Well, Mr. ODA didn’t like that I shared I didn’t know where our money was last month. They’re all kinds of Treasury accounts, and I’n just logging the transactions and leaving him to it. 🙂 I don’t have a lot of bandwidth these days, but I’m learning to juggle 3 kids and our finances.
PERSONAL FINANCES
We bought a new van this month. We’ve been wanting a new one for a while now. We bought our 2017 Pacifica in September 2020. It was a great deal, and it was a necessity as we were about to spend 7 weeks “homeless” and AirBnB/couch hoping. The car had some defects. We decided we’d keep an eye out for a newer version. Suddenly, Mr. ODA found a good deal on a 2020 Pacifica that had more options than we were actually looking for. We drove to Ohio about 36 hours later. They made us a good deal for our trade-in, and we went home with a new van! We put some of the purchase on two credit cards and then the balance with a personal check.
We’re currently paying close attention to credit card deadlines and our savings account. Where I used to pay a credit card bill almost after the statement closed so that it wasn’t hanging out there and I wouldn’t accidentally miss a deadline, I’m now leaving money in our savings account as long as possible. Our savings account is now earning 4% on the balance, so we’re seeing a significant amount of interest each month. I’m juggling managing our bills as close to their due date as possible, while also projecting future bills necessary since there’s a limit of 6 transfers out of the savings account per month.
All that was to point out that our credit card balances are high right now because of the van purchase, but the credit card statement hasn’t closed yet. Instead of paying the credit card balances down right now, the money is sitting in savings earning interest for 4-6 weeks between the purchase, to the statement closing, to the statement’s due date. More directly, we put $3,000 on one credit card for the van purchase. That was on 2/7. That statement, once it closes, will not have a due date until 4/20. That means that the money put on the credit card can sit in savings earning interest for about 70 days.
We also had to pay the initial payment for the restoration services on the rental that had a burst pipe. So while the insurance company sent us a check to cover the cost of this work, it’s still $17k sitting on our credit card, not being paid until the last minute. I should also note that our cash balance is inflated by about $50k because it’s the money from the insurance company that we’re waiting to pay the contractor as milestones are completed.
Had I seemed nonchalant about the plan? Because I’m definitely not. 🙂 I need to stay on top of how many transfers happen per month out of the savings account (while Mr. ODA randomly pulls money for investments), and not miss any deadlines and cost us interest charges or late payment marks on our credit. It’s stressful! Since we’re not doing anything that requires our credit to be pulled right now, it’s fine. If we were having our credit checked, having multiple cards nearly maxed out would be a problem. But we know we have the cash available to pay off all the credit cards if we needed to.
RENTAL FINANCES
I finally got through to someone on the issue with the improperly installed water heater. He says he submitted all the paperwork to send us a check for $200 to cover the plumber we paid to fix their issue. I haven’t seen any paperwork, nor have I received the check, but I’ll keep it on my radar and follow up in a couple of weeks.
I made all the decisions on the restoration of our flooded house. We’re expecting to hear a timeline for work to start next week, and then it’ll take about 40 working days to get the work done.
I paid a warranty for termites on another house. We had an infestation when we purchased the house, but we didn’t pay the warranty information. Our tenants found swarmers, and when we called to ask about treatment, they said they’d let us backpay the warranty and invoke that. We have a good relationship with this company and appreciated that offer, so we’re staying on top of the warranty payments now. The payment is $98 per year.
We received a surprise in the mail – the tenant had turned off the electric in the flooded house back on January 12th. The power company is supposed to notify me. I received an email on February 6th notifying me of an action on the account. So this was in my name from 1/12 to 2/1 for me to be billed $255 without my knowledge. Not to mention, there’s a bill hanging out there from 2/2 until the present that I’ll also get billed for. Mr. ODA sent our property management excerpts from the lease indicating that the utilities must be in their name for the entirety of the lease, that they’re responsible for this bill, and that they must get it back in their name immediately. We’ll see how that plays out.
RENTAL WORK
I picked up the keys from our property manager for the 3 houses I took over managing. I also worked on a rental here in town this week, which took about an hour including travel time, and I have another to work on later this week, which will be about 2 hours worth of work.
I sent a prospective tenant the pre-application we have, which he passed, so I sent him the application to submit. If all goes well, we’ll have that house re-rented with no vacancy period.
We have 3 leases that end at the end of April. We put a requirement that tenants give us 60 days notice, or that we give 60 days notice of any changes. That means that these leases need acknowledgement by the end of this month. So I ran the analysis on those 3 houses. We decided to increase the rent on 2 of them by $50 per month, each, and we’ll keep another house the same since it was increased last year. One house actually had an increase last year, but that house is well below market value, so we’re offering them to continue the lease with an increase because if they were to move out, we could get even more from the house based on it’s size and demographics. The 2 houses we’re increasing have a property manager, so she’s responsible for notification and signing an addendum before the end of the month. But once again, I need to manage the property manager and ensure we have action on time.
Life is different these days. Our 3rd child was born on Thanksgiving, and we’ve been finishing up some projects around the house. We’ve had a few things happen with rentals, and, basically, I’m just tapped out to keep up with blogging. Mr. ODA asked me what our net worth is at these days, and so I’m updating our spreadsheet.
“JANUARY”
It’s January, so that means I have to create my two main Excel workbooks for the year: the paycheck to paycheck monitoring of our expected income and expenses, and the management of each rental property. The paycheck to paycheck spreadsheet is where I have a line item for each house’s rental income each month, each house’s mortgage payment (where applicable), and then all our bills owed (credit cards, utilities, investments). I break this down by paycheck because that’s the easiest way for me to make sure I have enough income to offset the bills owed during that two-week period. That worksheet in that workbook feeds my net worth calculations, where I also update loan balances. There is actually several tabs in this workbook, but those are the main two. I finally got that all set up today. I haven’t even started creating the investment property workbook.
January also means I have to go through last year’s investment property workbook to verify all the expenses listed are supported by receipts, that all receipts I have are recorded, and that my income is accurate. Then I read off the data to Mr. ODA, who enters it into an online tax portal to file our taxes. I haven’t started that daunting task either.
RENTALS
We had one of our properties flooded by a burst pipe. That’s a mess and is hardly making progress because the tenant’s renters insurance can’t get the tenant property out of the house. We had an electrical issue with a hot water heater in another property. That got fixed, but now I am in a position where I have to fight Home Depot about their shoddy installation a year ago and have them reimburse the cost of rewiring. I finally moved forward with the judgement against a tenant for destruction of property, and our attorney established that collections account.
Surprisingly, we didn’t have any issues with rent payments in December or January. Usually I hear from one or two houses that they need a couple of weeks to pay all of rent. While not everyone was on time, they communicated well and were only a few days late. One tenant reached out and asked if they could pay rent on the 6th (since that’s Friday, and pay day); I told them not to worry about the late fee and that would be fine. Little gestures like that can make a big difference for your tenant’s life.
I sent a letter to our property manager for the KY houses that we’re releasing them at the end of this month, so that’s a new development that is taking my time as well. You’d think my property management company would have a way to communicate this change with the tenants, but alas, that would be too logical. Wish me luck while I add 3 more houses under my own purview. While we moved to KY two years ago, it was easier to maintain status quo with having a property manager. Unfortunately, it has taken too much of my effort to manage the property manager and to fight for our money.
PERSONAL
We finished our master bathroom in the home we bought over the summer (and the room we gutted immediately… only took 6 months to get us to the finish line… and by finish line, there’s still paint touch ups to be had). We bought all the supplies to gut and renovate the basement bathroom in this house. Mr. ODA built a bench for our kitchen table so that we have more seating easier. We made the plans to get the mudroom bench and shelves in, and hopefully those supplies will be bought this weekend.
Truthfully, while I updated most of my net worth spreadsheet in December, I never posted it because I don’t even know where all our money is. When we sold our personal residence at the beginning of November, we were handed a large check. In the past, that check type mostly went towards a downpayment on a new house, but that wasn’t the case this time. Mr. ODA immediately started investing that money in short term treasury accounts that I can’t even begin to explain. Between that account, another savings type account, and our regular investment account, I can update what I see online, but I don’t know what I may be missing. I’m hoping Mr. ODA will chime in soon to describe the type of investment decisions he’s made.
NET WORTH
Several property value assessments declined over the last couple of months. So while our investments are on the upswing from November’s update, those updates to property values have caused a decrease to our net worth.
Phew – 3rd month in a row of only a financial update. My apologies! Again, we’ve been juggling two houses, construction work on the new house, two toddlers, and my being pregnant (and exhausted).
At the beginning of the month, we closed on our old home. It wasn’t an easy process (as usual) with the title company, even down to having the wrong amount on the check at the closing table, but it all worked out. Being free of that burden has been lovely. We immediately cashed the check, but it’ll have to be a separate post for what we did (and are planning to do) with those proceeds.
RENTAL PROPERTIES
We had our court date on November 1st for the tenant that left a house with garbage and damage. She didn’t show (after providing us a fake address), so the judge ruled in our favor for the full judgement. She then has 10 days to appeal. We’re beyond that window, so I now reach out to her to establish a payment plan. If she doesn’t respond, then I file it with our attorney to proceed with garnishment.
We had a few small items to pay for with the rentals, but we have everyone’s rent that was due by now. I typically expect to see more late payments in December and January with the holidays.
NET WORTH
We’re still carrying a high balance on a 0% interest credit card. I did pay off a card that had a payment plan on it (it was free, and why not … except, I was tired of figuring out and managing new purchases versus the payment plan portion, so I just paid it all off once our proceeds came in; it was about $1100).
Our investments recovered in the market from last month, and we significantly increased the balance in our taxable accounts and cash due to investments from the proceeds of our sale.
Whew, we’ve been busy. Son turned 4. Lots of traveling. Kids started school. Managing two houses. Managing the rentals. Being 7 months pregnant.
We’ve been working on our old house to get a lot of the things moved to the new house, while keeping enough there to live. A slow move sounded great in concept, but dragging this out for 3 months now, with another 6-8 weeks to go probably, has been rough. We unload the car, put it in the new house dining room, and then I need to unpack all that and find it a home. Then we come with another dump of things right after I clear that out. It’s been exhausting. Meanwhile, I’ve been painting almost all of the new house, changing out light fixtures, changing out some electrical switches/outlets that were dated, etc. Mr. ODA has started working on the rebuild part of the bathroom renovation, so we happily have gotten all the electrical work that we wanted to do done (we need to hire an electrician to run a line for the dryer), and then got the shower framed. He’s also been working on the yard and landscaping, which is a big project because the original owner of the house put in a lot of landscaping, and then the people who owned the house for about a year before us didn’t maintain any of it.
We’re listing the house this week, and we’re hoping for a reasonable offer ASAP and a closing at the beginning of November. That closing will pay off our mortgage (~$265k) and our HELOC (~$82k).
RENTAL PROPERTIES
October brings a lot of rental bills. KY’s property taxes are due in October and November, and none of the houses we have here are escrowed, so I need to plan on about $6,500 outlay. Right now, we have a HELOC on our last primary residence, so I have that to fall back on. Typically, I project out 2 months of expenses, and I know how much I have “left over.” The “left over” usually is paid towards a mortgage or, currently, our HELOC balance; in the Fall, I plan to have that “left over” go towards the taxes. Luckily, our houses in Virginia that aren’t escrowed have the tax payments due half in December and half in June.
While our credit card balances are high (we’re carrying a large balance on one that’s 0% interest), we didn’t have a lot of expenses this past month. Mr. ODA’s work trip hotels and restaurants are on the credit cards that will get paid this week, and we’ve had higher gas expenses because of my driving to/from NY and then capitalizing on Kroger incentives so filled up one car. Other than that, we’ve only eaten at restaurants sporadically and have been focused on getting projects done, so haven’t gone out much.
This is the first month of the newly executed lease with a tenant who paid late every month. Their rent total increased for the convenience of paying twice a month (although the total owed now is still less than their rent and late fee they had been paying). They paid the first half on time, and they haven’t paid the second half, which if it’s not paid by the end of today will incur a late fee. Rent was $1450, so they were paying $1595 every month. Rent is now $750 twice a month. If they pay on time, it’s $1500 per month. If they pay half late, then it’s now $1575 per month.
I submitted the security deposit charges to the tenant that moved out. She asked a question about the charges on the list, but then didn’t acknowledge by the deadline. We need to have our property manager file the charges in court. Somehow it’s the 19th of the month, and we haven’t pursued that yet because we’ve been so busy.
Other than that, we didn’t have any service calls on any of the houses, and everyone else has paid their rent.
NET WORTH
We have a busy October planned. I hope we’ll finish the projects at the new house and be close to closing the chapter of our last house. Our investments have declined significantly (almost $91k!) from last month. Our cash is higher than usual because of the cycle timing for this update compared to the bill due dates. And finally, the credit cards are higher than usual, and they’re higher than last month, but that’s because we’re purposely carrying a balance on a 0% interest card. So while our overall net worth has decreased over $33k since last month, the stock market issues have been offset by paying down mortgages and increased property values.
Surprisingly, I didn’t cover all our houses in posts last year. I was going to say, “let’s finish this up,” but we’ve since purchased #14! This is a long post. I tried to separate the stories, but since they were part of the same purchase, it was too convoluted to decide which story went with which house.
We spent the summer of 2019 living in Lexington, KY. Mr. ODA took a temporary job for 3 months, and we spent our summer looking for more rental properties to try another market. The housing costs in central Kentucky were less than central Virginia, but the rental rates were also lower.
We drove around with our Realtor for quite some time. We were hoping to find a multi-door complex. However, 4-8 door units have just not been well taken care of. We take care of our houses, and I didn’t want to inherit all the deferred maintenance of a poor landlord. Many of the places had long-term tenants, so there wouldn’t be a vacancy to ease getting work done either. Additionally, there were several that we saw where the tenant was home, smoking and telling us all that was wrong with the property. It was abysmal.
So after searching through many other options, we settled on two houses at the same time.
FIRST OFFER
Mr. ODA actually made an offer on a house in Winchester that I hadn’t seen. It was a large house that had been converted into 2 units. Mr. ODA and our Realtor went after work one day, and it wasn’t worth me packing up the baby and driving a half hour to meet them for one house. However, I did get to see some of it because I took on the home inspection appointment. Since I had never walked through the house, it was easy for me to objectively see the information on the inspection and convince Mr. ODA to walk away. There was just too many big-ticket items (e.g., not enough head room for stairs, water damage not properly cleaned up in multiple rooms, several code violations) and deferred maintenance that it wasn’t worth us putting the money into it. The tenants were sitting on the porch smoking during the inspection, and I didn’t love the idea of inherited tenants that were allowed to smoke in the house.
SECOND OFFER
I can’t tell the history of these purchases without this gem of a story. Mr. ODA found a house that was in a decent shape in Winchester.
Aside: We focused on Winchester because while the rent income was low, the housing cost was also low. Whereas in Lexington, the rent was low, but the housing prices were higher.
We made an offer on the house. In the offer, it lists the seller’s name. It was a State Senator! When we sent over the offer, the seller’s agent agreed to our details, but asked for a pre-approval letter before he’d sign. The amount of weight the people in Kentucky put on a pre-approval letter is absurd, in my opinion. We went through the effort to get the letter and send it over. About that same time, the seller’s agent said someone else came in with a better offer, so we could either submit our highest and best offer, or lose the deal. The sketchiness of the action floored us.
The house had been on the market for a month. We had a verbal agreement (that had even been put in writing, but not yet signed). What are the odds that someone came in at the same time as us with an offer over asking for a house on the market a month? We called his bluff, and we were wrong.
THIRD AND FORTH OFFERS – UNDER CONTRACT
In August 2019, we went under contract on two houses in Winchester, KY.
Property12 had been owner occupied and flipped to sell. The owner had lived there long enough that she wouldn’t Docusign the contract, and we had to wait for her to initial, sign, and date all the pages by hand. The house had been listed for 36 days when we made the offer. It was listed at $115,000, and we went under contract at $112,000 with $2,000 in seller subsidy (closing costs) on 8/7. It’s a 3 bed, 2 bath ranch at 1120 sf.
We received the home inspection on 8/14. We asked for the items below to be addressed, or to take $1000 off the purchase price. They agreed to fix the issues.
Property13 had been listed for nearly 3 months before we made an offer. It had been most recently listed at $105,500. Our offer was for $102,000 with $2,000 seller subsidy. We also included the following requirement in the contract: Seller agrees to remediate the water and mold in the crawl space, fix the down spout next to the crawl space door so that it channels the water away from the home, replace the missing gutter on the front of the house, and repair the rotted facia and sheathing on the front of the house.
Additionally, we had a home inspection on the house and identified the following items for them to repair.
Getting the sellers to identify that these items were done before closing was not an easy task. We checked the day that closing was originally schedule for and noted that several things were not complete.
Then, at 7:30 pm the night before closing (which had already been delayed a week), we received one receipt identifying a couple of things were done. Eventually we received documentation that it was taken care of.
LOAN DETAILS
The options we typically ask for when considering the direction of our loan are as follows.
We chose the 25% down – 30 yr fixed option for both properties. Our goal is to not pay points, so that led us to the 25% down options. Since there was no incentive to take a shorter term (thereby increasing your monthly mortgage payments and decreasing your cash flow), we chose the 30 year option.
These loans were originated in September 2019. We processed multiple cash-out-refinances on some of our properties in December 2021; we used it to pay off about $66k on Property12 and about $74k on Property13.
LOAN PROCESSING & DELAYED CLOSING
We had a lender that we loved in Virginia. She couldn’t cover loans in Kentucky, but the company itself had a branch that could do it. She referred us to someone in Kentucky. It was the worst experience I’ve had in closings. Our closings are always annoyingly stressful in that last week, but this was bad throughout the month and then bad enough that our closing was delayed a week – completely due to the loan officer’s inability to manage the loan.
We had multiple issues over the course of the week we initiated our relationship just accessing the disclosures. They kept telling us to sign things we didn’t receive, or they’d tell us our access code and then when I say it doesn’t work, act like they never told us different information and give new information.
On August 16, I had to tell the loan officer that one of the addresses was wrong. THE ADDRESS. On August 26, we received conditional approval of our loan from underwriting. On August 27, we received our appraisal with no issues noted. But at that point, our August 30 closing was delayed a week already.
That’s where the problem was – our appraisal was ordered late, had to be rushed, and still didn’t make it in time for them to develop the Closing Disclosure (CD) and get us to a closing on August 30. The loan officer never once acknowledged that he ordered the appraisals late, causing this delay. It took asking for timelines from his supervisor, and piecing together emails we had on hand, to show that it was his fault.
On August 29, I finally made contact with the loan officer’s supervisor and was rerouted to someone else to get the job done. I had to repeat all of our issues and the errors that were found on the CDs.
On September 3, I was given disclosures that were still wrong. The new loan officer claimed that what she put in the system was correct, so she wasn’t sure what was wrong, causing me to once again outline all the errors.
On September 4, I was asked for more documentation that wasn’t caught during underwriting. I was furious.
On September 5, I gave up talking to our lender about issues on the CD and spoke directly to the Title Attorney’s office, who was much more knowledgable and responsive. Here’s an example of what I’m questioning when I look over a CD. Some of these seem small (e.g., $4 difference, $25 difference), but you can see how these add up, both on a single transaction and when we’re processing several homes in one year. Not to mention – why pay more for something than you were quoted or you’re supposed to?
Another surprise that came our way was a “Seller Agent Fee” for $149 per transaction. At no point in time was an additional fee disclosed to us by our Realtor. A typical transaction has 6% commission paid by the seller, which is traditionally split 3% and 3% for the buyer and seller representation. Being that these were Rentals #12 and 13, in addition to 2 personal residences we had purchased, imagine the surprise when we, as buyers, were being charged for representation. We questioned why this wasn’t disclosed to us up front as a Re/Max requirement, and it was taken off our CD.
CLOSING DAY
I had planned to leave town the Friday after the original closing date because that was the last date that we had our apartment. I didn’t want to move me and the baby into my in-laws house and continue the poor sleep we had been dealing with by not being at home. So even though closing was delayed, I left. Mr. ODA had to be my power of attorney. He had to sign his name, write a blurb, and then sign my name on ALL those papers that are part of a closing….. times two. Eek. I didn’t know that at the time (but baby went back to sleeping perfectly once we were home, so it was worth my sanity 🙂 ).
At 11:30 am on closing day, the lender claimed that the power of attorney documents (from the lawyer…) were not complete enough to be counted as filed on their end. I appreciated the snip from the attorney when questioned.
I always wondered why tv shows always showed both at the closing table with a ceremonious passing of the key. We’ve had our share of weird closings (in a closet, in a parking lot, at our dining room table), but we never sat at the table with the seller in Virginia. We were so confused about how specific the closing attorney was being about the closing time options, and then we found out that the seller and buyer are at the table together in Kentucky. The seller for Property12 was so rude to Mr. ODA through the transaction! She kept grilling him on whether he addressed the utilities. The seller shouldn’t be allowed to talk to the buyer! We’ve since been able to process 3 transactions in Kentucky and avoid the seller at the table, but I’d like to advocate that Kentucky move away from this buyer/seller meeting process!
RENTAL HISTORIES
Property12 was listed at $895 on 10/2. Based on my birds-eye-view of the area, I thought $1000 was going to be easy to rent it at. Based on the 1% Rule that we had followed in Virginia, we should have a goal of $1,100 per month. However, we were trying for a Fall lease, which is more difficult than a Spring lease, so I thought listing at $995 would get quick movement instead of letting it sit for too long. Our property manager disagreed. She also said we were limited our pool of candidates by not allowing smokers; but, the whole house is carpeted and I was not budging on that.
We found a tenant on October 16 and allowed her to move in right away, but not start paying rent until November 1 if she agreed to an 18 month lease (we really wanted to be on a Spring renewal going forward). That was an unfortunate blow to our expectations – nearly two whole months without rental income on a house we didn’t need to do any work to.
We increased rent to $950 as of 6/1/2022 after no previous increases.
Property13 was listed for rent at $995 with no movement. We dropped to $875 and offered free October rent for however long was remaining in the month. A lease was established on 10/18/2019. Our property manager was supposed to establish an 18 month lease and didn’t. Luckily, the tenant agreed to a 6 month extension.
Property13 renewal came in April 2022. She had balked about the state of our economy in 2021, and we backed off the proposed increase at that time. Well, all the jurisdictions finally jumped on the increased assessments, and we saw a drastic increase in our costs. We told her that the new offer for a year lease is $950, which is higher than we’d typically increase in one year ($75 instead of $50). But we told her that we were willing to let her walk if she didn’t agree to it since she originally negotiated a lower cost and argued an increase at the 18 month mark, which we let go. She tried to fight it, but our property manager told her to check the rental options in the area to see that she’s still getting a deal. She agreed to the increase.
MAINTENANCE HISTORIES
Property12 requires a new heat pump in June 2021. We paid $3900 for a whole new system, which is a funnily low number just a year later.
The tenant there complained of high water bills. I asked to see a history of the water bills to know how much was considered higher than their average usage. The property manager agreed that the toilet was running and causing higher bills, but also admitted that they attempted to fix the toilet twice over a 3 week period, with multiple days between receiving a maintenance request and taking action. While I agreed that we could compensate her for the issue, I couldn’t quite pinpoint why this was my financial burden and neither the tenant’s nor the property manager’s. I followed up with more information from the property manager with questions like: Why did it take the tenant from 9/20 until 10/11 to identify the issue still remained and that there was a waste of water? They indicated that they believe they made a good faith effort to address the issues as reported. I eventually settled on a $25 concession on one month’s rent.
Property13 had several issues with the hot water installation that were eventually resolved, which was frustrating after we tried to manage issues with the hot water heater through the home inspection process and received documentation as if it was complete. The tenant requested pest control in July 2020 claiming that a vacant house next door caused an increase in pests. I was frustrated because that’s not how it works. I approved treatment at that time, and then she came back with another request in October. Luckily, I haven’t heard about pests since then. In my Virginia leases, we’ll handle some pest control requests, but if there are roach issues once a tenant has been there for some time, we don’t typically pay for that type of treatment.
SUMMARY
All in all, these tenants have been pretty quiet. They ask for random maintenance things here and there, but they’re not usually big-ticket items (except that HVAC replacement!). Our property manager has been more difficult than the tenants.
Being that we were used to the 1% Rule when we purchased these houses, it’s unfortunate that even at 3 years in, we’re not renting it at 1% of our purchase prices. Our cash-on-cash isn’t completely accurate right now because I won’t see our taxes for this year for another month or two. Being that jurisdictions kept the tax amount steady through the pandemic, I’m expecting to see an increase in assessments for this year. I’ve also seen big increases in our home insurance policies, so that will probably eat into our cash flow as well. Our cash-on-cash analysis on Property12 is about 6.5%, and it’s about 7.5% on Property13. These numbers are only slightly lower than our expectation/desire, with our average being about 8%.
In the upcoming year, we’re going to look to get rid of our property manager, so these houses may begin needing more attention from us. It’s been hard to take on more when paying a property manager has been a sunk cost at this point. However, the frustration of managing their management (e.g., making sure charges are correct, not getting a full picture of what work is being done, and then paying them a significant amount of management money and leasing money only for them to claim that checking on the property requires additional fees) has led to us wanting to take it on since we’re in town now. The current lease terms are up in April and May, so if we’re going to take on management, it should be before the possibility of paying them half a month’s rent for leasing it (not to mention they’re notoriously 4-6 weeks out in every leasing attempt they’ve done for us, whereas I’ve never had an issue getting a property leased within a week).
We took a week-long vacation the first week of August. I haven’t taken an entire week trip in a very long time. The kids are young, and the daily activities of swimming at the pool and the beach were exhausting for them, but we had a great time. I had projected about $500 worth of food expenses for the week, but we only spent $250 (including a grocery shopping trip). Our daily schedule was dictated by children sleeping, so it was a lot of little meals or snacks at the condo rather than looking to take the time to sit down at a restaurant. It also helped that we paid about $3.45 for gas (which is still terrible, but it’s not $4.30!), so our gas costs for the 11-12 hour trip each way was $190. Our lodging costs were significantly more than we’d typically spend, so the reduced costs in other areas was welcomed.
We’re still working on the new house and haven’t moved. That’s starting to weigh on me. We won’t see much progress this month based on our activity schedules, but hopefully we’ll knock nearly everything off the list next month. Our expenses were high in June and July for the house, but now it’s just a matter of finishing the projects that we already bought materials for, so hopefully expenses will be low the rest of this month. Our HELOC balance increased because we used it to pay for our concrete replacement at the new house (tear out driveway, garbage pad, walkway and stoop to the house, and 3 sidewalk squares; then replace everything in kind except widen the driveway).
RENTAL PROPERTIES
We offered our tenant that has paid rent late 71% of the months we’ve owned the house a new option, and they accepted. They had been paying rent around the 15th and then the last Friday of every month. After several months of this, I spoke up that it was unacceptable. They started paying the first half by the 5th, but the second half was still coming the last week of the month. That means every month, they’re paying $1450 in rent and $145 in late fee. We offered them the ability to pay half at the beginning of the month and half by the 15th. Each payment has a 5 day grace period, and then the late fee is tied only to the payment not made. However, since this is an inconvenience to us, the rent increased to $1500. They could be saving $95 per month if they pay both payments on time. However, they could also be paying as much as $1650 per month now if they pay each payment late.
We got one house turned over and rented last month, and rent was paid timely this month. We also received credits from our KY property manager for costs they overcharged us on.
NET WORTH
We continue to hold high balances on credit cards because of 0% interest incentives. As I mentioned, you don’t typically see a personal mortgage line increase, but we drew almost $9k out of the HELOC to pay for concrete replacement at our new house. Our investments have increased in value over the last month, offsetting the additional draw on the HELOC and higher-than-average credit card balances, helping increase our net worth.
Welp, I haven’t posted in a month. We have been so busy and exhausted.
We bought a house on June 15. That process was not smooth in the week before closing, even through the day of. Our attorney had to come to our house the next day to have us sign other papers. Our lender was great, great, great, until they weren’t at the 11th hour. As always, everything went through, and we have ownership of the house. And that week will be a distant memory soon. But why does the mortgage industry get away with operating this way? I feel like there hasn’t been a single transaction we’ve done where there wasn’t a “where’s my paperwork????” or “why’s this wrong the day before closing???” moment (or my favorite, when we begged for the HUD-1 to review it before closing, and a traveling notary showed up at our house, only for the HUD-1 to be different than the closing disclosure and the numbers to be wrong on both documents).
We used our HELOC on our current house to pay the downpayment and closing costs on the new house, so that was a quick debt addition. We started with a balance of about 86k and have paid it down to 75k. We didn’t necessarily need to take the whole amount from the HELOC, but it was easier to get one cashiers check from the HELOC and immediately pay towards it than to transfer some from the HELOC and do a wire from our checking account.
This new house will be our personal residence, but it requires work. We’ve gutted the master bathroom, and I’ve been painting nearly all my free waking moments. I have the first floor mostly done (including making a ceiling go from navy to white.. ugh) and the kids’ bathroom done.
We opened two new credit cards in the last month, but I’ll get into that in the next post. Just note that our credit card balances are higher than our usual, and will remain that way.
We had opened a checking account for rewards a while back, and the account required $500 of direct deposits each month. It was one more account to manage, and it was no longer serving a purpose, so we finally closed that. Now we just manage two checking accounts.
RENTAL HOUSES
We have a vacant rental house as of June 30th, which I’ll also get into in a future post. The good news is that one of our houses that’s a repeat offender of not paying rent is now out of the picture. We still have one house that never pays on time, but I’ve at least got them paying half the rent by the 5th so that we aren’t constantly floating their mortgage and bills until the last Friday of every month.
We had two rental increases go into effect this month. One was for $20 (good tenants, long term, told us in advance they wanted to renew, but we also needed to cover our cost increases) and another was for $50.
Our property manager in KY hasn’t been easy. We’ve had to do a lot of managing the manager. All of our paperwork says not to charge the 10% fee on contractors. The document that they put in our file says it, and that’s the same document they put the charge on. I keep having to ask for all the documentation. Once I ask, they note the 10%, but it’s not until I ask.
We paid a plumber to fix a shower handle in one of our houses. On June 1st, she texted that it was loose. She didn’t really explain the situation, and I asked her to tighten the screw and let me know. She texted me on July 8th that it didn’t work. Where have you been for a month?! Then she said “let me know when the plumber is coming so I can wake my husband.” Um, you waited 5 weeks to tell me that it’s still broken, I’m not rushing a plumber out there today.
One of our insurance companies dropped us once they found out we don’t live within a certain radius of the houses. We have a property manager, so this rule doesn’t make sense to me. They let us finish out our policies, but they wouldn’t renew. Our agent quoted one company that doubled the cost we had been paying because the roof “may have been last replaced in 2000” (and we couldn’t prove otherwise). I said nope, and I asked another agent to give a quote. Their increased our cost by about $100, but it was better than $300. I executed that at the beginning of this month.
We had an HVAC go out, but luckily it was able to be fixed (for 225) than replaced.
NET WORTH
Well, even though our investments are declining and we took on a lot more debt, our net worth increased by 75k from last month. Truly, I’ve focused on the work we’ve had to do over the last month, and not necessarily on the spending or the market. At some point I’ll need to get through all our expenses and identify how our spending has changed, but perhaps that’s a job for another season while we continue to work on a new house and work towards moving our family in the coming months.
We ramped up our travel this month, which has actually led to us canceling a few trips that were planned for this next month. I went to visit my family for my sister’s baby shower, we went on a family trip for a long weekend, and then Mr. ODA was gone all week for work. We’ve done a few local activities, but several of our plans have been cancelled or postponed due to the current gas prices, which are about $4.75. Even Sam’s Club and Costco, which were holding strong in the low 4s, are both at $4.69 right now.
We’re working towards closing on a new house next Wednesday, so that’s been the stressor right now. We had a month and a half for closing, which is literally the longest we’ve ever had, and then yesterday I got asked for tax information. Seriously, what have you been doing for the last month since I signed off on the initial disclosures? We went with an online bank, so that’s been an extra factor in uncertainty through this process.
RENTALS
I served a notice of non-renewal to one of my tenants. Her lease ends on 6/30, and we want her out. It’s the first time in 6 years that we’re so fed up with a tenant that we actually said it’s time to leave. We’ve had issues with tenants in the past, but we’ve just increased their rent as a means of giving them the option to leave, or compensating us for our frustrations associated with them living there. She, of course, didn’t pay rent by the 5th. When I asked her where rent was, along with the balance of outstanding late fees and the current late fee, she said she was trying to secure a place to live, so she wouldn’t be able to “pay towards that” until the 17th. Pay your rent timely OR communicate a need for more time without the landlord having to hunt you down. That will keep a roof over your head so you don’t have to move when you don’t want to, and it’ll also put you in a position where your current landlord can actually provide a referral at a new place.
My other usual suspect, who I told needed to start getting their act together and pay rent before the last Friday of every month, paid half of rent on the 3rd and sent an email saying we won’t get the rest until the last Friday of the month. Progress, I guess.
We had a massive issue with our property manager in Kentucky. The accountant felt he had a little too much power and ran with it. Mr. ODA went to meet with them, where the accountant had to admit his mistake in charging us $900 in front of the owner. As a means of making amends, the owner credited us the management fee they took out of our security deposit. While I understand their thought process that our contract says “10% of income,” and a security deposit gets counted as income for tax purposes, I disagree with them taking a commission out of it. If that’s the case, our security deposits under them should be 10% higher than a month’s worth of rent. A security deposit’s purpose is to reimburse us for our costs to fix a unit that has been unreasonable mangled by a tenant before their departure. In this case, we have $4000 worth of costs. The security deposit was $895. Them taking $89.50 was insult to injury in this case, especially after they took 18 days before taking any action to confirm the place was abandoned. Moving on.
That house that was abandoned ended up getting rented for June 1st. We’re netting about $250 more per month with the higher rent there.
One of our mortgages was going to be paid off in May, which I mentioned last month. I scrambled to find out how to pay the taxes, which wasn’t easy (it’s a different jurisdiction than most of our houses… being in the county instead of the city). I finally got that figured out and paid the taxes at the beginning of the month.
PERSONAL FINANCES
This month we actually had a few “receivables” to expect. We learned that our lender wasn’t requiring an appraisal (we don’t get it), so they were going to refund us the appraisal fee of $525. We had a major issue with Home Depot and getting an appliance delivered, which ended with us going to the store, buying the appliance, putting it in our car, and driving it to the rental. We had to wait for the terrible delivery company to “scan” the not-delivered appliance back into their warehouse, and then we got $600 back. When I registered my kids for preschool, the system glitched and charged an extra $100, so we got that back. I had already registered my oldest at the same school as this year before we learned we’d be moving, and they were kind enough to return my registration fees, so that was $300.
All that to say, stay on top of your finances. Know what you owe so that you know when you’re overcharged. When someone says you’re owed a refund, pay attention that you receive it; we had to follow up on the refund, and it turned out she hadn’t processed it. Don’t be afraid to ask if there’s an option for a refund in some cases. Just those transactions are $1525 worth of money back in our pockets in a month’s time.
SUMMARY
We have work on a rental that’s still outstanding. I don’t expect her to actually be out on June 30th at 5 pm like she’s been instructed. I have our property manager handling the move out (even though she doesn’t manage that property). This way, if she’s not out on the 30th, I haven’t driven 8 hours to find out I can’t do any work on the property.
We plan on doing a lot of work on our new house after close next week. That’ll take up a lot of our free time over the next few months.
The stock market has somewhat rebounded. It’s not back to levels it was once at, but it’s nice to see balances go up instead of down. Our credit cards are down significantly because I am purposely keeping a low balance right before we close on a house (down by paying it off, not down by not spending…). Our funds for closing are coming from our HELOC, so it hasn’t been a stressor to keep a cash balance to go towards our cash-to-close.
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.
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.
One Dollar Allowance 