home sale

July Financial Update

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Well, we started the month with way too many things hitting the credit card: 2 insurance policy renewals, a new insurance policy, air conditioning fix at a rental, and bathroom replacement at a rental. That eventually led to a $1500 charge for bat removal at another rental.

PERSONAL

My big news this month was handling my HOA’s annual meeting. We’ve been working so hard for the last year, and I tried really hard this year to increase communication between the Board and community. I think I did a good job because there wasn’t any contentious point of this meeting and there were very little questions. I received nice feedback on how I presented the budget and that I did a good job throughout the year. It was a welcomed win since there was a lot of heat in the previous couple of years.

The family’s big news is getting passports for a trip this Fall. The parents already have theirs, but we got the kids their pictures and submitted their application. So our credit card balance is higher than normal because we paid for flights and the cruise itself.

It took us until the last week of June to meet our deductible on our health insurance. It’s only $3,300, so that’s quite the impressive feat. I’d point out that my March surgery took until then to get processed correctly, but at least we eventually got there. I have very little faith that it’s all processed correctly though, so it’s on my to do list to verify that we’re not overpaying into that deductible, which they don’t make easy because they don’t show me prescription fills clearly.

We went on a trip for a long weekend to visit Mr. ODA’s aunt in WV. They have a vacation house there, so we didn’t pay for lodging. Unexpectedly, they provided all our meals. I bought them a gift card and some beer. So between that gift, gas, and the meals on either end of the trip, we spent about $200 for a trip, and it was one of the best vacations I’ve been on.

Two of the kids spent this past week at camps. One was 3 hours per day at a dance studio, and the other was 9.5 hours of all outdoor time for the week. He had a blast, and I’m kind of jealous that he got to play all those games and have a great week.

RENTALS

This month, I received an email from Rent App that a tenant was paying their rent. She didn’t give me a heads up, so I wanted to verify things with her. She said this app pays me in full, but it takes the first half of the payment from her account at the beginning of the month and then the second half of the payment in the middle of the month. They’ve lived with me for for 8 years, so I’m surprised she sought out this option instead of talking to me about a payment plan. The program was extremely sketchy and I didn’t feel good about a single step of it. I gave up the registration process at the point that it required untethered access to my phone, but I wish I would have followed my gut at the first personal information step, as if it wasn’t bad enough I had to give my bank account details for the transfer to happen. The payment eventually came through on the 10th, but I didn’t feel good about it.

Another tenant paid late with the late payment. And another tenant paid late with little to no communication and several follow up conversations. I can’t stand when I have to hunt down money. I’m willing to work with everyone who reaches out. She paid the first one with a (1/3), so clearly she knew the plan. And yet, on the 6th, I had to ask where the rest of the rent was. She said it would be done that day. A partial payment was made on the 7th. Then another partial payment on the 8th to finish it out.

We hired someone to clean out the gutters at two houses. Both houses are inundated with trees over the roof, so it’s something we need to stay on top of because they back up every 6 months. We could add gutter guards, but just didn’t see the point since we could do it. Now we don’t live there. He is also going to cut trees 10′ back from the roof on one of those houses.

And then the bats. One house had a bat show up last Monday. My property manager didn’t think much of it, so we didn’t do anything (I wasn’t even told about it at that point). Another bat showed up on Saturday. The tenant went for rabies shots and got boosters for her dogs. She then took a bat to get tested, which came back negative. She said she wasn’t comfortable staying there, so she stayed with a friend. We had traps set so bats could get out of the attic, but they couldn’t get back in. The pest people will go back next week to check on things.

We have two houses that will be vacant at the end of this month. We were supposed to have one at the end of June and one at the end of July, but the June one asked for an extension. I let them have it, but I’m not thrilled about my timing now. We won’t be able to truly get to work in there until mid-August, and it’s going to require a lot of work (not hard work, just time consuming). Then for the other one vacating at the end of the month, we don’t intend on renting it again. We’re going to let it sit over the winter and sell it in the spring.

NET WORTH

The way that I update our net worth each month involves overwriting the numbers from last year. So I can easily see that we’ve gained over half a million net worth since July 2024’s update. What’s nice about that is that it’s all appreciation, paying down mortgages, and the stock market with continued savings. We didn’t make any large financial moves that would have adjusted our net worth in one large move like buying a house. I had a conversation with someone about our net worth and goals recently. It would be nice to cross the $5 million threshold, but we’re not actively managing our funds in a way that will cause drastic swings outside of market movement. We crossed $4 million in March 2024.

We’re over $200k from last month’s update. Our credit cards are much higher than last month because of trip purchases and rental work that was unexpected, but needed. Here’s to the last month of summer.

What day is your house sold?

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The day that’s in the contract as the closing date.

I truly can’t believe how many people have asked some form of this question in my life recently. While I’ve had multiple in person conversations on this topic, this post really stemmed from a Facebook post. “Is it an expectation for people to be moved out of their home the day of closing when buying a home? We sold our house, and are moving into a new home that we’re supposed to close the same day. Is there not a grace period?” What would that grace period be? How would the timing be determined?

On one side, I see the “closing date” section of a Kentucky contract simply states, “The closing of this transaction shall occur on the ___ day of ________________, 20__.” That’s quite useless actually (as I consistently find in KY law and legal documents). There’s a lot to be inferred by that statement, versus it being explicitly and clearly stated. On the contrary (as this has gone many times over), Virginia wins out.

In the paragraph before this image, it states where closing shall occur and by what date. This excerpt clearly indicates the purpose of “closing,” leaving little room for interpretation.

However, if we take a step back from the legal jargon and contractual obligations, whether explicit or inferred, we can see the logic. If you’re the buyer, once you sign the paperwork to purchase the house, wouldn’t you expect the keys to be handed over to you right then so you can start moving in and living in this house you just paid for? Wouldn’t you want the sellers out of the house because they’re no longer financially responsible for the house, and you don’t want any liabilities of their damage (intentional or accidental) to fall on your hands? You’ve done a final walk through and signed off that the house was in the condition you expected it to be in at that point in time.

Now this isn’t to say that there aren’t other terms and conditions that can be agreed to between both parties. “Lease back” or “rent back” clauses are commonly used. Sometimes it’s beneficial for a buyer to process the transaction (e.g., a rate lock expiration), but they allow the seller to remain in the home for an agreed-upon period of time (e.g., to bridge a gap before their new house is ready/available). But all of these terms are to be agreed to, in writing, before the closing date.

When we just sold our last house, we allowed the buyers to store things in the garage. We entered into a contract separate from the house purchase contract, called a “Preclosing Occupancy Agreement.” I haven’t needed one of these in Virginia, so I don’t know their standard form, but KY’s form does well here. The document outlines the date the buyer can take occupancy and whether there’s a charge for it. There were other items that outlined incidentals, such as utilities. In our case, the buyers were simply asking for garage space to put some of their belongings (because they had a same-day-closing for their sale and purchase), so we didn’t require them to put any utilities in their name before the sale.

BRIDGE LOAN

I can understand the complaint. Financially, you likely need to sell your current home to afford a new home. The “cash” from your sale is what you’ll use as your downpayment, as most people don’t have 20% of $400k sitting in a savings account (nor should you!). That makes the option to buy the house, take a day or two or seven to empty out your old house, and then sell your house not feasible.

There’s such a thing called a bridge loan. It’s a short-term loan used to purchase assets until long-term financing can be secured. There are more fees and high interest rates associated with this. However, it could be worth it to save the hassle of Private Mortgage Insurance (PMI). PMI is required in many cases where you cannot provide 20% as a downpayment for a house purchase. It protects the lender in case you don’t make your mortgage payments. PMI is removed when your principal balance falls below 80% of the original value of your home, whether that’s through regular mortgage payments or you make additional principal only payments. You can request PMI be removed earlier than that if you provide proof that your home value has caused your principal balance to now be less than 80% of the value, which is typically proven through an appraisal at your cost. If you put 0% down on a $400,000 purchase, it would take almost 12 years of payments before your loan reached 80% of the original home value. That’s 12 years that you’re paying PMI on top of your mortgage payment, and those are funds that are doing nothing productive to your net worth. A bridge loan may be worth it if you already have a sale date on your current house and only need to cover a few days or weeks.

SUMMARY

Logistically, it would be great if you could buy your new home, move all your things, and then sell your current home. Financially, this isn’t normally feasible. A lot of the time, you’re needing the equity you have tied up in your current home to purchase your next home.

Our first purchase was made up of two 401k loans (that we maxed as residential loans, which are penalty free), a gift from parents because we were short just a few thousand dollars, and cash on hand. We needed about $80k. Our second transaction, we chose a new build house. We sold our house, went into a rental for 3 months, and then used the sale money to purchase. Our third transaction was also a new build. We hopped AirBnBs until that got old with a 6 month old and 2 year old, and then crashed in Mr. ODA’s parents’ basement. We had 7 weeks between selling our house and purchasing the new one, so the cash from the sale went into our account, and we let it sit there until we needed it to close. Then this current purchase was actually done before we sold our third house, but we had executed a Home Equity Line of Credit prior to the sale. We used the HELOC to put the down payment on the current house, and then the sale of our third house paid off the mortgage and HELOC before distributing the cash balance to us. In all of these transactions, we had the ability to float the funds. That allowed us the ability to house our belongings in “long term” storage (not a day or two) for those two times we had a gap between the sale and purchase. The HELOC allowed us to slowly move our belongings to the new house this last time, and then we did a final moving day of all our big items just before closing (our current house needed work when we bought it, so we didn’t move right away).

But in all cases, unless there’s a separate document indicating so, the closing date of a transaction is the date that you give or take possession of the property. If you were buying, you wouldn’t want to take the risk of the previous owners messing with something in a property you now own. If you were selling, the buyers would have the same expectation.

Home Sale Proceeds

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*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%.