Author: mrsonedollarallowance

What day is your house sold?

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The day that’s in the contract as the closing date.

I truly can’t believe how many people have asked some form of this question in my life recently. While I’ve had multiple in person conversations on this topic, this post really stemmed from a Facebook post. “Is it an expectation for people to be moved out of their home the day of closing when buying a home? We sold our house, and are moving into a new home that we’re supposed to close the same day. Is there not a grace period?” What would that grace period be? How would the timing be determined?

On one side, I see the “closing date” section of a Kentucky contract simply states, “The closing of this transaction shall occur on the ___ day of ________________, 20__.” That’s quite useless actually (as I consistently find in KY law and legal documents). There’s a lot to be inferred by that statement, versus it being explicitly and clearly stated. On the contrary (as this has gone many times over), Virginia wins out.

In the paragraph before this image, it states where closing shall occur and by what date. This excerpt clearly indicates the purpose of “closing,” leaving little room for interpretation.

However, if we take a step back from the legal jargon and contractual obligations, whether explicit or inferred, we can see the logic. If you’re the buyer, once you sign the paperwork to purchase the house, wouldn’t you expect the keys to be handed over to you right then so you can start moving in and living in this house you just paid for? Wouldn’t you want the sellers out of the house because they’re no longer financially responsible for the house, and you don’t want any liabilities of their damage (intentional or accidental) to fall on your hands? You’ve done a final walk through and signed off that the house was in the condition you expected it to be in at that point in time.

Now this isn’t to say that there aren’t other terms and conditions that can be agreed to between both parties. “Lease back” or “rent back” clauses are commonly used. Sometimes it’s beneficial for a buyer to process the transaction (e.g., a rate lock expiration), but they allow the seller to remain in the home for an agreed-upon period of time (e.g., to bridge a gap before their new house is ready/available). But all of these terms are to be agreed to, in writing, before the closing date.

When we just sold our last house, we allowed the buyers to store things in the garage. We entered into a contract separate from the house purchase contract, called a “Preclosing Occupancy Agreement.” I haven’t needed one of these in Virginia, so I don’t know their standard form, but KY’s form does well here. The document outlines the date the buyer can take occupancy and whether there’s a charge for it. There were other items that outlined incidentals, such as utilities. In our case, the buyers were simply asking for garage space to put some of their belongings (because they had a same-day-closing for their sale and purchase), so we didn’t require them to put any utilities in their name before the sale.

BRIDGE LOAN

I can understand the complaint. Financially, you likely need to sell your current home to afford a new home. The “cash” from your sale is what you’ll use as your downpayment, as most people don’t have 20% of $400k sitting in a savings account (nor should you!). That makes the option to buy the house, take a day or two or seven to empty out your old house, and then sell your house not feasible.

There’s such a thing called a bridge loan. It’s a short-term loan used to purchase assets until long-term financing can be secured. There are more fees and high interest rates associated with this. However, it could be worth it to save the hassle of Private Mortgage Insurance (PMI). PMI is required in many cases where you cannot provide 20% as a downpayment for a house purchase. It protects the lender in case you don’t make your mortgage payments. PMI is removed when your principal balance falls below 80% of the original value of your home, whether that’s through regular mortgage payments or you make additional principal only payments. You can request PMI be removed earlier than that if you provide proof that your home value has caused your principal balance to now be less than 80% of the value, which is typically proven through an appraisal at your cost. If you put 0% down on a $400,000 purchase, it would take almost 12 years of payments before your loan reached 80% of the original home value. That’s 12 years that you’re paying PMI on top of your mortgage payment, and those are funds that are doing nothing productive to your net worth. A bridge loan may be worth it if you already have a sale date on your current house and only need to cover a few days or weeks.

SUMMARY

Logistically, it would be great if you could buy your new home, move all your things, and then sell your current home. Financially, this isn’t normally feasible. A lot of the time, you’re needing the equity you have tied up in your current home to purchase your next home.

Our first purchase was made up of two 401k loans (that we maxed as residential loans, which are penalty free), a gift from parents because we were short just a few thousand dollars, and cash on hand. We needed about $80k. Our second transaction, we chose a new build house. We sold our house, went into a rental for 3 months, and then used the sale money to purchase. Our third transaction was also a new build. We hopped AirBnBs until that got old with a 6 month old and 2 year old, and then crashed in Mr. ODA’s parents’ basement. We had 7 weeks between selling our house and purchasing the new one, so the cash from the sale went into our account, and we let it sit there until we needed it to close. Then this current purchase was actually done before we sold our third house, but we had executed a Home Equity Line of Credit prior to the sale. We used the HELOC to put the down payment on the current house, and then the sale of our third house paid off the mortgage and HELOC before distributing the cash balance to us. In all of these transactions, we had the ability to float the funds. That allowed us the ability to house our belongings in “long term” storage (not a day or two) for those two times we had a gap between the sale and purchase. The HELOC allowed us to slowly move our belongings to the new house this last time, and then we did a final moving day of all our big items just before closing (our current house needed work when we bought it, so we didn’t move right away).

But in all cases, unless there’s a separate document indicating so, the closing date of a transaction is the date that you give or take possession of the property. If you were buying, you wouldn’t want to take the risk of the previous owners messing with something in a property you now own. If you were selling, the buyers would have the same expectation.

Bathroom Renovation

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We purchased a house in June 2022. Most of the house had been updated or was in good shape, but the master bathroom was the original from 1992. This isn’t a bad thing, but bathroom designs have changed a lot since that time. Aesthetically, the bathroom would have been fine. Functionally, I didn’t want to shower in a 2.5′ by 2.5′ shower stall, and the higher standard of vanity height is something I’ve gotten used to. The day we closed, we started gutting the bathroom.

BATHROOM EXPERIENCE

Our first ever renovation project was a bathroom that we gutted, redesigned, and rebuilt in our first home we owned, back in 2013. The house was a foreclosure, and it had been flipped by the bank. The place looked good, but it didn’t last. The bathroom shower tiles were cracking as soon as we moved in. We took walls down and rebuilt them because of mold, we moved the door to allow for a better vanity set up, and we moved the toilet so that you weren’t walking around the vanity to get to it. We had been quoted $25k for a contractor to do it. We spent $4k on materials.

Our last home was a new-build and had an unfinished basement with a bathroom rough-in. We had my dad’s help setting the plumbing, and then we finished it out ourselves. After we did the first bathroom, we said we wouldn’t do vertical tiling again. We really just learned not to use 12×12 tiles on the wall.

The bathroom cost us about $6k to complete. While everyone was being quoted $75k-120k for a finished basement with bathroom, we did almost all the work ourselves (dad’s help on bathroom and setting studs, hired a drywall finisher, and we didn’t lay our own flooring) for about $20k.

We also did a quick bathroom refresh in our current home. The basement bathroom here was forgotten. It hadn’t been cleaned or updated (most of the house had switches and outlets changed to white from yellow, but not this room). For less than $1,000, we laid a new floor, updated the trim, replaced the vanity and toilet, painted, updated the accessories and mirror, and replaced the switches and outlet. We didn’t touch the tub or the faucets in there.

BACKGROUND

The bathroom was an L-shape. There was a 114″ vanity with a full length wall mirror over that. It also had 2 5-light wall mounted light fixtures over each sink (excessive!). Then the shower was your typical plastic molded shower stall with a frosted glass door. It was 2.5′ x 2.5′. Around the L was the toilet (awkward positioning, really), and beyond that was the soaking tub with built-in molded steps. Oh, and there was a ceiling fan over the vanity.

THE PLAN

We needed to take everything out so we could see our options. We gutted the bathroom pretty quickly, but we dragged our feet on the rebuild. It worked out in my favor though; I’ll come back to that.

The L-shape encompasses the master bedroom’s closet. It’s a walk-in closet, but it’s not spectacular. We tried to make a plan where we knocked down the closet walls and reconfigured the whole space, but the window placement hindered us, along with some of the desired sizes of fixtures. Once we gave up on incorporating the closet space, it was clear we just wanted to make the shower more functional.

As we started laying blue tape to map out the size of the shower, we realized we were hindered by the closet walls. If we made it too big, we lost the ability to walk around the L-shape comfortably. The whole point here was that we wanted a bigger shower. We settled on as wide as we could make it, while still being able to fit around the corner (generally looking at 3′ wide, which is standard hallway width).

At the beginning, I mentioned that I wanted to washer and dryer moved from the garage entry. Mr. ODA said we’d do it “later.” But the walls were opened now… so why not now? He came around. We hired an electrician to move the dryer electric from the room off the garage, directly above it to our bedroom, and then up into the attic to move over and come down into the bathroom. That meant the width of the shower was now maxed at how wide our washer/dryer was to get through the hole.

We bought a waterproofing system to build the shower any size we wanted (versus a shower pan), and we ended up about 3.5′ x 5′. We dropped the vanity section to 7′, and dropped our lighting to 2 2-light fixtures. 🙂

We eventually will add glass to the shower area (there’s a curtain there for now). The master bathroom is the most infrequently cleaned area of my house (and I clean a lot!), so maintaining a glass shower enclosure that’s used daily is just not high on my priority list. Mr. ODA had built a shower bench for our last house’s shower, and by some miracle, it fit perfectly in this newly built shower. We also reused the floor tile option because we wanted a statement in here, but we were too scared to commit to a pattern and it not look right; we knew what this pattern looked like, so we kept it.

The plumbing for the washer and dryer was a concern. We were able to use the old tub’s drain to be the washer drain. We were also able to use the supply lines. However, since the supply lines were on an interior wall, and we were nervous about moving them to an exterior wall (so it would be behind the washing machine), we kept them there. The width of the room didn’t allow for clearance for the supply lines to be hidden down further, so the lines fall across the top of the washer. While not aesthetically great, everything else about this is so much more functional and makes me happy.

MUD ROOM

The washer and dryer moving to where the tub was in the master bathroom meant we could create a mud room. This was a really big deal to me. We park in the garage. Our garage door is basically always open and this is how people come and go. I wanted a functional space that wasn’t cramped by a washer and dryer that you were walking around.

Additionally, the previous owner had changed the closet function to be 2 shelves. There was no hanging room for coats, and there was no storage for mops or vacuums on the first floor. We moved the middle-of-the-closet shelf to be a higher shelf, added the dowel so we could hang coats, and cut the bottom shelf in half to still allow for some storage options, but also allow for vacuum storage.

We’ve since added shelving over mini fridge, and there are bins for shoes in the cubbies. In our last house, we had a bar area in the basement where this fridge was. We had originally planned for it to be in the basement in our current house also, but we don’t spend as much time as we thought down there. It was a perfect fit to include it in the mud room and build the bench to incorporate it.

By moving the washer and dryer from this room (for our own labor and about $400 worth of an electrician), we made our house significantly more functional. As I grow older (and move an absurd amount of times), I’ve learned how much more important it is for my house to function.

SUMMARY

A quick facelift to a bathroom is a pretty easy project. Moving plumbing, electric, and walls creates a few more levels of difficulty. However, it’s not impossible. We’ve learned over the years that if we act as our own general contractor (hiring out piecemeal), we can save a lot of money. In this post-covid-world, contractor costs are high. If we hired out this entire bathroom, I don’t doubt that we could have been looking at $45-50k with all the things that were to be moved. Instead, it cost us about $5,000 worth of materials and our time.

Our time was definitely at a premium. We dragged our feet on decision making, while focusing on other areas of the house. The kids’ bathroom is directly outside our bedroom, so it wasn’t a hassle for us nor was there an immediate need for us to be back in our own bathroom. We got the floor tile down as fast as we could before we officially moved in, since our washer and dryer would need to be placed. That lit the fire for our toilet and vanity to be installed too. But the shower was a different story. We got it framed out, but didn’t start laying tile and grouting until after our 3rd was born. I thought I would feel better doing that work once I wasn’t pregnant anymore, but I didn’t factor in the baby needing to be help all day long, so that created quite a challenge. But we did it.

We gutted the bathroom in mid-June, and we had it completed done (well, except for the shower glass that I just don’t even want) by Christmas. While we took our time doing it, the best parts are how much more functional and comfortable the house is, and how it cost us about 10% of what it would have been if we hired it out.

December Financial Update

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I’m not even sure where to start for this month. It has been a whirlwind. There were a lot of tax payments last month, and this month I was still paying those among several other things.

PURCHASES

I purposely paid my credit card statement a little earlier than the due date so that it wouldn’t be that high for this update, but then I put a bunch of charges on it over the last two days. To catch you up – we’ve been holding money in our savings account for as long as possible. When we were getting 0.2% interest on it, it didn’t matter when I paid the card, so I typically paid it shortly after the statement closed. Now that we’re getting 4.22%, it’s worth keeping the money in there to earn interest, and then paying the credit card closer to the due date.

Our regular-use credit card is currently holding: $300 towards my dad’s iPhone (I should really share that mess of a story in purchasing that) (also, that doesn’t clearly account for my sisters having paid $200 towards that because that’s just “cash” in our checking account balance), $500+ of the kids preschool tuition, renewing our zoo membership for $139 (honestly, 5 of us enjoying the zoo for the year for that price is wonderful), over $200 for signing our son up for tee ball, two car insurance payments, and a rental insurance payment. I don’t typically go through the charges like that, but it’s just been a bunch of just-big-enough charges to grab my attention on our credit card balance. We drove to-and-from NY, so our gas station payments are higher than average too. As a reminder, the credit card balance you see also includes $10k worth of new carpet that we’re paying slowly on a 0% interest credit card.

RENTAL PROPERTY EXPENSES

I paid two of our Richmond houses’ taxes. The taxes are due on January 14th, but if I pay them this year, then it reduces what’s viewed as our ‘profit.’ I make sure to pay any known January bills in December of each year. Those two houses are so tiny, so their tax payments being so much larger than they once were kind of hurt (I’ve discussed the increases in property assessments, thereby increasing taxes). It was about $2,000 paid out (on top of all the things I paid over the last two months).

I also had to pay two supplemental taxes for Lexington. Government entities not meeting deadlines is a pet peeve of mine (I used to work for the Federal government). Last year, I completely missed that paperwork I received was a supplement bill for education, and then I received a penalty.I thought it was their typical assessment notice since it was outside of tax payment time. Luckily it was a few dollars, but I was so lost. This year, I paid close attention when I received an extra tax-related document. This supplemental bill was for trash services. Again, a few dollars. But think of all the extra paperwork, staff hours, postage, payment processing cost to collect an extra $20 from every house.

RENTAL PROPERTY INCOME

We had two tenants give us notice that they’re moving out. While extremely unfortunate timing on the year, I’m also human and understanding of their need. One tenant had a traumatic work event that led to him being laid off, and another family bought a house. We’ll find a way to get the houses re-rented as soon as possible, even though our vacancy time may be longer than it would have been if we were looking for a May 1st or June 1st renter. We have someone interested in both houses at this time, so that’s encouraging.

We had 4 tenants not pay in full. They all reached out to me to let me know in advance, and they paid what they could by the 5th (I always appreciate that – it holds them accountable, and it allows me to not foot all of the bills that I have to pay on the houses). As of the end of the 5th, we were short over $3,000 worth of rent ($1300 of that was for the house that has been late since October 1st and is finally working towards paying their debts).

As of today, we’re short $2,400. The tenant who’s playing catch up only has a balance of $960 left, which is great (that’s been a long road). Another tenant typically pays $750 on the 5th and 19th. So they’re not late on $750, but they are late on the $375 they didn’t pay in the first half of the month (this is a special scenario that we put in place for them because they couldn’t pay all at the beginning of the month, so we increased their rent as a concession to being able to pay twice per month without creating more late fees for them… but they’re still late).

NET WORTH

The market significantly increased over the last month. We also had $28k come in as part of our insurance claim; our cash increased by $35k though, so there’s an additional savings in there. And even though we had large expenses on our credit cards, it’s still slightly down from last month.

BONUS STORY

Mr. ODA and I wait for Black Friday deals to purchase our iPhones. We typically purchase every 3 years. I usually bite for a new phone so that the camera is better, but I’m suspicious that Apple is sending updates to alter the clarity of photos on older phones. How can I take these BEAUTIFUL pictures for the first few months of having a phone, and then all my pictures are grainy suddenly? ANYWAY.

Walmart had a deal that you purchase the iPhone 14 on a payment plan, and they give you a $350 Walmart gift card. These are the deals we typically seek. Apple is still getting their full price for the phone, but Walmart is offering a deal to bring our net to $0. When you want to purchase the phone from Walmart, it asks you to log into your carrier’s account. For this phone, it’s Verizon. We spend hours trying to figure out who the primary account holder is and what that log in it. Verizon does it where you can create your own log in and see you phone’s data at any time, but to see the entire plan’s data, you have to be the account holder (makes sense, but complicates this particular instance). The primary account holder is my mom’s phone number. Who died in March. We finally get assistance with that and log into the account through Walmart. It brings up all the lines on the account, we select my dad’s number, and then it gets to step 2. It says they can’t verify the address on the account and we need to go to Walmart mobile desk in a store. I call Verizon. Can’t help. I call Walmart. They keep telling me to put the item in my cart, which isn’t how you purchase a phone. So no help.

I finally bite the bullet, and on the Saturday after Thanksgiving, march myself to the nearest Long Island Walmart. They can’t help because they need the phone in the store. I swear if I were at my Walmart in Kentucky, they would have helped me. It was actually at the point where I was going to risk waiting until Tuesday so that I could have my phone desk people help me. The Walmart employee actually wasn’t flippant or trying to blow me off; I believe he genuinely thought he couldn’t help me. What needed to happen was that he called their help desk people, and then he was the mediator to figuring out the address. I figure this because a Walmart customer service person transferred me to such a person, who said he’s not allowed to talk to me and has to have a Walmart employee talking to him on my behalf.

I gave up. Sunday comes. I hope that some “overnight” processing of information has magically cured the process. It didn’t. I call Verizon again. Some angel of a lady answered the phone and actually helped me more than I could have imagined. I told her that I wanted the Walmart deal because all the Verizon deals require me to change my plan to unlimited data. I let her know that I’ve already spoken to several people, and they keep trying to convince me that I get a “free” iPhone while my plan increases $30 per month in perpetuity (versus $23 per month for 36 months for the phone). She offered me a deal that equates to $5/month for the phone for 36 months. So I put 100x more hours into this than I should have, but it ended up working out in our favor!

Fast Food Deals

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We stopped at McDonald’s on our way to visit family before Thanksgiving. We sat down at a table where someone had left their receipt. Their total was over $35. This other customer had ordered a 10 piece mcnugget meal for $10.39. We had ordered a 10 piece, a large fry, and a large soda, and we had spent about $2.50.

This thought to share these details was resurrected when my sister complained that she stopped at McDonald’s for two meals and spent $30 to feed just two people. It takes a minute or two of your time, even if you pull into a parking spot and place the order right there, to save a significant amount on your order.

MOBILE APP

Some restaurants only offer earning rewards with each purchase, to then be redeemed at a later date (e.g., I redeemed points earned in the Chick-Fil-A app for a free medium waffle fry). There are others that occasionally send a reward to you with a quick expiration date (e.g., Chick-Fil-A will send a free chicken sandwich if you haven’t ordered recently). While other restaurants may offer deals like coupons within the app (e.g., 50% off a 10 piece nugget).

In the era of scanning your own groceries and placing your own restaurant orders at kiosks instead of a cashier, it’s not surprising that companies are attempting to entice you into mobile ordering with deals. Not all fast food places have as robust of a ‘deals’ section as McDonald’s, which is probably why we almost only stop at McDonald’s on our road trips. However, it’s noteworthy that each McDonald’s restaurant offers different deals. Some may be completely different, while others may just be a different price (e.g., a 40 piece nugget for $9.99, or a 40 piece nugget for $13.99).

THE PROCESS

We typically use my phone and Mr. ODA’s phone to place two orders so we can take advantage of two deals. I fully acknowledge that this is all ‘extra.’ Most of the time, I don’t have the patience to put all that effort in, but Mr. ODA does. He knows the general menu prices so he can quickly evaluate where the best deals are. One time, I was given no instructions on placing my half of the order, and I picked the deal for $1 coke. For a while, that was a big deal because they had raised the price of soda so much (and took away the $1 anytime any size promotion they had run for a long time). It turns out, sodas are now $1.29 on the menu, so the $1 deal isn’t great when there are other deals to be had (like free fries). For McDonald’s, you can only use one deal in a 15 minute span. That means we’ve also placed an order to eat at the restaurant, and then placed another order once we were there and able to on the app.

For my local restaurant, the deals currently offered are:
– Free double cheeseburger or 6 piece nugget when you buy one
– 50% off a 10 piece nugget
– $0 delivery fee with a $15 purchase
– 20% off any purchase of $5 or more
– 30% off any purchase of $5 or more
– Free any size fries with a $1 purchase
– $5 daily double, double cheeseburger, or mcdouble, medium fries, and medium soft drink
– Free 10 piece nugget with a $3 purchase

First, you want to verify that the restaurant address is the correct one you’re going to. You need to utilize the deals of a specific location, and you need to pick up your order at that location.

With a family of 5 (and 3 kids who are 5 and younger…picky eaters), we don’t stray from what we know very much. But let’s delve into the deal options. A large fry is $3.29, a medium fry is $2.99; a McDouble is $2.79; a 6 piece nugget is $3.49, a 10 piece is $4.99, a 20 piece is $6.69, and a 40 piece is $9.49; a small, medium, or large coke is $1.29. McDonalds also has the $1 $2 $3 menu, even though nothing is ever $1 anymore (mine has a McChicken for $2.19, McDouble for $2.79 (glad that’s consistent on the menu), $2.29 small fry, and $2.59 4 piece chicken nugget).

The McDouble deal would be $2.79+2.99+1.29=$7.07. You’re saving $2.07 by utilizing the deal.

The 10 piece nugget meal is $8.39. A la carte, the cost would be $4.99+2.99+1.29=$9.27. You’re saving $0.88 by making it a meal. If I were to use the deals, I could order a medium fry and medium drink for $4.28, hitting the $3 minimum purchase requirement, and get the 10 piece nuggets for free. Then I’m saving $4.11 from the meal price.

We typically will order a large fry and utilize the 10 piece deal on one phone. Then we’ll use my phone to order a coke and use the ‘free any size fry’ deal. Depending on the situation, we may add one or two McDoubles or McChickens to the order. If we order two sandwiches, we’re spending $9 to feed 5 of us.

SUMMARY

We don’t eat from restaurants very often. Sometimes we feel like going out to eat, or running an errand that will include a meal (like a Costco food court meal haha). Most of the time, we’re eating at a restaurant out of necessity (yes, a necessity because I refuse to live off pop tarts and granola bars for a 12 hour drive).

This entire post is a plug to utilize rewards systems and apps to help your money go further. This doesn’t even scratch the surface of mobile ordering, which would include delivery apps like UberEats. Menu prices on these food delivery apps are higher than the restaurant, charge fees, and you have to tip. I don’t think people fully understand how much extra money they’re spending when they use an app like that. But as I said, that’s not the point of this post. If you’re driving to a fast food restaurant (or even a fast casual like Chipotle or Qdoba), join their rewards and take advantage of their app-only deals.

Be strategic and intentional on how you’re spending money. Put the one full minute it takes into placing a mobile order to cut your cost in half!

Rental Cost Changes from One Year Ago

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I keep updating my investment property tracking spreadsheet to reflect the current costs of insurance and taxes. My tracking shows last year’s amount, which I use as an indicator on whether I need to look further into this year’s bill (e.g., is the amount a reasonable increase?). For so many years, most of our insurance policies changed by a few dollars; now, I’m seeing large swings in what’s being charged. Where jurisdictions were slow to change property assessments, they’re now catching up, which increases the taxes.

As a renter, your rent is increasing to cover these costs of the landlord/owner. Here’s a comparison of my fixed cost increases against my rent rate increases. As you’ll see, I’m not trying to get top dollar out of these properties because the market has increased so much (and that leaves me more exposed if someone doesn’t pay their rent on time). My rent increases barely cover the cost increases that are happening on some of these houses. Remember that while I’m showing fixed costs, this isn’t covering the maintenance calls that I receive and how they’re more expensive than they once were also.

ESCROW, CONCEPTUALLY

In most cases, for a traditional mortgage, an escrow account is set up. It calculates your taxes and insurance payments for the year, divides by twelve, and is added to your principal and interest payment for the mortgage. In addition to covering the total payments to be made, there’s also a requirement that the balance of the account never falls below twice the required monthly payment.

If your taxes owed for a year are $1500, and the insurance is $300, then your monthly breakdown is $150 ($1500+$300=$1800; $1800/12=$150). The minimum monthly required balance is $300 (twice the $150).

As taxes and insurance increase each year (typically), there’s an analysis done to ensure the projected monthly balance never falls below that $300 threshold. If the balance is projected to fall below the required minimum amount, then it triggers an increase in your escrow payment. Your escrow payment will increase to cover the shortfall, but also to cover the new projected costs to be paid. So while you may be offered the ability to make a one-time payment to cover the shortfall, your mortgage payment may still increase to cover the projected costs. For example, if last year, your tax payment increased to $1750, and your insurance to $350, then your monthly payment to cover those charges is $175 ($1750+350=$2100; $2100/12=$175). Your mortgage will increase by $25 per month because now your escrow agent knows the projected costs to cover are higher.

The analysis uses the current year’s amounts owed to project the coming year’s monthly balances; it doesn’t account for the probability that these amounts increase each year, which essentially means that there’s perpetually a shortfall. In other words, while in Year3, they know that there was an increase in costs from Year1 to Year2, they don’t inflate the costs of Year2 to cover Year3 projected payments.

I prefer to not have an escrow, but at this point, for any mortgages we have, they’re all escrowed. We have six of thirteen houses with escrow. While I pay more as my mortgage to feed into that escrow account, it means I don’t have to manage the annual or semi-annual payments. On the contrary, this means I need to be managing our finances to prepare for large outlays throughout the year on seven houses (in the last quarter of the year, I’m paying out over $8,000 to cover taxes owed).

ESCROW REANALYSIS

This post was prompted by a notification that an escrow reanalysis was done on a mortgage that was just transferred to a new company. I thought that their break down was the most clear I’ve seen. A quick note – your escrow will pay the bills that come due, regardless of the balance in the account, even if it means it’ll overdraw the account.

They clearly showed that the anticipated property taxes are projected at $199 per month (although, I’ll reiterate that this is based on last year’s actual outlay numbers, which aren’t accurate for the coming year). Then they show that the taxes are $43.08 per month. They then go as far to show the total of these two required outlays. There’s verbiage that explains the required minimum in the account must be twice the total taxes and insurance ($242.08 * 2 = $484.16).

There’s another detailed breakdown of each month’s escrow income and outlay (that I don’t have pictured here) that shows the month that is projected to fall below the required minimum. That month’s account balance is -$136.37. The difference between the required amount of $484.16 and the negative balance of $136.37 is $620.53 (pictured above). When that’s broken down by month, it’s $51.71. Take the total taxes and insurance payments and add the shortage amount to get the new monthly escrow amount of $293.79, a change from $222.25.

Below, they show you that there is no change in the principal and interest payment, then it shows how the current escrow payment is adjusted to the new escrow payment, along with the shortage amount.

I created this table to show the differences between escrow payments over the two years. I kept the houses that don’t have an escrow because it can be compared to a future table in this post. There is no House5 in this table because we sold it several years ago (houses didn’t get renumbered because House5 still exists in terms of tax documentation).

TAX AND INSURANCE UPDATES

Each year, we see an increase in these amounts. Usually it’s across the board, but Kentucky districts had kept the housing assessments the same through the pandemic. As housing prices increase, your property assessment can be increased by your tax jurisdiction. The assessment increasing leads to an increase in taxes. This is why people getting excited that house prices in their neighborhood are selling higher than expected isn’t great if you’re not planning on selling any time soon; those increases in values means you’re paying higher in taxes.

In Richmond, VA, the property taxes are $1.20 per each $100 of the assessed value. In 2022, House2’s value $163,000. In 2023, the value was increased to $203,000. And let’s not forget that we purchased the house for $117,000. While it’s nice that the home values in the neighborhood are increasing significantly (and we knew the area was going to get better and better based on development happening), we can’t realize this gain until (and if) we sell. So in the meantime, we’re paying higher taxes on this amount. Although, I suppose the assessment could be even higher because the actual value of this house is probably more like $260,000.

Among 13 houses (don’t get confused – there’s no House5 up there because we sold it), I need to cover a total cost increase for taxes and insurances of over $4,500. This doesn’t include the higher costs of trades people if there are any maintenance calls, so this increase is the bare minimum for me to keep my same income.

RENT INCREASES

I constantly see complaints about the cost of rent, or that a landlord is increasing rent. Unless we’re looking for a tenant to move, our general philosophy is to increase rent $50 every two years. This worked fine because home assessments increased at a slow, reasonable rate until recent years. Now jurisdictions are capturing these larger increases based on those inflated sale numbers when competition was high in from 2020 through 2022.

In some cases, the rent for the area brought it in a higher amount than compared to our purchase price of a house. In those cases, we went several years without increasing the rent. Looking back, that probably wasn’t the best idea because now we’re behind on capturing how significant these last few year’s fixed costs have increased. However, the trade off to that is that we’ve kept great tenants in the house, haven’t had to pay to turnover the unit, and have minimal maintenance calls.

This table shows the total increase in insurance and tax payments from 2022 to 2023 in the first column. I divided that by 12 to get the monthly amount of that increase (second column). Then, since I said we typically increase our rent by $50 every two years for the same tenant, I multiplied that monthly amount by 2. I’m showing that if we want to only increase rent on long term tenants every other year, then I need to plan ahead on how much my costs are increasing.

This isn’t a perfectly accurate capturing of our cost increases since I’m not going back to 2021 to capture those changes in amounts, but it’s a general estimate. This shows that if I were to increase all houses by only $50 every two years, it’s cutting into my bottom line. Only 6 of the houses have increases less than $50 for two years.

SETTING THE RENTAL RATE

Let’s pause and talk about “bottom line.” Landlords have investment properties to make a profit. They’re looking for an income stream.

I regularly hear people say they can own a house for less than their rent, which is likely if you’re speaking only on principal and interest of a loan. However, you need to qualify for that loan. You may not have 20% down, so you may be required to pay private mortgage insurance (PMI). You may not have good credit, which means you’re probably going to pay a higher interest rate than I’m currently paying. You need to be able to cover taxes and insurance, which means you’ll have an escrow account set up, which increases your monthly mortgage payment. Then there’s all the other costs of home ownership.

That’s where people forget. When your hot water goes out, you call me. I spend $1,500 for about 2 hours worth of someone’s work to replace that. When you have a water leak, I spend $3,000 for a day’s worth of 2 plumbers’ work. When a storm drops a tree on your house, I’m the one spending hours on the phone with insurance, finding a contractor, getting quotes, and paying the contractor $3,700 before I get insurance reimbursement. Those are the big unexpected expenses. That doesn’t include all those smaller plumbing problems that cost $200 or $500 at a time.

Then in some cases, I probably put time and money into the house to even get it ready to rent to you. I didn’t always buy a house that was ready to live in. You may have projects that need to be done when you first move in also, so which costs money. Those are expenses that I’m trying to recoup through my rent rate also.

There may be other costs to my ownership that I’m trying to recoup through the rent, such as property management. I may have to pay someone else 10% of the rent, every month. I am projecting that there are going to be costs that I need to pay for also (e.g., water heater, roof replacement, plumbing issues). When I need to pay a plumber $3,000, I’m not coming to the tenant to say “I now need $3,000 to cover this cost.” Instead, I’ve set my rental rate the expect such a large payout on my part.

Not only am I trying to make sure that my rent is set at the right about to cover the costs that I’m putting into owning and maintaining the house, I’m also hoping that I’m going to make some money off owning this house so that I can live. I don’t get to pay myself for the hours I put into managing the property. Whether or not I have a property manager, there is still time that I put into managing the houses. Would you want to work for free?

BACK TO RENT INCREASES

While we manage each house individually on setting the rates (asking ourselves: do we think the tenant can absorb the increase, do we have to increase to cover actual costs now), this shows that our monthly income was increased by $475. If you look back at our total monthly increase in expenses of just taxes and insurance, it’s about $375; add in the cost increases for property management (increased rent means increased fees because fees are based on the rent price), and our fixed costs went up $415. On a whole, we’ve offset the increases.

However, you can see if we had one or two houses, some of those increases could be significant. House3 is costing us $64 more for each month, but our increases are typically about $50 at a time. We’ve had the same tenant in this house since we bought it. A $50 increase every two years hasn’t kept up with our costs. Since we have other houses, it helps cover the costs on House3.

House2 and House3 are identical in layout. House2 has been upgraded to all LVP, whereas House3 has carpet everywhere except the kitchen and bathrooms (granted, it’s new carpet two years ago). Since we purchased these two homes with tenants, rent was already set for us. House3 has been the same tenant since we bought the house, and the increases have brought us to $1200 per month in rent. House2 has been turned over 3 times: the first was a divorced lady who moved back in with her ex-husband; the second was there for several years, but we began having a lot of issues with her, and we told her the lease was up; the third was the one who flooded the house in December, and causing the need for the fourth. Now we’re renting that house at its market value of $1600. That means House3 is operating at a much lower rent than we could get if we rented to new tenants. However, the tenants are wonderful, and we’ve purposely not raised the rent on them in significant ways because we don’t want to cause them to move.

SUMMARY

Cost increases in rental properties can be significant over the years. With the rising costs of all goods and services, property values weren’t immune. The increase in property values leads to an increase in an assessment, which means an increase in taxes. That cost is relayed to the tenant, as this is a for-profit business. I’m trying to make an income for my family with rental properties.

I’m not trying to price gouge tenants, but make a fair living based on the costs of owning these houses. My first goal is to not turnover tenants, so I do what I can to make my tenants happy by taking care of the houses and not creating drastic rent increases each year. Secondly, I’m not going to set a price that my tenant can’t afford, thereby putting me in a hard position where I don’t have rent paid. Having multiple properties helps to offset the costs so I don’t have to play catch up on one or two houses worth of higher expenses, by putting my long-term tenants in an uncomfortable position where they can’t afford the rent.

November Financial Update

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A day late, but here we are. The market has gone up a bit, so that helped our net worth increase, even though we had a $10k increase in our credit card balances because we replaced the carpet in our house. Again, we opened a new credit card for this large purchase, which will give us 15 months of 0% interest. While we could pay the balance now, it’s a strategy to allow us to keep more liquid cash and earn interest on the money.

We have a tenant that only recently paid October’s rent, and has paid about $200 towards November rent as of today. I’m frustrated, but I have another post that will go into all the details for that. I can be understanding and work with you, but only if you talk to me. She doesn’t communicate, and she hasn’t upheld any part of what she said she’s going to do about payments.

I had one tenant ask me about moving out early, but we haven’t pursued anything yet. I have another tenant who is under contract on a house, so we’re waiting for notice from them. We knew they were looking for a house to purchase, so we structured our lease to allow them out of the lease at any time. It’s unfortunate for our timing that it’ll probably be a January/February rental now, but I’m happy for them moving on to their next phase of life.

I had to pay two small tax payments to a local jurisdiction this month, and then also paid taxes on one of our properties (luckily they still take credit cards with no fee, so we get rewards for that payment!). I’ve had to pay several medical bills (for myself) over the past month, which has been annoying. All that money to bills, only for there to be no answers.

We went to a local ski mountain to look for ski boots for my new-to-me skis that I purchased. In the process, we ended up buying the two older kids skis and boots, along with season passes for the family. So medical bills, ski equipment and passes, tax payments, and Christmas gifts have our credit cards high now (even without the 10k+ for carpet).

Family Trip

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We went on a trip to Indianapolis last month. We did more activities than we typically would have, so our spending was more than average.

The reason behind the trip was the Children’s Museum. We like visiting zoos around the country, so we used that to fill our other day there. The zoo was $91 for entry for 2 adults and 2 children, while our youngest was free. We had to pay for parking, bought lunch at the cafeteria, two kids rode the carousel, and we all rode the train; that came to $66.70 spent the day of our visit. The Children’s Museum was $90 for entry for the same group of us. It also had a carousel that we let the kids ride, I let them get a flattened penny (they used “their” $1 for it), and we bought lunch (parking in a parking garage was free); that came to an additional $35.88 spent on that day. The zoo’s meals were very reasonably priced, but the Children’s Museum’s meals were ridiculously expensive, so that free parking wasn’t exactly free.

We placed a grocery pick up order when we arrived, and that covered our breakfasts and dinners ($39.10, but we didn’t even use everything we purchased, so that’s inflated). We stopped at McDonald’s on the way there and as we left the city on the last day ($17.68). McDonald’s and Qdoba are sure fire ways to get our kids to eat and eat quickly, so they’re nice when we’re on the road.

On the first day, we went exploring the city. We had to pay to park in a parking garage, which was $5. On the last day, we did a Capitol tour and visited another museum (both of which were free), but we had to pay to park twice ($2.50).

We had booked an AirBnB for the trip. A series of events I won’t get into meant that we received a full refund from the originally booked location, had a coupon code for our inconvenience, and booked a new location right away. We ended up spending $574.32 for our lodging of 3 nights. We specifically didn’t book the cheapest place available because we wanted the comfort of multiple bedrooms for the kids. The two oldest can sleep together, but the youngest needs his own space so that it can be without a night light. We could have managed with two bedrooms because the youngest slept in the master closet, but I can never guarantee that there’s a closet big enough for a pack and play. This place had 4 bedrooms, but we didn’t use one of them. We also wanted a hot tub available, so Mr. ODA and I could hang out and watch tv after the kids went to bed. It’s an amenity we’ve grown fond of, and we even plan to purchase one for ourselves if our deck ever gets replaced.

In total, this trip cost us $922.18 (plus gas) for 3 nights away. This is a higher than normal 3-night trip for us, but we were ok with it since we hadn’t taken our usual amount of trips (newborn life). We could have planned ahead on our two big days to pack a lunch instead of buying there, but we chose the convenience of purchasing the meals over the potential savings, especially knowing that we weren’t spending anything outside the normal realm for our breakfasts (cereal) and dinners (easy, quick pasta meals). Although this wasn’t known at the time of booking, but it was once we started the activities, the concession from AirBnB more than covered our meals and extra activities on each day.

Our kids are 5, 3, and 10 months. The Children’s Museum was great for their ages. There were some exhibits for older kids that we bypassed. I thought the St Louis Science Museum was better at having interactive exhibits throughout (and is free!), but it didn’t mean that this place was bad. The zoo was nice too. There’s a lot of shade, which was appreciated on a very hot day, even in October. It felt smaller than the Cincinnati Zoo, which is where we usually go, but it was clean and the animal exhibits were nice. They had a lot of shows and “ranger talks” included with your admission too. There was a dolphin show that was included with admission that was significantly more than I would have ever expected as a free attraction!

The city of Indianapolis wasn’t great. We didn’t encounter a really nice area of the city; most of it is run down, and there was a lot of homeless downtown. It’s clear that there is a lot of updating underway, and that it’ll probably be a really cool place in a few years. I never felt unsafe, but it was noteworthy that we haven’t visited a city like this since Detroit (although we did find a nice place there, ironically).

All in all, we spent less than we originally projected. A 3 night trip where we were sufficiently entertained, but not overly exhausted (the kids got to bed on time!) for under $1000 was great.

Home Sale Proceeds

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*This post was started in November 2022, but our son was born 3 weeks early (and on Thanksgiving), so it fell off my radar for a long time while I caught back up. Let’s dive in now.

We sold our primary home at the beginning of November to move a half hour away and closer to family. It was a new construction home, and we purposely sold when we did to avoid capital gains taxes. If you call it your primary residence for 2 of the last 5 years, you’re exempt from capital gains. Considering the market over the last two years (2020-2022), we were slated to owe a hefty penny if we sold before that 2 year mark.

Had we sold earlier or perhaps waited for the spring, we could have made more. Instead, we opted to be rid of the home, not try to rent, and be able to have that behind us. We were extremely fortunate that we were under contract by the end of the first weekend we listed. The market had cooled significantly from the multi-bid, exorbitant pricing, with appraisal waiving language days.

We only had 2 showings. The first politely let us know they wanted a walk-out basement. We had an amazing basement with 9′ ceilings and no soffits, but it didn’t have a door due to the floodplain. We don’t really understand why, but the backyard was definitely low enough for it to have been a walk out basement. It was one of the red flags that made me uncomfortable living there, along with a long delay for construction on our lot and a few around us due to extensive sink hole surveying. The second showing made us an offer 10k below asking. We sort of split the difference at $495k, and they accepted.

There were several houses listed in that neighborhood for weeks after we closed, that were listed the same weekend as us, so I am eternally grateful that the stars aligned for what we wanted/needed.

PROCEEDS CALCULATION

We purchased the home for $346,793 in November 2020. The contracted purchase price when we sold was $495,000, which was completed in November 2022. That’s a difference of $148,207, but that’s not “take away” money.

As the seller, you’re typically responsible for paying out the Realtor commissions. They’re typically 6%. We asked our Realtor if she would drop it to 5% (buyers agent gets 3%, sellers agent gets 2%) since we had drawn up our purchase contract sight unseen and this was the 4th commission based transaction she had from us in less than 2 years. She agreed. I truly don’t like asking someone to take a lower commission, but due to there being several transactions in a short period of time, many not even needing much effort (showings, phone calls, etc.), I accepted Mr. ODA’s plea to ask. That comes to $24,750 paid in Realtor commissions.

We then have to pay off any loans that used that property as collateral. We had a mortgage and a Home Equity Line of Credit (HELOC). We had put 20% down on the purchase, so the mortgage had about $266k left as the balance. The HELOC had been used for a couple of other things than just the down payment on a new home, and it didn’t require principal payments on it while we had it, so that balance was about $86k.

We walked away from the closing table with about $117,000 after tax offsets and such.

PAST DETERMINATIONS FOR WHAT TO DO WITH THE PROCEEDS

In July 2012, we purchased our first home for $380,000. We put 20% down; it was a foreclosure, but the only work we had to do was on the main floor bathroom. When we sold that home Fairfax, VA for $442,500 in October 2015, we paid off a car loan and bought our second two rental properties in Richmond, VA. The car loan was only at 0.9% interest, so it didn’t meet Mr. ODA’s requirements to pay down loans with higher interest rates, but it did alleviate one monthly payment I had to manage. The irony of that statement, now that I manage 14 houses worth of payments all year. We also used those proceeds to put 20% down on the purchase of a new primary home outside of Richmond, which had a purchase price of $359,743. We paid off House1’s mortgage because the loan had a balloon payment that we needed to be ahead of.

When we sold that Richmond home for $399,000 in September 2020, we took about $109k away. We used those proceeds to put 20% down on the purchase of our new home, at $346,793, outside of Lexington, KY. We paid off House4, House6, and House13. Since paying towards a mortgage and not paying it off doesn’t change your monthly cash flow, we focused on where we could eliminate a mortgage payment. We’ve since paid off House11 and House12. House12 had a high interest rate, so we were interested in eliminating that as fast as possible, even though we were paying for it with a partner.

WHERE DID THE MONEY GO THIS TIME

We purchased our current primary home last summer and put work into it. Since we purchased it before selling our house, we used a HELOC to pay for the down payment. That meant that when we walked away from the closing table, the money we were putting in our bank account had no distinct purpose (like in the previous cases where we had to use some of the sale proceeds to buy another primary house).

The first thing we did was open a high yield savings account. At the time, it was necessary because our savings account wasn’t paying market rate. I remember Mr. ODA complaining that interest rates on loans were increasing, but it wasn’t being shown on savings interest side. He found a high yield savings account that gave a sign on bonus (we like that ‘free’ money!). We put $50,000 into that account, earning over 4% interest. The money in that account was removed and put into our regular savings account, which is now earning over 4%.

Since the money didn’t have a purpose, we needed to get it into the market. If we put it all in the market at once, then we’re subject to a lot more fluctuation. To hedge our volatility, we planned to schedule regular investments. It seemed crazy to me, but our financial advisor and Mr. ODA decided on $5,000 per week. That would take 20 weeks to accomplish. To my chagrin, this was set up as an auto transfer. Even with a large balance sitting in the account, it didn’t hurt any less watching $5,000 every week be taken out. This plan didn’t last long though because Mr. ODA found Treasury accounts that act as short term certificates of deposit. My next post will go into this in more detail.

Not an immediate need, and we didn’t rush to buy something for the sake of buying it, but we earmarked about $20k for the purchase of a new van. I love the van we bought in 2019 (which was a used 2017), but it had a few kinks in it. I also felt pretty good about the deal I got on it. However, I didn’t put the time into test driving and looking at this van that I really should have because one of us had to stay in the show room with the kids while the other went for a drive. I also know what I’m looking for in a used car now (that was our first used car experience), versus buying a brand new car that hadn’t been driven by others. It helped that I was looking to buy the same exact van, just newer, so I know how it’s supposed to work and what to test. We ended up finding a van about 2 hours away from us in early 2023. We’re almost a year into this van, and I absolutely love it.

In the back of our minds, we’re still looking for another rental property. There’s an area in town near us that would work for short term rentals, which I’d like to dabble in. We have seriously considered a few, but interest rates have shot it down. A 1500 square foot house, with a $200,000 mortgage, comes to a monthly payment (of just principal and interest) of about $1,400. That’s just not good margins with such high interest on it. We’ll keep an open mind, but so far it isn’t panning out.

SUMMARY

Our savings account is currently earning 4.22%. Mr. ODA is also managing that balance by using the short-term Treasury bills. Since we started with the Treasury bills, we’ve made about $500, which is on top of the interest we’ve earned to date on the savings account, which is over $1600.

We started off with paying the mortgage that had a balloon payment. It was a commercial type loan, so it was amortized over 30 years, but was really only a 5 year loan. We decided to pay it off instead of re-mortgaging it at the end of the 5 years. After we took care of the balloon payment approaching, we started paying off mortgages where we could eliminate a payment (we had multiple houses with $30-60k worth of a balance), and then moved onto paying off high interest rate mortgages (for reference, a high interest rate was 5% … which is much different than today’s mortgage rates being “good” at 7.5%). We went through the process to refinance several mortgages, so we’re at a point where we’re happy with the mortgages that are left. If we wanted 100% cash flow, we’d start paying towards principal balances. However, we don’t feel that’s necessary for our current situation. We have 6 mortgages left (including our personal residence) out of 14 houses.

We definitely are more hands on with our money management than most people are going to be interested in. Now that we’re happy with our mortgage situation, we are focused on the interest side of our money working for us. With multiple Treasury bills that are reinvested for short periods of time (4 week and 8 week bills), then we’re able to earn quick interest while we don’t have a purpose for that money.

One of our houses has a balloon payment again (commercial loan). That will come due in about 3.5 years. Considering what current interest rates are, it doesn’t appear that refinancing is as enticing as just paying off the balance or selling the house. We’ll have to keep that in mind as we work on investments and having enough liquid cash over the coming years, because that loan’s balance is going to be about $173k at the end of the 5 year term.

For now, we’re in a good money management state with several short term bills and a savings account rate over 4%.