We’re continuing our spring/summer of travel and activity, which is why there are fewer posts and lots more spending.
The stock market has increased, which has been the main factor in our net worth change. We paid $2,000 towards the mortgage we’re paying down, leaving a balance of $3,300. This mortgage will be paid off once all our rent is collected for July; it was pushed back a little bit because of the flooring replacement that occurred in one of our rentals, which is why our credit card balance is much lower than last month. We’re also still waiting for half of one property’s rent, which is the norm these days.
Utilities: $250. This includes internet, cell phones, water, sewer, trash, electric, and investment property sewer charges that are billed to the owner and not the tenant.
Groceries: $518
Gas: $268
Restaurants: $165. Our credit card reimburses for many of these expenses; we received credits totaling $120.13 in the last month.
Entertainment/Medical: $1,093
Investment: $1,100
Insurance Costs (personal and rentals): $845
VIGILANCE ON CREDIT CARD REWARDS
Mr. ODA discovered that our PNC credit card rewards balance was decreasing, despite earning new rewards this cycle. He investigated further and noticed that we had been losing rewards for a few months now. PNC has a policy that they don’t issue their rewards until you hit $100 worth of rewards. Once we hit $100, PNC sends us a check in the mail. Since they send a check, we still receive paper statements, even though we regularly check our financial accounts online. Over the past few months, both of us checked the balance to see “ok, we’re nearing $100,” but didn’t put any more effort into knowing the details of the balance. Mr. ODA happened to notice that the statement didn’t make sense.
$89+3 somehow equals $82. There isn’t a single section on our statement or via our online account that identifies the loss of rewards Mr. ODA called PNC to ask for more details and learned that our rewards expire after 2 years, despite their policy of not issuing a check until you hit $100. They basically said, it doesn’t matter that your account is over 10 years old, or that credit has been used less in the last year due to the pandemic, or that they don’t clearly identify the expiration of rewards and just identify a lower balance. As a comparison, and I keep going back to Chase, but Chase changed up their reward categories to allow the consumer to earn more rewards during the pandemic (e.g., in addition to giving rewards in the travel category, since consumers weren’t traveling, they added grocery and home improvement stores as major reward categories).
The PNC customer service representative reinstated 60 days worth of lost rewards and issued a statement credit. We don’t want a statement credit because we no longer want to use this credit card, earning rewards that we’ll never be able to capture. If we use this credit card to use up the statement credit, that’s rewards that could be earned on a different credit card. Now Mr. ODA is fighting for the credit to be applied to our checking account or to have a check sent to us (which is the preference on our profile) and fighting for the reinstatement of the rest of the rewards lost.
Without PNC, we’re down to 4 credit cards in our regular rotation. We have 3 cards that we use for categories (gas, grocery, restaurants, travel, home improvement stores), and then we have the Citi Double Cash card that is for “everyday purchases.”
This is a good one. This is the one we use when people say “how can you handle all those properties,” and I respond, “if we survived this one tenant, we know we can handle whatever gets thrown at us.” Hoarding, mice, court dates, eviction. But its not always like that. The sun shone down on us for the current tenant though, who signed a two year lease and take care of the house (like, even power washed it on their own accord). The stories below show that you need a thick skin and a smooth temperament to be a landlord. Treat this as a business.
LOAN
This house was purchased ‘as-is,’ but we still had a home inspection contingency in the contract. It was listed at $139,500; we purchased for $137,500 with $2,500 in seller subsidy. We went under contract on 8/14/2017 and closed on 9/22/2017. The appraisal came in at $141,000, so we were content with our decision.
We refinanced the loan in May 2020. Our original loan had a balance of $105,800 at the time of the refinance. We rolled closing costs into the new loan and cashed out $2,000, making our new loan amount be $111,000. The refinance reduced our interest rate from 4..875% to 3.625%, shaving $104.25 off our monthly payment. I went into detail about the refinance in my Refinancing Investment Properties post.
Following the 1% Rule, we would be looking for $1,340 in rent (net of seller subsidy), but we haven’t received that yet. The first tenant’s rent was $1,150 and the second at $1,250. For the third potential tenants, we listed at $1,300, but the new tenants negotiated to $1,280 for a 2-year lease.
TENANT #1: OUR WORST
The application. It’s hard to not give someone a chance when their application is borderline, but I suggest letting the information on the screen speak to their character. Before the official application was run (which includes a background check), she admitted to a felony that she served 2.5 years for, and she filed bankruptcy due to a stolen identity while she was incarcerated. It seemed like she paid her dues and was building a new life. We got her application about two weeks after closing, so it wasn’t like we were desperate to rent it at that point. But she was quick to fill out an application and provide necessary documentation, so we decided to give her a chance. She moved in on 10/1/2017 with her 3 children, one of which was born days after she moved in. Her rent was $1,150.
We didn’t have any unreasonable situations with her in the first year. We did have a maintenance call for a leak under the kitchen sink, and we noted that the house wasn’t tidy. It seemed like she was a coupon-er, where she stocked up on a few items and probably resold them, which supported how she kept wanting to pay us in cash. The house wasn’t to my standard, but I didn’t look close enough to notice that it was dirty in addition to cluttered. I wanted to say something, but didn’t know my place at that point. Hindsight: I should have told my property manager and had her issue a written notice. This won’t matter down the road for legal proceedings, but perhaps we could have saved ourselves some headaches if she took the notice to heart; I was just afraid of offending her. But, other than that small concern at the time, we had no issue renewing her lease for another year.
The tenant complained about seeing a mouse around February 2018. We informed her at that time that pest control was up to her because of her living style that was attracting the pests. She claimed to have a quarterly treatment through Terminex. She complained further of mice in November 2018, but I wasn’t part of that conversation. It appeared to be that she was upset that there were still pest issues while she was paying Terminex. Well, that’s an issue to take up with the pest control company, not us. Our property manager gave her the information to our pest control company and shared that it would be a bit cheaper for the quarterly plan too. We heard nothing more until all hell broke loose in April 2019.
She sent pictures of mice poop all over the house on April 9, claiming that she had been out of the house from March 31 through April 8 and came back to this sudden mouse infestation and would be leaving the house. Well, that’s not how it works. She claims that was her ‘prompt’ notification, as if mice set up camp in a lived-in house that’s well maintained out of nowhere (news flash: it wasn’t well maintained and clean). She claimed that because of the living conditions (that she perpetuated), this would be her last month in the house. We knew we had the lease to fall back on, so we continued to remind her that this wasn’t on us and she couldn’t leave us with the financial burden and walk away. We had our pest control company go to the house as soon as possible, and we received their report on April 12.
But wait! While complaining about the condition of the house (that she caused), she wanted to know if she could buy the house!!!! Logic always seems to abound in these situations; it’s hysterical. We offered her to purchase the house from us at $148,000. She ignored it after that offer.
Both the pest company and our HVAC person noted a dog on the premises, which was in violation of the lease. HVAC was called out to fix a wire on the outdoor HVAC unit that the dog had chewed through. She also wasn’t taking care of the yard, and the City of Richmond was fining houses that violated their weed and grass clauses, which we notified her of on May 9.
She didn’t pay April or May rent, so we had a court date set for May 10. We had told her that she had to pay all overdue rent and late fees for us to cancel the May 10 court date. She didn’t pay, so our property manager went to court. The judge awarded us possession of the property, but since there was such outstanding rent and damages, another court date was set for July 1 to award us the money owed. In front of the judge, the tenant handed the keys over to our property manager, saying she was moved out. Immediately after leaving the court house, the property manager arrived at the house to do a walk through, only to find several people inside. She called the police.
The officer assessed the situation. He said that since they’re still moving things out (and there was a lot to move out), that it was a benefit to us that they were still working on it. He suggested asking their input on when they thought they would be done. One guy said at 3 pm. We agreed to let them stay, and I would go by after work to change the locks.
I showed up at 4 pm to change the locks, only to find people still coming in and out of the house. I called the non-emergency police line and waited for the cops to show up. It’s officially trespassing, and we were prepared to press charges. The officers knocked on the door and asked the people inside (none of whom were the tenant on the lease) to leave. One woman started a whole spiel about how she’s on probation and everything that she’s been arrested for, so she didn’t want to be arrested. The officer was funny to watch, and he just kept saying, “I’m not arresting you. I just want you to leave.”
After they drove away, the officers let me walk the property to ensure everyone was out. The place was destroyed!
By Virginia law, we are required as landlords to make every attempt possible to get the unit re-rented and let the old tenant “off the hook” for unpaid rent. Meaning, we can’t hold them to the entire term of the lease and have a vacant house. Regardless of this, we wanted to get everything fixed and replaced in the house so that we had an exact amount to claim during the July 1 court date.
The linoleum replacement was the critical path. She had destroyed it (looked like some chemical ate through it) beyond repair and it had to be replaced before we could re-rent the house. Home Depot’s timeline was really behind, and they weren’t able to get us scheduled for installation until June 20th (after she had “vacated” May 10th).
I compiled a list of lease violations with my documentation to support the claims in which she violated the lease on top of the obvious (e.g., dog on premises, smoking in the house). We had invoices from the pest company, the HVAC company, the trash removal company (over 40 cubic yards of garbage was left in the house when they finally vacated), and the “hazmat” cleaning company, all corroborating an unclean and unkempt living condition.
We went into court with a claim of $9,250. This was unpaid rent for 3 months, late fees, junk removal, pest control, HVAC fixes, professional cleaning that included a ‘hazmat’ charge, and all our paint and flooring charges.
We won the first judgement in court, simply because the defendant didn’t show up. We were awarded $9,250 plus the court fee and 6% interest. Well, somehow the court accepted her plea of needing another court date after not showing up to this one, and that was on July 10th. The judge that day reduced our rent and late payment owed by one month, and reduced our reimbursement total by a bit more than the security deposit we had already kept, bringing the judgement to about $6,600 plus the court fee and 6% interest.
Per the court process, we were required to work with the ex-tenant to develop a payment plan. We offered her a payment plan via email that was never responded to. From there, the next step is to retain an attorney for wage garnishment.
I contacted the attorney we use to help with wage garnishment, but he wasn’t experienced. He referred me to someone, who let me know that he’s already representing someone who has a claim against her. He said that he could still represent me, but I’d be second in line to any money they get from her. He offered me another attorney’s name to see if that one could help me instead, but that attorney said he couldn’t represent me because he already has another client looking for money from this woman. Interesting that two attorneys had different answers, but we went with that first. We haven’t seen a dime. Once the money was spent and we paid off the credit cards, it wasn’t on our radar anymore. Anything we get from this woman will be a bonus at this point.
TENANT #2: BLISSFULLY UNAWARE OF HOW LIFE WORKS
Two kids just out of college were our tenants that came in after that mess. They were great tenants, but a bit unaware of how the world works. They didn’t get the utilities into their name timely, so we charged them for the bills that came to us. After that, they paid their rent on time, and even when their restaurant jobs shut down at the beginning of the pandemic, they prioritized paying rent over other things they could have spent their limited income on; I was impressed. At the end of their lease, they were a bit lost too. Our lease requires 60 days notice of your intentions – either leave, or renew. Our property manager reached out to them at the 60 day mark, and they said they weren’t sure what they wanted to do, but were looking for other places. Since, realistically, we weren’t going to list the house for rent at 45 or 60 days, we told them that was fine. They came back after a week and said they were going to move out.
We moved forward with listing the house for rent and vetting new tenants. We had our property manager show the house on June 10 for what would be a July 1 lease. About a week later, the current tenants asked if they could stay longer because they didn’t get the place they were looking for. Sorry, but that’s not how it works and it’s already rented. The new tenants were OK with moving in July 15, so we allowed the college guys to stay until July 10. Then we hustled to get the house put back together before the new tenants. Specifically, one of the tenants was an artist, and he hung a huge canvas on one of the bedroom walls to paint on. Well, the paint bled through.
They also didn’t tell us that the range wasn’t working. When we asked about it, they said something to the effect of, “oh yea, we smelled gas, so we just cut it off. That was back in March.” Goodness!! So we quickly ordered a new range. We also had to have the carpets professionally cleaned, which was especially frustrating since they were only a year old. Luckily, the ladies who came to clean the carpets worked their magic, and they came out looking good as new. The microwave handle was broken off, and when we looked to buy a replacement, it was essentially the same cost as a new microwave, so we installed a new one.
While we were working in the house, we noticed that the air conditioner wasn’t keeping the house cool. We had an HVAC tech come out to the house, and it was either $1,400 to repair (after we had already previously put money into the HVAC unit), or $5,000 to replace it. We decided to replace it after it died shortly after the third tenants moved in.
TENANT #3: SOME OF THE BEST
These tenants have been wonderful. They’re both pharmacists at the local college and have been very self-sufficient. They’re great about alerting us of issues, but not in a way that it seems like they’re nitpicking. For instance, they wanted to store their lawn mower and other things in the shed out back, but the handle was broken off it. We told them that if they wanted to purchase a replacement, we would reimburse for the cost. Then they noted that the closet dowel was broken and they replaced it. I told them I would pay for that, so just take it off the next month’s rent. When they sent me the receipt, they had only taken the rod itself off the rent, but not the brackets to hang the rod. I immediately sent them the rest of the cost!
They’re one year into a two-year lease, and we’re very happy with them. They always pay their rent on time, they communicate regularly, and they’re taking care of the house.
MAINTENANCE AND REPAIRS
Since I’ve covered a great deal of the repairs we’ve managed in this house through each of the tenant stories, here’s a quick summary of other items.
Shortly after the third tenants moved in, they politely let us know that their dishwasher wasn’t cleaning the dishes. They very clearly identified the problem and the steps they had already taken to attempt to fix it, but it wasn’t working. We purchased a new dishwasher the day after they let us know. So in the matter of a month, we replaced the built in microwave, range, dishwasher, and HVAC. The only appliance we haven’t replaced in this house now is the refrigerator.
There was an electrical issue that we had sort of noticed before, but hadn’t pinpointed it without having things to plug into all the outlets. We had an electrician go out and fix the switches and outlets that weren’t working in master bedroom.
AN OVERALL LOOK AT THIS HOUSE AS AN INVESTMENT
Remember how real estate investing provides multiple avenues for wealth building? Here’s how they’re looking for this property.
Cash Flow – As we have had to replace nearly all appliances, including HVAC, and all the flooring among several other smaller issues, our total cash flow on this property is nearly nothing. But, like mentioned before, we shouldn’t have any big purchases coming and will start to be able to pocket the profits on this house once again.
Mortgage pay-down – The tenants have paid our mortgage for us, but due to closing costs of refinancing and choosing to take $2,000 cash back from that refi, our principal is actually higher than when we bought it.
Tax Advantages – We always depreciate the cost of the structure for paper losses that help offset profit on properties for tax purposes. All those repairs and appliance replacement expenses that eat into the profit margins are written off. So come April 15, the silver linings of those expenses are realized.
Appreciation – This one is good for us. This house is in a developing neighborhood and the area around it is being revitalized. Coupled with standard appreciation and the *hot* real estate market we’re in now, the value of the house is 150% of what it was when we bought, in less than 4 years.
SUMMARY
We’ve put about $10,000 into this house at this point. But that means we have a lot of brand new things in it. Now isn’t the time to give up on the house, since we should be in a position to not deal with many maintenance requests. Rent continues to climb, increasing our cash flow, while we just brought our mortgage payment quite low with the refi, and the property will continue to appreciate in value.
We learned a lot about the eviction process, even dealing with local police officers in the process. The court system and law enforcement are fairly simple to work with, as long as you are a fair and respectful landlord, keep documentation, and follow landlord-tenant laws. When the tenant doesn’t live up to their end of the bargain, justice will be served.
We paid $2,850 in extra principal towards the main mortgage we’re paying down, leaving that mortgage with a balance of $5,500. We had a $4k flooring purchase on another house that has set our pay off timeline a few weeks back, but we’ll still have that mortgage paid off in the next couple of months. We have a rental property that we purchased in 2016 that has flooring that’s at least that old. The carpet has long passed its useful life, and the linoleum in the kitchen and laundry room has started to peel up at the seam. Typically, we wouldn’t want to replace flooring while a tenant still lives there, but they’ve lived with this for almost a year, and they’ve been our tenants since we purchased the house. As a means of keeping the tenant happy, we agreed to replace the flooring in all the rooms except the bathrooms.
We had two of our tenants not pay rent by the 5th, as required by the lease. They’re the two that are typically late, and they’re typically not up front with telling us about it. We’ve said several times that we’re really flexible landlords, but we can’t be flexible if we’re not told what is happening. With one tenant, who had just recently irked us with a plumbing issue and being incommunicado, we didn’t even reach out for information. We’ve had enough of their antics and having to chase them for rent. So I simply sent them their notice of default letter, outlining all their rights as tenants as now required under COVID-related procedures. I received an email letting me know that they’d pay on the 7th. I love their nonchalant response, like they hold the power and will pay whenever they feel like it (hmm). For the other tenant that was late, she texted to say she’d be late with the payment on the 7th, and then on the 7th only paid part of the rent due. She said she was in a car accident and there was an issue with her sick leave pay out, but she’d get it to us when it got fixed. She resolved it on the 12th, although still without the late fee.
We were able to get the invoice on the HVAC replacement for one property, which meant we paid our partner the $3,288 we owed him, on top of his usual $2,167 that we pay out for him to pay the mortgages and then his share of the profits (since I manage all the rent collections).
OUR SPENDING
Our credit card balances are high for several reasons. The $4k flooring purchase; as well as the insurance for one of our properties that isn’t escrowed because we paid off that mortgage, which was $436; an expensive gift purchase that isn’t transparent in the cash and credit line items because that cost was split 3 ways (i.e., we received 2/3 of that cost back in cash, but it’s still reflect in the credit line); and our travel.
We booked a camp site for the end of the month that required payment up front. We just got back from a trip, which increased our spending. But I’ll note that when we travel, we’re not eating expensive meals. Our interest is in the experiences and activities, rather than exploring sit down local restaurants. Our food for 5 days cost us $161 as a family of 4. We also ended up only paying for 2 of the 4 nights in the hotel because the air conditioning was broken, even after they came to ‘fix’ it, and then, when I was checking under the bed to see if any toys or socks got left behind as we were leaving, I found a large, dead roach. We didn’t ask for any comps; one was automatically reflected in my final invoice without my prompting, and then when the manager was speaking to Mr. ODA about his stay, he volunteered removing another night.
We opened a new credit card to take advantage of the bonuses since we knew we’d have this travel and the flooring cost to meet the $4,000 spending threshold for their bonus. This credit card has an annual fee of $95 and no 0% interest period, which goes against our norm when looking to open a new credit card. However, the bonus can be transferred to our Chase Rewards Portal, where we can use it to book travel at 50% the cost. We also received a $50 grocery credit.
ROUTINE UPDATES
My husband and I cashed in the last of his savings bonds that we got as children, so that was an extra $735 that we brought it that wasn’t planned.
We paid about $6,074 for our regular mortgage payments. Several of our properties had mortgage increases due to escrow shortages. I haven’t figured out which I dislike more: planning for tax and insurance payments, or the large escrow increases that seem to happen year after year. I think it’s the escrow though.
Every month, $1100 is automatically invested between each of our Roth IRAs and each child’s investment accounts. I should also note that I don’t speak to other investments because they happen before take-home pay, but my husband maxes out his TSP (401k) each year as well, which I had also done when I was employed.
Our grocery shopping cost us $700. Honestly, I don’t even know how to explain that cost jump. I think it’s because my husband shopped some deals at Kroger and Costco, so we stocked up on some things that aren’t part of our routine purchasing.
We spent $200 on gas. Two trips to Cincinnati, our trip to Atlanta, and then more-than-usual trips around town.
$400 went towards utilities. It’s higher than last month because we paid 3 months of our cell phones, which gets us back on quarterly billing as a family. Utilities include internet, cell phones, water, sewer, trash, electric, and investment property sewer charges that are billed to the owner and not the tenant. We still haven’t sought reimbursement from the builder on our electric bill, but this month’s bill was even less than the last month’s.
Our entertainment costs included baseball game tickets for our trip as well as two games later this summer, parking for the games this past weekend, a new shirt for our son, activities for the kids, and the hotel. This past month, we spent $650 on things I’d classify as entertainment related. I also included boarding for our dog ($100) in this total.
Speaking of our dog, he had his annual appointment (shots and the year’s worth of preventative medicines), and that cost us $500.
We spent $292 eating at restaurants and ordering take out. We utilized a Door Dash credit on one of our Chase credit cards, which was about $30.
But! I killed it with running errands this month and actually returning things that needed to be returned. I returned $150 worth of items one day!
We paid our State taxes during this period too. Between two states, that was $954. Also, anecdotally, I’ll share that we spent $6.40 to mail our Virginia tax return. We processed our taxes through Credit Karma, as we had done last year. We got through the federal e-file and moved onto the state filing, only to find out that if you’re filing partial states, Credit Karma doesn’t support it. I had to print 70 pages of our federal return, sign it, and ship it off to Virginia.
SUMMARY
Our net worth actually dipped this month. The stock market is the main factor in that, but the house valuation estimates are starting to level off and look more realistic as well.
Between our personal lives and our business life with these rental properties, we were sure kept busy. We expect the Spring months to be a busy time of year, and honestly it feels good to be active again. While we’ve loosened the purse strings for the summer months, especially after having done hardly anything for the last year, it was still a shock to see just how much we spent in these categories. But that’s the benefit of looking at your finances regularly. We can either choose to remain on course with our summer plans, or we can dial it back if we feel this was more than we expected.
Since we know we’re on top of our finances and have set up a healthy mentality when it comes to spending, we’re comfortable looking at this information once a month. If you’re currently developing these money habits, you may want to do these types of check-ins more frequently.
This month had a lot of money movement – tax payment out, stimulus check in. As I’ve shared before, we don’t budget. But you can start seeing how we’re pretty consistent on where we spend out money. This is because we have a spending mentality that we use to make each decision, rather than giving ourselves a ceiling in each category. I believe some may see a ceiling as a definitive amount to spend (e.g., if I’ve allocated $100 for restaurants this month, and by the last week I still have $75 in that budget pot, then I’m going to go spend it). If you know your long term goals and take responsibility for your decision-making, then you don’t need to pay close attention to each dollar.
With that said, my family came to visit for a week. It was our second’s first birthday, and my dad is helping us finish our basement. With 3 more adults in the house, we spent more than typical feeding them and eating at restaurants versus cooking after spending the day working in the basement. Mr. ODA and I share the same birthday, so we splurged for a nice meal that night. We actually spent about $300 at restaurants over this last month, but thanks to our Chase credit card, we received statement credits for $188 worth of these purchases!
We have also spent more on entertainment. We went to a winery and a brewery, purchased tickets for the local horse race season, and have done other activities now that the weather is nice. The pandemic and winter had our spending lower than our usual amounts, but I expect our spending to be more than it had been in these coming months. We’ve already put together our summer bucket list for travel.
We had all the tenants pay their rent on time, except one who eventually paid. Our rental income is $12,353, and we pay our business partner about $2,100 (we collect the rent and then pay him to cover the mortgages he holds and his half of the ‘profit’ after the mortgages are deducted from rent). We had to replace the HVAC in a rental. Luckily, this rental is owned with a partner, so only half the cost will affect us. We haven’t paid the bill yet, so that will hit next month.
We paid about $5,972 for our regular mortgage payments. We put an additional $5,000 towards an investment property mortgage, which now has a balance of $8,665. We also put $5,000 towards one of the properties that we have with a partner, which he matched, leaving that balance at $42k.
Every month, $1100 is automatically invested between each of our Roth IRAs and each child’s investment accounts. Our stimulus checks that we received for the kids went directly into the kids’ UTMAs.
Our grocery shopping cost us $539.
We spent $91 on gas.
$290 went towards utilities. This includes internet, cell phones, water, sewer, trash, electric, and investment property sewer charges that are billed to the owner and not the tenant. We still haven’t sought reimbursement from the builder on our electric bill, but this month’s bill was significantly less than the previous months.
About $1300 was spent on supplies for the basement bathroom work. We registered the kids for swim lessons, registered our son for pre-school in the Fall, did more activities with the nice weather, and I made several gift purchases (current birthdays, baby shower, next Christmas (I like buying when I find something that makes me think of a person rather than a mad dash in the Fall to buy gifts)), so that was about $400.
SUMMARY
Our net worth has increased over $123k since last month due to our investment accounts and property values increasing. Our cash balance is starting to dwindle down to what we typically carry as ‘cash.’ And our mortgage balance is decreasing more than average due to our goal of paying off two of the mortgages that we’re carrying.
This is probably our easiest house to own; the closing process was the hardest part here. We closed on House 5 & 6 at the same time, so I’ll cover the closing story here because House 5 has a lot else to be said when I write out that whole saga.
TENANT
This property has a property manager on it (10% monthly rent). She processed a couple of applications at the onset, and it took 2 weeks to find the tenant. The lease started on August 18, 2017, and that’s been the same tenant in the house to date.
Rent is $850 per month. She pays on time, and it’s usually early. She just asked about her renewal, and we decided to keep her rent at the same price, even though it’s the start of her 5th lease term. Our cash-on-cash return was ahead for the last 4 years, so even though our taxes have increased by $400 since we purchased the property, we decided it was best to keep the tenant than to get a few more dollars per month.
She asked if she could paint the kitchen cabinets that were definitely old, and we figured they couldn’t be made any worse. When a tenant wants to make your house their home, it’s most often is a sign they make taking care of the property their priority, and that they want to stick around for a while.
We had to treat the house for ants over this last year, but the only real issue we’ve had on this house is that the main sewer line had to be replaced due to corrosion and tree stump intrusion into the pipe. The poor tenant had her toilets backing up into her house. It was $4,000 to replace the line from the street to the house. Honestly, I expected it to be more.
LOAN DECISION
Option 1 – 20% down payment – conventional 30 year fixed at 4.95% with 0 points Option 2 – 25% down payment – conventional 30 year fixed at 4.7% with 0 points
We weighed these two options for our loan (purchase price of $66,000). The difference is an increase of $3,300 in down payment to save $5,700 worth of interest over the life of the loan. Being that we closed on several houses in a short period of time, we chose Option 1. Having cash for the down payments and closing costs of the other houses was more important than the marginal savings in interest of putting 5% more down.
We’ve been paying down this mortgage. At the time of our decision on which house to pay extra principal towards, this was the smallest loan amount with a relatively high interest rate. We started paying extra towards this mortgage in October 2020. To date, we’ve paid an additional $35,500 towards principal, leaving a balance of just under $14k.
CLOSING
During the Spring and Summer of 2017, we saw a lot of houses. We also made offers on a lot of houses that didn’t end up going anywhere, either because there was no consensus on a purchase price or because the home inspection was unsavory. We closed on House 4 at the end of June, walked away from a deal on one house due to a home inspection issue, and then closings on House 5 & 6 got lost along the way by the attorney’s secretary. We worked with a specific attorney who we had a great relationship with, and who eventually helped us with a difficult purchase (see the story for House 8), but this was a hiccup.
The attorney’s office let us know they were unaware of these two closings around June 20th (in reality, they just missed the ‘all clear’ to move forward with a title search, but they were definitely made aware of them), which left us scrambling. Our rate lock expired July 7, and the secretary responsible for filing all the paperwork was taking her vacation the week of July 2. Since she was taking the week off, our attorney scheduled a surgery of his for the same time, so the office was closed. She said she would find a way to make it work, but then we didn’t hear from her and had to reach out to the attorney himself. Here’s that email, outlining all the details.
It wasn’t until June 30th that our attorney confirmed he was able to hand off our closing to another attorney’s office. We had a few questions about their fees, since we explicitly stated that we didn’t want it to cost us more because we had to change our closing location, and then the secretary there got defensive and gave us an attitude. I was quick to call her on it, explaining that we just wanted to better understand the break down of what they put on our closing disclosure. She backed down, and then we had an awkward interaction a few days later when we showed up in her office to sign the paperwork. It’s interesting how people don’t understand that writing in capital letters can come across as rude. Turns out this other firm was an old law school friend of the attorney we normally use, and they worked out a favor among themselves on the fees to ensure they didn’t lose any future business from us.
At the end of the day, we closed on the houses on time and without costing us anything extra, but it wasn’t a stress-free path to get there.
Luckily, this house has been easy to manage and the tenant has worked out perfectly. Our rent at $850 far exceeds the 1% Rule; with a purchase price of $66,000, our monthly rent goal would be $660. Tax assessments have recently risen given that the local market has appreciated substantially, so we will consider a rent increase in the future. However, at this time, having a long-term tenant on a house that has hardly any issues is more important than risking a rent increase and having her leave.
I realize that some of the items that I share each month will be repetitive, but I’m catering to new readers that may not have seen the previous month’s details. As always, feel free to reach out if you have any questions about this information.
SPECIFIC LARGE CHANGES FROM LAST MONTH’S UPDATE
Paid $8,000 towards an investment property mortgage. This property’s mortgage balance is just under $14k, and we expect to have it paid off in the next 6 months. It would be earlier, but we’re also paying off another mortgage at this time, so we’re putting money towards that one next.
Mr. ODA cashed a few savings bonds that were mature, so we brought in $622 that wasn’t planned.
MONTH’S EXPENSES
Every month, $1100 is automatically invested between each of our Roth IRAs and each child’s investment accounts.
We had all the tenants except two pay their rent on time, and the other two houses paid on the 12th (typically when a tenant is late, the balance is paid on the next Friday of the month – pay day). Our rental income is $12,353, and we pay our business partner about $2,100 (we collect the rent and then pay him to cover the mortgages he holds and his half of the ‘profit’ after the mortgages are deducted from rent). We made it through the month with no investment property costs! We did have a tenant power wash our house out of the kindness of their heart though.
We paid about $5,900 for our regular mortgage payments.
Our grocery shopping cost us $500. We did the trial period for Walmart+. Unfortunately, the first two weeks of that trial period were destroyed by back-to-back ice and snow storms, so we couldn’t ever get deliveries scheduled within a couple of days. Once life went back to normal, there were plenty of delivery times available, even same day. While it was convenient, it wasn’t worth the annual fee and tipping the driver each time, so we cancelled it.
We spent $57 on gas, and $83 eating take-out.
We made some purchases that aren’t typical: ski season pass for next year ($119), medical bill ($70), and some furniture and odds and ends for the house (~$1,500).
$464 went towards utilities. This includes internet, cell phones, water, sewer, trash, electric, and investment property sewer charges that are billed to the owner and not the tenant. Last month I shared that our electric bill was very high. We learned through the course of 6 HVAC company visits that our unit was not running properly, and that meant our heat strips were essentially on since we moved in ($$$). We will seek financial compensation from the builder once our next electric bill comes in.
SUMMARY
Our net worth increased by $45k from last month’s update. This change is mostly due to the value of our houses increasing and our mortgage balances decreasing.
On the surface, a jump of $1.1 million in just over 2 years seems impossible, but here’s the break down of how things changed in our finances during our child-rearing hiatus.
The highlights: – Mrs. ODA left her job; – We purchased three new properties; – We sold one property; – We paid off two mortgages and significantly paid down two others; – Our investments grew based on market fluctuation, as well as our continued investment; and – The value of the properties we own appreciated.
401K
Since I met Mr. ODA, I maxed out my Thrift Savings Plan (TSP, the Federal government’s 401k) contributions each year. Before that, I had been putting money into the TSP, but hadn’t maxed it out. I left my career position in May 2019, at which point I stopped contributions to my TSP. However, we put in as much as we could for the year before I quit (if Mr. ODA has his way, we’d have maxed out my contributions); I contributed $13,070 over the first 4 months of 2019. My balance on June 30, 2019 (it’s a quarterly report) was $300k. I have gained $127k over 19.5 months based on my investment strategy for the account with no new contributions. Mr. ODA continues to max out his contributions of $19,500 per year. His account balance has increased due to annual contributions, a loan repayment, and market fluctuations.
IRA AND TAXABLE
A Roth IRA has maximum contribution limitations per year. For 2019, 2020, and 2021, that amount is $6000. We each put $500 per month into the Roth IRA to max out the contributions. We have maxed out the contribution limitation every year we’ve known each other (10 years), and Mr. ODA had done so before Mrs. ODA knew such a thing. We don’t time our contributions throughout the year because we don’t want to stress about when the perfect time is and then possibly end up throwing five grand in when December rolls around. We have taken the ‘set it and forget it’ (essentially dollar cost averaging) approach to the Roth IRA investment.
Dollar Cost Averaging – Since we know we want to put $6,000 in for the year, we break it down into $500 a month and contribute on the 30th of every month regardless of individual pricing. This eliminates the need to pay attention to, and the effect of, volatility in the market. Some may say that dollar cost averaging is not a prudent idea because the market always goes up over time (essentially you’re setting yourself to pay higher and higher per share as the year progresses, on average), but I just can’t handle the psychology of dropping $6k on January 1 and not having anxiety for the rest of the year that it was the right decision.
As for the taxable accounts, this includes accounts we have set up for our children – UTMAs (however, the growth of these funds are not taxable to us because they are taxed at the minor’s rate – 0% for us). An UTMA is the Uniform Transfers to Minors Act. It allows an account to be set up in the child’s name without the child carrying the tax burden of the money. The IRS allows an exclusion from the gift tax up to $15,000. We put $50 per month, per child, into the account. This is also ‘set it and forget it’ with automatic deductions from our checking account.
CASH
Our cash balance really has no meaning. We bring in income and we pay our bills. We don’t purposely keep a savings account balance (as I shared in the Leveraging Money post, we’re not interested in maintaining 3x our monthly income in a savings account at 0.01% interest rate). We don’t purposely project how much to put towards mortgage principal.
We currently have a larger-than-normal cash balance, which is left over from selling our primary residence in September. It hasn’t been dwindled lower yet because we have a fence install that needs cash and we were paying down the last of our large credit card. Now that most of these things have happened, we’ll put more of our cash balance towards the investment property mortgage we’re currently paying down.
PERSONAL MORTGAGE
In October 2018, we had been living in our previous house for just under 3 years. In January 2021, we had only made 1 mortgage payment on our new home. While our current home cost slightly less than our last home and we put 20% down for each house, we had more years of principal pay down in October 2018 than we currently have.
PERSONAL RESIDENCE AND VEHICLES
We sold our Virginia home for $400k in September 2020. The valuation of that home rose significantly over the 2019-2020 years due to lower inventory with high demand in the Central Virginia area (probably all over the country, but I don’t know those details).
Also in September 2020, I traded my vehicle in for a van (and I couldn’t be happier :)!). That increased our vehicle valuation since the van is 3 years newer and a higher cost than my previous vehicle.
Even though my vehicle value rose slightly, Mr. ODA’s vehicle’s value continued to decline, and we purchased a home in a lower cost of living area, therefore having a lower value.
INVESTMENT PROPERTY VALUES
Since October 2018, we’ve purchased 3 properties, increasing the total property value of our portfolio. Additionally, all of our properties continue to increase in value. The Virginia homes have increased significantly over the last two years. In the table below, I’ve provided each property’s change in value from January 2020 (oldest snapshot per property I have) to February 2021.
Note that this is a projection based on the internet’s valuation and not an exact science. The only house that we have a recent appraisal on is the one that we refinanced in January 2020. That house’s appraisal was $168,000; we paid $112,500 in July 2017.
INVESTMENT MORTGAGES
Of the three most recent purchases, one was purchased with a partner, split 50/50, and the other two were the last two KY houses purchased. These three added $215k of new debt. However, you see that our mortgages on investment properties have only increased by $27k, which doesn’t exactly say “we bought 3 new houses.” That’s because we’ve paid down (and sold) about $150k of mortgages in addition to 2+ years worth of mortgage payments going towards these loans.
In May 2020 and January 2021, we refinanced two properties. Quick tidbit – we signed the refinance papers in May under a tent in a parking lot, and we signed the January refinance at our kitchen table with a traveling notary. While the interest rate and monthly payment decreased, the loan balances increased because we rolled closing costs into the principal and took $2,000 cash out (the maximum allowed) in each case.
We sold one property that we had been paying down the mortgage on; in October 2018 it had a balance of $11,142, and we sold it in January 2019. We had been paying down the mortgage because it was our lowest balance. When we made that decision, selling the house wasn’t in the immediate future. An opportunity presented itself, and we sold it.
We’ve paid off two mortgages during this period. One was in January 2019 with a balance of about $44k, and another was in April 2020, which also had a balance of about $44k in the October 2018 calculation. Our intent to paying off mortgages was two-fold. It increases our monthly cash flow that helps Mrs. ODA stay home with the kids, and it gets Mr. ODA closer to being able to leave his job. Plus, due to Fannie/Freddie requirements of having no more than 10 conventional loans, it creates the opening for us to get a new mortgage if the opportunity arose. The downside is that it de-leverages the house’s financials and creates a smaller cash-on-cash return for the property.
We have also paid down 2 mortgages over the last two years that aren’t completely paid off. – One of those properties is the one that we purchased after October 2018 with a partner. It has our highest mortgage rate. The affect on the numbers here just shows that the principal balance of that mortgage is smaller than it was originally, thereby not increasing the mortgage total ‘fully,’ if you will. The principal pay down on that mortgage has been $44k total, but we’re only responsible for half of that. – On the other mortgage, we’ve paid almost $28k towards principal between October 2018 and now.
CREDIT CARDS
We open new credit cards with 0% interest for an introductory period when we have large purchases looming. Not only is the 0% interest beneficial to us for an introductory period of 12-15 months, but we strategically choose new cards that come with a welcome bonus (points or cash) when you reach a moderate spend level in the first several months. Given the strategic timing of a new card before a large purchase, this bonus is easy to achieve. When we have large balances on credit cards, it’s because we’re purposely carrying a balance month-to-month at 0% interest. We have never paid interest on a credit card balance.
LIFESTYLE
Despite Mrs. ODA leaving the workforce, our net worth increased for all the reasons listed above. The one unmentioned piece, because its not directly tied to any accounts, is lifestyle. While our net worth, rents, and investments have increased, our lifestyle has not creeped. We still make strategic decisions, spend money mainly on needs, look for wants that provide our happiness without breaking the bank, and generally keep our financial future at the forefront of our daily lives. We live like no one else does so eventually we can live like no one else can.
Living intentionally allows us to get to where we want to be.
I had so many things to share, and now it’s time for another net worth update, but I hadn’t gone into the details of our 2019-to-2021 changes! I promise, it’ll come.
SPECIFIC LARGE CHANGES FROM LAST MONTH’S UPDATE
We paid off $5,000 left on one of our credit cards. This credit card was opened for a large purchase, and the 0% introductory rate expires at the beginning of March, so I wanted to make sure it was fully paid off so we don’t pay any interest on the balance.
We put $2,000 towards an investment property’s mortgage, and we received $2,000 cash out from another investment property’s refinance.
MONTH’S EXPENSES
Every month, $1100 is automatically invested between each of our Roth IRAs and each child’s investment accounts.
Between our personal home and the investment properties, except for the one that we refinanced so we skip February’s payment, we paid about $5,500 in mortgages. To put this in perspective, we brought in over $8800 from those properties, which doesn’t count $900 worth of rent at this time that the tenant is late on. This doesn’t include the properties that we own with a partner through an LLC, which nets us $400 each month (although one of those properties hasn’t paid rent this month yet either).
Our grocery shopping cost us $409.
We spent $76 on gas, and $72 eating take-out. We typically visit family once a week (45 miles round trip), go to the grocery (10 miles round trip) once or twice a week, and get take out once a week (10 miles round trip).
I made two Amazon purchases for non-grocery items we needed (e.g., activities for our 2 year old, vitamins, items for our daughter’s 1st birthday, and – really important – potty training seat), which totaled $125.
We owed personal property taxes from last year’s time in Virginia, so I paid the $94 for that. I also paid the balance of our personal home’s HOA, which was $85 for the rest of the year.
As for the investment properties, we had to purchase a new washing machine, which was $528 (although that cost is split with our partner for this particular house). We also paid for the insurance on a property that isn’t escrowed, which was $203.
$430 went towards utilities. This includes internet, water, sewer, trash, electric, and investment property sewer charges that are billed to the owner and not the tenant. Our electric bill was insane this month. We moved into our new home in November and had previously been living with gas heat so didn’t know what to expect. Mr. ODA called the HVAC company to have them run a diagnostic check on our units, and we found that the downstairs condenser isn’t working. It isn’t resolved yet due to an ice storm here, but hopefully it’ll be fixed today, and we hope to see some sort of compensation for our high electric bills due to this not working properly.
SUMMARY
Our net worth increased by $102k from last month’s update. This change is due to fluctuations in the stock market and the value of the houses. Our 401k balances increased over $35k, our taxable investments rose over $10k, and home values increased over $42k all together. A difference of over $5k in our credit card balances also contributed to the change in net worth.
Don’t pay it. Get creative for your down payment. Here’s a brief on how PMI works and how we avoided paying it.
What is PMI?
A lender typically requires PMI when the loan is greater than 80% of the loan-to-value (LTV) ratio because it’s higher risk for them. If a buyer has less of their own money as equity in the property, the bank views this as a higher probability the homeowner will default on their loan. With that, the PMI is required until the borrower reaches at least 80% for the LTV ratio and the loan is in good standing for at least 5 years. This typically means that a borrower needs 20% of the purchase price as a down payment. There are a few exceptions, but overall, if you don’t have a 20% down payment, you’ll be paying PMI.
PMI can be up to 2% of the loan balance. The lender uses your credit score/history, the down payment amount, and the loan term to evaluate your risk and set the PMI rate.
While there are requirements that the PMI must be removed when your loan hits 78% and 5 years in good standing, you can request the removal of PMI earlier if your house value has risen (e.g., market fluctuation, improvements you made). If you request the removal of PMI, you may be required to pay for the new appraisal, which is an added cost. You should weigh the cost of the appraisal against the remaining payments. In a broad example, if the appraisal costs $450, and your monthly PMI is $120, then as long as you have more than 3 months left before hitting the 78% LTV ratio, it’s worth paying the appraisal fee to have PMI removed. There is also a risk that the appraisal doesn’t come back with a high enough house value, so you should be confident in your home’s value before requesting said action.
How did we avoid paying PMI?
While we were more than qualified to purchase a home in the D.C. suburbs based on our debt-to-income ratio, we restricted ourselves to what we could afford as the down payment.
A bank qualifies you based on your debt-to-income ratio. If you have low recurring monthly bills, then you’re qualified for a larger loan. At the time, our only recurring monthly payment was on my vehicle, at about $350/month. The bank pre-qualified us for about $700,000. Sure, we could “afford” a monthly payment on a $700,000 mortgage, but then we couldn’t eat, sit on furniture, or do anything else. 😉 We’d also be paying PMI because we didn’t have 20%, or $140,000, to put down.
Also due to our low debt-to-income ratio, we couldn’t qualify for any programs that would allow anything less than a 20% down payment for a mortgage. We set our purchase limit at $350,000, which meant we would need $70,000 for the down payment, plus closing costs. Due to the limited inventory at that price in the DC suburbs and the knowledge that we were pre-qualified for double what we were searching for, our Realtor kept pushing us to raise our purchase price. However, we advocated for ourselves and kept our focus on what we could afford as our down payment so we wouldn’t pay PMI. After months of searching and seeing places that were literally missing floors and walls, we increased our search to $400,000, hoping that if we found something in the 350k-400k range, we could negotiate it to 350k.
Our move to the D.C. area was not in our original plans. Mr. ODA had been saving through high school and college, expecting to buy a house in a lower cost of living locality. When we moved to D.C., we knew that we would need to change our expectations and day-to-day actions. We rented an apartment in Fairfax, but we didn’t want to be putting over $1600 per month towards rent for long, and we’d prefer to be paying towards a mortgage and building equity in a home. Positives to owning a home: mortgage tax deduction, appreciation, and the equity building that you get back when you sell the home.
While we rented, we were conscious of our spending. We aimed to spend less than $10 per day on food between the two of us, and we limited how much we ate out. We did activities with Groupons or restaurant.com coupons.
We moved to DC in December, and over the summer, we put an offer on a flipped foreclosure. The listing was $384,900; our offer was $380,000 with $2,000 in closing costs. It was denied by the bank, as we were told we were the 2nd best offer of 3. The next day, we got a call that the bank countered our offer. Apparently, the first offer attempted to negotiate their offer further, and the bank moved on to us. They countered $380,000 with no closing costs; we accepted. We now had to scrounge up about $80k for closing.
We looked into a Thrift Savings Plan (Federal government’s 401k) loan. Many warned us against the idea, but our research showed it wasn’t as much of a concern as others let on. The details of this loan option are on another blog post. We decided to each take a residential loan from our accounts. I took a $15,000 loan and Mr. ODA took a $25,000 loan. We also borrowed $5,000 from Mr. ODA’s parents and paid it back within a couple of months. We avoided PMI.
An argument heard about not owning a home is that it costs a lot to maintain a home. While owning the home for 3.5 years, we gutted the main floor bathroom ($4,000), replaced the AC ($3,600), replaced the hot water heater ($1,100), resolved termite issues with treatment and wall replacements ($2,000), laid carpet in the basement living area, improved the yard through grass maintenance and purchased a shed, and painted a few rooms. We sold the home for over $60,000 more than we purchased it for (tax free since it was our primary residence the whole time), far more than the minimal expenses we put into it.
Key takeaways from our experience:
The efforts we put in to avoid paying PMI meant we had another $100-200 in our pockets per month. Instead of padding the bank’s ‘pockets,’ we paid ourselves back with interest into our retirement account.
We lived below our means, saved, and kept focus on the big picture.
We pushed ourselves to our financial limits to begin building equity in a home, rather than paying rent to a landlord (or in our case, an apartment company). The efforts put in that year have paid off time and time again, starting with selling the home 3.5 years later for a profit that led to some of our first rental purchases.
One Dollar Allowance 