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Refinance Results

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There’s a company in Virginia that offers $0 closing costs for refinances. That applies to personal residences being refinanced. They still cover most of the closing costs associated with investment properties, but there’s an investment property fee that we need to pay. They also have a fee associated with taking cash out as part of the refinance. Another stipulation is that the new loan has to be at least $100,000 after the refinance. I spoke of the initial details in a post last month, and now I can discuss the details and results of the refinance.

We first talked about taking $50,000 out for each Property2 and Property3. Then we added Property8 into the refinance. The opportunity to use this company to refinance a loan is only available in Virginia. We decided it was best to pay off both Winchester, KY houses instead of just one. The appraisals came back higher than anticipated, so we decided to increase each loan to the max amount of 60% loan to value ratio.

Note the change in value on these houses. We’ve owned 2 and 3 for 5.5 years, and we’ve owned 8 for just over 4 years. The value of these houses have more than doubled in that time, with minimal effort on our part, all the while having a tenant cover the mortgage and maintenance costs.

CASH FLOW

At first, the thought of going from $60-70k to $123k-138k worth of loan payments is an overwhelming sight. I’m a visual person, so I broke it down to a place where I felt comfortable with this move. That comfort is in the cash flow.

With the $190k cashed out, we paid off two loans. Due to a huge issue with our insurance payments, our escrow accounts were substantially negative. Therefore, the payoff required making the escrow accounts whole. Our bank that held these loans used to have such a great online system. Through the course of 3 updates, they killed it. They took away loan history in an easy-to-view format, they took away options to make principal-only payments same day, and they removed the payoff request concept (they had made it difficult in the last update by making it a request that you would have emailed to you, and then in this update, they took it away all together, forcing me to call an automated system that just kept telling me about covid-relief options….. I’m not bitter).

After these two loans were paid off, we were left with just under $50k in cash. This will be used for a downpayment and closing costs on a new rental property, which is a search underway.

To the cash flow part – the removal of those two loan payments was worth $1,184.62. The three properties refinanced had their mortgage payments increase by $1,117.70. The change in my monthly cash flow is now $67 more than I had been netting. I’ll note that the cash flow also involves one of the houses going from a 20 year mortgage to a 15 year mortgage, which increases the monthly payment disproportionately to just an interest rate change.

That’s the black and white, month-to-month change; there are some caveats though. Previously, Property2 hadn’t been escrowed, so I was paying that on my own. Now, with the two houses paid off, I’ll need to pay those previously-escrowed costs on my own. When I factor those details in, my annual cash flow actually decreases, and my out of pocket costs for the year increase by about $700.

While the monthly cash flow increase of $67 isn’t a drastic difference, the fact that we have cash left over and $50k of the new loan balance will be used to create more cash flow with the purchase of a new rental-producing property benefits our portfolio.

MANAGING BILLS IMPLICATION

With the payoff of the two houses in Winchester, KY, I now am responsible for paying the taxes and insurance on the properties (instead of escrow). In October, Kentucky sends the owner as of January 1 of that year the tax bills (meaning, if you own the property on January 1, 2020, then you receive the tax bill on October 15, 2020). It’s frustrating. It’s on the old owner to forward to the new owner if there was a sale during that year. They also send it to the owner even if there’s a mortgage with escrow. So every year, I need to call the mortgage company and make sure they received the bill themselves. Even though I need to stay on top of paying the taxes and insurances now that there’s no escrow, it’ll actually save me time because I won’t have to call these companies to make sure they received the current tax bill. Oh! They also give an incentive for paying early, so I’m always worried that the escrow payment won’t be released to give me that incentive and that they’ll focus on the due date.

Property2 had not been escrowed. There was a screw up in the paperwork that I capitalized on because I don’t like that escrow keeps my money tied up without any incentive to me. Well, Mr. ODA thought I had said I preferred things to be escrowed, but I don’t remember ever definitively saying that. I may have said a comment like “gosh, it’s nice to not have to remember to pay this bill,” but not that I’d prefer to see my monthly payment go up each year because of an escrow reanalysis (I feel like I wrote a post about this……). Property 2 is now escrowed through the refinance.

I removed two tax payments to Virginia and one insurance payment, but then I added back 4 tax payments and 1 insurance payment for each year. The one insurance payment for two properties is what caused me to have an escrow fiasco, so now we’ll avoid that mess by paying it ourselves. Plus, when we pay the insurance ourselves, it can go on a credit card where we earn cash rewards.

SUMMARY

In 4-5 years, we’ve more than doubled the value of these houses that we purchased. While that isn’t immediate cash in our pockets, that’s a substantial increase in our portfolio’s net worth. That increase in value costs us more in taxes in each year, but it also provided us with this opportunity to refinance and take cash out to purchase another property. With two houses paid off, we have also increased our monthly cash flow by about $67. On top of all the near-term gains for this transaction, there’s also the interest payment gains we received. All 3 loans dropped their interest rate, and one loan transitioned to a 15 year loan from a 20 year loan, which decreases the interest owed as well.

November Financial Update

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Last month, I mentioned that there would be a lot of rental property expenses and bills being paid this month. Well, they will hit in November, but they don’t hit until the end of the month. I scheduled all the payments to be made right after our current credit card cycle closes, which is around the 20th of the month for most of our credit cards.

I had to update our 401k numbers with more recent data (usually the data I’m using is a couple of weeks old since updating those accounts involves an unnecessary amount verifications). I also updated one of the balances on our mortgages (one with a partner that I don’t have access to the account to see regular updates).

I’ve been working the second half of October and a few days in November, which has kept our spending low. This month I have the last of my Christmas shopping to do (hopeful for deals on Black Friday for items already in my cart!) and several insurance payments that will cause our credit cards to increase more than usual, but we’ll stay on top of paying them off.

We have yet to receive September, October, and November rent from one of our tenants (more information in the next post in a few days). Otherwise, everyone is paid up on rent, and we even had a tenant pay part of December’s rent!

We had several reimbursements come through this month that increased our cash on hand. Mr. ODA purchased things for our HOA on his credit card, so that was reimbursed. We had issues with our escrows and insurance payments, so the overages were reimbursed to us. I also worked, serving beer, in October, which increased our cash balance more than usual.

There are a few line items that were changed significantly because I wasn’t working with clear data the past few months. We may have hit $3 million net worth before this update, but I know that it’s official now! At 35 and 34, that’s a fun accomplishment. It doesn’t feel like we have money to throw around, and we certainly don’t live lavishly. You can see that $2 million of this is tied up in the appraisal value of homes we own, and most of the other parts of this is tied up in accounts that we can’t access until retirement. We still make decisions for the longevity of our net worth because, well let’s face it, we’re only in our mid-30s and there’s a lot of life to live.

October Financial Update

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We’ve been busy, which has kept our expenses down in our personal life. I’ve been working a few days at our local racetrack, which has been for my entertainment and a good way to bring in some money for our household. While our busy schedule has kept us from eating at restaurants and spending money on activities, the last quarter of the year brings big expenses on the rental front for insurance and taxes.

I still haven’t decided how to format these financial updates, but I did work on categorizing all the expenses for our year. I’d like to see how our spending changes through the year, and if I keep a running tally of the information, I’ll be able to consistently categorize expenses. At this point, I’ll just report for the whole year later in January, but it feels good to have that process started since there are a lot of transactions (already at 786 line items!).

RENTALS

We paid an extra $2000 towards the mortgage that we’re trying to pay off (we paid $1000 and our partner paid the other thousand). That mortgage balance is about $26k, which we’re responsible for half.

Kentucky taxes are due in October. Well, they’re actually due in November, but they give you a 2% discount if you pay before 11/1, so we of course do that. Two of our houses are still escrowed, so I don’t need to worry about that, but I had to pay one of the houses, which was about $1300. As an aside, I put it in the mail on 10/6 and it was taken out of our account on 10/8; I’ve never seen the mail and processing of taxes happen so quickly!

We had someone do the work on a house (fix bedroom doors and replace a missing section of fence) that was left over from my July walk throughs, and that was $490 (split with our partner). This house has been notoriously late on payments with very little communication, but they’ve turned a corner. They’re still late with payments, but they pay the late fee without prompting and give us advanced notice, which is all we ask for! They say they’ll be back on track with on time payments next month.

We’ve had issues with another rental, which I shared in my last post. They were approved for state assistance, so I’m expecting September, October, and November rent from the state here soon. Since there’s no timeframe for when that will come in, I’ve told her that she has to keep paying on the payment schedule we agreed to, and anything she pays will just go to December rent at this point.

PERSONAL EXPENSES

We had all the drywall for the basement delivered in September for $788. Several pieces arrived damaged from the strap that held them down. Mr. ODA called Home Depot since the delivery fee was $75 for this convenience, and they were super nice. She refunded us for the broken sheets and the delivery fee ($125!).

Only $130 spent in gas (that will probably go up next month since I’m driving to/from Lexington 3 times per week for work, plus a few more personal trips there). Only $92 spent in restaurants!

SUMMARY

While some of the expenses for rentals have trickled in, the next month is when most of them are going to hit. We’ll also have an annual medical bill come due in November.

Our net worth increased by $21k from last month. Our credit card balances are low, and then our cash balance is higher than usual because we used to just put any extra cash towards mortgages, but right now we’re trying to pay off that mortgage we have with a partner and rethink our approach (do we want to save for another down payment.. type question).

September Financial Update

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Cooler weather is here! We have a full calendar these days with pre-school and sports. I’ve been managing that by setting a lot of alarms giving me a half hour warning that we need to leave the house for something. We also celebrated our son’s 3rd birthday with both sides of our family, which was so much fun. He knew all about a birthday and the traditions, did a great job at being grateful for his gifts, and hasn’t stopped playing with all those new toys. This month, his birthday party and a long weekend trip to Virginia were our big expenses, while the sports and activities kept us home and not eating at restaurants in between those things! On top of all this craziness, Mr. ODA went on a work trip, then I picked up a few shifts at the race track to help them out. And so, here we are, two-and-a-half weeks since my last post.

NET WORTH

About once a month, we have a meeting with our financial advisor. During last month’s meeting, his software system said that we hit $3 million net worth! Unfortunately, my numbers last month didn’t say that, and they still don’t, but we’re right there. I didn’t think it worth it to line up my information against how the software is reporting the number because a lot of our net worth is based on the current market value of our real estate, which isn’t necessarily an exact amount. I know Mr. ODA had a goal for the first million in net worth, but I wouldn’t say that we had a goal to hit this particular number. With the financial advisor, we’re working on our mentality. We’re basically trying to figure out what’s our true goal (instead of just this number), and if we had (and did) everything we wanted, what would that cost difference be? I’m working on two other posts about our mentality, and I’ll have to include this side of the thought process as well.

DETAILS

One of our credit cards has a balance of over $2,200 in this net worth update. That includes almost $1,000 of a hotel that Mr. ODA had for a work trip, the hotel for Richmond at $450, and an AirBnB charge for an upcoming trip of $424. It also includes Mr. ODA’s food purchases while on travel, which amount to about $180, and an Uber trip of $10. The work expenses will be reimbursed, but that’s not yet accounted for in the math since the payment hasn’t hit our checking account yet.

With the child tax credits coming in, our investments have gone up each month. We’re putting some of that into the kids’ investment accounts. We’ve also had other unexpected income, which led to another $500 transfer into Mr. ODA’s investment account. Usually, we see an automatic contribution of $1100 between our Roth accounts and the kids’ accounts. This month, we had $1,900.

All of our housing expenses were about the same. This coming month has a trip planned, a day to hang drywall in the basement, and me working at the race track nearly every weekend.

A Second Home & Summer of Travel

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Why did we do so much traveling and activities this spring and summer? Most people probably assume all our travel was making up for a year of not traveling during the pandemic, but we came at it from a different perspective.

We’ve had a long term goal of a beach/lake/mountain home. After another failed search to make this dream come true this past Spring, we decided to redirect that money to trips this summer. I’ll run through the background, the financial decision, and how we spent our travel “budget.”

BACKGROUND

We first looked into a vacation rental in Snowshoe, WV – six years ago. Snowshoe is a ski resort, and one of the better available ones to those of us south of the Mason Dixon. It also has a draw during the summer with hiking and mountain biking, albeit not as constant of a stream of people needing a rental. The draw for us was that it was halfway between our home in VA and Mr. ODA’s family in KY.

We went as far as meeting a Realtor and looking at properties. If the house was off Snowshoe proper, it was a good distance from the ski lifts and not in great condition. If the house (condo) was on Snowshoe proper, it came with a lot of rules and regulations and costs. Everything near the ski lifts had to be under Snowshoe’s management, which included their cleaning costs, and their booking process. This meant that someone couldn’t necessarily go onto the website to book our unit. Someone would go on their website and book “a 2 bed and 1 bath unit” and the system would cycle through the bookings. With the high condo costs and the uncertain bookings for those units, as well as the distant location of the units that weren’t subject to the condo process and cost (plus finding a management and cleaning company for that), we stopped the search.

Since then, it’s been on the wish list, but we weren’t sure what direction we wanted to go. 

When we moved to KY, we decided to look into a lake house. We want it to be close enough that we could just pick up and go (e.g., trying to keep it under 2 hours), we want it to be on a lake that allows motor sports (so this rules out anything that’s “no wake” or prohibits motors of any kind), and we want it to be lake front (we learned this during our recent search, and hadn’t fully realized how much we wanted this until we saw a house that wasn’t on the lake directly). 

We looked at parcels of land and kept an eye on a few houses listed in the March/April timeframe of this year. Our initial thought was that we would purchase land and hold it until we were ready to have a house built. The parcels of land we looked at didn’t meet the criteria we wanted (good size, on the water, ability to build a dock). I started to feel like we were pressuring ourselves to make a decision for something that we didn’t actually need. 

We took a break and just kept an eye on Zillow. We went to see a new construction house on Herrington Lake, but it wasn’t actually on the lake. It was next to the community pool, across the street from the community’s dock, had 3 bedrooms and 2 bathrooms with a loft, and it was brand new. It even had a two car garage, which wasn’t something on our wish list. However, the price tag was high; it had been listed for many months, and we didn’t feel the comps supported such a cost for it not being literally on the lake. We spent a lot of time mulling it over, but decided to not even put an offer in. Lucky for the seller, they did get a full price offer shortly after that. 

I decided that we should wait at that point. I figured we may have better luck waiting until the end of the summer (perhaps people will think they’ll spend their last summer on the lake and then unload it?), and that we shouldn’t force this decision to not get exactly what we want for something that isn’t a necessity. 

THE FINANCIAL DECISION

If we purchased a $250,000 second home, and I assume an interest rate at 4.5% (even with excellent credit, the rates you see advertised are for primary residences), we’re looking at a mortgage payment of $1,200. On top of that, we’ll have escrow costs, HOA costs, the possibility of management fees, and then even PMI costs. That was another big factor; we’ve been throwing any ‘extra’ money towards paying off two rental property mortgages, so we don’t have $50,000 liquid to cover a 20% down payment. Without having the 20% down payment, it wasn’t even guaranteed that we’d be able to get a loan for a vacation house.

Knowing $250,000 was even more than we expected to spend, I conservatively assumed $1,200 in monthly house costs. Instead of spending $1,200 each month to go to the same destination over and over again, why don’t we just mentally allocate $1,200 each month to travel and go to all different places? And so, months of a crazy amount of travel began.

HOW DID WE SPEND OUR ENTERTAINMENT ALLOCATION?

MAY: $618

We started with a last minute trip to Atlanta to see the Braves. We spent 4 nights in Atlanta, went to two baseball games, met up with family for lunch, visited Stone Mountain, and explored the city parks. We stayed in a 2-bedroom hotel room because it was cheaper than any AirBnB options, and I was highly focused on giving the kids separate sleeping spaces. The hotel experience was less than favorable (dirty, AC broken, limited breakfast, roaches … and a good name hotel!), and after some conversations with the hotel, we ended up not paying for it. They had credited us one night without us asking after the AC continued to not work after their “fix.” Mr. ODA then had a casual conversation with the manager about the stay as he was checking out, and the manager credited a second night. I thought we paid for the rest of the nights, but it never showed up on the credit card. Our total trip cost was $460.

Later in May, we went camping in the Daniel Boone National Forest with some family. We booked a “cabin” (I used that term loosely; it was walls, a roof, and platforms for sleeping bags, but it had electricity and AC!) for two nights. We went swimming, rode bikes, and hung out under a canopy while it poured on us for most of the main day we were there. Our dog got to come on this trip, so we didn’t have any pet fees. We brought groceries to cover our meals since there’s nothing close by. Since we’d be buying groceries anyway and gas is negligible since it’s an hour away, I’ll just focus on lodging, which cost us $158.

JUNE: $200

Almost a year ago, we planned a trip with the extended family to Hocking Hills. This shouldn’t really count against our “monthly allowance” mentality since it was going to happen regardless, but I’m including it anyway since we didn’t do any other June trip. Mr. ODA’s parents covered the cost of lodging, and the rest of us covered the cost of food and our canoe rentals. We went hiking, got rained on, and played games at our rental. On the last full day, we rented canoes and went down the Hocking River, which was a great experience. We went with 6 kids, 3 of which were under 3 years old. So if you’re a beginner or looking for something to do with little ones, this was a fun time for $52 per canoe! This trip cost us about $200.

JULY: $690

Before we left Virginia, we discussed doing walk throughs of our properties and being more present with them. There were some properties that we hadn’t seen since we bought it because they don’t have maintenance requests or we call someone else for the work. Well, it was a whirlwind to move, and we didn’t do that last summer. After the debacle with the flooring replacement at one of the houses, we knew we needed to get back there to tie up loose ends. We have a wedding to attend in the area in September, but decided this couldn’t wait until then. The first weekend we could go ended up being the 4th of July. Being in Richmond, VA, there isn’t a large AirBnB market for a normal sized family. All of the options that were available were meant for multiple families in a large house, and we just aren’t interested in paying $700 per night for ourselves. We went with a hotel halfway between Richmond and our old neighborhood, and because we stayed for 5 nights, it was considered “long term,” and it only cost us $525, which included $75 for the dog being with us. Since our entertainment was either working on rental houses or visiting with our old friends, we just had food and gas costs. The total trip cost was $690 (and most of that was tax deductible!).

AUGUST $1069

We learned that St. Louis is only about 4.5 hours away from us, so we looked to see the Braves’ schedule. They were scheduled for mid-week games for the first week of August, so we marked it down. Unfortunately, things were busy, and I didn’t make the plans in advance. I struggled to find pet care for our dog, and I ended up booking an AirBnB the morning before we left. We searched and searched, and this one randomly popped up that morning, and it worked out well. Lodging cost us $585. Our entertainment (tickets and parking) cost us $135. Food and gas cost us $213. Total trip cost was $933.

My plan to visit my family in NY in July didn’t come to fruition because we had to manage 4 days worth of our builder being here to fix things in the house, and then I had a doctors appointment pop up that had to be a specific time. Instead of driving there and back (12+ hours each way), we booked some flights. We’re able to go from Cincinnati to JFK directly (such a blessing with 2 kids under 3!). The flight was 2 hours, plus an hour on each side for driving (although, it took us an hour and a half to get to my parents’ house when we landed at JFK because a 3:20 arrival, plus what felt like a 2 mile walk from the gate to passenger pickup, put us at getting on the Belt Parkway at 4 pm – that’s not good for that area!), and getting to the airport an hour early. We left out of LGA, but it was still a direct flight, and we arrived 25 minutes early! We had hardly any wait at TSA for either leg, no issues with boarding or the flight, and we got our gate checked bags easily. I’ll take 5-6 hours of travel over 12+ hours. The flights were booked through our Chase Travel Portal, costing us the equivalent of $833 in points. The parking is $9 per day, the gas to get there is negligible, and we actually didn’t spend anything on food (I very much owe my parents for that!). Our entertainment goal was to go swimming in my parents’ pool the whole time, and that’s just what we did! The trip cost us $36 in parking and $100 for our dog’s boarding.

On top of these long trips, we also did a lot more activities that were just for one day. We went to 2 Reds games, the Cincinnati Zoo several times, a UK baseball game, Bernheim Forest, and random family/friend activities. It turns out we didn’t spend the $1200 per month we had mentally allocated, but we kept ourselves really busy and had a great time making memories! 

Now it’s time to enter a new phase of life: preschool and sports! I’m pretty excited!

August Financial Update

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This has been a crazy month. We went to St. Louis and New York, we tiled the basement bathroom that we’re building, I refinished a desk that I purchased 6 years ago, and we had several activities to occupy our time. Being that we’ve been so busy, we haven’t set any new goals and are still talking through what we think the next few years look like. We are still managing sleep disruptions with our nearly 3 year old, and that takes a lot of time from my day and night. Anyway, here’s how things shook out over the last month – very high credit card bills to cover many large expenses.

just for fun – my before and after of the refinished desk that I bought for $15
  • Utilities: $240. This includes internet, water, sewer, trash, electric, and investment property sewer charges that are billed to the owner and not the tenant. I find it interesting that it’s not routine to have irrigation in Central KY, and that’s led to surprisingly low water bills. Our water, sewer, and trash is all together each month, and it’s only $53 in the middle of the summer!
  • Groceries: $390. On top of that, I had a charge for a 4 month supply of the vitamins that I take, which I pay for up front because I don’t want to pay a surcharge to pay monthly (if I can afford to pay $300 now, I’d rather pay that then end up paying $340 for the same product at the end of 4 months).
  • Gas: $230
  • Restaurants: $215
  • Entertainment/Travel: I broke down the St. Louis trip costs in my previous post. We booked our flights to NY through the Chase portal using points. It was the equivalent of $833 for 3 round trip flights (our daughter as a lap child). We paid for parking at the airport ($36), and that was it. On top of those costs, we had several sports fees and activities that we paid for. I didn’t add up the details, but I estimate that those cost us about $300 this past month.
  • I paid $3,800 worth of medical bills (high deductible plan… we got there).
  • We spent about $175 on tile supplies for the bathroom, which includes returning about $40 worth of materials.
  • Rental work cost us a good bit this month.
    • Our plumber made his rounds to 3 of our houses on one day to address items that I found during the walk throughs in July; this cost us $730.
    • Somehow (very unlike us), we had an outstanding pest control bill from December. When I called to schedule another appointment, they requested payment (rightfully so!). We spent $290 on pest control then.
    • We purchased a hot water heater and a refrigerator for a rental property after our property manager did her walk through. We also purchased a fan and had that installed (we would have done it, but we don’t live there anymore), but we split that cost with our partner. These cost us $2,317.
    • As usual, two houses were late on rent. One paid on Friday and actually included the late fee (10% of rent). Another gave us a letter about a car accident she was in and said she wouldn’t have rent until she received the settlement money from that. It’s the 16th and we still don’t have rent. The positive here is that we have several other properties worth of income that cover the expenses on this house (mortgage), so we’re not floating the mortgage with our own money for this one house.

Here’s a tidbit of my spending. I don’t have Amazon Prime. Rarely do I need something in 2 days or less than $25 that I would need to pay for this service. I search Amazon for things that I eventually want, put it in my cart, and then when I need to hit the $25 free shipping threshold, I add the items to the cart to check out. This is how I handle Christmas shopping basically. I have thoughts on what to get for people, keep it in my “save for later” section, and then order it when I place an order. I actually have several Christmas gifts already purchased.

NET WORTH

Since I’m not able to find the time to coordinate updating all our accounts with Mr. ODA, this is just a rough update of our financials. Our net worth has increased about $58k. I’ve paid down the very high balance on our Citi card already this month, so this snapshot in time isn’t showing that I’ve already made $5k worth of payments towards that. About half of that increase is attributed to an increase in property values. The rest is attributed to the usual mortgage payments and investment balances increasing.

June Financial Update

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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.”

May Financial Update

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RENTAL PROPERTIES

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.

Prepare for a Closing

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We have purchased 16 properties directly (3 personal residences) and 2 properties indirectly (partner); we’ve sold 3 properties. All houses have been mortgaged because we choose to leverage our money rather than own them outright (at least at first). This post covers the closing process in terms of clearing the loan processing.

Your loan must pass through underwriters before being approved and issued. The underwriter is evaluating your financial statements to determine risk and credit worthiness. While you’re given a pre-approval based on your credit score and report, the underwriter is verifying there are no other risk factors in the details. I’ll probably never cease to be amazed at what an underwriter focuses on – sometimes they want every account’s statement and several explanations, and sometimes they want you to confirm you don’t own a property that you never did own while ignoring the accounts you do own.

While a deadline is rarely given, you should provide the paperwork within a couple of days. The longer you take to gather the required documents, the more you jeopardize being able to close on time (the timeframe is set within the purchase agreement).

The are several documents that are going to be requested every time that you can keep filed away or know to start gathering them when you make the offer (some need to be more current than having them filed away). Inevitably, there will be follow up requests from the underwriter, so it’s best to get these files to them as quickly as possible.

  • Most recent 2 years of tax returns
    • Usually we just hand over the PDF version of our tax returns. One time, we actually had to fill out a transcript request form on the IRS page.
  • Proof of income (e.g., W-2)
  • Most recent paystub(s) (e.g., cover 30 days)
  • Color copy of drivers licenses
  • Most recent 1 or 2 bank statements
    • At the beginning of our purchasing, we had to provide a statement for every account (e.g., retirement, investments, banks). Over time, the request has become more focused on showing the statements associated with the accounts that will be used for funds as closing. I don’t know if this is related to our credit worthiness, or if it’s simply how they’ve streamlined the process. Here’s an example that shows they only requested accounts that make up our closing funds.
  • Proof of paid earnest money deposit (EMD)
    • EMD is a deposit made along with the signed contract. It’s the buyer’s showing of good faith to purchase the home. There are different expectations on the amount of the EMD. Sometimes it’s 1% of the purchase price, sometimes it’s a flat rate. We’ve just followed our agent’s lead on the amount to put on there, and it’s usually $1000 or $2000. The EMD is held by your Realtor’s office and credited to the total due at closing. If the buyer breaches the contract, the buyer may forfeit this deposit to the seller (e.g., backing out of the purchase without invoking a clause within he contract, such as the home inspection clause).
    • Proof is usually given by showing the check image along with the bank statement from the account it cleared.
  • Insurance agent contact information
    • This isn’t always known at closing, but you’ll need to provide your agent’s information before closing so that escrow can be set up. If the property won’t be escrowed, then you’ll need to provide proof of an executed policy before closing.

When investment properties are involved, you’ll need to provide documentation associated with those properties. For instance, a mortgage statement may be sufficient if you have the taxes and insurance escrowed. If you don’t have it escrowed or don’t have a mortgage, then you need to provide the current tax statement and insurance declaration. You’ll also be asked whether the property is subject to an HOA, and, if it is, you’ll provide a statement or coupon book showing the payment schedule. Neither Mr. ODA nor I are patient when it comes to illogical requests. For example, we were asked to give mortgage statements for all of our properties, as well as tax documentation and insurance policies for every property. Well, if the property is escrowed, then I don’t have tax paperwork because it’s sent to the bank, nor should I have to prove that the taxes are paid since it’s managed by the bank. I eventually provided all the tax documents though – it just took a while.

There may be large deposits or withdrawals that you’re requested to explain. For instance, I had to sign a statement that the deposit in our account was from the sale of our house. While it can be tracked with paperwork, there are many instances where the underwriter wants the details explicitly stated, versus making assumptions. For the example below, I provided the corresponding withdrawal from our main checking account.

Our first home purchase was at the same time as our wedding (we closed on our house on July 15 and got married on August 4!). A NY wedding isn’t cheap, and we were attempting to pay 20% down on our DC suburb home ($$$), so there was a lot of money movement around this time. Since my parents were helping pay for the wedding, we had large cash deposits into our account that had to be explained. We also had several investment account liquidation transactions. The underwriter had a hard time following the flow of money, and it took me several, very detailed, emails to show how each liquidation entered our checking account. We also had to provide gift letters, which stated we were gifted these sums of money and there was no expectation of paying it back (thereby creating another liability). That’s probably been the hardest closing in terms of our financial status, to date.

You may be requested to provide updated bank statements closer to the closing date, especially if there’s over a month between the initial documents given and the closing date. When you go into a closing, you’re told that it’s not a good idea to open new credit cards, make large purchases, or do anything along those lines that would affect your credit worthiness. They run a recheck of your credit before closing to ensure your credit card balances are about the same, and that there’s been no new credit opened in your name. Verification of more recent bank statements accomplishes the same.

We’ve had two closings delayed.

House 5‘s sale was about 6 weeks delayed due to the buyer’s lack of responsiveness. They didn’t respond to information requests quickly and struggled to provide the necessary documents to underwriting. Unfortunately, as the seller, our only ‘play’ is to take their EMD and walk away. If it’s bad enough, this is worth it. But it brings you back to square one. This was an off-market deal, which is enticing to see through rather than attempt to list and sell it. If we decide not to sell, we’re now looking at January or February before we had a renter; it could be even longer since we struggled in the summer to find someone for the house. Plus, the EMD doesn’t cover the lack of rent we experienced while under contract, where we expected to lose only one month of rental income, but it turned into 2.5 months. We had our Realtor (who was a dual agent, unfortunately for this matter) lean into the attorney on the buyer’s side after already being weeks beyond the contract’s closing date. By the time their delays were acknowledged, it was Christmas, which delayed closing into January, unfortunately.

Houses 12 and 13 were purchased together (and not yet discussed here). That closing was delayed a week, and it was completely the loan officer’s fault. We, the consumer, obviously get no restitution for their mishap. He didn’t order the appraisal timely and then had to put a rush on it, but it still didn’t come in on time. He created several errors in our paperwork (including the house number of one of the purchases). It got so bad that we just worked with the title agency, and she was awesome at getting all the documentation in order, even if it was a week later and Mr. ODA had to be my power of attorney!

Be prepared and be responsive. Understand that the bank is doing their due diligence and you want to be able to close on the loan and purchase that property. While there will be several requests for information, keep in mind that it’s over a short period of time and will soon be over.

Contrarian View on an Emergency Fund

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There are many teachings out there that talk about a safe, sustainable, and efficient way to wealth being many streams of income. This diversifies and provides multiple avenues for growth, but also mitigates risk and protects your larger portfolio against any one stream failing.

Our financial portfolio meets those goals. Instead of having an emergency fund sitting in a savings account earning 0.03% interest (that’s literally our savings account interest rate, and that’s the ‘special’ relationship rate), our money is put to “work,” earning more money for us.

INDEX FUNDS

Probably the simplest and most common example of multiple streams is index fund investing. A quick read of JL Collins’ “The Simple Path To Wealth” will teach you that through index fund investing, you have an ownership share of every company the index fund covers. Some are matched to S&P 500 companies, some to International, some to the DJIA, and most to the “Total Market.” Mr. and Mrs. ODA invest in the “Total Market Index Fund,” through Fidelity, in our IRAs and taxable investment portfolio. By owning a small part of every publicly traded company, we own that many streams of income. Any one company going belly up will only be a blip on the radar of that index fund, and, over enough time, it will go up, and up a lot. This is as risk free of a true investment as you can get. 

Being Federal Employees (Mrs. ODA no more, though), we both have access to the Thrift Savings Plan (TSP) for our 401k’s. The TSP provides a group of 5 index funds to choose from: Government Securities, Fixed Income Index, Common Stock Index, Small Cap Stock Index, and International Stock Index. 

In times of market upheaval, we can ‘escape’ to the Government Securities fund, and pending a nuclear winter or alien attack, is guaranteed to be paid (TSP.gov). However, with this little risk also comes little reward, so it won’t grow fast. With index funds and a safety spot, our TSPs are about as low risk a retirement investment as you can have. Note that Index Funds through Fidelity or Vanguard (for example) and the TSP have the industry’s lowest fees on their funds, so we won’t lose our nest egg to management costs either. 

REAL ESTATE

Outside of anything related to the stock market, we have 12 single family rental properties. Each of these houses operate as their own small business, with long term tenants in most of them (that have thankfully all been able to maintain rent payments through the pandemic). If one or two houses did lose their tenant, or have an AC break, or a roof needing replaced all at the same time, the other houses (businesses) can pick up the financial slack. A few of the properties are owned outright, so the lack of a mortgage certainly helps the whole portfolio’s cash flow. And actually, we did have to replace/repair multiple roofs and HVAC units at the same time in the summer of 2020! On top of the individual homeowners insurance we have on each house, we have a Commercial Liability Umbrella Policy covering anything above and beyond the individual policies.

DIVERSITY

We also have some money tied up in more actively managed mutual funds – investments we owned before we discovered index fund investing – and individual stocks. However, I can’t bare the capital gains taxes required if I were to sell them and shift that money over to an index fund. But – they’re there in case of an emergency.

That Federal job I mentioned – I’m lucky to have about as much job security as any W2 employee can have in this great nation. Through the shutdown a couple years ago, I had 2 paychecks delayed, but my rental properties made it so that I didn’t have to worry about our finances. Otherwise, a safe, consistent paycheck is something I can count on – with health insurance for our whole family that comes with an annual out of pocket maximum of only $10,000.

So we have a W2 income, 12 rental property small businesses providing monthly cash flow, and a slew of stock investments diversified across all markets. We have diversity that mitigates risk and shields us from small “emergencies” manifesting themselves as such.

We view “medium” emergencies as something that can be solved with a new credit card deferring needing to truly “pay” for our expenses until life gets back to normal. You’ve seen a past post discussing our perspective on strategic credit card usage (and the Chase cards specifically). Twelve to fifteen months of no interest on a credit card can get anyone out of a financial bind when emergencies hit. We haven’t found a reason to NEED this option, but know that it’s always out there if the perfect storm of bad luck were to ever hit.

For these “small” and “medium” emergencies, stocks could be sold before we would need to be faced with something like not being able to pay utilities, buy food, or get foreclosed on. We simply don’t view a “large” EMERGENCY cropping up with any higher than a near non-zero probability given the shielding and structure we have built out of our total financial portfolio.

I can’t fathom what that perfect storm would look like. Six months of expenses can easily be found in selling our stocks if all of our tenants suddenly stopped paying rent, for example. But if a pandemic isn’t going to make that happen, what would?

All this to say – Mrs. ODA and I keep very little cash liquid to cover our “emergency” fund. Outside of a couple thousand in our checking account to cover regular monthly/cyclical financial obligation fluctuations, we don’t have any dollars NOT “working for us.” Whether it be investing in index funds, contributing to IRA/401k, or paying down mortgages to eventually achieve more cash flow, we put all our money to work. We see the rewards of this strategy far outweighing the risk of encountering a debilitating financial emergency, and therefore don’t follow the traditional personal finance advice of keeping X months’ living expenses in cash handy at a moment’s notice.