commercial loan

November Financial Update

November 18, 2025mrsonedollarallowanceLeave a comment

Another month, and another delayed post while I juggle life. These numbers are mostly based on last Wednesday’s market close. I had big intentions of writing this on Thursday last week.

RENTALS

Our rental that we purchased a month ago is still vacant. It’s a commercial loan, so the first payment was just made on it yesterday. It always hurts to pay those bills without income. I’ve spent some time cleaning it. It looked fine if you just did a quick glance. But the details were terrible. I wiped down all the walls in the house and all the outlets and switch plates, which were extremely necessary. I wiped the baseboards with their first clean using the mop, but I’ll need to go back and do a wipe with something that gets directly on it. We were excited that the house didn’t need painted, but the closets are a bit of a mess. If I decide to make the time, I’ll throw some fresh paint on some parts. The bathrooms were pretty bad, and they’re about 70% done being cleaned. Maintenance wise, we just needed to replace a missing cabinet door pull, clean out the air return vent, and do a few random small fixes with caulk and screws. I’ve shown in several times. I even had a lease drawn up for one person, but it fell through.

We’ve had issues with our two new tenants getting their utilities in their name. We had one in Virginia who claimed she tried to get the water bill in her name and it just wasn’t happening. She always paid the day I sent the bill to her, so I just let it go. This past month was terrible. It took her over a month to get it paid, and I threatened to turn it off so that it would force her to get it in her name and keep me (and my property manager) out of it. One in Lexington was annoying that she didn’t get it done, and she’s not very communicative. Then the other in Winchester had to go in person to get the water in her name, so that wasn’t surprising that it took a while.

PERSONAL

Our 3rd kid got off the waitlist for preschool! Our beloved preschool closed down last year. Everyone flocked to this other preschool. I followed the “rules” and did things “ethically,” but we got waitlisted. Long story. I wasn’t pushing for him to be in preschool in the 2s year (he’ll be 3 next week, but our age cut off here is August 1st). I figured I’d push really hard in the next couple of months to make sure he got a spot for next year. This place I want him to go to has a lot more spots for 3 year olds than 2 year olds, so I had high expectations we’d get a spot next year. Well, we got the email a couple of weeks ago that there was room available for him! It’s a longer day than we’re used to, but he’s so excited to go to school. He asks to go to the playground daily, so that’s going to be nice that he’ll have TWO playground times twice a week. I can’t wait to hear all his stories.

My work schedule has me in the office for half a day on Monday, Tuesday, and Thursday. We’re going to look into adjusting that in January to account for the days he’s in school so that I can actually enjoy some kid free (guilt free…no strict schedules and babysitter availability) time since 2018.

We paid off the 0% interest card that was sitting at $14,000. It didn’t bother me to have that balance sitting there because it was for a good reason, but it sure does feel good to have that off our plate. Our spending has been relatively low the last few months. This month will see a small spike because I have’t preemptively bought any Christmas gifts, so that will likely be a large purchase amount later this week. We’re also in the market for camping gear since we took the kids camping this past weekend and noted a few gaps in our equipment.

SUMMARY

We’re up $1.5 million from 2 years ago, which is a cool number to see. Considering we paid off large credit card balances, I’m surprised our net worth only went up about $5k since last month. I updated the value of the houses in the past few weeks, so that’s where the hit is. Home values are expected to go down in the Fall, so I like to capture that adjustment from the higher values that appear in the Spring. Our cash value obviously went down since it went towards credit card payments and a down payment on a house (except it only decreased by $11k).

House15 Purchase

October 23, 2025October 21, 2025mrsonedollarallowanceLeave a comment

We last purchased a rental property in 2022, after most of our purchasing was done in the the 2019 era. We were busy with 3 kids, and I recently felt like I was coming out of the fog. Mr. ODA and I went to a wealth building seminar in the Spring; my intention was to have that seminar reinvigorate our desire to build our portfolio. It worked well for Mr. ODA, but once options started to show up, I started to panic.

We first went to an open house. It was a bit further away that I’d prefer to maintain a house, and there were a few red flags. For one, it frustrates me that landlords can fill out a seller disclosure claiming they know nothing about the house. I can tell you if I had any roof issues or major system issues in any of my houses, even though I haven’t physically lived there. Mr. ODA wanted to pursue it, but I couldn’t bring myself to get on board.

We were then sitting with his parents one night, telling the story of this open house, and his mom said that she saw a townhouse posted on Facebook that she thought we’d be interested in. It was owned by the son of an old friend of her’s. We asked our real estate agent if she’d show it to us, but she was out of town. So then his mom texted her friend to see if they were there and we could go look. They weren’t there, but they gave us the contractor box code (which is surprising in itself that there wasn’t a sentribox on the door). We went over and the house looked to be in good order, so we put an offer in. We like to surprise our agent with these types of things where all she needs to do is get the contract ratified.

UNDER CONTRACT

The house had been listed for some time when we came across it. It was was listed at $182,500. We offered $182,000 with $2,000 worth of seller subsidy on September 2, 2025. They agreed that day. We ended up needing to redo the contract because the wife wasn’t on the deed of the house, but she had signed the contract, but that wasn’t a big deal.

We had the inspection scheduled for September 10th. There was hardly any issues in the report, and we picked a few of the bigger things to ask for them to fix. They agreed to our list. They gave our agent a receipt showing they had paid someone to fix the items on our list. We did our final walk through the afternoon before closing and were disappointed to find that two of the bigger items (leaks) were not addressed properly and the house was dirty (including things left in the fridge and freezer). Our agent reported that to their agent, and they addressed everything that evening. We swung by the next morning before closing to see it all cleaned up and the leaks addressed.

The appraisal was ordered by our lender and came back at $188,000. That was a pleasant surprise to see we had immediate equity in it.

COMMERCIAL LOAN

We chose to go a commercial loan route. Interest rates aren’t falling as quickly as we expected to see. We have a commercial loan on one of our other properties in town, and I was still surprised to see how easy this process is. The loan qualifications are mostly based on the cash flow of the property. I filled out an application, submitted a ledger of our other property cash flows, and sent in 3 years worth of tax returns.

We were quoted at 6.74% interest. The loan terms are a bit different. Our last commercial loan was amortized over 25 years, but there’s a balloon at 5 years. This time around, it’s amortized over 25 years, but the balloon is at 15 years. A commercial loan also means that the taxes and insurance are not escrowed, and I’m responsible for paying them on my own.

The loan is an Adjustable Rate Mortgage (ARM) too. There was no different to us in the 3 year or 5 year ARM, so for the first time, we picked a 3 year ARM. In the past, it was related to securing our low rate. This time around, we’re expecting rates to drop in the near future, so we locked in our rate for only 3 years. It only changes on 3 year increments (some of the others will change every year after the initial lock period). It also has a clause that indicates the rate has a floor of 4%. I also don’t see a maximum adjustment that can happen (we have other ARMs that state an adjustment can’t be more than 2% at the change date).

We were expected to put 25% down. That would be $45,500 based on the $182,000 purchase price, and would leave 136,500 worth of a loan. They ran some numbers and determined that we could only qualify for a loan of $132,000 based on a rent of $1,400. They only us the cash flow to determine the eligible amount and not the rest of our portfolio. Let’s break that down to the fact that a loan of $136,500 equates to a monthly loan payment of 942.23, and a loan of $132,000 equates to a monthly payment of 911.17. So at a rent rate of $1,400, we could cover the monthly payment of $911.17, but we could not cover a monthly payment $31.06 higher. We pushed back for a second, but in the end it didn’t matter and we accepted the loan of $132,000.

PROS

When I look at this place, it feels like a place someone will rent. It’s clean, feels like home, and has a good layout. It has a closet available for a washer and dryer, which is a plus. Both bedrooms are upstairs and each has its own bathroom, and there’s a powder room on the main floor. It’s more secluded than other units in the complex, giving the occupant more grass area to hang out in the front and back.

CONS

We do have some concerns. The townhouse is at the back of the neighborhood. The entire rest of the community has parking right outside their front door. This group of 4 townhomes is separated from the parking lot, so you have to walk a bit further. The trade off there is that it’s secluded, you have a front “yard” (instead of pavement), and you’re more secluded from your neighbors.

I didn’t want another townhouse in our portfolio. With a townhouse, your value is strongly dictated by what your neighbors have done (or not done) to the property. As much as we don’t plan to resell these properties in a short time frame, I do have the thought that I want to be able to sell it when the time comes.

Also with a townhouse, you’re also at the whim of a community manager that is likely not putting utmost effort in. We asked about the HOA at closing and the previous owner said the cost used to be $35 per month. When it was that cheap, they weren’t paying their bills, so the lawn wasn’t mowed and the trash wasn’t removed. They increased the price to $95 two or three years ago, and that has made a difference in the community’s upkeep.

The HOA is due monthly, which is an inconvenience and a surprising process on their part. I plan to pay it monthly until I have confidence in their ability to process my payment and apply it to my account timely. After some time, I may pay in advance. I just went to process the first payment and planned to pay 3 months worth, but then realized that will create a harder tracking mechanism on me right now.

CLOSING

We had our closing on October 16th. It was super quick and easy. I listed the house for rent that evening.

SUMMARY

At this point, we have the house listed for rent at $1375. We had determined the range for rent during our purchase evaluation. Unfortunately, I hadn’t looked at the current market by the time we went to list, and there’s quite a bit out there. I’ve shown it to 2 people and have another showing today. One of the people from the weekend said they were seeing other places on Wednesday, so I’ll hold out on any changes to the rent price until this weekend.

Risk Taking

June 29, 2024mrsonedollarallowanceLeave a comment

We’ve hit some pretty big milestones financially. Mr. ODA casually mentioned a certain number by a certain age, but our goals were more associated with quitting our full time jobs. I quit my job in May 2019. We’re in a situation for a couple of years where we’ve been ready for Mr. ODA to quit, but we keep pushing the date back because his job isn’t preventing us from doing the things we want to do.

How did we get to the point where we replaced my income and I could quit working without scaling back anything financially? We took risks. Some of them were big ones. Some of them weren’t so big, but they felt big at the time. Most risks worked in our favor, but some did not.

RETIREMENT ACCOUNT LOAN

Mr. ODA and I both worked for the Federal government. Their version of a ‘401k’ is the Thrift Savings Plan (TSP). There were two loan options that were available: a primary residence loan or a general purpose loan. You then repay the loan back to your account with interest (the interest is paid into your account as well). When we took our loans, the rate was just over 2%. According to tsp.gov, the rate is currently 4.75%. There’s a fee of $50 to take a primary residence loan and a fee of $100 to take a general purpose loan.

While you’re missing out on the compound interest of your account when you take the loan, the ability to buy our own house, create that equity, and be at the beginning of our careers made the decision easy for us. We made extra payments during the repayment period, and we were able to adjust the regular payments up and down based on our financial needs each month. We have no regrets in our decision.

ADJUSTABLE RATE MORTGAGE

An adjustable rate mortgage (ARM) sounds scary. A variable rate. Most people are used to locking in a 30-year mortgage. I’d venture to say that most people also think they know what an ARM entails, so they don’t even consider it. We considered it. We looked into it in great detail. We couldn’t see why more people didn’t use it. We actually were very hesitant over this decision the first time because an ARM’s reputation is very negative. However, we took our time to lay out the numbers and see what would work best for us.

The first time we used an ARM, we knew we had no intention of being in the DC area for more than 5 years. By using an ARM, we saved thousands worth of interest in our mortgage payments over the three years we owned it.

There are several “fail safe” parameters in an ARM. For one, you do lock in a rate for some period of time. We considered 5 year, 7 year, and 15 year options. Then after that period of time, your rate can only adjust within the contractual terms. For example, we have one rate that can adjust 2% in either direction at the 5 year mark, and then 1% for each of the following 4 years after that, with a cap of paying a maximum interest rate of 7% (this is an old loan, clearly). The rate adjustments aren’t a given, and they’re adjusted based on the prime rate at that time, not based on the whim of the bank or the maximum it could increase.

We also ran the numbers based on the interest rates. An ARM’s incentive was that the interest rate is lower than the 30-year conventional loan rate. I don’t have the details since this post is more of an overview, but the ARM saved us money we paid towards interest. Interest is a higher percentage of those earlier payments in an amortization schedule. We either sold the house or paid the loan off early, so the ARM adjustment never came into play, and we saved all that interest cost.

BUSINESS/COMMERCIAL LOAN

A series of events had us asking a local credit union about loan options. They offered us a commercial loan. This one has a big catch though: there’s a balloon payment. Our loan is amortized over 30 years, which is how our payments are calculated. However, the balance of the loan is due at the 5 year mark. That balance is going to be about $175k. We have no plans to pay that off by that time (we aren’t even making extra payments towards it). We will refinance it. The pro here was that our interest rate for a loan closed on in 2022 was 3.625% (when mortgage rates were in the 5% range). Hopefully by 2027, interest rates are lower than they are today; this is a gamble at the moment.

PARTNER

There’s a cap in the “Fannie/Freddie” world of the number of mortgages a person can hold. That cap is 10. There was a point where we had completely leveraged ourselves and ran out of room. We had a Realtor friend interested in more rental properties, and he agreed to front our down payments, which we’d pay back with interest, and have a 50% share in the houses.

We signed an agreement with him that outlined our payments to him for the down payment he covered (which we paid off in about 3 months), and it established our 50% shares in the two houses purchased via this method. We purchased the houses in April 2018 and February 2019, and put them in a limited liability corporation (LLC). Each month, I collect rent from the houses and pay out our partner’s share. These houses don’t ask for much (one has been rented since before we owned the house and one has a tenant that has been there a few years), but if they need something, I handle coordinating the maintenance request. We should have set up a schedule where I’m paid for my time since Mr. ODA and our partner really don’t do anything for these houses, but luckily the requests are few and far between. We split all costs 50/50.

RENTERS WITH COMPENSATING FACTORS

I have several examples of entering into lease agreements with tenants that don’t have a perfect record. In these instances, we typically request some sort of compensating factor (e.g., a cosigner, an additional security deposit). We give everyone the chance to tell us about their financial and rental history before we run a background check on them (telling us doesn’t cost anything, but a background check does).

We had a prospective tenant not disclose a bankruptcy on her record. I could have immediately disqualified her and her husband, but I gave them a chance. They lived in that house for a year. They only moved because his job after grad school took them out of the area, but they set us up with a new tenant at their departure, and she stayed there for several years. Then they moved back to the area, and they requested a house of ours. We had one available, so we happily had them move into it. There’s one success story from giving someone a second chance.

I also have a couple that doesn’t have a happy ending. We had purchased a house without vetting the area. I had fully vetted a house two blocks away, but I learned my lesson that the crime of an area doesn’t need more than one block to change its ways. This house was in a bad area. The house itself was adorable. It attracted wonderful people to come see it, but they’d check the crime history of the area and decline applying (understandably). Someone came forward with a 448 credit score. That’s pretty bad. She wrote a really nice letter though. She disclosed everything up front and said she just wanted a roof over her and her son’s heads. I believed it. We then spent months and months struggling to get her to pay her rent, even offering her a payment plan several times and changing her lease structure to allow her to pay twice per month (hopefully eliminating the constant late fees she was accruing). We eventually gave her 30 days notice to vacate the premises due to lack of payment. She didn’t even make it a year. Instead of listing the property for rent, we ended up selling it. That was a whole other debacle where we entered into a contract to close by September of that year, but we didn’t close until the following January due to the lack of financial qualifications on the buyer’s end.

PAID OFF LOANS/MORTGAGES

This doesn’t appear to be a big risk. What could go wrong with paying off your mortgages? Well, if we didn’t have a cash reserve, and there was an emergency, then we paid off these loans with the cash on hand, leaving nothing to cover that emergency. However, those dooms-day concerns rarely come to life, and we had continued cash flow that replenished our accounts.

The positive here is that we freed up cash flow. Instead of having mortgage payments to make every month, we now have the cash to go into savings or towards any higher-than-expected bills. Besides the house we sold, we’ve also paid off 6 mortgages. That means that we’ve paid less interest to the banks, and that’s more money in our pockets.

We haven’t paid off any other loans because they’re all below 5% interest (they’re actually all below 4% except for 1 with our partner, and we would need his buy in the pay that off, which he hasn’t wanted to do). After payments to mortgages, our property manager, our partner, and utility payments, we have over $8,000 in cash flow per month. I will note that this doesn’t include things that I need to save up for each year to be able to afford (e.g., taxes and insurance), and it doesn’t include maintenance needs that crop up. Cash flow is important for us because if Mr. ODA quits his job, that’s less income to offset our regular personal expenses.

FINANCIAL AWARENESS

On any given day, we’re weighing several financial decisions fluidly. There are the givens that we have to pay the bills that are out there. I have to pay all the mortgages and utility bills. I weigh the best time of the month to pay each bill, which means that I may not pay them as soon as the statement arrives, but may wait until closer to the statement due date (but never carrying a balance unless it’s 0% interest). Then there are the options such as paying additional payments towards a credit card with a 0% interest rate, additional principal payments to a mortgage, or additional investment plans. We’re not looking to apply for any loans, so the $9k balance on a 0% interest credit card doesn’t have any attention of mine except the $500 I pay each month. I have it marked on my calendar when that 0% introductory rate expires, and I’ll have to pay the balance in full.

Our money is handled by a full, big picture, approach. Each day, there’s a chance that we come to a fork in the road and make a different decision because the variables changed slightly. We don’t put our money into “buckets” or “envelopes.” In my experience, people who handle their money like this end up overspending.

We hit our goal to replace my income well before our son was born, but then I kept working until he was 9 months old. While I was still working, we could have easily said, “we hit our goal, but since you’re still working, let’s put all that money into a slush fund of some kind.” When people see any “extra” money, they then look for their next splurge. They feel they deserve something for saving money instead of putting that extra money to work for you and your future.

There are those “autopilot” moments in our finances, but when it comes to making a big change, we put pen to paper and check the details. We aren’t going to take $100,000 out of our investment accounts to pay off a 2.5% mortgage. But one day, we will have to consider what to do with our loan that has a balloon payment, which shows it’s not a hard and fast rule that we won’t pay off anymore loans early (because if interest rates are still at 7.5% in 2027, it may not be worth refinancing that balance).

LIVE SMART WITH INFORMED DECISIONS

Take the time to make informed decisions and research the data for yourself. Run models with the projection of money to see for yourself if it works in your situation. Don’t spend your days listening to other people’s opinions on actions. If we had listened to opinions, we wouldn’t have taken a TSP loan or taken out ARMs.

We’re at over $4 million net worth, have a solid cash flow (which is important because if our net worth of $4 million was tied up in a retirement account, that wouldn’t give us the ability to live comfortably now), and have plenty of money going into accounts for the future (for both us and the kids). Our spending is managed regularly with an ingrained thought process. Take the small, first step for yourself without other people’s opinions weighing you down.

If you want to live differently from everyone else, you have to take action and think for yourself.

Home Sale Proceeds

October 19, 2023October 14, 2023mrsonedollarallowanceLeave a comment

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

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

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

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

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

PROCEEDS CALCULATION

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

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

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

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

PAST DETERMINATIONS FOR WHAT TO DO WITH THE PROCEEDS

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

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

WHERE DID THE MONEY GO THIS TIME

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

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

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

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

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

SUMMARY

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

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

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

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

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

April Financial Update

April 14, 2022April 12, 2022mrsonedollarallowanceLeave a comment

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

NEW HOUSE IN OUR PORTFOLIO

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

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

RENTALS

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

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

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

SPENDING CHANGES

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

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

SUMMARY

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

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

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

March 28, 2022mrsonedollarallowanceLeave a comment

We closed on a new type of loan last week. It wasn’t a completely smooth process, but it was easier than a residential loan.

WHY COMMERCIAL?

Residential loans on second+ properties were over 4.5% on their interest rates last month. The commercial loan gave us options that were lower than that. It comes with a catch though. While the loan is amortized over 25 years (there was a 20 year option too), there’s a balloon payment after 5 years. There were also 3, 7, and 10 year options. Being that this was our most expensive investment property purchase, 3 years was too much of a risk to take on that balloon payment. The interest rates for 7 and 10 years didn’t make it worth going the commercial loan route. While the interest rate is fixed (unlike in an ARM or adjustable rate mortgage), this balloon is a risk.

By going through a credit union, our costs were also minimal. Our closing costs were just over $1,000, rather than the typical $2k-3k that we’ve seen on closings that cost less than half what this house cost us.

The only other “catch,” if you want to call it that, is that there is no escrow. I already handle the taxes and insurance payments on my own for a handful of our houses, so that’s not a big deal. I also appreciate having control over my money instead of having to check in on escrow regularly and making sure all the escrow analyses are actually done correctly (because one recently wasn’t!)

PROCESS

We filled out an application, which they called the “personal financial statement” and included our detailed financial status. It had me list all our account types and balances. I assume that’s what they used to compare against our credit report, because we actually didn’t send any account statements to them (glorious!). We had to provide the last 3 years of tax returns (ugh… we haven’t done 2021 yet so we had to give 2018).

I developed a rent roll and gave that as well. It listed all real estate owned, purchase price and date, current market value, monthly rent, mortgage balance, monthly mortgage payment, and whether or not it’s occupied. I added the HOA payments on the houses where it’s applicable because that always seems to be a last minute request for documentation.

Once the application was completed and reviewed, that was it. We were asked a few follow up questions about the numbers on our forms, but we weren’t asked for anything further. Essentially, “underwriting” happened as part of the application process, versus in the middle of the application and closing dates, spanning days and maybe weeks of documentation gathering and answering of questions.

Instead of a “rate lock,” the rate given is the rate that was present at the application submission, pending any exceptions (e.g., if credit isn’t what we said it was or we have outstanding loans not disclosed). As an auditor, it was hard for me to accept that we weren’t going to be hit with a surprise somewhere along the way because we never signed anything agreeing to loan terms!

We saw no documentation until the Monday before our Thursday closing. There was no initial disclosure, and no “rate lock.” We had no idea how much the closing costs actually were going to be. The responses to our questions were slow or nonexistent. We didn’t see our appraisal until the Friday before closing. Not knowing the process or knowing when we’d find out how much this was costing us was more than we’re used to handling emotionally.

We received the HUD settlement statement on the Monday before closing. Luckily, everything was correct. Our sellers had already moved out of the area, so we had to have the statement sent to them, signed, and sent back to the Title attorney. They did that perfectly, and we had an easy closing on Thursday. We signed all the paperwork in about 20 minutes!

FIVE YEAR LOAN

Mr. ODA ran some numbers to show me why we should go for the 5 year loan instead of the other terms.

We didn’t consider the 3 year option because we didn’t want to manage that balloon payment or refinancing so quickly.

As a reminder: the closing costs for the commercial options are the same regardless of the term, and were about $2k less than the traditional loan; all the commercial loans are amortized over 25 years, but have a balloon payment at the end of the term given; all are based on 20% down (because there was no incentive for 25% down).

The final decision to go with the 5 year loan was that we haven’t shied away from risk in the past, so take the incentives that come with the shorter term (i.e., lower monthly payment and less interest paid). Our portfolio has made drastic changes over the last 5 years. Therefore, we don’t see a reason to pay more interest, reduce less principal, and have a higher monthly payment (thereby lowering our monthly cash flow) just because a balloon of $167k is concerning.

BALLOON PAYMENT

The loan is $193,600. After 60 payments (5 years), the principal balance (with no additional payments made) will be $167,500.

Let’s face it, if we had $160k+ liquid, we wouldn’t be paying the first 5 years of interest on the account. We can make additional principal payments over the next 5 years to dwindle the balance before the balloon payment is due, and/or we can look into refinancing the balance at the end of the 5 years.

We had another private loan that had a balloon payment at 5 years. That loan was originated at about $70k and we paid it off in about 3 years. We had several issues with that lender, so we had the incentive to throw money at the loan and be rid of it, versus attempting to refinance it at the end of the 5 year term.

It’ll be interesting to see what we do on this going forward. The balloon payment would typically be an incentive to make additional principal payments. However, we have six other loans with an interest rate higher than this loan’s, and one loan with the same interest rate. We’ve been focusing on either the one with the lowest principal balance or the one with the highest interest rate. This new loan doesn’t fit either of those categories!

SUMMARY

Mr. ODA asked me if I would do this again, and I would. It was frustrating to ask someone in customer service a pointed question and not get an answer, but overall this was easy. There was minimal documentation needed, the requests didn’t drag on, and the closing costs and interest rates available were favorable. The balloon payment is something that needs to stay on your radar over the next 5 years (and mostly in that final year), but refinancing is always an option. It doesn’t mean that you have to be ready to fork over $167k on that date, but you do need to plan for closing times and ensure you keep your credit worthiness in good shape (although isn’t that always the goal?!).

March Financial Update

March 15, 2022mrsonedollarallowanceLeave a comment

We have been surprisingly busy around here. I’ve been juggling a few rental issues, staying on top of some billing issues, and trying to make it through a commercial loan process.

At one point, most of our loans were held by one company. That was a more simple life. Even though we’re down to 6 mortgages under our name, it’s through 5 different companies. I’m really struggling keeping up with them and getting in a groove after our most recent refinance. I’ve mis-paid things 3 times now. I’m always on top of our payments, but something just isn’t clicking right now for me. I just paid one of our mortgages due April 1 instead of changing the date to be an April pay date. At the moment, we have a buffer in our account because we’re getting to this closing next week, but we usually don’t, so hopefully I have this figured out now that I’ve made so many mistakes.

RENTAL PROPERTIES

LEASE RENEWALS

We had 3 properties process their renewals this past month. Each of them had cost increases to their lease renewal (875 to 950 effective 5/1, 850 to 900 effective 8/1, and 1025 to 1100 effective 5/1). We have another property that will have a renewal offer go out this week. Then we have 3 that will need action by the end of April because the leases expire 6/30, and one that will need action by the end of May because it expires 7/31.

MAINTENANCE

We had a tenant reach out to us that they found bugs in their bathroom tub. She sent pictures and, sure enough, they were termite swarmers. I have way too much experience with termites. I called our pest company, and they sent someone out for an inspection to confirm they were termites. Then I got a call that because we didn’t pay the annual fee to keep our warranty current for the last 3 years (we had the house treated for termites in February 2019 when we bought it because there were active termites and extensive damage by the front door that needed repaired), they could charge us $650 again. However, since we’re considered a business account, she’d be happy to let us back pay the termite warranty and they’re treat it. So I paid $294 for the treatment instead (split with a partner on this house). She also informed me that they had cut off the hot water to the kitchen sink because there was a leak. I don’t know why tenants don’t tell us these things right away! I had my plumber out there the same day, and he replaced the whole faucet. That was $378. That’s one of those charges that’s frustrating because we could have replaced the faucet on our own, but we don’t live there anymore. Oh well; it’s also a cost split with our partner, so that helps.

We had another tenant reach out saying that her kitchen sink drained slowly. She’s been with us since we bought the house and never asks for anything. She’s on top of communication and was super appreciative each time we agreed to renew her lease. We had done a huge sewer line replacement project at this house, so I was skeptical of the issue. It turns out there was a plastic fork lodged down there, but I just let it go (meaning, she’s then technically responsible for the cost). Our property manager let her know that if it happens again, she’s financially responsible, but we’ll cover the cost ($200) this time.

RENT COLLECTION

We FINALLY got the check for one of our tenants that had an approved rent relief application. They submitted an application in November to cover December, January, and February rent. By mid-December, they ended up paying December rent because they hadn’t heard (and the application expires, meaning their protection from eviction expires (not that I would have pursued eviction for this group because they’ve been great tenants for several years)). They received approval for 3 months worth of rent and 2 late fees on January 11. We received the check on March 4th. So frustrating in that process, but still better than an October approval and us getting those 3 months paid at the end of January.

We had our usual suspects not pay rent. On the one house, they didn’t tell us they weren’t paying rent for the longest time. Now, they tell us they’ll pay us on a later date. I let it go this month, but with them paying on the 23rd, that means we’re in a perpetual cycle of not getting rent on the 1st. We have a partner on this house, so I plan to address it next month if they claim another 3+ week delay in getting us the rent. On the other house, she let us know in February that she’d struggle to pay rent and she gave us random amounts throughout the month. I let her know she was still $106 short from February and that she was now in default of March’s rent, and I got no response. Then Mr. ODA had $1000 show up in his account on Friday. She still owes $371 between the two months, but at least we have the mortgage payments covered. She’s also the tenant that we plan on not renewing her lease because she’s caused issues throughout her tenure.

BUYING A NEW PROPERTY

We’re still in the process of getting through closing on a new rental property. We’re expecting to close not he 24th, so we’ll see how that goes. It’s a commercial loan, and it operates different from residential mortgage underwriting, so we’re in the dark. Communication has been next-to-nothing. We’re currently waiting on the appraisal to come back. That was our one hurdle to getting into the house. I said once the appraisal clears, then we (as the buyer) shouldn’t have any risk in getting to closing. Therefore, we were hoping to have the house painted before we close (I would do the painting), then we could refinish the floor and get the rest of the cleaning done the weekend after closing, and get it listed for rent for April 1. I suppose I wouldn’t be trying to get to the house before Friday, so I guess I can be patient and wait to see what happens with the appraisal for a few more days (even though the appraiser was on site last Tuesday, and I’ve never had it take more than a day or two to get the paperwork).

REFINANCE FOLLOW UP, STILL

We still have an issue with the mortgage that I ended up paying 3 times for the 2/1 due date. Our refinance was difficult, and the communication continued to be difficult after closing. I asked on 2/1 whether our loans had been sold yet because I was surprised I hadn’t heard. Usually, I see a note saying to pay the new company before the first payment, thereby not paying the first payment to that “first payment notice” place that comes with the closing documents. The company’s contact said to keep paying them because they hadn’t sold the loans yet. I didn’t open the attachments in his email because I assumed he was reiterating what he said in the email. Turns out, one of the loans was already sold, and I should have paid the new company. Well, I processed a paper check to go to a completely different company (started with a C, and I didn’t catch that I selected the wrong one in bill pay). Luckily, that company sent us our check back, saying they think our loan is closed with them and they can’t process the payment (thank goodness we once had a loan with the address I put in the memo line so they could clearly make a connection and say “we don’t want this!”). When I noticed my mistake on the 14th, I sent a handwritten check that I rushed to the post office at 4:55 to get post marked. In the meantime, I found out that I was able to set up an online account with the new company even though I didn’t have the loan number yet (they gave it to me over the phone). I paid the new company online to make sure I didn’t have anything on my record claiming I didn’t pay by the 15th and it was late. I figured I’d rather manage 3 payments being made than fight the credit companies to change my credit report. Well, the initial company cashed my handwritten check, but they still haven’t sent the money to the new mortgage company. They just kept telling me they have 60 days to get it to them, and I said that’s unacceptable that they’re holding my money. That was a week ago that I was told I’d get a call back, and I haven’t heard from them.

PERSONAL EXPENSES

Now that the basement is done, I had a strong urge to finish projects. There were several things that were starting but not completed. Those final punch list items always seem to take forever. I was impressed that Mr. ODA pushed to get some of the things in the basement done right away, even though they weren’t on a critical path. However, I didn’t uphold my end of the project by painting those things, so I got back to that. I mentioned several of the projects in a recent post, and I’ve done a whole lot more since that post. But all that to say, I’ve spent a lot of money in the last month. I bought a lot of supplies to finish off these open projects. I also had big purchases of cabinet hardware, a dining room table, a desk, and a wood. We haven’t done very much out of the house, so we don’t have a lot of other expenses than these projects, which means our credit cards are actually have the usual balances. We did book an AirBnB for a trip at the end of the summer with friends of ours. That was a big hit on the credit card for a week at the beach, but they reimbursed us for their half.

SUMMARY

It feels like I just keep lowering the balance in our investment accounts each month, but I went to look at February 2021 to see the total. Even though some balances have decreased, we’ve still contributed to the accounts, so overall they’re $21k higher than last year, which is encouraging. I guess I should also focus on the property values raising significantly. We’re over $500k higher than last year in our assets, and our liabilities (i.e., mortgages) are about 13k less than February 2021. We’re also still over $3M on net worth, even if we’re hovering right around that. We’ll add about $50k to our net worth by the end of the month, as long as we close on the new property on time.