savings – Page 3 – One Dollar Allowance

New Credit Card

November 7, 2024mrsonedollarallowanceLeave a comment

Over a year ago, we opened a new credit card because we replaced the carpet in our house. This year, we finally were able to make a purchase we’ve been waiting for: a hot tub.

Mr. ODA has wanted a hot tub for a while. We did some exploratory searching in May, thinking our deck project was nearly over. Then the waterproofing was never waterproofed. The contractor ghosted us on it. Mr. ODA bought his own supplies, but it was never enticing to tear up our brand new deck boards in 95 degrees to diagnose and fix the problem. We finally got around to that project in August. Once that was done and life calmed down a little bit, we decided to put more effort into the search. We went to 3 different places one day to get information. Then we sat on that for a week and decided on which one we liked the best and ordered. They told us 3 weeks, and it’s expected to be delivered and installed this coming Tuesday, which is over 5 weeks from our down payment, but such is life.

WHAT WAS THE BACKGROUND?

When we were in the process of IVF to have our first child, Mr. ODA was discouraged by the lack of financing availability. We could either take out an outrageous personal loan, or we could pay it in cash. Their “guarantee” program was $22,000. Up front. That didn’t include the medications that were bought separately.

We never like the idea of paying large sums of money out at once if we can help it. We make our money work for us.. meaning money is constantly moving and being invested in short term securities for us to earn interest on it. Mr. ODA had the idea to open a 0% interest credit card for the IVF payment, and this idea has carried us through several large purchases now.

WHY A CREDIT CARD?

By opening a new credit card, which we strategically pick, we give ourselves a personal loan for 0% interest.

A personal loan averages 12% at the moment. Since we have the cash available to pay for a hot tub outright, paying any percentage of interest to a bank is not something we’re interested in. We could just pull about $10k out of our savings account, our short term securities, or cash out a taxable investment. However, that costs us interest that we’d be paying ourselves. In our savings account, our current balance yields us about $120/month in interest earned. If we reduce that by about $10k, we’d lose about $30/month in interest payments. Instead, a new credit card is opened. It gives us the ability to pay the minimum balance (or more if we want) each month, leaving that cash in our account to earn interest or be invested.

WHICH CREDIT CARD?

When we search for a new credit card, not only are we looking for 0% interest rate for an introductory period of at least 12 months, but we’re looking for another incentive. Many people were talking about “credit card hacking” a few years back, where they’d open a new credit card to get the bonuses and then render that card obsolete (not close it). There are negatives to opening too many credit cards that I’ll get into later.

Not only are we looking for 0% interest, we also would prefer to receive another incentive for the credit hit. This new card gives us $200 cash back for spending $500 in purchases in the first 3 months, which we’ve done without any problem. This particular company has other options on the market. One card gives you 4% back on certain purchases, but there was no introductory rate on purchases. Other cards have an annual fee, which we try to avoid unless it’s glaringly obvious that you’re going to make that fee back in rewards you can’t get elsewhere (e.g., I’m not going to pay a $99 fee to get 2% cash back when I have a credit card that gives me 2% cash back without a fee).

Typically, these credit cards don’t offer us a better incentive than other cards already in our portfolio. However, this new card actually gives us 2% cash back, which is the same as the Citi Double Cash card. This will change our equation of managing the balance a little. Historically, I’ve had a balance on the new credit card, paid $500 per month towards it, and then paid it off before our introductory interest rate period expired. The balance almost always was decreasing, so I knew what I was working with. This card is being used more often, with 4 transactions in the last 3 weeks already on it. I’ll be interested to see if that changes how I manage the balance.

WHAT ARE THE CAUTIONS TO CONSIDER?

First of all, the most important thing to consider is where this purchase is something that you can and want to afford. When your money goes towards one thing, you’re taking it from something else. Weigh whether that’s worth it. In the case of IVF, having a child was more important than any other place those dollars could have gone. In the case of the new carpet, all of the carpet in the house was old and, frankly, disgustingly stained; I wanted the carpet replaced as soon as possible so that I could enjoy what I was living in. And now, the hot tub. This is one of the few splurge purchases we’ve made. We have gotten to a point on making decisions that bring us joy. We were also gifted money over the last year or so that was earmarked for this.

When putting a large sum of money on a credit card, you can’t forget about it. You still have to make the monthly minimum payments. If you don’t, you could have to pay back all the free interest you’ve received thus far and/or start paying interest (to the tune of 22%…so that’s $2,200 in interest on a $10k balance) on the balance immediately. You also need to be able to pay the entire sum by the end of the introductory interest period (or, again, you’ll be paying interest on the balance).

For the credit card that we used to pay for new carpet and new windows on a rental, we put nearly $12,000 on the card in October to December of 2023. We also used it to make 2-3 more relatively smaller purchases. I paid $500 every month towards it. The minimum payment was typically around $100, but I wanted to see the balance dwindle a bit faster than just the minimum. My current balance is $6,500. I’ve been been monitoring our money movement for a month or so, preparing to pay off this balance no later than December 13th (I appreciate this company explicitly listing the date of the introductory rate expiration because they don’t always do that). A balance of $6,500 is obviously less than needing to outlay the full $10k-12k last Fall, but it’s still not a small chunk of change that needs to be fit into our cash flow right now.

Opening a credit card will affect your credit score and history. This may not matter to you if you don’t have any large purchases (e.g., buying a home) on the horizon where you’ll want the highest credit score you can get yourself. However, if you believe there will be large loan-seeking opportunities in the next 1-2 years, opening a new credit card should be carefully considered.
– It’ll count as a hard pull on your credit, which degrades your credit score for one-two years. Credit Karma says the “ding” on your credit lasts only about 3 months, but too many at one time could cause a bigger drop in your score.
– Opening a new card lowers your average credit history. This is why people say not to close any accounts. If you close an older account, it brings your average down. My average is currently 6.5 years, and it’s listed as “fair.” If you have old cards that you’ve kept open, you may need to use it for a transaction to keep it active and open.
– If you’re adding a large sum on the credit card, your credit utilization could be higher than preferred for your credit score calculation. According to Credit Karma, you should be below 30% credit utilization, and being below 10% is even better.

SUMMARY

If you’re about to make a large purchase that you’ve considered carefully and have decided is worth the cost, then opening a new credit card with a 0% interest for an introductory period could be a beneficial option. It’s a way to give yourself a personal loan for no interest. Be sure that you have projected the cost over the course of the introductory interest period so that you know you’ll be able to pay off the balance in time, and that you make all minimum payments on time.

School Lunch

September 19, 2024November 20, 2024mrsonedollarallowanceLeave a comment

I grew up in a private school setting, and we didn’t have a cafeteria that made us food to purchase. Everyone once in a while, we’d have “pizza day,” where we could bring in a dollar or two and buy pizza that they had delivered from somewhere. My high school had a full cafeteria that prepared breakfast and lunch to purchase. It was a private school, so there weren’t any state subsidies. All that to say, bringing my lunch to school wasn’t even a thought. I packed a lunch and a snack every morning. In 2nd grade, I started doing that for myself and my sisters because my mom was really sick, and it just stuck as a chore I did.

I have a child who just started Kindergarten last month. Since my background was bringing my lunch to school, I expected to pack his lunch too. He’s bought school lunch just once so far, and it was for his birthday. I figure there will be a few days throughout the year that he’ll want to buy lunch, but so far he’s content with my packing it.

Last week, I was volunteering at the school, and another mom said “I don’t bother packing anything. For $2 they get breakfast and $2.75 they get lunch; I can’t make meals for that little.” And so, this post was born. Now, I don’t know the outcome, but my hypothesis is that what I pack for his meal is less than that. So let’s dive in.

BREAKFAST

First, breakfast for my kids nearly every day is cereal. That’s their preference. For all the things we don’t buy name brand, cereal is one we keep name brand. We buy it on sale on Kroger. Mr. ODA likes to stock up, even though he admits that the sales are every other week and we may not need 5 boxes of Honey Nut Cheerios in our pantry at any given time. 🙂

We paid $2 per regular-sized box. The box says a kids serving size will get 12 servings per box. That would come to $0.17 per bowl. Regardless, I do know that $2 per box is less than $2 for one breakfast though.

My kids don’t eat much for breakfast. At home, they have a snack around 10, a hearty lunch, another snack, and then dinner. They’re really good about eating when they’re hungry and not eating when they’re not. Even when my son got free breakfast at the orientation events, he ate a partial bowl of cereal and some fruit. We go through a lot of fruit in this house. But mornings before school don’t have the time to get fruit and cereal into him. I forced it on testing mornings, but he still wanted to eat just the fruit and nothing of more substance, so I had to bribe him.

LUNCH

This is where fruit comes in. We also have fruit as part of the after school snack.

Here are some options that I mix and match throughout the week (though not exhaustive). I’m also taking suggestions!

Yogurt Covered Raisins: $2.97/pack, 6 in a pack = $0.50 each.
Clementines: $3.50 per bag. I’m estimating there’s about 20 in a 3 lb bag. $0.18 each.
Grapes: We purchase these at $0.98-1.98 per pound. At the high end, for what I pack, I’m going to assume $0.20 per serving I give.
Oreos: Family size is $5.28 with maybe 48 cookies (that was a quick google). I put two in his lunch box if I put any at all, so that’s $0.22.
Fruit snacks: Honestly, we have a gigantic box that was given to us at some event, and that’s lasted us since the end of last year’s school year. But I’ll include this cost anyway because eventually I’ll buy more. $15.99 at Costco for 90 = $0.18.
Applesauce pouches: I buy Walmart’s version of this. $5.68 for 12 pouches = $0.47 each.
Peanut butter and jelly sandwich: A jar of peanut butter is $1.94, jelly is $2.74, and bread is $1.42 for 20 slices. The bread is $0.14 per sandwich clearly. The other two are harder to quantify, but both are minimally used per sandwich I make, so let’s say $0.15 total for those, bringing a sandwich to $0.19.
Chicken nuggets: $5.97 for a 32 ounce bag. I have no idea how many are in there. The package says 4 nuggets are a serving and there are 12 servings in the bag, so let’s say there are 48 nuggets. That seems low though. That means each nugget is $0.12.
Pizza: We seem to have pizza once per week, and there always seems to be 1 or 2 slices left over. $4.97 for the pizza, where we get 8 slices, so $0.62.

If I pack a peanut butter and jelly sandwich, grapes, clementine, and oreos, that’s a total of $0.79. Today I put a PBJ, raisins, grapes, and oreos. He actually got 3 oreos because there were only 3 left in the package; that total came to $1.22. Yesterday’s lunch was 7 nuggets, an applesauce pouch, grapes, and a clementine; that came to $1.69 (actually, that doesn’t include the bit of ranch I put in there, so perhaps add a few cents).

The first few weeks of school, I had been putting more food than this in his lunch box. He had told me he was eating everything, but grandparents day had grandma eating with him so she saw he was throwing some things away. I had asked him repeatedly to tell me what he likes or doesn’t, or if there’s not enough or too much food so that we can make adjustments.

There are other things like puffed corn, chips, and cheez-its that I buy for his snack. He eats lunch at 10:30, so they give him a snack in the classroom at 1:30. There’s no option to buy a snack at the school at this time, so everyone needs to pack their own snack.

SUMMARY

By the time my child gets home from school, I’ve spent approximately $1.80 to feed him for breakfast, lunch, and snack. On the high end, it may be about $2.25. This also assumes that the child is happy to eat all the options presented for the meal. When my son bought his lunch, he ate the orange slices, bread, and half the spaghetti. He didn’t touch the broccoli (that I put on his tray for myself), and he didn’t even pick from all the options presented in the cafeteria line. Whereas I know what I’m packing includes things that he eats regularly at home.

While I agree that $2.75 for a meal is cheap relative to buying at a restaurant or fast food, the assumption that it’s cheaper than what you could pack a lunch for doesn’t appear accurate.

September Financial Update

September 12, 2024November 20, 2024mrsonedollarallowanceLeave a comment

We have two kids in school now, and my days are chaotic to say the least. I have not figured out my organization of all the “required” activities I have. I’ve written our schedule out several times over the last few weeks. It seems so easy because nothing overlaps, but my days are full of stress. I have 3 little humans’ emotions to manage on top of the organization of activities. Everyone’s tired because this is a change from the summer process. I keep hoping that “next week” will be better, but better isn’t coming. So, I missed last week’s post. I am taking several days to write this post. We’ll see how it goes.

Kid1 went to kindergarten this year, and Kid2 moved up to Pre-K. She went to school two days per week last year, which was $175 per month. Now she goes 5 days per week, which is $375. Since Kid1 is in public school now, I saved $175 per month, right? Mr. ODA is going to hate that line. 🙂

We got hit hard with charges this credit card cycle. I purposely held an insurance payment until our main credit card’s statement started over so that I could feel like it was a less expensive month. I paid that the day $1500+ that the new statement started. Unfortunately, the remaining payment to the electrician also came due on that day, and that was $1,766 hitting the card at the same time. Mr. ODA went on a work trip, which gets reimbursed, but that hotel is still increasing the credit card balance. A gift for the grandparents keeping the kids while we went to NY last month, three invoices for rental work, and our YMCA membership are all on there. Our actual spending on things outside these costs is quite low, but it doesn’t look that way with the credit card balance.

I hit 100% of August rent paid as of August 30th. So I knew that I wasn’t going to be at 100% for September right away. I have one tenant who still owes half her rent, which is hopefully be paid over the next week and a half. They have blue collar jobs and seem to be caught up in layoffs. But they get a ton of credit because they always get right back up. They just ask me for a few weeks during that transition period, and I can’t respect that enough. They’re late a few times each year, but I’ve never charged them a late fee.

NET WORTH

Our net worth is up almost $600k from this time last year. From last month, it has increased by about $50k. Our credit card balance is similar to last month. Our cash has decreased a good amount as we had a roof replacement get paid out, but otherwise most line items moved in the ‘right’ direction.

Buying versus Renting

August 22, 2024mrsonedollarallowanceLeave a comment

I have a tenant who, in the same day, told me that she couldn’t pay rent on time and asked whether she could buy the house. She said she paid $60,000 to me and that could have gone towards owning a house. While I understand the lump sum of what you paid being a pain point, owning a house isn’t that simple. I thought I’d break down a comparison of what she would have done to own this house versus her renting it over the last several years.

RENT HISTORY

Based on the proximity to Main St and the comps in the area, we went into the purchase expecting about $1,000 per month in rent. At the 1% Rule (where you set monthly rent at 1% of your purchase price), we should have been at $1,020. Knowing that it was October/November by the time we would get it rented (there aren’t as many people looking for a new rental in the Fall, after school has started and holiday activities are ramping up) we chose to list it at $975 and keep it below that 4 digit threshold. It sat for 3.5 weeks with hardly any activity, and we dropped it to $875. We found a tenant in under 2 weeks then, but we weren’t thrilled amount our cash flow on it.

The tenant’s lease started on November 1, 2019. Her rent was $875. My property manager incorrectly established a one-year term lease instead of an 18-month lease like she was supposed to, so we had to do a 6-month extension after the first year. Then in March 2021, we tried to increase the rent to $900, and she complained that due to the pandemic, she couldn’t afford that. We let it go and she renewed a year lease at $875.

Come February 2022, we were significantly under market value for rent and she hadn’t been a friendly tenant, so we were content pushing a raise to $950. If she didn’t want to pay that, she was free to leave and we would take the vacancy hit to fix it up and get it re-rented. She complained about the increase, and our property manager told her to take a few days to look around to see if she could find somewhere to rent that was at a price she would feel more comfortable with. She came back and said she couldn’t find anything and accepted the increase to $950.

Not including a few late fees she has owed over the last nearly-five-years, she’s paid us $52,850. While in total that appears to be a significant number, that number does not mean that you’d have $52k in equity in a home had you paid towards a mortgage.

OUR PURCHASE INFORMATION

We paid $102,000 for the house in 2019. We asked for several options for the loan structure. We asked about putting 20% versus 25% down, and whether the rate for a 15 year, 20 year, or 30 year loan would have the best rate. Going through those details is something I’ve done in the past, so for this purpose I’ll just note that we chose to put 25% down because then we didn’t need to “buy down” the rate. The rate for each loan length was 4.55%. With no incentive to do a shorter loan term (and therefore increase our monthly payment), we chose the 30 year term. I do want to note that our interest rate is higher than the average for 2019 (3.9%) because it was an investment property and not a loan for a primary residence.

Based on the 25% down and the closing costs, we had to come to the table with $26,589.12.

Our mortgage was $538.46, which includes escrow. We paid off this loan fairly soon after we closed on it, so we don’t have a monthly mortgage payment. However, I do need to plan for our current mortgage and insurance payments each year, which is currently over $2,000.

FACTORS TO CONSIDER

To keep this more consistent in the message, note that the loan discussed will be based on the purchase price of $102,000.

First, you need to have favorable credit to qualify for the mortgage. In an example, the lowest credit score I could plug in was 620. However, in much of what I’ve read, anything below 680 is questionable on qualification. Our requirement to rent a property is to have a credit score of 600. Perhaps there are lenders that will process a mortgage if your credit score is below 620, but you’re going to pay a premium via the interest rate.

With a credit score of 780, say you’ll have a rate of 6%. But then with a score of 680, you’re looking at 6.5%. At 6%, your principal and interest payment (doesn’t include the escrow required) would be $599.19. At 6.5%, it goes to $631.69. That’s only $32.50 per month extra; over 30 years, that’s an extra $11,700 paid to the bank. I have some tenants where an extra $32 per month is a big deal.

Without at least 20% down on a loan, you’ll likely have to pay private mortgage insurance (PMI). This amount could add a monthly premium to your mortgage payment anywhere from 0.2% to 6%. I did a quick calculator with the example of $102,000 purchase price, $3,060 down (typically the lowest available without any special loan structures is 3%), and a credit score of 620 (lowest it allowed). The PMI was calculated as $187 each month.

I mentioned that our final closing costs were over $26k. If I remove our down payment, that leaves $1,089 in closing costs. I will note though, that our contract had $2,000 in seller subsidy (a credit). Without that purchase agreement structure, that means your closing costs are actually $3,089. This means that you need to come to the table with $6,149. Buying a house is not like buying a car where you can roll all the costs into the loan, and I feel like people don’t realize this.

Your debt to income ratio also plays a factor in whether you can qualify and what your interest rate would be. So even with a decent credit score, you need to show a low debt-to-income ratio, meaning you can’t have your credit cards maxed out. The lender wants to see that you don’t have high monthly costs that would prevent you from paying your mortgage.

That brings me to the flexibility of paying rent. She paid $475 worth of August rent (due August 1st, with a grace period to August 5th before a late fee is owed) on August 20th. If you pay your mortgage late, there’s a late fee and it gets reported to the credit bureaus. Your late payment of rent doesn’t get reported to anyone. She also has the extra advantage that I’m willing to work with her on late payments. An apartment complex type owner is going to immediately file for eviction on the 6th without full rent payment, regardless of your story.

SUMMARY

While a mortgage payment of $538.46 looks favorable against a rent payment of $950, it’s not that simple. I was able to qualify for the mortgage, qualify for a favorable interest rate, and put significant money down.

If I add a premium to the rate we were able to get, assuming my tenant’s credit score is similar to what it was when she rented our house, and then add the PMI that would be applied by not having 20% down, then the mortgage payment (including escrow) would have been $903.02. PMI stays on the mortgage until you reach 78% loan to value ratio (unless you pay for an appraisal and can prove 80% earlier than that). That threshold in this example is $79,560. That principal balance would be achieved in over 11 years, which means you’ve paid $25,058 for essentially nothing.

Then on top of paying these premiums for the mortgage, she would need to pay for the maintenance of the property herself, which is included in my rent factors. I’ve paid over $3,000 for repairs and maintenance on the house over the last 5 years (which is fairly low). However, that includes a deck replacement that we did ourselves and probably would have cost $4,000 instead of the $400 we paid in materials.

So the next time you think that you could be paying half of your rent with a loan, know that you’re not looking at the whole story. There are many factors that go into a mortgage, especially the initial ability to qualify for such loan.

August Financial Update

August 15, 2024August 15, 2024mrsonedollarallowanceLeave a comment

Many of our activities over this last month were already paid for or minimal cost. We went to Colorado, and we’ve been doing back to school type activities. Mr. ODA was in Colorado longer than the rest of us (I flew home on my own with 3 kids!), and he went on a work trip for a week, so my goal has been activities outside of the house as much as possible in this final stretch before school starts. We’ve had quite a few activities on rental properties too.

RENTAL PROPERTIES

Historically, if the 1st through 5th of the month falls on a Friday, that’s the day that I receive rent. Meaning, if the 3rd is a Friday, then I get rent that day. This month, the 2nd was on Friday. I received very little rent. Going into the 5th, I was still waiting on 60% of rent payments; I was already told by 3 tenants (making up 23% of that amount I’m waiting on), that rent will be late this month. Luckily, 2 of those 3 tenants had paid partial rent already. That left 4 houses going into the 5th that hadn’t paid and I hadn’t heard from. That’s more than normal and was a bit worrisome. By the time of this post, I’m missing nearly $2,000 worth of rent, which is over 10%.

We’ve had several small actions that needed attention from our handyman, so I paid out on that. We had an AC go out before a hot weekend, so we had our technician go out and fix that (I haven’t seen that bill, but it’s expected to be around $1,000). Mr. ODA went out to a local house to properly fix their kitchen cabinets that were apparently never installed correctly (before we owned the house) to install them into the studs.

I was called for a garbage disposal that wasn’t working, and I attempted the fix on my own. I was nervous going into it, but I successfully fixed it in about two minutes. That felt good. I also went out to check on a roof replacement at a local house, and Mr. ODA replaced their deck. This tenant doesn’t communicate well whatsoever with us. She said “the deck is in bad shape.” That was it. Didn’t send a picture, didn’t give any details. I went out to check on it, and the deck stairs were hardly sturdy and none of the pickets were installed anymore around the decking part (it’s more of a landing than a deck when you think of size). It’s infuriating that people could not communicate such a dire issue. Most of my tenants do a great job, but this is why annual inspections are necessary.

PERSONAL ACTIVITIES

It has been a crazy month! I have thrived with the busy scheduled and a sense of accomplishment.

I was elected to our Homeowner’s Association board of directors this past month. I’ve spent a significant amount of my time going through that information and trying to get things organized and back on a schedule. I had my first meeting on the Landlord/Tenant Advisory Committee. And I joined on with a start-up school to be their financial consultant.

We signed our oldest kid up for Fall Ball and our second for gymnastics. She did acro last year, but I said all year that she would thrive better in actual gymnastics where they do more activities than dance. Our oldest started kindergarten, which is really exciting. That also required a lot of attention between back-to-school activities and paperwork to be filled out. I ran a 5k with zero training (I had run 1.4 miles the week leading up to the race), but my friend and I beat last year’s time by 5 minutes!

We worked on our own deck. A tree fell on it last July. We had to get our insurance company to understand our issue and fully cover the repairs that were necessary (it took them forever to get an engineer involved instead of all different adjusters). We finally got started in March on the replacement. After weeks and weeks and weeks of our contractor working on it, he finally ghosted us because he couldn’t get the waterproofing to be waterproof. So this past weekend, we tore up our deck boards and repairs the waterproofing issue. It’s supposed to rain this weekend, so hopefully we’ll see that our fix worked finally. Once we prove to ourselves that no water is getting down there, we can have the electricity finished. We also built a little wall to hide the storage being kept under the stairs under the deck, which was cool.

NET WORTH

Obviously, our investment accounts diminished slightly since last month, as the stock market has been a constant discussion point recently. Last August, my updated said: Our overall net worth went down slightly from last month because of market fluctuation. So this seems to be a typical cycle! Last year it was offset by a large insurance check we received, while this year our cash balance is much lower from last month to this month.

I have about $9k to still pay out on a roof replacement (insurance is covering most of it), about $1k to pay to a plumber, and a couple of other odd jobs that are waiting on invoicing. Our net worth isn’t 100% accurate this month because I don’t have access to a few accounts (well, I have the log in and password, but it requires either text or email verification to get logged in, and Mr. ODA holds those and isn’t available – annoying!). I also have a $1500+ insurance payment to make, but I’m purposely holding off until this credit card statement cycle ends so that I can feel like one month isn’t a crazy high balance.

To update our net worth, I have spreadsheets set up that I overwrite from last year. Last year’s August update had our net worth at $3.78 million. So even though this month is over $27k less than last month, we’re still up over $500k from a year ago without any drastic changes in investment portfolio.

5% Rent Cap

August 8, 2024August 2, 2024mrsonedollarallowanceLeave a comment

The President issued a statement calling on Congress to cap rent increases at 5%, specifically for corporate landlords. The statement appears to define corporate landlords as those owning over 50 units in their portfolio. This was not an executive action that is implemented. And while my numbers are different than the numbers of a “corporate landlord,” I do think it’s worth hearing a landlord’s side. I feel that there’s a lot of spite against landlords without a lot of knowledge about their actual financials.

I admit that there is a possibility that some of these companies with large complexes could be raking in on the fees or “utilities” that are in the unit, without actually providing a properly maintained building, but that’s not the case for everyone that’s labeled as a landlord. No one seems to step back and see that this is a business model for landlords, and while everything else around us is increasing in costs, rent needs to as well.

No one predicted such a significant rise in product costs or housing costs in such a short period of time, but here we are. And landlords aren’t in the business to graciously eat the costs of homeownership for renters.

LANDLORD COST INCREASES

The Presidential statement released refers to a press release that starts with, “Today’s U.S. Labor Department Consumer Price Index (CPI) report revealed costs remained largely unchanged in May, with overall inflation cooling faster than economists expected as the Fed considers finally reducing interest rates below a 23-year high.” Is there a comparison to costs that landlords had to take on because the costs of everything increased faster than expected back in 2020-2022? Increases have been seen on small things like a maintenance call for a technician, but also big things like property taxes and insurance.

That same article goes on to state, “Since 2019, the cost of rent has risen 31.4%, with wages only increasing 23%, as tenants on average need to earn nearly $80,000 to not spend 30% or more of their income on rent.” In 2019, on one of my properties, the taxable assessment was $95,000, which equated to about $1,200 per year in taxes. In 2024, the taxable assessment was $242,000, which equates to about $3,000 per year in taxes. That’s a 61% increase in just my taxes over that same period of time where they’re complaining that the cost of rent increased by 31.4%. If rent had been set based on the 1% rule in 2019, rent would have been $950 per month. Had I increased 5% each year from 2019, it would be $1,212 in 2024. If I set rent based on the 1% rule now, it would be $2,420. However, the rent on the property is $1,750. So while it’s more than 5% each year since 2019 (the baseline the government is using), it’s set at an amount where I capture my expenses for owning the house, while also turning a small profit.

It’s taboo for a landlord to turn a profit, but that’s why we’re here. It’s an income stream that we’re establishing for profit. I don’t get to pay myself an hourly rate for managing the property. So this “profit” can actually be looked at like a salary. Every time I need to show the property to a prospective tenant, the lease signing, the walk through, every call or text you make, every trade that I need to schedule and coordinate with the tenant on, any fixes or improvements that I do myself. All of these minutes in a day add up, and I’m not directly paid for any of them.

On the particular house that I’m using for the example, we are assuming $300 per month in profit, which comes to $3,600 per year. Would you work as a manager of a company (e.g., hiring trades to fix things, performing maintenance, making sure all bills are paid timely, general management of having liabilities), for only $3,600 per year?

I wrote a post last Fall about the changes in my rental fixed costs from a year prior. I plan on doing the same this fall when more tax information comes due. The house I’m referring to has been at $1,750 for the past two years. However, between 2022 and 2023, my taxes and insurance have increased by $255 per year. That’s a cost that I’ve “eaten” from my “profits.” I could have said that equates to $22 per month increase, and I could have projected a similar increase for the year coming. I could change their monthly rent to be $1,790-$1,800 to keep my profits on a similar path. However, I didn’t, because they’re good tenants that haven’t had many maintenance calls.

However, if I don’t increase every year, then I could find myself in a sudden deficit like I did during the pandemic because costs increased faster than projected. A 5% cap could actually incentivize annual increases because I wouldn’t want to be caught behind and not able to catch up down the road.

LEASE TERMS

The Federal Housing Finance Agency announced protections for renters in multifamily properties that are financed with loans backed by Fannie Mae and Freddie Mac. The protections include: (a) requiring 30 day notice before rent increases; (b) requiring 30 day notice on lease expirations; and (c) providing a 5 day grace period before imposing late fees on rentals. I know for a fact that every single lease I’ve executed personally already has all of these requirements in it, at a minimum. In many cases, there’s a clause for 60 day notice of a potential rate increase, with negotiations being completed before 30 days from lease expiration.

Some states already have this codified. Other jurisdictions have landlord/tenant agreements that give the tenants rights (and awareness of rights) that can be lobbied against if the landlord is noncompliant.

There’s a clause that I’ve seen that requires expired leases to auto-renew on a month-to-month basis instead of for another year. I would argue that a requirement to renew a lease month-to-month instead of annually actually hurts a tenant. A landlord then only needs to give 30 days notice of a rent increase, and they could technically increase it month after month.

SUMMARY

If the ‘cap’ were to apply to me, then I’d be more inclined to increase rent every year. As a general rule, I increase rent for long term renters by $50 every two years. When we turnover a property, we will evaluate market rent in the area and set the monthly rent at what we see (which could be more than $50). In some cases, the evaluation ends up being too high, and we set the rent at something we think more people can afford. For example, there were comparable houses renting at $2,200 near a house we had listed. We’d rather get the property rented than shoot for top dollar, so we listed it at $1,600. While lower than “market value” probably called for, it was $400 higher than what we had it previously rented at, which covered cost increases that weren’t previously covered.

In the post that I previously linked, I highlight that our standard for increases barely offsets our increase in expenses. While we manage each house individually on setting the rates (asking ourselves: do we think the tenant can absorb the increase, do we have to increase to cover actual costs now), our monthly income among all houses was increased by $475. If you add up the cost increases for taxes, insurance, and property management (increased rent means increased fees because fees are based on the rent price), our costs went up $415 (and that’s before any service calls). On a whole, we’ve offset the ‘fixed cost’ increases. We’re taking ‘losses’ on houses where our routine for increases is slower. Therefore, having 13 properties affords us the ability to be more lenient with tenants and to keep good tenants in the house instead of forcing them out with hgher rent increases.

I support having protections in place for tenants. I’m sure there are landlords out there that aren’t interested in playing ‘by the book’ and just being decent human beings like I intend to. However, landlords are people too, and they’re running a business. Creating boundaries without fully understanding both sides of the situation and focusing on data points that only support your theory is unfair. I’ve joined the Landlord/Tenant Advisory Committee in my city. I hope to bring more awareness to the landlord side of things and bridge the gap between landlords and tenants when it comes to responsibilities.

Thermostats and Finances

July 25, 2024July 11, 2024mrsonedollarallowanceLeave a comment

There has been a lot of talk about thermostat temperatures recently because of how hot it has been where I live. There are Department of Energy images circulating that say keep your home at 78 when you’re home, 82 when sleeping, and 85 when away from home. Personally, I need it colder at night than during the day, but that’s not the point. My goal here is to make you stop and think about your actions. This applies to several areas of your financial life, but this post specifically will be regarding your heating and cooling process.

THERMOSTAT SETTINGS

In our house in the summer, we keep the thermostat at 75 or 76 during the day on the 1st floor. It usually starts at 76 and then if someone feels hot, they bump it down to 75. Upstairs, it sits at 77 for the day, is put at 76 for when the kids go to bed, and then 74 when we go to bed. When we leave the house, the thermostats are at 78; if we leave for extended periods of time, it’s set in the 80s. In the winter, the heat is set at 65 during our waking hours and 64 or 63 at night.

As a quick aside, our third son was born early and was having trouble breathing and regulating his temperature those first few weeks. We were told to keep the house at 70 or greater for him. We struggled! We made it to 69, but everyone was uncomfortable and hot. I mentioned this to the doctor and he said it was fine to be at 68 if that’s what everyone felt more comfortable at.

While we know these numbers now, we spent a lot of years working on different settings. We didn’t just assume that these were the numbers we wanted to be at. There were winter months where we set it at 63, but my fingers were hurting because they were so cold while I typed on my keyboard, working from home. I was at a friend’s house recently; they had it set at 70, and I was cold.

That brings me to another point. What’s the thermostat temperature where you’re comfortable in the summer while wearing shorts and a tshirt? If you’re wearing a sweatshirt and have the temperature set at 70, is that worth the extra cost to run the air conditioning at that temperature?

TIPS TO SAVE MONEY

This image was shared by a local meteorologist, but a citation wasn’t given, and it differs slightly from the numbers that the Department of Energy published. According to this, we’re saving 19% in the winter by keeping our heat at 65, but then we’re spending 32% more in the summer based on the recommended setting.

While you may have your expected temperature setting, you may want to consider is how hot (or cold) it is outside. If it’s going to be 100 degrees, maybe set the thermostat slightly higher on those days. It’ll feel comfortable at a higher temperature because the unit is going to be running more, therefore pumping more air into the room than on an 80 degree day.

In the summer, another option is to keep the blinds closed. If you keep the sun from peering into the house, especially during the heat of the day, it’ll help keep the temperature lower so the unit won’t want to kick on as often.

My local electricity company provided suggestions to keep your bill lower. Their article said to grill, use a slow cooker, and make sandwiches instead of using the oven and stove, which create more heat for the air conditioner to have to counteract. You can also use fans in rooms where you’re sitting so that you feel cooler while the thermostat is kept a degree or two higher. Make sure your filters are changed regularly so that your unit is working efficiently.

I implore you to increase your cooling temperature by one and see how that feels. Live with that for a week and see if going one more degree helps too. It could be that the cost to run your heating/cooling is worth the level of comfort you feel, but it could be that you find a setting that is still comfortable and it’s worth the savings you reap.

July Financial Update

July 11, 2024July 11, 2024mrsonedollarallowanceLeave a comment

RENTAL EXPENSES

We took a trip to Richmond, VA to work on rental properties. It was fairly last minute. I had a schedule of work at each house that I planned. However, I didn’t plan on the heat index being 113 and 112 for the two main days we were there. I was able to get everything on my list done except for staining the new deck at one of the houses. I didn’t want to risk it not applying or curing correctly because it was too hot and in direct sun. Plus, the tenant didn’t even clear it off so I could work on it.

I had multiple houses pay rent late this month. I was surprised. One let us know on the 5th that they had an emergency, so they wouldn’t be able to pay until the 17th. I had someone pay half their rent early in June, but then haven’t received an answer as to why the rest of her balance ($345) hasn’t been paid yet. Another tenant misunderstood her maternity leave pay, so she asked for more time to pay rent. She paid $800 on the 7th. I told her not to worry about it, and just pay when she can, without the late fee; she only has $150 remaining.

I’m currently working through two roof replacements. One of them will be covered by insurance, but then I’ll be paying to have vents added, the chimney torn off and capped, and the soffits repaired on top of what insurance can do. Then the other one we’re paying out of pocket for. It’s original to the house, which was built 24 years ago. There has been storm damage to it over the last year, and it’s just generally time to address the age even though it hasn’t caused any problems yet.

PERSONAL EXPENSES

Our medical insurance company had some glitches in their claim processing through the first half of the year. Now they’ve caught up, meaning I’m paying large sums of medical bills. Mr. ODA took on booking lodging for his guys trip later this month, which meant that the second half of AirBnB payments were applied to the credit card.

Mr. ODA increased each kid’s UTMA from $75 to $100 per month. That means we’re investing $3,300 each month into accounts, on top of maxing Mr. ODA’s TSP contributions and both of our Roth IRA contributions for the year.

Our contractor has ghosted us on our own deck build. We bought some new furniture for the main deck area. Once it’s not 100 degrees outside, we’ll work on doing the waterproofing of the deck ourselves so that we can start living on the patio under the deck and get that hot tub ordered this fall.

NET WORTH

I updated the valuation of the houses this month. I typically only do that 3 or 4 times per year. I try to account for the big increases we see at the beginning of the spring, and then adjust slightly around this time of year once the comparable houses have closed and sold. This update added $140k worth of equity into the equation. All of our liabilities decreased since last month, and all our assets increased since last month. That has equated to an increase of over $200k in our net worth.

Risk Taking

June 29, 2024mrsonedollarallowanceLeave a comment

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

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

RETIREMENT ACCOUNT LOAN

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

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

ADJUSTABLE RATE MORTGAGE

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

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

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

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

BUSINESS/COMMERCIAL LOAN

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

PARTNER

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

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

RENTERS WITH COMPENSATING FACTORS

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

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

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

PAID OFF LOANS/MORTGAGES

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

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

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

FINANCIAL AWARENESS

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

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

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

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

LIVE SMART WITH INFORMED DECISIONS

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

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

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

June Financial Update

June 15, 2024mrsonedollarallowanceLeave a comment

Welcome to summer, where we’re traveling and I’m not posting on time. This time it was because I had to figure out a few things with bills and health before I had the time to get to the update. I can schedule content in advance, but not this post where I need the most up to date numbers when talking about our net worth.

We’ve been busy with baseball and activities around the house, so our spending was lower than it had been. However, this time of year is typically where we see a lot of our rental property expenses come through. We purchased many houses around this time, which puts their insurance payments due now. Then the City of Richmond’s tax payments are due in June and December also. The City of Richmond doesn’t post our escrow payments timely, and it drives me crazy. Every 6 months, I get notification that I have unpaid taxes and it’s the due date. I have then go through every escrow and prove to myself that they were in fact paid out over 3 weeks ago, and then I have to go back and check that Richmond posts them eventually. I stopped sending checks into them for the accounts that aren’t escrowed because it took too long to monitor, so I pay the $0.95 fee to pay via their ACH option online.

Mr. ODA had been in a relationship with a financial advisor, which was $35 per month. Over the last 3 months, Mr. ODA has been working to become his ‘apprentice.’ He passed his Series 65 exam and will begin working on this guy’s team. Not that $35 is a huge amount, but that’s one less ‘subscription’ that we’re paying monthly.

Speaking of subscriptions, we did something that I’d venture to guess other people wouldn’t put the effort into. One of our credit cards (that we rarely use) had a promotion for a $15 statement credit if we had at least $100 worth of subscription and/or utility payments go through. Most of our utilities can’t be paid with a credit card without paying a fee. The fee for our internet service was low enough that we went ahead and switched that one over for one month. Then I went into our Y membership and switched the credit card on file for that payment. With a few button clicks in May and then later this month to switch everything back, we made $15. It doesn’t seem huge, but it’s the compound of that thought process and awareness that makes a difference in your finances.

The ‘bigger’ expenses of the month were one kid’s school registration fee ($175), purchased baseball tickets (the Oriole’s don’t charge for 2 kids per paying adult!), got an oil change ($65 ugh), paid two homeowners insurance policies that aren’t escrowed ($1,371), paid for pet sitting for a coming trip ($155), paid car insurances ($567), and built a few steps in a new walkway ($275). Our deck isn’t complete because the waterproofing isn’t waterproofed. We haven’t paid out the last $3,500 on that, but we also haven’t heard from our contractor in several weeks.

We initiated a homeowners insurance claim for one of our properties. The tenant wasn’t complaining about the house/roof, but we knew the roof and soffit were in rough shape. I was hesitant to contact a roofer because I wanted the job done right. I expected the house is really old, and there would be decking problems to fix. I dragged my feet on finding someone, but I did click with someone finally. He went out and actually suggested we go for a claim to cover the replacement. We’re in the process of that now. An adjuster has been out to see the damage, and now we wait for the estimate. In the meantime, another property had water spots on the ceiling show up. I had the roofer go out there to check it out, but he didn’t see anything glaring. That roof also needs replaced, but I’m going to get at least one more quote on that job since it’s not through insurance.

All the good things (assets) went up and all the bad things (liabilities) went down! Our net worth increased by $60k over the last month.