chunk that comes out each month. The maximum contribution into a Roth IRA is $6,000. We have automatic contributions twice per month, so that’s actually $500 out of each ‘pay check’ grouping.
– The “other” line is for expenses that happen every year, but they aren’t worth having individual lines because there’s only one or two payments per year. As I type that, perhaps my own HOA payment could be added to the other line since it’s only paid once per year. In Virginia, we had personal property tax that would be due each year. We also have our taxes that we owe (because we purposely plan our taxes so that we don’t get a refund because that means you’ve given Uncle Sam an interest free loan). We have vehicle registration fees due. All these ‘one off’ payments are recorded on the “other” line and then I describe the expense two lines below with the asterisk.

As for the savings projection, this is probably mislabeled. It has always said ‘savings,’ but it’s really just the net of that two-week period’s income and expenses. To know if I’m in good shape (if perhaps I’m in a position where my account balance is being kept really low), I net the two ‘savings’ next to each other (so I would add the $60 and the -$19 to know that my income from that first two-week period will cover my expenses for the second two-week period also).

In practice, as I receive the income or I pay a bill, I change the text from black to gray. This tells me that it’s paid and accounted for. I also update to actuals as I go. So if I projected a credit card payment to be $150, but the actual payment was $147.34, that’s what gets put in the sheet when I make the payment. This helps me track actual amounts through the year, as well as sets myself up to create projections for the next year.

I have a separate tab in my workbook that tracks additional income for the year. For example, when I was working part time, I recorded that income on that other spreadsheet. Each time we get money from our credit card rewards, it gets recorded on my income spreadsheet. By keeping track of our additional, unplanned, income, I have the ability to identify our actual savings net for the year. I take the ‘savings’ bottom line from this spreadsheet and add all the additional income we’ve brought in from the other sheet.

While I’m not budgeting the details of our expense categories (e.g., $300 per month for groceries), I’m tracking my income and overall expenses based on bill payments. Last year, I had tracked my expenses by category to see if overspend in one area in particular. I didn’t keep up with it though because the billing cycles didn’t line up with when I’d be running my financial update, but I hope to get in a better grove this year. This set up makes me feel comfortable that I’m not missing a bill. If I get to the end of a 2-week period, and I haven’t grayed out an amount, then I know it’s time to investigate why I didn’t receive mail or an email prompting me to pay a bill. Usually what happens is I’m tracking Mr. ODA’s credit card payment and wondering how much longer he’s going to wait to pay it until the due date. 😛

I hope that was easy to follow. I don’t want to put all our exact numbers in there, but I wanted to share how I “budget.” If you have any questions, don’t hesitate to reach out!

House7 Escrow Analysis

mrsonedollarallowance2 Comments

We received a notice that our escrow needed to be increased by $185 on this account. That seemed to be a huge jump, considering this was a new account for this year (we refinances January 2021). Our taxes went up about $35 per month, so the $185 increase stood out.

Mr. ODA’s brain works best in these scenarios, and he quickly noted that the analysis double counted our tax payment (they claimed it to be paid in December 2021 and January 2022). My brain can figure it out, but I need to write down every step of the math to understand it. 🙂 Since I took the time to analyze the escrow changes, I thought I’d share it in case anyone was interested in knowing how their analysis works.

They double counted our tax payment, so the increase truly should only be $58*. As someone who needs to see the details and can’t think in the abstract when it comes to math, I ran my own escrow analysis.

First, you need to know your taxes and insurance total for the year. Take that total, and divide it by 12 to get your monthly expense. This is because your escrow additions occur monthly. For this property, our monthly cost of our taxes and insurance comes to $199.25 (green). The old escrow amount of our monthly mortgage payment was $156.92 (orange).

The ‘Escrow Needed’ column is increased each month by $199.25. The ‘Required Balance’ is double the monthly expense for our account (199.25*2). Then the difference between the ‘Escrow Needed’ and the ‘Required Balance’ is the column in blue. The escrow shortfall is determined by the greatest negative. Therefore, I took the difference for that month (May 2022) and divided it by 12, getting $16.60*.

The escrow analysis then results in an escrow increase of $199.25 (the amount needed to cover projected expenses), minus the old escrow contribution amount of $156.92, plus the shortfall amount of $16.60*, bringing the increase to $58.93 per month and making the new monthly escrow payment $215.85.

EDIT: *These numbers are not right. For a detailed edit, see this post: https://onedollarallowance.com/2022/02/14/escrow-analysis-update/.