May Financial Update

This has been a whirlwind of a month. Our crashing investment accounts have been offset by home values, so we’re still over $3 million net worth. But those investments are very low; it’s the first time I’ve seen a negative in my 12-month performance history for my ‘401k.’

HELOC

A couple of months ago, we were standing outside playing with the kids when a neighbor walked by and introduced themselves. Being that we easily have $150k worth of equity in our house, we started talking about how we should open a Home Equity Line of Credit to be able to float a future purchase. The process was initiated, but not really started, when we made an offer on another house to be our personal residence. More to come on that. But we close on the HELOC today at $100k, which was the maximum she could do as an “administrative authorization” (for lack of a better term, and to pull on my government background), which essentially just meant no appraisal cost.

NEW HOME PURCHASE

We’re about 3 weeks in being under contract on a new house. We’ve submitted all our files to an online bank that we’re using as our loan, and we’ve locked our rate at 4.0% on a 5 ARM. Closing is expected to be 6/15. We’ll need about $75k or 80k out of the HELOC for closing on that.

We found out that our appraisal that was ordered for this house got cancelled. A quick inquiry to our lender and we found out that they decided our credit profile doesn’t need one! They’re going to refund us what we already paid, which was a pleasant surprise.

PART TIME WORK

I worked the weekends in April at the local racetrack. It’s good money and only required 8 days of me actually working. This meet’s experience was slightly different, and I didn’t enjoy it as much as the Fall meet, but I made more than I did in during that meet.

RENTAL UPDATES

We had a tenant abandon a property on April 1st, so that was a lost month of rent that we weren’t expecting. Our finances aren’t in a position that we need that money. It also helps that we don’t have a mortgage on the property. But we still put over $2,000 into the house (including two appliances) and a week’s worth of our time in turning it over since it was left in poor condition. We’ve been fighting Home Depot on getting a dishwasher delivered and installed, and that still isn’t resolved.

We had our usual suspects not pay rent on time. One did manage to pay in full (not the late fee though) by the 7th. The other I finally told that paying on the last Friday of every month is no longer acceptable, and it needs to change. She sent a nice email back, but we still haven’t seen a dime from them this month.

We had one rent increase go into effect; it went from $1025 to $1100. That also increases our property management cost by $7.50 going forward.

We had an insurance company drop us by not renewing us since they found out we moved out of state. We told them we have a property manager, so there is someone available taking care of the houses, but they didn’t care. Luckily, not all insurance companies have such a requirement, and our agent was able to find someone with nearly the same price that accepted a property manager.

We have officially paid off one of the loans that we had with our partner. We had intended to pay the loan off this month, on our terms. Instead, because the balance was about $400, the loan company took it upon themselves to use our escrow and close the account. We were purposely waiting until after escrow paid the taxes due this month, and now we need to scramble and figure out the tax payment.

NET WORTH

SUMMARY

We now commence a very busy time of life. We have several trips planned, we expect to turnover a rental that we’re kindly asking a tenant to vacate, and we have a lot of work we want to do on our new personal residence. Hopefully the turnover of the one house goes smoothly, we get the house that was abandoned in April re-rented, and that there are no more surprises in our rental world. We also had our AC go out in our 18 month old house, so here’s to hoping there are no more surprises in the personal expense world too.

The Mentality from an MLM

These days, you’re probably not immune to being asked to join or buy from a multi-level-marketing (MLM) business. Also known as network marketing, it a way for companies to sell their product through individuals who market product(s) to their sphere of influence. It gets a bad reputation with “pyramid scheme” and the like, but it’s legitimate and makes sense if you take the time to step back and learn about it instead of repeating the rhetoric you’ve heard from your parents.

Our experience with an MLM led to being open to buying rental properties, which eventually led to me quitting my job and being happy outside of a career. Here’s what I learned by keeping an open mind to an MLM, even though we make $0 from that business today.

This is my experience with our time in an MLM. Mr. ODA would probably have something different to say. 🙂

AMWAY

BACKGROUND

By now, you may have seen the documentary on LulaRoe. Our experience was with Amway, and it was different from how LulaRoe operates. Now, Amway is the black sheep of the MLM world if you go just based on name. They’re one of the original MLMs. But they sell good products in the health, beauty, and home cleaning genres. As a “consultant,” you’re called an “independent business owner” or IBO. I thought the best part was that there’s no inventory you need to hold. If you want to do “parties,” then you need products on hand. However, it’s much different than how LulaRoe would have hundreds of leggings on hand and makes direct sales out of their on-hand inventory. To earn money, you can recruit more business owners, or you can have customers who just order directly from the Amway website each month. You make money off of what your customers buy, as well as the income that your IBOs below you generate.

TEAM SUPPORT

There are multiple “teams” associated with Amway. It’s the education arm of the business. Our team met once a week, and you were expected to be there if you really wanted to be in-the-know and considered serious about growing. They helped you structure your business to take advantages of bonuses offered by Amway, and they taught a lot about having the right mentality. Their goal was to foster personal and business growth, provide mentoring and coaching, and provide the tools to grow your business through conferences and seminars.

This is where we got our start. I know it’s hard to believe, but we both were exposed to a lot of growth through this team. The things we learned through the meetings and books we read during these couple of years gave us the courage to make the big decisions we did, getting us to currently having 13 rental properties.

THE CASHFLOW QUADRANT

Our introduction to the business was started by being given Rich Dad, Poor Dad by Robert Kiyosaki. The book references an earlier book of his, the Cashflow Quadrant. Each quadrant has its strengths and weaknesses.
– The upper left corner of the quadrant is for those who have Employee mentality. This is someone who is trading time for money. You work an hour and earn $20. If you’re not working, you’re not earning. You’re making money in someone else’s system, and there are people over you who are making more than you (e.g., a supervisor is making more than a secretary).
– The upper right corner is for Business Owners. You own a system that works for you. You have passive income in this quadrant. You may have an employee that is generating income that you earn.
– The lower left corner is for Self-employed people. Here you’re still trading time for money, but you have control over how much you earn based on how much effort and time you put in. This is a risky area because you don’t have security and may not have an established system to rely on and project your income.
– The lower right corner is for Investing. Your money makes money for you. This can also be risky because you’re not guaranteed positive returns on your investments. If you want to make a lot of money, you need to take on more risk.

The point here, according to the team we were on, was that you want to be a business owner. You want to generate passive income so that you’re not trading time for dollars. While someone else is selling to a new customer, you’re earning a percentage of that sale while not doing anything. As you grow your Amway business, you have more and more people generating income through these sales, which you get a percentage of. The kicker is that you need to hit a certain level within your own business before you earn. We set up recurring purchases to use the products we were selling, and had customers set up with recurring orders, so that we could hit that threshold to be eligible for the passive income.

OUR MOVE FROM MLM TO REAL ESTATE

The biggest hurdle to our success was the price of the products. We aren’t someone who values a better quality to be able to justify the higher price. There are people out there that value this, but it’s not our passion. A peanut butter meal bar comes to $3.14 per bar as a customer order (as an IBO, you get the product at cost, which would be $2.82 per bar). The peanut butter granola bars we buy are $0.50 per bar. Clearly, this isn’t a marginal difference in our expenses. The products were good, but not good enough for our finances to take such a hit. I tried to focus on the beauty side of the business and held parties where I recommend products and let women try it. I had passion behind it, but I wasn’t someone who washed my face regularly and put lotion on. I could see the benefits, but I wasn’t practicing what I preached, and I lost my drive.

The next hurdle was location. Our original meeting was with our specific team within the larger team (based on your “pin level,” you had a meeting with the people who were your “downline.”). We moved down to Richmond, and our closest meeting was Fredericksburg. It wasn’t insurmountable, but it was a 40 minute drive there and back once a week. The larger team would all come together in DC every quarter for a conference. We felt like time started moving faster, and we weren’t close enough to make these our friends between conferences, and so we stopped attending the big conferences. Then we stopped attending the weekly meetings. Then we cancelled our team membership. We still maintain our Amway IBO number, since it’s just $62 per year to do that.

The thought process that we learned from their weekly teachings and reading books we probably wouldn’t have read otherwise led to our desire to generate passive income. Mr. ODA had already been interested in the concept, and then when we were talking about venturing down that path with our Realtor selling our Northern Virginia home, he really got the urge to pursue it.

When we sold our Northern Virginia home, we had about $120,000 in our bank account. About $70k of that went to the downpayment and closing costs of our new house. The remaining went to finding a rental property… or two.

REAL ESTATE, PASSIVE INCOME, AND NO JOB

Real estate is in the business quadrant, but it’s not completely passive income. Truly, the Amway business wasn’t completely passive because you still needed to have the sales (either through your purchases or customer purchases) to be eligible to earn all the passive income available to you in the business. Most months with real estate, I take the rent money, pay out our mortgages, and that’s it. Sometimes I need to make some phone calls to contractors. However, we have to do very little to maintain our business of investment properties. We can also decide that we don’t want to field the phone calls and hand off the rest our properties to a property manager for 10% of rent. If we don’t have a new property or a property to turn over, then we probably put about 100 hours per year into managing the houses.

We knew we didn’t want to be in the employee mentality for the rest of our lives. Funny, because my goal when I was in college was to work for a “big 4” accounting firm and spend 80s hour per week at work. Then I started working for the government, and my goal was to be CFO in my 30s. Then I got to the headquarters office in my late 20s and hated the environment, so I decided I wanted to be no more than a state office’s financial manager. Then we had kids, and I decided I wanted to be home with them to see all the little moments. Things sure did evolve.

I believe that the time we spent with our Amway team changed my heart. I believe that time was important for me to see a different lifestyle and a different mentality. I don’t know that I would have seen the benefits of pushing ourselves to buy more rental properties had I not seen a lifestyle of entertainment.

I started to realize it would be nice to spend time with my family while the kids were little. Who wants to wait until retirement to spend time at home, when your kids are grown and moved out of your house? Why not spend the quality time in their early years? Let’s travel more and experience more in life. Let’s have more time with the kids than the hellish hours of 5 pm to bed time.

Our cash flow each month is about $7k, just based on the rental properties. That doesn’t include expenses that come up, and every once in a while we get hit with a major system that needs replacement, but most of the charges are a couple of hundred dollars here and there. Some days, I wish I could still do what I loved to do in the transportation world, but I don’t miss the office politics and the moderately strict work schedule.

I’m happy for all the experiences that have led me to this point in life. Perhaps you can read Rich Dad, Poor Dad or Cashflow Quadrant and learn a little bit more about all the options out there. Perhaps you just didn’t know that there are opportunities out there where you’re not trading time for money, or where you’re not cushioning the pockets of an executive while you make a certain salary. Perhaps you just needed your eyes opened to the chance to make your money work for you. Or, perhaps you’ll learn that you like the stability of being an employee, and you don’t want to change. But I urge you to take a look at the options and see what works best for you, now that you’re away that there are options.

April Financial Update

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.

Tenant Evaluations

When looking to rent your house, you should do your due diligence. Our concerns are whether a person has a history of late payments, collections accounts, and if they have a criminal history.

We do two steps of initial screenings before asking a tenant to pay an application fee. The first two steps given them the opportunity to disclose anything that may be seen as unfavorable or not meet our rental criteria. This way, once they pay the application fee, it’s a verification step, and they’re not wasting any money for me to find out that I’m going to decline them.

Here are the details of how I go through the evaluation process, and specifically how I just did it for our new rental.

RENTING CRITERIA

First, I send everyone interested an “Interest Form.” We ask for their legal name, contact information, credit score, employment data, number of occupants, whether they smoke, if they have pets, if they’ve been evicted, and if they’ve been convicted of a felony. I also ask them to provide any other information they think I should know that may affect their ability to rent the house. I send this form to everyone who expresses interest, and it’s the first step before scheduling a showing. I request the data before scheduling a showing because I don’t want to waste my time or theirs showing the house, when they had adverse responses to our criteria. This was more important when I was scheduling individual showings, but I now conduct an “open house.” I set aside two hours to be at the house and ask they come during that time. If that doesn’t yield a tenant, then I’ll evaluate who couldn’t make it and field new requests to see it to determine if I’ll show it individually or host another open house.

We have this at the top of our Interest Form.

Properties are offered without regard to race, religion, national origin, sex, disability or familial status.

Required standards for qualifying to rent a home are:
• Each prospective applicant aged 18 or older must submit a separate application.
• We limit the number of occupants to 2 per bedroom.
• Your combined gross monthly income must be at least $4,000.
• You must be employed and/or be able to furnish acceptable proof of the required income.
• You must have a favorable credit history.
• You must have good housekeeping, payment, and maintenance references from previous Landlords.

Compensating factors can include additional requirements such as double deposit and/or a cosigner.

Our typical rental actually requires 3x the rent as the monthly income, but since our last house was more expensive, we put the requirement as a dollar amount threshold instead.

Then I would historically review those who say they’re interested and pick the one that appears to be most qualified. I’d send them a “pre-application” form to fill out. However, for our last tenant search, I asked everyone interested to fill out the “pre-application.” The tenant screening system doesn’t tell me their last landlord information or their employer, which are both necessary for making phone calls and checking their information given. The “pre-application” repeats some of the questions on the Interest Form, but the pre-application requires them to sign the form as an “affidavit” that the information is accurate.

If they tell me that they’re going to have a low credit score, it helps me to know the reasons for it up front. Additionally, by letting me know any issues up front, it saves them money. If they self-report that they have several collections accounts, then it could be cause for me to move on to a different person interested. If they don’t tell me that they have some issues in their history that may be unfavorable, and I send them the application, then they’re spending $40 per person only to potentially not get the house. I prefer to use the online tenant screening as a final verification step than an initial screening and potentially waste someone’s money.

One time I got through all these steps, had 3 different people submit an application for a house, and the report came back with an eviction. We asked why they didn’t disclose that to us originally. They told us a story about how they were asked to leave somewhere, but they didn’t know that it was reported as an eviction. We told them that they were disqualified. We went with our “runner up,” and they’ve been in the house almost 3 years without any issue or late payment.

We also had two people submit an application and then a bankruptcy was reported on the credit report (it was before the pre-application step I implemented). She said she didn’t see a place to explain a bankruptcy, so she didn’t think to mention it. For future reference, if I ask for your credit score and you have anything concerning in that credit report, it’s helpful to be upfront about it. In that case, everything else was fine and her explanation for the bankruptcy was clear and thorough. We gave them a chance, and they were amazing. She was rebuilding her life after taking on a lot of new bills after a divorce, juggling single-income life, and it was a way to consolidate the debt.

DECIDING BETWEEN TENANTS

In this last situation, I had several people express interest in the property.

I held the open house, and I asked everyone to let me know by noon the following day if they were interested in pursing an application after seeing the property. I received 6 or 7 people who were interested in the house.

I don’t look at one factor. I weigh all the information given to me in my head. In a perfect system, I may assign a weight to each data point, but that’s more effort. I’m reviewing the data and trying to see who has the best, well-rounded criteria.

The house is big (2100 sf with 4 bedrooms), and rent is higher than anything we’ve ever managed. I looked at what they are currently paying in rent. If they’re currently paying $1500 per month, then that made me more confident that they’d cover the $1750; if they are currently paying $400 per month, then I was concerned that they weren’t prepared to cover such a large expense difference. Along those lines, I also gave more credit to someone who has a stable job that they’ve been at for more than a year, versus a few people who said “I’m starting a new job at the end of April.” We have a tenant that goes through jobs every 1-3 months and is always a pain with rent, so I’m probably more scarred by job history now.

I gave more credence to those who had at least a 600 credit score, but I didn’t rule out anyone with a credit score less than that. One woman did have a lower credit score, but she had other good information, so I didn’t rule her out.

Finally, the determining factor came down to availability. My top two contenders had different desired move dates. One said early April, and another said June 1st, but May 1st may be ok. When I asked her to explain about her move date, I received a detailed story that didn’t have any conclusion on when she was available. Since this is a business, and I had a qualified group interested in the house sooner than others, they were the ones selected. If I didn’t have someone qualified for an April move in, then I would have waited for a May 1st rental instead of lowering my standards.

Luckily, I had enough interest in the property that I could select someone who was well qualified and get it rented sooner than later.

APPLICANT SCREENING

Once I’ve given someone these two opportunities to disclose unfavorable information in their credit or criminal history, and they’ve provided favorable responses that meet our criteria, I send the link for the application. The potential renter enters their data into the system, which helps keep their information secure (e.g., I don’t have their social security number) and helps eliminate any typographical errors that I may make transferring the information into the website instead of them entering the data they already know. Additionally, the tenant pays the fee (currently $40) directly to the website, which helps them understand that once the report is run and the fee is paid, it was for a service so it’s not refundable. I heard multiple stories this past week where people paid “application fees,” but were later told that they weren’t the first to respond. That’s not fair. I don’t need to know everyone’s detailed reports and cost people money if they aren’t going to get the property. So here’s how I handle the tenant screening process.

The system generates a report for me to see that includes their credit history, criminal history, eviction history, and income verification.
– The credit history shows any missed or late payments; collections accounts; bankruptcies filed with the chapter, date filed, and amount settled; and their score. I’m more concerned about late or missing payments than anything else there. The collections accounts are typically related to medical bills, but if they’re for general credit cards or an enormous car loan, I’d find it more concerning. I’ve also not ruled someone out simply because they’ve filed bankruptcy; two of our tenants actually have a bankruptcy in their report.
– The criminal history tells me if they’ve had any judgements against them. I’ve seen traffic violations, misdemeanors, and felonies. The report also tells me if they’ve been listed on any sex offender registry. If they have felonies, multiple misdemeanors, or are on a sex offender registry, it’s automatic disqualification. I’ve gone down the road of giving people chances, and it hasn’t gone well. This report isn’t fool-proof either. I know how to use the court record system where we have most of our houses, and I now look them up in all the nearby jurisdictions to be sure there’s nothing reported.
– The eviction report will tell me if they’ve been formally evicted. This doesn’t capture any times where a tenant and landlord agreed on the tenant’s departure outside of the court system. This also may miss some jurisdiction evictions. We had someone show up in a separate jurisdiction when I went looking for their information in the surrounding areas, but it didn’t show up on the report. Don’t think that this report is fool-proof.
– The income verification comes with a built-in caveat. I don’t know the details on how the report is run, but the result is something along the lines of “we believe that the self-reported income is near accurate.”

The report suggests whether to accept or decline the applicants. I suggest reviewing the data and making a decision for yourself. Some reasons why the recommendation will be to decline include: criminal history, bankruptcy, and low credit score.

We have given several people “chances” that don’t perfectly meet our criteria. Below is a screenshot where the recommendation was to decline. However, we ended up asking for more information and giving them a chance. They ended up spending a year in a rental of ours, moving out of the area, and then asking for our rental availability when they came back to town. They always paid on time, hardly asked for anything, and took great care of the house.

We have also accepted tenants that had some concerns in their report, but the system recommended we accept them. We tried to overlook the issues, but we’ve ended up regretting it. We have one tenant who has a criminal history (forgery) and we ended up having to release her roommate from the lease because of a domestic violence and restraining order issue. She’s also consistently late on making rent payments and doesn’t keep communication lines open. We plan to ask her to leave at the end of this lease term. We also had a tenant with a 480 credit score who wrote us a letter about her low credit and asked for a chance. She ended up consistently paying late (she always paid, but it was always a fight); we threatened eviction when it got to a breaking point where she was combative, but she left on her own terms. That’s a good example where she was a terrible tenant, who we gave multiple opportunities and even restructured her rent, but her eviction report won’t say anything to that effect.

DEPOSIT

Once I have an approved application, I request a deposit to hold the property and remove the listing. Typically, the lease signing doesn’t occur immediately. In those cases, I want protection of my cash flow that I’m holding the property for someone specifically. I’ve had a couple of houses that have signed a lease immediately, but typically there’s a lag between “acceptance” and the lease being signed (forming a contract).

In this last instance, the tenant was accepted on Friday, but the lease wasn’t going to be signed until the following Thursday. I requested a $400 deposit, which will be applied to their balance owed to get the keys transferred to them. I originally was going to request $500, but I realized that the week’s worth of time at the rent per diem rate came to $408. If they back out between now and Thursday, then I haven’t lost income if I had chosen someone else and not held the property until the date they wanted a lease. Ironically, they ended up paying a deposit of $500. For them to obtain the keys, they owe a security deposit ($1750), the first month’s pro rated rent (about $1300), and a pet fee of $500. Their total is $3,550, but the $500 I’ve already collected is applied to that balance. Therefore, on Thursday, they’ll owe me $3,050 for me to hand them the keys.

Usually, I require the first month of rent to be the full amount, and then the proration is applied to month 2. Since for this tenant, they already paid rent at their current address for the month of April, and the rent here is higher than our average, I went ahead and prorated the first month so they didn’t have to put so much cash out of pocket in a short period of time.

SUMMARY

You can see how I am not making black-and-white decisions. I’m not hanging my hat on one or two factors. I’m being reasonable in my decisions and understanding that there’s a person, and maybe a family, on the other end of this transaction.

Be fair. Utilize a variety of factors in making your eligibility determination. Keep your communication lines open with potential renters until you have a deposit and/or lease signed on the property.

Treat this as a business and make informed, logical decisions instead of emotional ones, but be reasonable.

Commercial Loan

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

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.

Year in Review: Part II

I have gone through all our expenses in 2021 and categorized them, which was very time consuming. I swore I’d do better this year, but it’s March, and I haven’t done anything.

In the past year, we hit a net worth of $3 million. That’s really exciting, but we have more goals. It’s important to note that the net worth is through our investment properties, retirement accounts, and other investment accounts, so it’s not liquid funds. The values on our properties have drastically increased, many of which we’ve recently refinanced and have an appraisal on file showing just how much equity we’ve gained on these. Except for the cash that we have in our savings account right now, as we prepare to purchase another property at the end of the month, we don’t typically carry a cash balance. Our philosophy is that, if there’s an emergency, there are very few things that can’t be put on a credit card, and we can liquidate investment funds within 24 hours. We don’t subscribe to “3 months worth of expenses in savings” type actions. We’ve had plenty of large expenses hit us with rental properties, fertility treatments, and other random health needs, but it hasn’t ever been something to drown us financially. So while it’s exciting to see that new net worth, it doesn’t change our spending philosophy.

DIVIDENDS, INTEREST, & REWARDS

Mr. ODA used to have our dividends get reinvested automatically, but now they are transferred into our checking account. That was over $6,500 that came in, mostly at the end of the year, but there was ~$30 per quarter deposited also. In a different time, interest earnings on accounts used to be something to be excited about. Our checking and savings account combined brought in $6.51 for the year.

Mr. ODA is set up with GetUpside. When I went to their site to get a better description, I learned that you can earn cash back through gas, grocery, and restaurant purchases; I thought it was just gas. It’s an app that allows you to earn cash back through your normal purchasing. However, it also gives you an incentive for referring people, and so when that person buys gas, you get some cash back. By checking the app for a participating gas station (and only using it if the incentive offered is a better price than surrounding gas stations), Mr. ODA deposited $32.45 for the year.

Between 5 credit cards, we brought in $4,232 worth of rewards. These are simply earned by either spending or paying the credit card, no further action. We preach and preach to have credit cards with rewards. Everything we purchase goes onto a credit card; at the end of every cycle, we pay that credit card off. We’ve developed a mindset for spending that means we’re not afraid of what we put on the credit card and whether we’ll be able to pay it off in full at the end of the month, because we’re not spending frivolously. I will caveat that this amount of rewards was possible due to sign-on bonuses that were earned in a previous year, and then the credit card changed their reward redemption options, allowing us to pay ourselves back for restaurant purchases. We had previously been using the rewards to purchase travel needs through their portal, but we were able to dwindle down our rewards with this reimbursement change.

INVESTMENTS

Every month, we each put $500 into our investment accounts as an automatic contribution to max out our Roth IRA contributions. Additionally, each kid gets $50 deposited into their investment accounts each month. We also received the child tax credit each month, so with that, we put $125 into each kids’ account. The thought process was that we received $600 for them, and so after investing in their accounts, we were left with $350 to go towards “raising” them, which was the intent of the money being sent out in advance.

EXPENSES

My categories were super broad. For instance, if we traveled, I included all the expenses (e.g., lodging, flight, activities, parking, dog-sitting) as “entertainment.” But “entertainment” also included watching horse racing, baseball game, zoo, babysitting, etc. “Home” includes any furniture purchased, decorations, cabinet knobs, pictures/frames, etc. Even with the broad categories, I still had too many.

There are 3 categories that we have more control over, so I took a closer look at them: groceries, gas, restaurants. These are the ones that we can control our actions to change if we wanted/needed.

GROCERIES

A shortfall on my tracking is that I don’t know if Walmart purchases were necessarily for groceries or for something else. I removed a $300 purchase from my list because we wouldn’t have spent that much in one transaction in groceries, but I can’t figure out what we did spend it on because it was too long ago.

I investigated the spike in June, and I didn’t come up with anything jarring. There’s a transaction for $165 on a day with another transaction, so that may not have been food. August had several trips to Kroger. Trips to Kroger mean that we’re buying in bulk, so things purchased there are typically several of a particular deal they’re running that week versus an actual grocery shopping trip. There are 19 grocery transactions in August, which is higher than usual. August also included an emergency “find this kid some medicine while we’re on the road” that cost us $8 worth of medicine.

Lesson learned: We can do better meal planning and making fewer trips to the grocery store. We can be more deliberate about what we’re purchasing instead of stocking the pantry without a plan. We have a Sam’s Club membership and sometimes we tag along to Costco to scope out deals, so those lead to more bulk purchases, which will fall by the wayside in 2022. The Kroger deals will continue to be on Mr. ODA’s radar though.

GAS

Interesting that January through April are so much lower because we didn’t necessarily stay home. We drove about an hour away for a trip in January and a trip about 90 minutes away in March, went from our house to Lexington (about a half hour) every weekend, and went to the zoo (about an hour or so away). I guess we stayed home during the week more, which kept our gas costs low. April was when we gave up on a lake house and decided to be deliberate about going on trips, so I expected to see an uptick in gas costs at that time. I described that whole thought process and what we did in this post. Some of the uptick in certain months can also be contributed to us trying to maximize gas prices (e.g., we fill up if we’re going to be near Costco, even if we don’t necessarily need the gas at that time). In October and half of November, I was working in Lexington on the weekends, so that was 3 days a week that I was driving 25 minutes each way. Then in December, we drove from KY to Long Island, which is a whole lot of gas.

Lesson learned: We like to be active, so I don’t foresee a change in our gas-purchasing patterns in this year. As I type this, gas prices are soaring all over the country. Since we like to travel, our trips are usually within driving distance versus flying with two kids, so spending the money in gas is cheaper than 3-4 plane tickets.

RESTAURANTS

This is a funky one to track. While we’re traveling, we’re clearly eating at restaurants more often. That’s seen in the higher spending that happened over the spring and summer months. I don’t remember spending all of February in the house, but our credit card purchases seem to say that’s what we did – no gas and no restaurants. In March, we splurged on a birthday dinner ($77!), which is unusual for us. From April through August, we were traveling (and therefore eating fast food and at sit-down restaurants), Mr. ODA had work trips (so he’s going out to eat with coworkers for multiple nights), and there seems to be one or two transactions each month where we paid for a group dinner that was reciprocated (and not captured). Under the restaurants category is also when we went for drinks somewhere. We went to a winery and had a couple of drinks with friends, and that could probably be considered “entertainment” versus eating outside the home.

HOUSE WORK

We put a lot of money into our house this year, which is surprising since it’s new construction. We finished our basement, which was about $15k instead of the $75k-100k that other people have been quoted for the job. We bought a patio set, a grill, and an entryway table. Mr. ODA built a “shed” under our deck (we can’t have free-standing sheds per the HOA, so we enclosed under the deck .. not “free standing” 🙂 ). Most of our furniture moved with us from the last house without an issue, but there were a few purchases needed. Between our initial move in purchases (a kitchen table and chairs), purchases in 2021, and a few purchases that have already happened in 2022, we should be done with big house purchases.

INCOME

I quit my job in 2019. I manage our 12 rental properties as my “job” now, but I also am open to part time jobs as something to do. In April 2021, I was asked if I could help fill a position at the race track during their Spring meet. It wasn’t a job that I wanted to go back and do in future meets. I mentioned that I’d work the Fall meet if I could do something like pour beer, and Mr. ODA’s dad (who works there) made it happen. I also worked some of the days of their horse sales. I worked 22 days for the year and contributed $5k to our family’s spending for the year.

LOOKING AHEAD

I’ll try to track our expenses in real time this year, so that I can categorize them more accurately. Watching expenses month-to-month means you can also make adjustments if you see you’ve spent more than usual in one category.

Finishing our basement meant that we moved furniture around. A sections that was in our dining room moved to the basement, freeing up the dining room to actually be a dining room; I purchased a table and chairs. The “playroom” toys were moved down to the basement, and that room became the guest room. It’s nice that the guests can have their own space on the first floor and not share a bathroom with the kids. That freed up the previous guest room to be an actual office, so I purchased a desk (our old desk was in poor shape and it didn’t move to KY with us). Other than that, I don’t see any major expenses on our own house for this year.

We expect to travel a lot again this year. We already have six trips planned. They’re all driving trips, so that’ll increase our gas category. I have one trip expected to fly to my sister’s baby shower, but that hasn’t been scheduled yet. We’ll also have day trips that we’ll do around our house, which is usually an hour to an hour and a half worth of driving.

While we don’t “budget” or believe in the “envelope system,” we do watch our spending on a regular basis. We check our accounts every few days to ensure there are no surprises as well (i.e., don’t wait for your statement to come and find out there have been false charges). Keep paying attention to what’s being spent and where your money is going so that you can make informed financial decisions.

Tax Season

W2s and financial statements are arriving in the mail. It’s time to submit your taxes. We file our own taxes. And that surprises people every year.

We have 12 rental properties, two of which are owned with a partner. Mr. ODA works full time. I work random jobs, but produce income that requires filing. This sounds like it can be complicated, but it’s not.

Mr. ODA projects out our tax liability all year long, and he makes adjustments in his W2 paycheck to account for what we’ll owe. Our goal every year is to owe. Our philosophy is that if we get money back, that’s just an interest free loan the government has had from us all year. I can make a whole post on how getting excited for a tax return shouldn’t be a thing, but I’ll just leave it at. But you can’t owe too much, because then you have to pay a penalty. It’s a careful balance that I entrust Mr. ODA with and don’t ask any questions.

This post focuses on having business-type expenses. If you file just W2 income, then it’s not something you need to manage all year long, but you can still do your taxes on your own!

BUSINESS EXPENSES

The key to getting through tax season is knowing that it takes work all year long, not just in the one week crunch time to file your taxes. Schedule E is going to require you to put your income and expenses, per property, not as a whole, so it’s important to have expenses assigned to a particular house. If you record income and expenses as they occur, it’s less of a hurdle when the year is over. By recording the activity all year, it then becomes a verification process when the year is over, thereby reducing the possibility of missing something or recording something wrong.

At the beginning of every year, I create an Excel workbook to track each property’s expenses. I use it as a projection of income, a projection of expenses, and a way to keep track of re-occurring expenses (e.g., stormwater utility bills I can’t assign to the tenant for payment). I set up each property on a separate spreadsheet within the workbook to identify all known costs for the coming year.

Not all of these categories apply to each property (e.g., HOA, prepaid points), but I found it was easier flipping between each spreadsheet if they were uniformly set up. There’s also a chance that you’re carrying appliance depreciation costs. Appliance purchases aren’t captured as a one-time cost in the year of purchase; the purchase is required to be depreciated over its useful life (e.g., a $500 dishwasher purchased on January 1 is depreciated over 5 years, so it’s $100/year worth of an expense claimed on your taxes). As I incur expenses or need to adjust my income, I record it per property.

After the end of the year, I then verify what I’ve recorded. I make sure that I have the right income for each property (e.g., were there late fees collected, were there rent concessions granted, were there non-payments). Then I go through each property’s paper folder I have filed to make sure I’ve recorded anything I have a receipt for. Then I go through my electronic folder for each property, and this is where nearly all my record keeping is (e.g., I have Lowe’s and Home Depot automatically email me receipts for a purchase, and all my contractor work is billed via an invoice emailed to me). I’m verifying that I have a receipt for any expense that I incurred and recorded already. I’m also verifying that I haven’t missed recording an expense that I have a receipt for.

Once I have everything verified, I let Mr. ODA know that the business expenses are ready. Inevitably, we’re waiting for some final investment account documentation to be available before we can input our data, but we’re mostly ready to go.

TAX SOFTWARE

Each year, we hunt for deals on websites that will allow us to pay nothing or a minimal cost for filing our taxes. We’ve spoken to a couple of financial people to see whether having a CPA do our taxes would be better, but they always agree that inputting in Schedule E is the only way to go, which is really straight forward. If we’re trying to not pay to file our taxes online, then we don’t want to pay someone to enter the data on our behalf if they’re providing a benefit outside of that. I know several people who use a tax accountant to file their taxes, and they rush around looking for all their documentation to provide that person. That seems more overwhelming to me, and it just seems faster to be on top of it myself than gathering receipts and being ‘on call’ to answer questions.

Filing our taxes is usually a 2-3 hour process. It’s not complicated, but it’s time consuming. We’ve found the best way to do it is having Mr. ODA input the data, as I pull the information he needs. I keep a tax folder to file all the paperwork we receive around this time of year (mortgage statements, investment account statements, etc.). I have that file handy, as well as all our account log-ins. I’m trying to pull information as fast as I can while he’s entering it and clicking through the software. Sometimes there’s something that trips us up because there seems to be a change each year, but we mostly have a groove by now.

If you haven’t filed your taxes on your yet, take this as a sign to give it a try!

February Financial Update

This month is basically just story telling, from insurance tidbits to mortgage annoyances, while not addressing the decline in the market and our investment accounts. 🙂

It seems all my mortgage payments are increasing on 3/1, so I’ve been managing those changes. I mentioned recently that one of our houses had the escrow analysis done incorrectly. Luckily, that was addressed, and the increase in our mortgage payment is only about $100 instead of nearly $200. Our personal mortgage increased by $16, another property increased by $52, and then our last 3 mortgages were all refinanced in January and this ‘first payment’ has been a bear. The information out of the refinancing company has been contradictory, they requested a bunch of information weeks after closing to support all the money they already gave us, and it’s just been rough. Rough enough that I ran to the post office to get a check in the mail at 4:48 pm today, only to get home to an email saying that I had to send that check (due tomorrow) to a different address. Ugh.

I was excited to share some positive news this month, but that got overshadowed by these mortgage payments! Anyway, we came home to some surprises after our vacation.

First, I had a medical procedure done in January. It was originally scheduled for November, but the week of the procedure, I had my heart go crazy on me. That cancelled my procedure because I couldn’t go under anesthesia until they knew my heart would be OK. We got my heart sorted out enough that I was cleared for the procedure, but once I was able to reschedule it, it went into 2022 ….. a new deductible year. They said that I needed to pay half the cost of the procedure before they’d schedule it. Since I had been waiting since September for this, I wasn’t going to question anything, and I gave my credit card number for $1200. Well, my insurance hasn’t processed the procedure yet, but I guess since I paid in advance, some sort of system review showed I had overpaid, and they refunded me $1196. I don’t know how they decided to keep $4, but I’ll cross that bridge when I see my claim is processed on my insurance website.

Second, I’ve mentioned before that you need to stay on top of insurance! I received a bill for my heart-related-ambulance-ride for over $900. The last time I was in an ambulance, I ended up owing the full bill, which was $500 at that time. When I saw $900, I figured, gosh 10 years later and a new jurisdiction, and THAT is what I owe. It said “we billed your insurance, and this is your balance.” Hmmm. Log into my insurance website and see there’s no claim history for an ambulance ride. I then learned, for the first time ever, how to submit my own insurance claim. I let the fire department know I submitted the claim, and then they said they’d do it for me! Why did your paper say you already did?! Well, the surprise I got was that my insurance covered all but $46 for the ride!!! I couldn’t believe it. That’s the happiest I’ve ever been to spend $46.

The most random thing that happened was a check from our electric company from our Virginia house. We sold that house in September 2020. Our mail forwarding isn’t active anymore and it was sent to our old address, so I really have no idea how we got it. It was $31.09 due to a required review of all accounts every 3 years. It’s not anything crazy or life changing, but that was truly a surprise!

RENTAL UPDATES

We had our usual suspects not pay rent earlier this month. One flat out said they won’t pay until the 23rd. I’m not even sure how to handle them anymore. I keep reminding myself that we raised their rent $150/month to get them to leave, but they accepted. So at least we’re in a good position there? The other paid us $700/$1150 on Friday (late). She at least emailed us with the awareness that we shouldn’t have to hunt her down for rent payments, so she got a pass because I was about to send the default notice at 12:01 am on the 6th. I’m also once again in a position of tracking down a rent relief payment on another house that’s supposed to cover December, January, and February. While the tenant ended up paying December rent, we’ve still been floating the January and February finances. The approval of their application (that was submitted in November) was January 10. As of today, no information from the State and no check in the mail.

I got a tenant renewal processed this morning. We increased their rent by $50/month (starting 5/1 when their current term ends), after it having been steady for 2 years. Our usual baseline to keep a good tenant is a $50 increase every 2 years.

We gave two property managers notice to increase rents on 2 properties that are up for renewal on 4/30. We do 60-day notices. It’s not entirely necessary, but I look at it as a way to negotiate with the tenant for a month, and then if they don’t agree to new terms, we have a month to get it rented. One ‘cried COVID’ last year, and we let her by. She’s been there 2.5 years at the same rate, and she even got the house under market value originally because it was November (bad timing). She’s at $875 and we said we’d go to $950. That’s a larger increase than we usually do, but the market rate for the house is $950-1000. If she balks, we’ll manage the turnover and get a new tenant in there. For another house, they’re at 1025 and have been since October 2019. They even negotiated a discount back then for an 18 month lease, so they’ve been under market. Despite our efforts to grieve our taxes, the City thinks this house is in an affluent neighborhood and has charged as such. We’re offering them a bump to $1100. Again, more than our usual $50 increase, but it’s been more than 2 years and $1100 is under market value. Then we had a 3rd person say she wants to stay in the house, but her lease isn’t up until August. She’s been there since August 2017 and has been at $850 rent since then. We’re looking to increase her rent to $900. She’s an awesome tenant that never needs anything, and I know she’s in grad school without much money. We’ve made her so happy for the last several years by renewing her without an increase, so I hope she understands the need to increase it now.

I paid the insurance on our townhome, which is a property we own outright, so I need to manage the escrow-type transactions. That was $210.

After our cash-out-refis in January, we have been looking for a new property to purchase. We’ve made 4 offers that have been out-bid. Mr. ODA has been trying to work the off-market angle. We made a full price offer for one of the houses contingent on seeing it, and the guy said that he’d now prefer to sell off his portfolio as one instead of each individual house. He declined our full-price-off-market offer. Sketchy. Then another guy said he wanted to wait until the new flooring was installed in his house before letting us see it, and then he won’t respond to messages now a week or so later. Interesting. We’re now trying to work another off-market deal through our Realtor, but the seller and our Realtor are out of town. I ran the comps on it and come to $235ish, while they were expecting $250k. I don’t deny that they’d get an offer in this market at $250, but I don’t know that it’s worth it to us. Then again, to be done with this driving around, seeing houses, making offers, and losing out, may all be worth an extra $15k.

PERSONAL TIDBITS

This month, we went on a trip for just about a week. The flight was paid for in a previous month, so that’s not captured in our spending. We stayed with a friend, and she made us nearly all of our food. We paid for our brewery visits with her. It was a great trip, and I definitely recommend Bend, OR! We did a last minute change from Touro for our rental car to a ‘regular’ car rental place at the airport, so that charge shows up in this month’s finances. We also booked 2 last minute hotel rooms, once for the night of our arrival and one for the night of our departure (we flew in/out of Portland, which is about 2.5 hours from Bend, so it was easier with the kids sleep schedules to be near the airport those two nights instead of arriving really late or leaving really early).

We bought Hamilton tickets. We were late on that band wagon until we finally found a friend with Disney+ who wanted to watch it with us even though they had seen it 257 times. Since December 2020, we’ve watched Hamilton a whole lot. We got on right when tickets were being sold and were about to accept the $200+ ticket price until Mr. ODA found the ticket sales through the actual venue were only $130! It’s not until June, but that’s something to look forward to!

We finished our basement over the last year and have been using for the last month now. We had a projector on hand that we used as our TV down there, but it started to die shortly after we hooked it up. We bought a new projector and have been really happy with it, and I was happy with it only being $270.

While our electric bill was surprisingly low last month, it was surprisingly high this month. They did an estimated meter reading, putting the estimated kWh usage at the highest it’s ever been. When I questioned their estimation process and shared the current meter read, they said that next month will probably be an actual reading and since it’s not more than 1000 kWh difference, they’re not going to change anything. Sure, I can afford this $414 bill that may be offset next month, but many people can’t. Their estimation process shouldn’t put the projected energy usage at an all-time-high, thereby dumping surprisingly large bills on people. Regardless, it’s something that works itself out, and isn’t something I’m going to fight any harder on right now. It’s just annoying knowing that our energy usage was high last year because we had a broken unit without our knowledge, and then with a working unit, they’re estimating that we’ve used more than ever.

Mr. ODA changed one of our credit cards, so I’ve been all out of sorts here now. The credit card was a travel-related card, and they increased their annual fee by $100. He ran the numbers and determined the benefits didn’t outweigh the cost increase. Instead of closing the card, they agreed to change the type of card. However, all the things we used that card for are now on different cards, and this change “activated” an old card of mine. Our credit card usage is convoluted; perhaps I’ll do a new explanation and update my last post on it (and then maybe that’ll get me to remember all the changes!).

NET WORTH

Our net worth dropped about $15k from last month, but that was due to the market. While not fun to see those numbers go down, it doesn’t affect our day-to-day. Our cash balance is really high right now while we keep cash liquid for a downpayment while finding another investment property.

Reaching Goals

Whether you have a lofty goal of paying off a mortgage or a short term goal of not struggling to pay rent each month, it helps to establish a plan. The first step should be learning your relationship with money instead of mindless spending paycheck to paycheck. Last month, I mentioned budgeting and how it can lead to overspending instead of spending wisely. I also mentioned the envelope system and not liking it.

The envelope system is where you establish your spending categories and put cash in the envelope each month. When the money is gone from the envelope, that’s it. Don’t borrow from another envelope. If there’s money left over in an envelope, it can be added to next month’s envelope to increase your spending, or you can use that money to treat yourself to something. In few articles that I read did I see that the extra money should be put towards your goal.

THE GOAL

The first step is to write your goal down. What is it? How long do you think it will take to reach it? I’ve learned that establishing interim goals helps reach the bigger goal that may seem too lofty.

The second step is to track your expenses. Look at what you’re spending your money on. Start categorizing your spending. Can you see that you’re spending more than you thought on something other than essentials? Is hitting up the drive through several times a week costing you more per month than you realized? Have you purchased decorations for your home that aren’t on display, but you’re scraping together rent or mortgage for the beginning of each month? Are you paying up-charges and delivery fees for a meal delivery service instead of going to pick it up yourself (or cooking your own meal)?

MONEY RELATIONSHIP

I have experience living paycheck to paycheck. It’s not like we’ve always been in a position where we’re not worried about how to pay our bills. I thought if I shared two defining stories from our finances, it may trigger an idea for you.

College

I lived on campus for the first two years of college. My parents were paying my tuition, and they said that either I needed to take out a loan to pay the following year’s room and board, or I had to be a Resident Assistance to get free boarding. I didn’t want the responsibility and having to be in my dorm so much to be an RA (I never researched it; I was just 20 and knew everything.). I decided the best approach was to live off campus because I’d be able to pay my living costs monthly instead of in two large chunks at the beginning of each semester. If I broke down the monthly cost of the ‘room and board,’ it was $1533 per month (and only for 9 months of the year). I figured I could live for less than that, while paying month-to-month as I earned income, if I moved to an apartment. My rent off campus that first year was $650/month. My utilities were about $150/month in the winter. I don’t know how much I spent on food, but I know it was the bare minimum. It wasn’t that I was purposely trying to be debt-free and a hero; I just simply didn’t know how to get a loan, so that wasn’t an option to me.

I had a job at JCPenney. I was making 5.15/hour (minimum wage in 2006), and I worked outside of my school schedule as much as I could. I was able to pay my rent every month because that was my priority. I dipped into my savings from my summer jobs, but I mostly changed my lifestyle. I packed my meals with peanut butter and jelly sandwiches for when I was working. I ate pasta for dinner. I didn’t go to restaurants often. I wasn’t in a phase of life where I wanted to go to bars, so my social life was hanging at my boyfriend’s house, where he lived with 3 other guys, drinking cheap beer and watching tv. I made sacrifices in my spending so that I could pay rent every month. I didn’t want to pay a late fee every month. If I could just barely afford $650, I certainly didn’t want to owe an extra $65 because I couldn’t pay rent by the first of the month.

There is one caveat in my story that first year. Since I was making just what it took to have a roof over my head and food in my stomach, I chose to forego heat. Do you know where Albany, NY is? It’s into freezing temperatures in October. It was fine – I had sweatshirts, sweatpants, socks, slippers, blankets. I lived on the first floor of a two story home, so that helps keep the temperature reasonable into October, but I knew I couldn’t last through the days of teen temperatures without eventually turning the heat on. My parents found out that I didn’t have my heat on, and they sent me $100/month to cover that. So I did get assistance. They sent me that for 6 months to cover my utilities, and that was the last assistance I received.

My parents paid my tuition, which was $2,175 per semester in 2004. Yes, less than $5,000/year for my college education.

Buying a House

Mr. ODA and I wanted to buy a house and settle down. We had each been part of a training program at work that would end with our placement anywhere in the country, so we weren’t in a good position to purchase a house in Albany, NY. Mr. ODA got placed in Pennsylvania, while I was still employed in their NY office. It wasn’t handled well, so we started looking for other options. I accepted a job in Washington DC, and Mr. ODA went to Sterling, VA; we moved to an apartment in Fairfax, VA to live in between those two places. We chose an apartment because we didn’t know anything about Virginia and needed a place to live while we scoped it out.

This wasn’t a scenario where we couldn’t afford to live, like my college example. This was a situation where we set a goal, and to achieve that goal, we needed to spend less.

Mr. ODA was saving and preparing for a house in the $150-200k range, not the $350-500k range as a first time home buyer. So we needed a plan to come up with over $70k worth of the downpayment and closing costs.

We set a goal of spending no more than $5/day/person on food. We ate a lot of peanut butter and jelly sandwiches, pasta sides, chicken nuggets, canned vegetables, etc. That threshold meant we weren’t paying to go out to lunch at work. We were eating the bare minimum at dinner. We were eating any leftovers that were in the refrigerator. We didn’t have a desire or lifestyle where we would want to go out for a drink or buy a lot of things, so it wasn’t hard to scale back in that area. After a month or so of doing this, we decided that happiness should be part of the equation too, and we started going out to a restaurant no more than once per week.

This isn’t a magical story where we went from $10k in savings to $75k in 6 months, but we were able to increase our savings a decent amount. We each took a residential loan from our retirement accounts, and we borrowed $5,000 from Mr. ODA’s parents. We didn’t expect to find all the funds needed, but we were able to decrease the amount of money we had to borrow from our retirement accounted by changing our spending pattern.

Our rent at the apartment, including utilities, was over $1800/month. When we purchased our house, our mortgage was $1576 and our utilities averaged $150/month.

REACH THE GOAL

If you don’t know where your money is going, you don’t know how to get your money to work for you. If you don’t take the time to evaluate whether or not you’re spending wisely, then you don’t know if there’s wiggle room in your budget to put you in a position that you’ll be more comfortable. Create a relationship with money. Know where each dollar is going. Determine if you should make changes to your spending to reach the goal, or if you should find a way to create additional income.

There’s usually a way to create more room in your budget with your spending. Some examples are to eliminate alcohol purchases, reduce your restaurant spending (whether it’s not going to restaurants as often or it’s changing how you order – do you need the steak; do you need a soda, or could you get by with water and drink a soda at home), reduce your home decor type purchasing, put your heat down a degree or two.

Instead of complaining that there are bills to pay, change your mentality to take control of your money instead of it controlling you.