Property 1 Turnover

Building off of my last post about tenant abandonment, here’s what it took to turn over that unit. We rarely have units to turn over in our portfolio. Last year we had 1. This year we expected to have 1, but this abandonment made it 2. To have continued renewals over 13 properties is a blessing.

Usually, we need to clean and paint. Every once in a while, we have more work to do, but it’s rarely a massive undertaking. This one was a massive undertaking.

Our property manager walked through the house and saw that junk was left behind and it was filthy. There should be another word worse than filthy. I’m always surprised at how much damage someone can do to a place they have to eat and sleep in for two years.

This is a 3-story townhouse. The entry level is the garage and a den-type room; then there is a flight of stairs to the main living area of a kitchen, dining area, powder room, and living room; finally, there’s a flight of stairs to two nearly-identical bedrooms, each with their own bathroom. The two masters concept and a garage are benefits, but the two flights of stairs is a downside.

TURNOVER ACTIONS

The property manager had her maintenance staff remove everything left behind. I thought she was going to hire something like Junk Luggers, so I was pleased to see that this cost us less by her using in-house staff. They wiped down the baseboards, but didn’t clean. I was under the impression that it was going to be cleaned before I got there. I was also under the impression that the carpets were going to be cleaned on the 25th.

I was working weekends at the time, so I couldn’t get to the house until the 27th. I didn’t find the need to rush down there because I thought my property manager had action happening. Plus, I’m pregnant, so I didn’t want to be in someone else’s filth for extended periods of time, and I expected it cleaned up before I was scooting along the floors and in tight spaces. Well, I walked in and was so upset. The carpet was disgusting. It looked like someone made lines in the carpet with the steamer tool, but didn’t actually clean anything. Not a single thing was actually cleaned. The kitchen and bathrooms were horrendous. I’ll spare you pictures of what the bathrooms looked like. You can see “steamer” lines in the carpet, as someone had been there, but there was zero effort put into actually cleaning the stains.

I called the property manager, and she agreed to come meet me at the house. She agreed that the carpet cleaning was unacceptable, and I wouldn’t be charged for that. She explained that her guy didn’t have time to clean the place except for wiping baseboards, and they had decided to clean it once at the end. I said that would be fine if the house wasn’t this bad, but there should have been an initial cleaning. She showed me pictures, and even though the baseboards were gross, they had actually been wiped down because they had been even worse.

The property manager called her typically cleaner, and he agreed to get there the next morning. I showed up the next morning to find he was still there working. He said the house was in much worse condition than he was told, and they’d have to leave to go to another job and come back to this house. I wasn’t surprised, but I was very happy to see that everything was cleaned, and that I wasn’t completed grossed out by being there.

DECISION MAKING FOR TURNOVER WORK

There are costs that you just have to deal with in the turnover – junk removal, cleaning, carpet cleaning. Then there are costs that you don’t expect to be on your radar, but are necessary – replace broken floor vents, replace missing outlet covers. Then there are decisions that require more thought. For instance, we haven’t enjoyed this property in our portfolio, and we’re considering selling it. We’d like to recoup some of the costs we’re having to put into it now, but selling it is on our radar for the future. So do we want to clean the carpet, or start replacing the carpet with hard surface flooring to increase our property value for a future sale?

We recently received an updated assessment for our taxes on this property. I happened to look up their comps given. We bought this house for $86k. I noticed that the houses with no updates to it were selling around $110k, while houses with nicer flooring and fixtures were selling up to $130k. My goal was to start preparing for a sale in the future, and we’d have a few steps done instead of having to redo the entire house in a year or so.

The biggest actions I took while looking into the future were:
1) I painted the main floor baseboards white. The baseboards, walls, trim, and doors were originally all painted the same color – an off-white or beige. Over time, we kept the trend going because it made it easier and quicker to turn over the house. While I didn’t paint all the baseboards white, I did it in the main living area and in the stairwells. I painted the interior doors of the main living area (main entry door at the top of the stairs, the laundry room door, and the powder room door) and all their trim white.
2) Repaint all the main walls. At the last turnover, Mr. ODA went into the house and touched up the walls. The paint had gone bad, so the touch ups were very noticeable. I painted everything except one bathroom, half the laundry room, the powder room, and the two bedroom closets. Every other wall surface (including two stairwells…gosh) got painted a gray.
3) We did get a carpet cleaning company to come out and rotovac, which is an incredible process that brings a carpet in rough condition almost completely back to new. It’s truly impressive. They also charged us $159 for this more intense process, while the original company that just made lines in the carpet was going to charge $244 for nothing.
4) Instead of cleaning the main living area carpet, I wanted to replace it with hard surface flooring. We’ve had this house, with the same carpet, since 2016. That’s 6 years of carpeting that has been beat up (understatement) by 3 different tenants. The carpet could even be older than that because it’s what we inherited when we purchased the property. I explained in a recent post all the reasons why we laid LVP and how we accomplished it ourselves.

COSTS OF TURNOVER

I had to supply my property manager with specific costs associated with the work I did, so here’s that, along with the charges they had on our account. Not all of this gets billed to the tenant. For example, the dishwasher and refrigerator were at its useful life and needed replacement, due to no fault of the tenant’s.

While it was hard to get started, seeing the mountain in front of me when I first walked into this house, I do appreciate having done most of the work myself. We spent over 28 hours at the house. I did about half of that by myself. Mr. ODA and his dad helped get some progress on the painting one day, and then Mr. ODA and I worked together on the flooring.

We also have the months of lost rent that were unexpected. With notice, we could have listed and shown the house before the current tenant vacated. We were caught on our heels, and we lost 2 full months of rent. Unfortunately, we truly lost 18 days of progress in those 2 months because our property manager didn’t enter the house to confirm abandonment timely.

LIGHT AT THE END OF THE TUNNEL

We ended up listing the house on May 6th. They had several showings, but the layout is hard to get rented. One couple submitted an application on a Thursday. When our property manager reached out to them, they never responded. Our property manager had pushed to list the house at $1250. Once that couple ghosted us, I told her to lower it to $1200. Just as I was about to give up and have it lowered, she was able to get another application and a signed lease. Luckily, being that it was May 25th, these people wanted a June 1st rental. We increased our rent by $275/month and only lost 2 months of rent, which is mostly made up by the drastic increase in rental income.

Another silver lining is that we paid off this property’s mortgage multiple years ago. Therefore, we didn’t have the extra “bleeding” of money by having to make two mortgage payments without having the cashflow to offset it.

We don’t expect to see a dime from the old tenant of what we spent to turnover the unit. We didn’t have any issues with him while he lived there, and his abandonment and lack of communication was surprising. Someone who leaves like that, and leaves the house in such poor condition, isn’t going to put forth effort to pay a $3k bill he receives in the mail. It’s in the hands of our property manager at this point and will likely move to collections. We’re just happy to have new renters in the unit and have this one behind us.

Tenant Abandonment

Most lease agreements state that you’re responsible for the entirety of the lease term, even if you try to leave early. Most landlords are willing to work out an agreement if you have a reason to leave the house early. We’ve let several people out of their leases early to either move out of the area or buy a new home (those are just the reasons we’ve dealt with, not saying those are the only reasons we’d let you out of a lease).

We usually default to two-months worth of rent as a “lease break fee.” You leaving early has increased our projected expenses for the house because turning over a house is expensive and you’re asking us to have more time without rental income. With that said, we’ve also left it at “you pay rent up until we get a new tenant in the house.” I’ve never taken more than a week to get a new tenant set up in a house, but my property managers (through companies, not the individual person we use in Virginia) consistently take 2 months to get a unit rented (I don’t get it!).

Then there are some people who just leave. No notice. No request. They abandon the property and stop communicating. Surprisingly, we’ve dealt with this twice in the last 6 years.

The positive, they’re mostly out of the house, and we can take action to get it re-rented, which is better than them living in the house while not paying rent. The negative, we’ve had no warning of their intent to stop paying rent. Plus, if a tenant is willing to just walk away from a house, s/he may not be leaving it in pristine condition.

ABANDONMENT #1

The first tenant abandonment ended well. In Virginia, if the house is abandoned for 7 days, it automatically returns to the landlord’s possession without the court getting involved.

I received a call from the public school system. They asked me if I was the owner and if so-and-so was living at this address. I truly could not answer. My property manager did the background check and set up the lease. I basically look at the lease to ensure the dates are correct and that all the initials and signatures are in place, but I certainly don’t commit names to memory. I gave the person my property manager’s contact. Connecting the dots, she must have confirmed the name of the tenant and the address because the tenant received notice that his children were no longer allowed to attend a school they were not districted for. This happened years ago. I always thought it was odd that they called in April to verify such a thing, when there was 4-5 weeks of school left. But then I was just telling this story last night, and someone said that if the kids are not causing trouble, they typically look the other way. So perhaps there was an underlying reason for the school system to go digging.

Well anyway, in true logical decision making, he blamed us for getting his kids kicked out of school. If I didn’t know his name, I certainly didn’t know how many kids he had or where he was sending them.

He let us know he was moving out, but he wasn’t cooperative. He said he’d be out by a certain date in May 2017, but he didn’t have everything cleared out. We finally got stern with him. By the end of May, he hadn’t paid what he agreed to, so we filed with the court.

We worked to get the house turned over in the last week of May, and we had new tenants move in on June 1st. We were only out 1 month worth of rent along with the costs of turnover. His security deposit covered a majority of the balance owed, so it wasn’t an immediate hit to our finances.

The court granted us the judgement. The total he owed was $1,074.76. Unfortunately, the judgement just writes the amount owed and whether interest is owed, but it doesn’t give a deadline for payment. The system expects the two parties to work together to make a payment plan. If he doesn’t live up to the payment plan, then we can go to the court and file for another judgement. We received $200 immediately from him, and then agreed to $200 every other Friday for the remaining $875.

He missed the second payment. We sent an email explaining that if he doesn’t reach out, our property manager will go to the court to file, which will then lead to a credit report hit and collections. He eventually started making a few payments, but I should have stuck to my guns and required 4-5 payments. In mid-November, he still had a balance owed of $685, plus 6% interest from the date on the judgement. We eventually got all the money he owed, but it took a year, and it was frustrating to constantly have to track him down and push him to finish the payment plan.

ABANDONMENT #2

The second abandonment just happened. In March, our property manager was tipped off by a neighbor that our tenant was moving out. Our property manager asked if he was moving out, and he denied it. Then he didn’t pay April’s rent, so she continued to follow up, but received no responses. I am not clear why it took until April 12 to decide to post notice to enter the property, and then why she didn’t actually enter the property until April 18, but that’s what happened. That’s 18 days of lost rent and lost productivity for us to turnover the unit. That’s $555 worth of rent that is just lost. We could have been working on cleaning out the house during that time.

Our property manager entered the unit and took pictures. She found that the tenant had left some furniture and garbage behind, but it was clear enough that he left and wasn’t returning. The house was also in bad shape. All the walls required a new coat of paint. The floors were filthy, as if things were spilled all over, never cleaned up, never vacuumed, and he left all the windows open for water to leak in. The kitchen was covered in fruit fly type bugs. The bathrooms were so horrendous that I refused to even be in the house until they got cleaned. It was impressively dirty. I always wonder how people live in such conditions. This is YOUR toilet. Why would you enter this room and think “yes, this is where I want to sit!”

The property management company had their staff remove the pieces of furniture and garbage from the house. Then they wiped down baseboards so that I could start painting. It was so bad when I entered that I had them get a professional cleaner in there before I’d spend much time there. I painted all 3 levels (including two stairwells), except for 1 bathroom and 3 closets. Then we got carpet cleaners in there and some maintenance items taken care of.

It was an extra 3 weeks worth of work that we did ourselves and coordination with contractors to get the house turned over. We lost April’s rent, and then we were set up to lose May’s rent. We didn’t get the house listed until May 6th, and then we didn’t get a confirmed renter until May 25th, for them to start a June 1st lease.

The silver linings here are that we improved the condition of the property over those 3 weeks; we could have lost even more weeks of rent, but we were lucky to find someone that wanted it nearly immediately; we have the unit rented $275 more per month than we had it leased for. Had we kept it rented through the end of the lease, we would have brought in about the same amount for the year that we’re bringing in now with the increase in rent, even though we lose 2 months worth of rent.

The tenant’s final cost, being billed for April, May, and June rent (I don’t know why the management company chose to include June), is $3,868.12. That’s after applying his security deposit to the balance owed. We probably won’t see a dime of that. If a tenant is willing to lie that they’re moving out, and then not respond to anything being sent after that, they’re not willing to work with us on a payment plan. We didn’t have any maintenance issues with the house, and we didn’t think he was unhappy with anything. Granted, I don’t know if our property manager was not responding to issues, but we weren’t aware of any. This house is in Kentucky, so we don’t have a grasp on how the court system works like we do in Virginia.


While it’s stressful and frustrating, eventually you move on. Once the house is re-rented, you start to feel better about the situation. Each day that you’re working on the house and each day there’s no application received for the property, you just keep building anxiety. While the first situation ended well in that we eventually received all our lost money, I don’t expect this second abandonment to end as well. Our long term (or more like 1-2 year short term) plan is to sell this property, so we’ll recoup that in the equity made over the last 6+ years with the house.

Jumping on the I Bond Wagon

What are I bonds?

Series I savings bonds are a type of bond offered by the US Government, with the intention of hedging against inflation. They provide the purchaser a return that is commensurate with the rate of inflation during the life of the loan. The caveat – this rate adjusts every six months. Between the months of May 2022 and October 2022, these bonds will pay an annualized interest rate of 9.62%. Guaranteed. Depending on what inflation does by October, that rate may go up or down, but as long as you purchase the loan before Halloween, you can enjoy that rate for the first 6 months of ownership. This is because the rate only changes every 6 months and the interest accrued compounds semi-annually.

Some Rules

I bonds must be held for 1 year. Therefore, you need to be sure that money can be made illiquid for that amount of time. Think of it like a Certification of Deposit, or CD, you can buy from a bank; however, in today’s numbers, an I bond has a FAR higher rate of return. If you need to liquidate the I bond before 5 years, you must forfeit the final 3 months of interest from when you sell/cash it (e.g., if you hold it for 18 months, you earn interest for only 15 months). After 5 years, there is no penalty. The bond will earn interest at the prevailing semi-annual rate for 30 years if you don’t cash it out, and after that it wont earn anything. The rate will never go below zero, even if the inflation rate (Consumer Price Index for all Urban Consumers) does go negative, although is can be 0%.

There’s a minimum purchase amount, which is $25 for electronic purchasing and $50 for paper purchasing. Then there’s a $10,000 individual, annual (calendar year) limit for owning bonds each year for each individual, which covers receiving or giving them as gifts as well. Example, I can buy $20,000 in a year if I’m giving a relative $10,000 of them, but that relative then cannot buy any because they now own that $10,000 I gave them. There is not a limit per household, so spouses can double up.

I bond earnings are subject to federal income tax, but not state.

Calculate the Rate

The I bonds have a fixed rate and a variable inflation interest rate.

The fixed rate is stays the same through the life of the bond. The fixed rate is set each May1st and November 1st, and it applies to all bonds issued in the six months following the date the rate is set. The current rate is 0%.

The variable interest rate is based on the inflation rate. It is calculated twice a year and is based on the Consumer Price Index.

These two rates are then put into a formula to get the “composite rate.” Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]. This means that currently, it’s [0.0000 + (2 x 0.0481) + (0.0000 x 0.0481)], which equals 9.62%.

Interest is compounded semi-annually.

How to Purchase

Series I bonds are bought through TreasuryDirect.gov after creating an account. This helps ensure legitimacy and provides simplicity for the purchase and ownership of the bonds.

You pay the face value of the bond. For example, you pay $50 for a $50 bond, and then the bond increases in value as it earns interest. For electronic purchases, you can buy any denomination, to the penny, between $25 and $10,000.

You can buy paper Series I bonds if you don’t want to set up an online account or make online purchases. When you file your tax return, include IRS Form 8888. Complete Part 2 to tell the IRS you want to use part (or all) of your refund to purchase paper I bonds. Purchase amounts must be in $50 multiples and you can choose to have any remaining funds delivered to you either by direct deposit or by check. There’s a limit of $5,000 worth of paper bonds. More information can be found on the Treasury Direct website.

I Bonds for Me

A guaranteed return of 9.62% for the first 6 months of ownership is quite enticing. High Yield Savings Accounts and bank-issued CDs are still hovering in the 1-2% interest range, and the most recent year over year inflation report announced for April 2022 was at 8.3%. Given COVID-19 numbers trending upward again, American and global supply chains still struggling, and the effects of trillions of dollars of extra money entering the American economy as bailout for the American public taking a long time to stabilize, I figured the consumer price index numbers that I bond rates are based off wouldn’t be dropping quickly anytime soon.

My logic. Again, a guaranteed return near 10% is phenomenal, even if possibly short term and variable. “Best” case scenario – the rate stays high and the interest keeps compounding for many semi-annual cycles. Granted, this also means that the inflation rate stays high and that isn’t something I’d prefer for my total financial outlook. But Series I bonds are hedges for the effects of inflation. So at least I’m “keeping up” in this section of my portfolio.

The most likely/medium case scenario – control over inflation happens in the next year or two and the rate drops several percentage points, such that it’s a real decision whether to keep a guaranteed return of 4-5% or to cash out the bonds and put that money into other investments. This would also mean that I’d lose 3 months’ worth of that 4-5% interest if this decision happens sooner than the 5 years.

“Worst” case scenario – for THESE bonds at least. Inflation stops and the interest rate on these bonds plummet. I cash out the bond in a year or two and I lose 3 months of interest. But let’s face it, the reason I’m quick to cash out is because the interest rate is low anyway. So I’m not losing much! And then, that also means that the rest of the American economy and my portfolio have been stabilized and things look a little more predictable.

When forecasting any of these three scenarios, I saw a fairly win-win-win situation, so I pulled the trigger on a major purchase of these bonds with some of the discretionary cash Mrs. ODA and I were sitting on as we navigate the craziness in our life right now.

HELOC

HOME EQUITY LINE OF CREDIT or HELOC

A HELOC is a line of credit secured by the equity in your home. This is different from a loan or mortgage.

What is equity? It’s the appraised value of your home that is not mortgaged. You may have put 20% down when you bought the house, and now you’re looking to tap into that equity along with the principal of the mortgage you’ve paid down. Or perhaps your home value has increased drastically, and you want to utilize the equity.

What is a line of credit? It is a revolving account of credit. This means that when you close on a HELOC, you don’t get a check cut for that amount right then. You need to “draw” on the account, as needed, which is essentially writing checks from that account to either yourself or another entity. As you make principal payments, the amount of principal becomes available again for a future draw, as long as you’re within the draw period of the line of credit.

Do you have to disclose the purpose of the HELOC? There are no parameters on what you can use the money for when you draw it from the HELOC. You may want to pay off a credit card that has a higher interest rate, do home improvements, do other construction projects, medical bills, etc. While you’d want to utilize this for larger purchases, you can draw smaller amounts as long as you draw the minimum required by your terms (e.g., no less than $100). You earn interest from day 1, so this isn’t more beneficial than a credit card that gives you a short-term “loan” for your statement period (you don’t pay interest on a credit card balance that is paid off by the due date).

TYPICAL TERMS

The application process is similar to applying for a mortgage. A bank wants to see your credit report, along with some backup documentation (e.g., tax returns, account statements). We also had to update our homeowners insurance to show the HELOC as a mortgagee.

A HELOC will typically only cover a portion of the equity in your home, depending on the bank’s terms. If your appraisal value is $400,000, and your mortgage balance is $250,000, then the equity in your home is $150,000. While there may be instances where a bank would approve a HELOC for the full amount of $150,000, most are going to approve 80% or 85% of that amount.

There are no closing costs associated with the HELOC. Typically, the bank processing the HELOC will cover the costs associated with the line of credit initiation up front. However, they will require those fees to be paid back to them if the HELOC is closed within a certain period of time (usually 36 months). For our first HELOC, when we closed it within the 36 months, we paid back a prorated amount of the fees (e.g., if the fees were $300, and we closed it after a year, we owed $200). For our current HELOC, if we close it within the 36 months, we’re required to pay back 100% of the fees they covered, not the prorated amount.

A HELOC has a variable interest rate, which may adjust monthly or quarterly based on the lender’s terms. A variable interest rate can adjust up or down. But this is something to be aware of because it’s not like a loan or mortgage that has a fixed rate made known up front. The rate, in our case, is set at the index rate with a margin. However, there’s a floor to the bank’s rate. What does this look like? The index rate is 3.50%. The margin is -1.00%. However, the bank’s floor is 3.00%. Therefore, even though 3.5-1=2.5, the minimum interest rate they’ll lend at is 3.00%. Therefore, our current rate is 3.00%.

There is a “draw period,” which means you can only take funds from the line of credit for a certain period of time (e.g., 10 years). When you do draw from the line of credit, you’re charged interest on the principal balance. During the draw period, you must make the minimum required monthly payments on the account, which is typically the monthly accumulated interest owed, but some banks may require principal payments during this period also. When the draw period is over, it enacts the principal repayment period, meaning you have a certain amount of time (e.g., 10 more years) to repay the principal balance of the HELOC. There is no charge for the HELOC existing though; it can be there and never drawn on.

OUR PROCESS

The most recent HELOC we closed on had a different process than the first. We expressed our interest, and since they already had our documentation on hand from a commercial loan, they didn’t ask for supporting documentation (e.g., account statements). However, for some strange reason, she said she couldn’t use the credit report from our commercial loan, and she had to pull our credit again. At the time we were applying for another mortgage, so the hit on our credit counted as “mortgage shopping,” so we gave up the fight and let it happen.

This company would have given us 100% of the equity available in our home. However, two weeks after initiating the HELOC process, we told them we needed a pre qualification letter for an offer we made on another personal residence. They then told us that since we’re on record as wanting to sell our home, they would only approve 80% of the equity.

The loan officer asked for two references for each of us. There was no information given on what this personal reference had to know about us. We both handed over our people, but they were never contacted, so we won’t know the purpose.

Finally, they asked for our homeowners insurance to show them as a mortgagee on our policy, which I was able to do with one quick phone call to that office.

Typically, the process will include an appraisal. This bank had a valuation system that they used. Based on this woman’s inputs into the system (which were all wrong), she said that she could approve us for $100,000 without paying for a full appraisal. We don’t need more than that, so that was sufficient to us.

We closed the HELOC a month after expressing interest. Our process may have been slower than the typical period it would take because we were fighting the credit pull for a while (not to mention the company we were working with is notoriously slow at responding to inquiries). Mr. ODA expressed our interest in pursuing the HELOC on April 12th. We were cleared to close as of May 11th, but we chose to close on that following Friday. We went to a local bank branch, and a relationship banker went through the documents with us as we signed them.

WHY THE HELOC FOR US?

My general plan was that we’d have a HELOC initiated, so that when we found a new personal residence, we could use the HELOC for the down payment of that house without having to sell our current house first. In the past, we’ve sold our home, went into temporary housing, and then moved into a new home. Granted, all our past home purchases were in a completely different locale than where we were living, but I really didn’t want to manage storage of goods or go into temporary housing with two kids and a dog again.

We initiated the conversation on the HELOC without having any intent to move yet. Not to go into too much detail on this topic, but we need to be residents of this house for two years to avoid paying capital gains. Our 2-year mark isn’t until November, so we weren’t in a rush to move before then. A home with the same floor plan around the block from us sold for $190k more than what we bought this house for less than two years ago, so we expect there to be a hefty chunk going to capital gains if we don’t meet the two year requirement.

I was keeping an eye on the market, but clearly had no plans to move. To me, a regular check on Zillow lets me know what I can get for my money. However, there are some things related to our current personal residence that are concerning, and we had decided that this wouldn’t be a long term location for us. With the market right now, I knew we’d either be paying a higher mortgage than I ever anticipated in life, or I’d be compromising on my wish list. Well, a house that met a lot of our wish list popped up in the area we liked for less than $500k, so we jumped on it. The house needs work, so even though we’ll close on it over the summer, we aren’t in a rush to move into a construction zone.

Once we close on the new house with funds from the HELOC, we’ll start accruing and paying interest on the balance. We’re not required to make principal payments until after the draw period, which is 10 years. When we eventually sell our current home, the proceeds from the sale will pay off the HELOC seamlessly through the closing process.

May Financial Update

This has been a whirlwind of a month. Our crashing investment accounts have been offset by home values, so we’re still over $3 million net worth. But those investments are very low; it’s the first time I’ve seen a negative in my 12-month performance history for my ‘401k.’

HELOC

A couple of months ago, we were standing outside playing with the kids when a neighbor walked by and introduced themselves. Being that we easily have $150k worth of equity in our house, we started talking about how we should open a Home Equity Line of Credit to be able to float a future purchase. The process was initiated, but not really started, when we made an offer on another house to be our personal residence. More to come on that. But we close on the HELOC today at $100k, which was the maximum she could do as an “administrative authorization” (for lack of a better term, and to pull on my government background), which essentially just meant no appraisal cost.

NEW HOME PURCHASE

We’re about 3 weeks in being under contract on a new house. We’ve submitted all our files to an online bank that we’re using as our loan, and we’ve locked our rate at 4.0% on a 5 ARM. Closing is expected to be 6/15. We’ll need about $75k or 80k out of the HELOC for closing on that.

We found out that our appraisal that was ordered for this house got cancelled. A quick inquiry to our lender and we found out that they decided our credit profile doesn’t need one! They’re going to refund us what we already paid, which was a pleasant surprise.

PART TIME WORK

I worked the weekends in April at the local racetrack. It’s good money and only required 8 days of me actually working. This meet’s experience was slightly different, and I didn’t enjoy it as much as the Fall meet, but I made more than I did in during that meet.

RENTAL UPDATES

We had a tenant abandon a property on April 1st, so that was a lost month of rent that we weren’t expecting. Our finances aren’t in a position that we need that money. It also helps that we don’t have a mortgage on the property. But we still put over $2,000 into the house (including two appliances) and a week’s worth of our time in turning it over since it was left in poor condition. We’ve been fighting Home Depot on getting a dishwasher delivered and installed, and that still isn’t resolved.

We had our usual suspects not pay rent on time. One did manage to pay in full (not the late fee though) by the 7th. The other I finally told that paying on the last Friday of every month is no longer acceptable, and it needs to change. She sent a nice email back, but we still haven’t seen a dime from them this month.

We had one rent increase go into effect; it went from $1025 to $1100. That also increases our property management cost by $7.50 going forward.

We had an insurance company drop us by not renewing us since they found out we moved out of state. We told them we have a property manager, so there is someone available taking care of the houses, but they didn’t care. Luckily, not all insurance companies have such a requirement, and our agent was able to find someone with nearly the same price that accepted a property manager.

We have officially paid off one of the loans that we had with our partner. We had intended to pay the loan off this month, on our terms. Instead, because the balance was about $400, the loan company took it upon themselves to use our escrow and close the account. We were purposely waiting until after escrow paid the taxes due this month, and now we need to scramble and figure out the tax payment.

NET WORTH

SUMMARY

We now commence a very busy time of life. We have several trips planned, we expect to turnover a rental that we’re kindly asking a tenant to vacate, and we have a lot of work we want to do on our new personal residence. Hopefully the turnover of the one house goes smoothly, we get the house that was abandoned in April re-rented, and that there are no more surprises in our rental world. We also had our AC go out in our 18 month old house, so here’s to hoping there are no more surprises in the personal expense world too.

Laying LVP

We had a tenant abandon a property, and he left it a mess. There was some furniture and garbage left behind. I’d love to know what tenants do that destroys the walls in less than two years. I’d say the dog never went outside based on the carpet stains, but there was a giant pile of grocery bags fulled with poop outside the back door. We hired a carpet cleaner that was available the fastest, and that was a mistake. They basically just came and put lines in the carpet. I was not happy. Not only was their effort the absolute minimum of the task on hand, we had asked for it to be “rotovacced,” and it clearly wasn’t.

Recently, we received an updated assessment from the county, which included the comps they used. We bought the house for about 86k. The comps range from 110k to 130k. The comps at the high end had no carpet and upgraded fixtures. The low end had all original things. Looking to resale value, I wanted to lay Luxury Vinyl Planks (LVP) in the living area instead of replacing the carpet. Since we were nearly a month into unexpected lost revenue, the goal was just to address the main living area that would catch your eye.

WHAT IS LVP?

LVP is vinyl flooring made up of planks instead of being one sheet. It’s a floating floor, which means you don’t glue it or nail it down to the subfloor (e.g., plywood). The boards “click” together. When you get the connection right, the board lays flat on the subfloor.

Ironically, it was hitting the market around 2015/2016, and I declined it in the house we were building. I didn’t realize that it was going to be the “go to” flooring by 2020, and that it would be in our new construction house we bought then.

INSTALLATION TIPS

First, we had to remove the tack strips and staples from the subfloor after the carpet was removed. The floor needs to be mostly level. There was one spot where two pieces of plywood were not level, and it did cause issues with keeping the pieces connected.

Start in a left-most corner of the room, on the longest wall. Our living room is nearly square (13×13.5). The deciding factor on which way to lay the floor was to eliminate cuts against a schluter edge where there’s tile in the kitchen and dining room. When you enter the house, you walk up a flight of stairs, and you see the tile edge right away. Since this was our first time installing flooring, we wanted that edge to look good. The best way to do that was to not put any cut edges against it, but to lay the planks parallel to it.

Stagger the boards and create a random pattern. You don’t want to see a pattern in the flooring (e.g., don’t lay a full board, then a half board, then a full board, to start the rows). You also want to open 3-5 boxes at a time and mix up the boards. Different boxes may have different variations in the coloring, and you don’t want a splotch of a lighter shade of flooring in one section, so it’s best to mix up the boxes.

You’ll have waste. When you plug quantities into Home Depot or Lowes, they typically ask if you want to add 10% for waste. We calculated needing 9-10 boxes, and we opened 12, with 3 full boards left. There was a mishap with one of the boxes, but that probably lost us 4-5 planks, so I think we still would have opened 12 boxes.

Lay the short edge together first. The second board lays under the connection of the first board that’s already on the floor. When you connect the long edge to the board above it, just wiggle it until it lays down flat and you see no seam. Sometimes you need to use a tapping block to get it to fit together better, but when you get the right connection, it’ll literally just fall in place.

To cut a piece to fit at the end of a row, use a utility blade along a straight edge. When you go to snap the board, hold the straight edge in place. Both Mr. ODA and I tried snapping a board without the straight edge, and the board snapped in a different place.

When needing to cut the entire length fo the board, use a circular saw or table saw. It won’t be easy to score and snap because of having less leverage. To cut small areas within a board, such as floor vents, you can use a jig saw. Cutting the board with the circular saw makes a gigantic mess. Think of it like packing material that just explodes on you. However, there is a benefit that it’s not the clingy type of material, and it does sweep up easily.

At the end of each row, cut the board about a quarter inch too short. You’ll need to fit a tool into the crevice to pull it into place. I had been cutting it to fit under the baseboards, but then you can’t get the boards connected. At the end, you add shoe molding or quarter round to cover the cuts.

COST & TIME

The flooring, shoe molding, threshold to cover the carpet to floor transition, and an installation kit cost us about $700. We picked LVP because it comes with a cork type material attached to the back of each plank, and it doesn’t require underlayment.

We picked the LVP instead of getting new carpeting because of resale and because of the cost and time associated with carpet installation. At Home Depot, if you pick in stock carpet, it’s not subject to the free install. If you spend $499 otherwise, you get free installation. We would pick a carpet that is about $1/sf, so we wouldn’t get to the $499 price for free installation.

We arrived at the property at 10:30 am. We had to remove the tack strips and staples. Mr. ODA removed all the tack strips, and I started on the staples. When I got an area clean, he started laying the planks while I kept working on the staples and sweeping. At 2 pm, I will still working on staple removal, and he took a break for a work meeting. I took over laying the boards. We finished laying the floor, installing the quarter round, and caulking the seam between the baseboard and quarter round at 6:10 pm.

There was a big learning curve on how to get the boards to click together most effectively. We could have probably eliminated an hour of work where we were trying to figure things out rather than laying the floor. I also had a big speed bump trying to get the piece at the bottom of the stairs in place (a lot of cuts and having to figure out leveling the board since it couldn’t be butted up against the bottom of the step, which wasn’t level), which was probably a 25 minute delay. With that said, my back was killing me. It’s probably a project that’s better suited to be split over multiple days as a newbie, rather than powering through 8 hours of work.

I asked Mr. ODA if he would do it again (as we both complained about how much our bodies hurt), and he said yes! We just wouldn’t be in such a rush to finish one room in one day in the future, even if it was only about 200 sf.

The Mentality from an MLM

These days, you’re probably not immune to being asked to join or buy from a multi-level-marketing (MLM) business. Also known as network marketing, it a way for companies to sell their product through individuals who market product(s) to their sphere of influence. It gets a bad reputation with “pyramid scheme” and the like, but it’s legitimate and makes sense if you take the time to step back and learn about it instead of repeating the rhetoric you’ve heard from your parents.

Our experience with an MLM led to being open to buying rental properties, which eventually led to me quitting my job and being happy outside of a career. Here’s what I learned by keeping an open mind to an MLM, even though we make $0 from that business today.

This is my experience with our time in an MLM. Mr. ODA would probably have something different to say. 🙂

AMWAY

BACKGROUND

By now, you may have seen the documentary on LulaRoe. Our experience was with Amway, and it was different from how LulaRoe operates. Now, Amway is the black sheep of the MLM world if you go just based on name. They’re one of the original MLMs. But they sell good products in the health, beauty, and home cleaning genres. As a “consultant,” you’re called an “independent business owner” or IBO. I thought the best part was that there’s no inventory you need to hold. If you want to do “parties,” then you need products on hand. However, it’s much different than how LulaRoe would have hundreds of leggings on hand and makes direct sales out of their on-hand inventory. To earn money, you can recruit more business owners, or you can have customers who just order directly from the Amway website each month. You make money off of what your customers buy, as well as the income that your IBOs below you generate.

TEAM SUPPORT

There are multiple “teams” associated with Amway. It’s the education arm of the business. Our team met once a week, and you were expected to be there if you really wanted to be in-the-know and considered serious about growing. They helped you structure your business to take advantages of bonuses offered by Amway, and they taught a lot about having the right mentality. Their goal was to foster personal and business growth, provide mentoring and coaching, and provide the tools to grow your business through conferences and seminars.

This is where we got our start. I know it’s hard to believe, but we both were exposed to a lot of growth through this team. The things we learned through the meetings and books we read during these couple of years gave us the courage to make the big decisions we did, getting us to currently having 13 rental properties.

THE CASHFLOW QUADRANT

Our introduction to the business was started by being given Rich Dad, Poor Dad by Robert Kiyosaki. The book references an earlier book of his, the Cashflow Quadrant. Each quadrant has its strengths and weaknesses.
– The upper left corner of the quadrant is for those who have Employee mentality. This is someone who is trading time for money. You work an hour and earn $20. If you’re not working, you’re not earning. You’re making money in someone else’s system, and there are people over you who are making more than you (e.g., a supervisor is making more than a secretary).
– The upper right corner is for Business Owners. You own a system that works for you. You have passive income in this quadrant. You may have an employee that is generating income that you earn.
– The lower left corner is for Self-employed people. Here you’re still trading time for money, but you have control over how much you earn based on how much effort and time you put in. This is a risky area because you don’t have security and may not have an established system to rely on and project your income.
– The lower right corner is for Investing. Your money makes money for you. This can also be risky because you’re not guaranteed positive returns on your investments. If you want to make a lot of money, you need to take on more risk.

The point here, according to the team we were on, was that you want to be a business owner. You want to generate passive income so that you’re not trading time for dollars. While someone else is selling to a new customer, you’re earning a percentage of that sale while not doing anything. As you grow your Amway business, you have more and more people generating income through these sales, which you get a percentage of. The kicker is that you need to hit a certain level within your own business before you earn. We set up recurring purchases to use the products we were selling, and had customers set up with recurring orders, so that we could hit that threshold to be eligible for the passive income.

OUR MOVE FROM MLM TO REAL ESTATE

The biggest hurdle to our success was the price of the products. We aren’t someone who values a better quality to be able to justify the higher price. There are people out there that value this, but it’s not our passion. A peanut butter meal bar comes to $3.14 per bar as a customer order (as an IBO, you get the product at cost, which would be $2.82 per bar). The peanut butter granola bars we buy are $0.50 per bar. Clearly, this isn’t a marginal difference in our expenses. The products were good, but not good enough for our finances to take such a hit. I tried to focus on the beauty side of the business and held parties where I recommend products and let women try it. I had passion behind it, but I wasn’t someone who washed my face regularly and put lotion on. I could see the benefits, but I wasn’t practicing what I preached, and I lost my drive.

The next hurdle was location. Our original meeting was with our specific team within the larger team (based on your “pin level,” you had a meeting with the people who were your “downline.”). We moved down to Richmond, and our closest meeting was Fredericksburg. It wasn’t insurmountable, but it was a 40 minute drive there and back once a week. The larger team would all come together in DC every quarter for a conference. We felt like time started moving faster, and we weren’t close enough to make these our friends between conferences, and so we stopped attending the big conferences. Then we stopped attending the weekly meetings. Then we cancelled our team membership. We still maintain our Amway IBO number, since it’s just $62 per year to do that.

The thought process that we learned from their weekly teachings and reading books we probably wouldn’t have read otherwise led to our desire to generate passive income. Mr. ODA had already been interested in the concept, and then when we were talking about venturing down that path with our Realtor selling our Northern Virginia home, he really got the urge to pursue it.

When we sold our Northern Virginia home, we had about $120,000 in our bank account. About $70k of that went to the downpayment and closing costs of our new house. The remaining went to finding a rental property… or two.

REAL ESTATE, PASSIVE INCOME, AND NO JOB

Real estate is in the business quadrant, but it’s not completely passive income. Truly, the Amway business wasn’t completely passive because you still needed to have the sales (either through your purchases or customer purchases) to be eligible to earn all the passive income available to you in the business. Most months with real estate, I take the rent money, pay out our mortgages, and that’s it. Sometimes I need to make some phone calls to contractors. However, we have to do very little to maintain our business of investment properties. We can also decide that we don’t want to field the phone calls and hand off the rest our properties to a property manager for 10% of rent. If we don’t have a new property or a property to turn over, then we probably put about 100 hours per year into managing the houses.

We knew we didn’t want to be in the employee mentality for the rest of our lives. Funny, because my goal when I was in college was to work for a “big 4” accounting firm and spend 80s hour per week at work. Then I started working for the government, and my goal was to be CFO in my 30s. Then I got to the headquarters office in my late 20s and hated the environment, so I decided I wanted to be no more than a state office’s financial manager. Then we had kids, and I decided I wanted to be home with them to see all the little moments. Things sure did evolve.

I believe that the time we spent with our Amway team changed my heart. I believe that time was important for me to see a different lifestyle and a different mentality. I don’t know that I would have seen the benefits of pushing ourselves to buy more rental properties had I not seen a lifestyle of entertainment.

I started to realize it would be nice to spend time with my family while the kids were little. Who wants to wait until retirement to spend time at home, when your kids are grown and moved out of your house? Why not spend the quality time in their early years? Let’s travel more and experience more in life. Let’s have more time with the kids than the hellish hours of 5 pm to bed time.

Our cash flow each month is about $7k, just based on the rental properties. That doesn’t include expenses that come up, and every once in a while we get hit with a major system that needs replacement, but most of the charges are a couple of hundred dollars here and there. Some days, I wish I could still do what I loved to do in the transportation world, but I don’t miss the office politics and the moderately strict work schedule.

I’m happy for all the experiences that have led me to this point in life. Perhaps you can read Rich Dad, Poor Dad or Cashflow Quadrant and learn a little bit more about all the options out there. Perhaps you just didn’t know that there are opportunities out there where you’re not trading time for money, or where you’re not cushioning the pockets of an executive while you make a certain salary. Perhaps you just needed your eyes opened to the chance to make your money work for you. Or, perhaps you’ll learn that you like the stability of being an employee, and you don’t want to change. But I urge you to take a look at the options and see what works best for you, now that you’re away that there are options.

Prepping a New House

I put more effort into this house than I usually do between the time that we bought it and the time that we got it rented. The house was almost double what we’ve bought any other house for, and I wanted to be sure we could get the rent we wanted for it. Looking back, I probably didn’t need to make it as good as I did, and it’s definitely not perfect. If I were listing it for sale, I should have painted baseboards and taken doors off hinges and sprayed them instead of cleaning them.

In the past, I’ve had to paint a room or two. We may have needed to replace an appliance. But typically, we’re buying houses that have recently been flipped at 50% effort and are good enough for a renter. Two houses have been in poor shape that needed more TLC. One we had to replace the carpet, clean heavily, and paint nearly everything. Another house needed an easy wipe down, but required everything to be painted, down to the trim. And truly, had the owner paid a few thousand to get the place painted, they probably could have gotten 10k more on the house (but the owner didn’t even pay their electric bill, so that’s not surprising).

NEW HOUSE

The house we just purchased wasn’t prepped for sale. It was an off-market deal. We came to an agreement that they wouldn’t need to come back to town to clean, refinish a floor that the dogs ruined, or paint. As such, we got at least 10k off the price. They were going to list at $250k, and probably would have gotten competitive offers and going higher than list, and we got it for a net $240k. I then put 14 hours of effort into the house.

The owners had a bedroom dedicated to the dogs. They didn’t do significant damage, but they did enough. The closet doors needed to be repainted, the baseboards and windowsills needed to be sanded, cleaned, and repainted. The floor was damaged and we thought needed to be refinished. The walls were covered in slobber, dirt, and scuffs. That was the worst room of the house. The kitchen was covered in grossness, and I put a lot of elbow grease into that. I was going to hire a cleaner, but the bathrooms ended up not being so dirty, so I figured I could glove-up and get it done.

PAINT

The whole house needed to be painted. I picked my battles and painted all of the 2100 sf except for the kitchen (which is covered by cabinets and I didn’t want to cut into all that or move the fridge), one bedroom that had the least amount of scuffed walls, and the upstairs bathroom. I chose painting over cleaning the walls because I didn’t see the benefit of cleaning. I would have eliminated some dog slobber and a few scuffs, but it wouldn’t have gotten the two years worth of dirt and rubbing and splatter of whatever off the walls. So I kept a rag with me and wiped the dust off where I could see it, but I just painted over everything else because I thought that would be the most efficient use of my time.

I repainted the closet doors in the dog bedroom. In the hallway, I repainted the attic door and the floor molding. Most of the other floor molding needed to be wiped down, and in some rooms, I painted the wall paint along the top of the molding instead of getting the white paint out or cleaning it. All of the closets needed to be painted, but I wasn’t going to put that effort in just for it to likely get scuffed again.

REFINISHING THE FLOOR

Mr. ODA handled this and did awesome. We thought the floor needed refinishing in this one bedroom. We researched how to do it and everything. Then my mom mentioned “Rejuvenate” floor product. Mr. ODA looked at the floor and concluded it was the top coat that was roughed up, and that the stain and coloring was still there. He saw such a difference, that he actually used it on the rest of the hardwood flooring! It’s not perfect, but it was the most bang for our buck in the process to address something that definitely needed to be addressed.

CLEANING

I was going to hire a cleaner, but I ended up needing a break from the hand position of holding a brush one day. I started using some degreaser to get through the dirt. The kitchen was disgusting. It’s one thing to leave some debris behind because you didn’t do a final clean as you got out the door, but this was two years of food splatter caked onto the cabinets and backsplash. The refrigerator had been cleaned, but the freezer still had food and left over explosion remnants.

I’ve never cleaned an oven. I may have wiped a couple of things out after the initial mess got made, but have never had a dirty enough oven to need to really clean it. This was horrendous. I put 45 minutes worth of effort into. It’s not perfect, but it’s good enough. In the first picture, I had already cleaned two layers off the door and scrubbed half the bottom of the oven. Then the second picture is where I left it. I’m sad I didn’t get a true before picture to show just how awful it was. The right side of the first picture is actually the dirt that was in there and not the cleaner yet.

The bathrooms were pretty clean and just needed a wipe down. I swept the whole house and mopped the floors. I cleaned multiple windows because they were bad enough that I didn’t even want to look at them anymore.

YARD WORK

I don’t know if the people who flipped the house in 2019 didn’t fix up the yard, or if this mess was really just 2 years worth. The driveway was covered in mud and leaves. I swept it all up to be sure that there wasn’t any broken glass (there was glass in the yard) and to give the new people a fresh start of clean. I didn’t take a before picture, but you can tell where there had been piles of ick sitting in this picture. I filled the yard waste container with everything that was built up on the long driveway.

Before I could mow the yard, I had to pick up a lot of twigs that had dropped. There were a few big branches that I need to come back to, but I filled the fire pit with all the twigs that I got out of my way. The grass in the backyard is in good shape, and I was able to get it looking good with the mower. The front yard is lacking on grass. I laid some seed and hoped for the best, but hopefully it will be in good shape one day.

RANDOMS

The front bedroom light wouldn’t turn on. I went to replace the light bulb, and it’s all one unit, as in you can’t get to the light bulb! We had replaced some flush mount lights with fans in the kids’ bedrooms here, so I brought one of the lights to the house. Turns out, mounting brackets aren’t all created equal, and I couldn’t install the new/old light fixture. I bought a new light to install and got that done on my first attempt.

I had to wipe down the shiplap wall that goes down into the basement. It’s a pretty feature, but it was covered in more yuck. A few trim pieces weren’t painted well by the people who flipped the house, but I didn’t want to break out my different color white paint and fix it. Hopefully it’s small enough of an issue that you don’t notice too much. If it were me living there, it would drive me crazy.

The pantry had two shelves that were stained by cans. Instead of cleaning it or trying to repaint it white (over caked on debris with white paint that always requires 3 coats), I put contact paper over them. Is it necessary? No. Does it give a little extra step to make your tenants appreciate the house and want to take care of it? Yes.

The kitchen flip wasn’t done perfectly, and the caulking was cracked everywhere. I recaulked everything along the backsplash in the kitchen. Then I also caulked the bathroom tub, which really made a difference in making a clean, fresh look. There were a few pieces of shoe molding that came apart from the baseboard, so I caulked a few of those areas too.

SUMMARY

We spent under $300 and 14 hours worth of time. Two of those hours were spent showing the house to about 10 prospective tenants during an open house. The house looked in good shape when I handed it over to the new tenants. I’m hoping that they’ll love it like a home and take good care of it, since they saw the effort I put into it. It was definitely worth putting that effort in to save the 10k+ on the cost and to avoid anymore bidding wars in today’s crazy market.

April Financial Update

The market has recovered a good bit, so our net worth jumped. Our retirement accounts were at an intriguing low, but they’re back on track now. We also saw a few sales in the neighborhoods where our rentals are, so that increased our net worth based on the comps. We added a new property over the course of the last month as well.

NEW HOUSE IN OUR PORTFOLIO

We closed on a new house on March 24th. We worked on it for a few days, I held an open house, and we were able to get it rented as of April 8th. We had 16 days of vacancy. While showing it, most people were looking for a May or June start date, so we were lucky someone qualified for an April date. Back in 2016-2019, we were looking to follow the “1% Rule.” That means that if you buy a house for $100,000, your goal is to set rent at least $1,000 per month. This house isn’t even close. This market doesn’t allow for such a goal anymore because housing prices are soaring. The next goal would be to list for about $1/square foot. This house is 2100 square feet, but since the upstairs has smallish rooms and the basement is all open, we thought it wasn’t really worth pushing for $1/sf.

We bought it for $240k net, and ended up renting it at $1750. I wanted $1800, Mr. ODA wanted $1695, and when I went to list it, Zillow suggested $1750, so we went with that. Multiple people commented on how they appreciated the price, so we may have been able to get $1800 without an issue. I’m happy to have it rented, and I think these people are going to take good care of the house.

RENTALS

We put more money towards the house that we’ve been paying off, which is owned with a partner. We put our half towards it ($8,500), and it has a balance of about $600 now. The pay off quote required us to pay the anticipated taxes that will be paid out of escrow in May. We didn’t appreciate that, so we just went ahead and paid it down. We’ll let the May mortgage payment go through, wait for the taxes to get paid out of escrow in mid-May, and then pay it off. That’ll make 7 houses that are owned outright! But that also means I need to stay on top of insurance and tax payments.

We were just informed that one of our properties in Lexington that’s under a property manager hasn’t paid rent. She said it’s unlike them and that they aren’t even responding. She’s going to go to the house tomorrow to check on the situation. Since we’re paid a month after rent is received, this hasn’t affected us. A neighbor reported that they were moving out last month, but the tenant denied it. Perhaps they abandoned the property.

Once again, our two usual suspects didn’t pay rent on time. However, both of them actually made a better effort than they have been. One has paid this month’s rent in full, but has a balance of $286.31 (seriously…) to make up several late fees. I’m happy to waive late fees when it’s someone who communicates and isn’t always a fight to collect rent, but I’m holding this one to the balance owed. Another one told me that they wouldn’t pay until the last Friday of the month. I drafted an email to tell them that this is unacceptable because it’s been several months that they’re paying this late, and we need to work towards getting back to paying rent at the beginning of the month. Right after I drafted that, she sent half of this month’s rent. Better than nothing!

SPENDING CHANGES

Over the past month, we didn’t go out to restaurants very much. We haven’t been traveling because my family came into town for our daughter’s birthday party, and then I’ve been working on the weekend. Most of our spending went to gas (going back and forth to Lexington (half hour drive) multiple times per week!) and expenses to get the new house ready for a tenant.

I’m flying to my sister’s baby shower next month, so that another large and unusual expense on our credit cards ($250).

SUMMARY

We still have our state taxes to get paid. We went through the process of entering all our taxes, but we haven’t hit submit just yet. Surprisingly, we’re expecting a refund from the Federal side. The amount owed and the refund basically end up as a wash.

Our new property’s loan is a commercial loan, so it doesn’t get paid on the typical mortgage schedule, but on the 1 month anniversary of the opening. Therefore, the next payment is due on 4/24, and there’s no “1 month without a payment” type thing.

Clearly, our cash balance dropped significantly since last month because we had the closing. That was about $46k that we wired out, which was the expectation when we completed all the maneuvering with the cash out refinances in January. Our credit cards reflect our lower spending too, coming in about half what the balances were last month.

Filing Taxes

We filed our taxes. It just takes so long, but it’s easy. This year I recorded what I did and how long it took, so I wanted to share.

I’ve shared that I record transactions all year long. Inevitably, a few things slip through a crack. So I go through everything I have on file to make sure I can support a charge I’ve recorded (e.g., receipt) and that I haven’t missed entering something in my spreadsheet (e.g., I have a receipt for work, but didn’t put it in my spreadsheet).

DC TAXES

Mr. ODA works for a DC office, but lives in KY. The paperwork information got crossed, and he ended up paying taxes to DC for a little while. Apparently DC is used to this mistake. There’s a form he filled out, attached a copy of his W2, and mailed it to DC. He received a full refund within a couple of weeks! I couldn’t believe the timing of it and how it easy it was!

STEP 1

My first step was to load all my mortgage documents for the houses that we still have mortgages on. I need to know the mortgage interest for the year and what they paid out in taxes from escrow. For some reason, it never tells me the insurance payments made on the tax document, so I need to go through my email or look at the line-by-line escrow to see when and how much was paid for insurance. I estimate the mortgage interest each year, but I don’t have the final amount until January.

STEP 2

Then I go through my email files. I try to get most of my receipts via email (e.g., Home Depot and Lowes are good about tying your credit card to your email address so I keep everything filed electronically). This took me just over 3 hours. I went through each email receipt to see if I had it recorded properly. I found 2 or 3 transactions that I had receipts for, but they weren’t recorded in my spreadsheet. I also found out that I didn’t record any of my final December transactions (i.e., stormwater utility bills and property management).

STEP 3

After I go through everything I can electronically, I move on to my paper files. We have a lot of our insurance through State Farm, and they don’t email me receipts for payment, nor can I look up previous payments made on their website. So I keep a paper copy of all the insurance documents for each house. We had a huge debacle with two of our KY houses and insurance last Fall, so I had to make sure I had all of that recorded accurately. I used to rely on the paper stormwater utility bills that I pay directly, but this year I just went into our checking account and verified the amounts that I paid against what I recorded. Since most of my transactions are kept electronically (especially with having property managers, so they’re sending me the bills they receive electronically), the paper checking was only about an hour this year. It used to be longer, but I’ve streamlined my electronic filing so mostly everything is in there.

STEP 4

After just over four hours of “prep” work, we move on to the tax software.

Mr. ODA entered our W2 information, we both pulled up all our investment account statements, and then we got into the investment properties. It’s tedious, and each year we have to remember how we matched our terminology to the system’s terminology (why can’t I keep better notes on this?!). We got into a groove and knocked out half the properties in about 80 minutes before taking a break. We focused on the 3 properties that we received one 1099-MISC for first, which involved going back and forth on some screens. Then we knocked out some of the easier houses. The next night, we finished off the rest of the houses in about an hour.

We usually call it complete at that time, but we don’t submit right away. We take a few days to see if we think of something we may have missed (whether investment property or personal finance), and then we submit. We usually owe Federal and State tax every year, so we’re never in a rush to get this done and pay. Somehow, we get a refund for Federal this year, but we still owe the State.

SUMMARY

About 6.5 hours of tax work, after being pretty on top of it all year. People ask us why we don’t use someone to do it instead of putting all that time in. It’s not that easy. If we had to send our information to an accountant, we still would have to gather all our receipts and send them over. I think it’s easier to look at my receipt and record it, rather than gather all my emails and send them to an accountant (not to mention Gmail is not a great mail system in this regard because you can’t easily add emails to new emails). Then we have to field all their questions regarding the documentation that I send, which will inevitably be frustrating to me. It’s all around cheaper and easier to do it this way.