September Financial Update

Whew, we’ve been busy. Son turned 4. Lots of traveling. Kids started school. Managing two houses. Managing the rentals. Being 7 months pregnant.

We’ve been working on our old house to get a lot of the things moved to the new house, while keeping enough there to live. A slow move sounded great in concept, but dragging this out for 3 months now, with another 6-8 weeks to go probably, has been rough. We unload the car, put it in the new house dining room, and then I need to unpack all that and find it a home. Then we come with another dump of things right after I clear that out. It’s been exhausting. Meanwhile, I’ve been painting almost all of the new house, changing out light fixtures, changing out some electrical switches/outlets that were dated, etc. Mr. ODA has started working on the rebuild part of the bathroom renovation, so we happily have gotten all the electrical work that we wanted to do done (we need to hire an electrician to run a line for the dryer), and then got the shower framed. He’s also been working on the yard and landscaping, which is a big project because the original owner of the house put in a lot of landscaping, and then the people who owned the house for about a year before us didn’t maintain any of it.

We’re listing the house this week, and we’re hoping for a reasonable offer ASAP and a closing at the beginning of November. That closing will pay off our mortgage (~$265k) and our HELOC (~$82k).

RENTAL PROPERTIES

October brings a lot of rental bills. KY’s property taxes are due in October and November, and none of the houses we have here are escrowed, so I need to plan on about $6,500 outlay. Right now, we have a HELOC on our last primary residence, so I have that to fall back on. Typically, I project out 2 months of expenses, and I know how much I have “left over.” The “left over” usually is paid towards a mortgage or, currently, our HELOC balance; in the Fall, I plan to have that “left over” go towards the taxes. Luckily, our houses in Virginia that aren’t escrowed have the tax payments due half in December and half in June.

While our credit card balances are high (we’re carrying a large balance on one that’s 0% interest), we didn’t have a lot of expenses this past month. Mr. ODA’s work trip hotels and restaurants are on the credit cards that will get paid this week, and we’ve had higher gas expenses because of my driving to/from NY and then capitalizing on Kroger incentives so filled up one car. Other than that, we’ve only eaten at restaurants sporadically and have been focused on getting projects done, so haven’t gone out much.

This is the first month of the newly executed lease with a tenant who paid late every month. Their rent total increased for the convenience of paying twice a month (although the total owed now is still less than their rent and late fee they had been paying). They paid the first half on time, and they haven’t paid the second half, which if it’s not paid by the end of today will incur a late fee. Rent was $1450, so they were paying $1595 every month. Rent is now $750 twice a month. If they pay on time, it’s $1500 per month. If they pay half late, then it’s now $1575 per month.

I submitted the security deposit charges to the tenant that moved out. She asked a question about the charges on the list, but then didn’t acknowledge by the deadline. We need to have our property manager file the charges in court. Somehow it’s the 19th of the month, and we haven’t pursued that yet because we’ve been so busy.

Other than that, we didn’t have any service calls on any of the houses, and everyone else has paid their rent.

NET WORTH

We have a busy October planned. I hope we’ll finish the projects at the new house and be close to closing the chapter of our last house. Our investments have declined significantly (almost $91k!) from last month. Our cash is higher than usual because of the cycle timing for this update compared to the bill due dates. And finally, the credit cards are higher than usual, and they’re higher than last month, but that’s because we’re purposely carrying a balance on a 0% interest card. So while our overall net worth has decreased over $33k since last month, the stock market issues have been offset by paying down mortgages and increased property values.

House 12 & 13

Surprisingly, I didn’t cover all our houses in posts last year. I was going to say, “let’s finish this up,” but we’ve since purchased #14! This is a long post. I tried to separate the stories, but since they were part of the same purchase, it was too convoluted to decide which story went with which house.

We spent the summer of 2019 living in Lexington, KY. Mr. ODA took a temporary job for 3 months, and we spent our summer looking for more rental properties to try another market. The housing costs in central Kentucky were less than central Virginia, but the rental rates were also lower.

We drove around with our Realtor for quite some time. We were hoping to find a multi-door complex. However, 4-8 door units have just not been well taken care of. We take care of our houses, and I didn’t want to inherit all the deferred maintenance of a poor landlord. Many of the places had long-term tenants, so there wouldn’t be a vacancy to ease getting work done either. Additionally, there were several that we saw where the tenant was home, smoking and telling us all that was wrong with the property. It was abysmal.

So after searching through many other options, we settled on two houses at the same time.

FIRST OFFER

Mr. ODA actually made an offer on a house in Winchester that I hadn’t seen. It was a large house that had been converted into 2 units. Mr. ODA and our Realtor went after work one day, and it wasn’t worth me packing up the baby and driving a half hour to meet them for one house. However, I did get to see some of it because I took on the home inspection appointment. Since I had never walked through the house, it was easy for me to objectively see the information on the inspection and convince Mr. ODA to walk away. There was just too many big-ticket items (e.g., not enough head room for stairs, water damage not properly cleaned up in multiple rooms, several code violations) and deferred maintenance that it wasn’t worth us putting the money into it. The tenants were sitting on the porch smoking during the inspection, and I didn’t love the idea of inherited tenants that were allowed to smoke in the house.

SECOND OFFER

I can’t tell the history of these purchases without this gem of a story. Mr. ODA found a house that was in a decent shape in Winchester.

Aside: We focused on Winchester because while the rent income was low, the housing cost was also low. Whereas in Lexington, the rent was low, but the housing prices were higher.

We made an offer on the house. In the offer, it lists the seller’s name. It was a State Senator! When we sent over the offer, the seller’s agent agreed to our details, but asked for a pre-approval letter before he’d sign. The amount of weight the people in Kentucky put on a pre-approval letter is absurd, in my opinion. We went through the effort to get the letter and send it over. About that same time, the seller’s agent said someone else came in with a better offer, so we could either submit our highest and best offer, or lose the deal. The sketchiness of the action floored us.

The house had been on the market for a month. We had a verbal agreement (that had even been put in writing, but not yet signed). What are the odds that someone came in at the same time as us with an offer over asking for a house on the market a month? We called his bluff, and we were wrong.

THIRD AND FORTH OFFERS – UNDER CONTRACT

In August 2019, we went under contract on two houses in Winchester, KY.

Property12 had been owner occupied and flipped to sell. The owner had lived there long enough that she wouldn’t Docusign the contract, and we had to wait for her to initial, sign, and date all the pages by hand. The house had been listed for 36 days when we made the offer. It was listed at $115,000, and we went under contract at $112,000 with $2,000 in seller subsidy (closing costs) on 8/7. It’s a 3 bed, 2 bath ranch at 1120 sf.

We received the home inspection on 8/14. We asked for the items below to be addressed, or to take $1000 off the purchase price. They agreed to fix the issues.

Property13 had been listed for nearly 3 months before we made an offer. It had been most recently listed at $105,500. Our offer was for $102,000 with $2,000 seller subsidy. We also included the following requirement in the contract: Seller agrees to remediate the water and mold in the crawl space, fix the down spout next to the crawl space door so that it channels the water away from the home, replace the missing gutter on the front of the house, and repair the rotted facia and sheathing on the front of the house.

Additionally, we had a home inspection on the house and identified the following items for them to repair.

Getting the sellers to identify that these items were done before closing was not an easy task. We checked the day that closing was originally schedule for and noted that several things were not complete.

Then, at 7:30 pm the night before closing (which had already been delayed a week), we received one receipt identifying a couple of things were done. Eventually we received documentation that it was taken care of.

LOAN DETAILS

The options we typically ask for when considering the direction of our loan are as follows.

We chose the 25% down – 30 yr fixed option for both properties. Our goal is to not pay points, so that led us to the 25% down options. Since there was no incentive to take a shorter term (thereby increasing your monthly mortgage payments and decreasing your cash flow), we chose the 30 year option.

These loans were originated in September 2019. We processed multiple cash-out-refinances on some of our properties in December 2021; we used it to pay off about $66k on Property12 and about $74k on Property13.

LOAN PROCESSING & DELAYED CLOSING

We had a lender that we loved in Virginia. She couldn’t cover loans in Kentucky, but the company itself had a branch that could do it. She referred us to someone in Kentucky. It was the worst experience I’ve had in closings. Our closings are always annoyingly stressful in that last week, but this was bad throughout the month and then bad enough that our closing was delayed a week – completely due to the loan officer’s inability to manage the loan.

We had multiple issues over the course of the week we initiated our relationship just accessing the disclosures. They kept telling us to sign things we didn’t receive, or they’d tell us our access code and then when I say it doesn’t work, act like they never told us different information and give new information.

On August 16, I had to tell the loan officer that one of the addresses was wrong. THE ADDRESS. On August 26, we received conditional approval of our loan from underwriting. On August 27, we received our appraisal with no issues noted. But at that point, our August 30 closing was delayed a week already.

That’s where the problem was – our appraisal was ordered late, had to be rushed, and still didn’t make it in time for them to develop the Closing Disclosure (CD) and get us to a closing on August 30. The loan officer never once acknowledged that he ordered the appraisals late, causing this delay. It took asking for timelines from his supervisor, and piecing together emails we had on hand, to show that it was his fault.

On August 29, I finally made contact with the loan officer’s supervisor and was rerouted to someone else to get the job done. I had to repeat all of our issues and the errors that were found on the CDs.

On September 3, I was given disclosures that were still wrong. The new loan officer claimed that what she put in the system was correct, so she wasn’t sure what was wrong, causing me to once again outline all the errors.

On September 4, I was asked for more documentation that wasn’t caught during underwriting. I was furious.

On September 5, I gave up talking to our lender about issues on the CD and spoke directly to the Title Attorney’s office, who was much more knowledgable and responsive. Here’s an example of what I’m questioning when I look over a CD. Some of these seem small (e.g., $4 difference, $25 difference), but you can see how these add up, both on a single transaction and when we’re processing several homes in one year. Not to mention – why pay more for something than you were quoted or you’re supposed to?

Another surprise that came our way was a “Seller Agent Fee” for $149 per transaction. At no point in time was an additional fee disclosed to us by our Realtor. A typical transaction has 6% commission paid by the seller, which is traditionally split 3% and 3% for the buyer and seller representation. Being that these were Rentals #12 and 13, in addition to 2 personal residences we had purchased, imagine the surprise when we, as buyers, were being charged for representation. We questioned why this wasn’t disclosed to us up front as a Re/Max requirement, and it was taken off our CD.

CLOSING DAY

I had planned to leave town the Friday after the original closing date because that was the last date that we had our apartment. I didn’t want to move me and the baby into my in-laws house and continue the poor sleep we had been dealing with by not being at home. So even though closing was delayed, I left. Mr. ODA had to be my power of attorney. He had to sign his name, write a blurb, and then sign my name on ALL those papers that are part of a closing….. times two. Eek. I didn’t know that at the time (but baby went back to sleeping perfectly once we were home, so it was worth my sanity 🙂 ).

At 11:30 am on closing day, the lender claimed that the power of attorney documents (from the lawyer…) were not complete enough to be counted as filed on their end. I appreciated the snip from the attorney when questioned.

I always wondered why tv shows always showed both at the closing table with a ceremonious passing of the key. We’ve had our share of weird closings (in a closet, in a parking lot, at our dining room table), but we never sat at the table with the seller in Virginia. We were so confused about how specific the closing attorney was being about the closing time options, and then we found out that the seller and buyer are at the table together in Kentucky. The seller for Property12 was so rude to Mr. ODA through the transaction! She kept grilling him on whether he addressed the utilities. The seller shouldn’t be allowed to talk to the buyer! We’ve since been able to process 3 transactions in Kentucky and avoid the seller at the table, but I’d like to advocate that Kentucky move away from this buyer/seller meeting process!

RENTAL HISTORIES

Property12 was listed at $895 on 10/2. Based on my birds-eye-view of the area, I thought $1000 was going to be easy to rent it at. Based on the 1% Rule that we had followed in Virginia, we should have a goal of $1,100 per month. However, we were trying for a Fall lease, which is more difficult than a Spring lease, so I thought listing at $995 would get quick movement instead of letting it sit for too long. Our property manager disagreed. She also said we were limited our pool of candidates by not allowing smokers; but, the whole house is carpeted and I was not budging on that.

We found a tenant on October 16 and allowed her to move in right away, but not start paying rent until November 1 if she agreed to an 18 month lease (we really wanted to be on a Spring renewal going forward). That was an unfortunate blow to our expectations – nearly two whole months without rental income on a house we didn’t need to do any work to.

We increased rent to $950 as of 6/1/2022 after no previous increases.


Property13 was listed for rent at $995 with no movement. We dropped to $875 and offered free October rent for however long was remaining in the month. A lease was established on 10/18/2019. Our property manager was supposed to establish an 18 month lease and didn’t. Luckily, the tenant agreed to a 6 month extension.

Property13 renewal came in April 2022. She had balked about the state of our economy in 2021, and we backed off the proposed increase at that time. Well, all the jurisdictions finally jumped on the increased assessments, and we saw a drastic increase in our costs. We told her that the new offer for a year lease is $950, which is higher than we’d typically increase in one year ($75 instead of $50). But we told her that we were willing to let her walk if she didn’t agree to it since she originally negotiated a lower cost and argued an increase at the 18 month mark, which we let go. She tried to fight it, but our property manager told her to check the rental options in the area to see that she’s still getting a deal. She agreed to the increase.

MAINTENANCE HISTORIES

Property12 requires a new heat pump in June 2021. We paid $3900 for a whole new system, which is a funnily low number just a year later.

The tenant there complained of high water bills. I asked to see a history of the water bills to know how much was considered higher than their average usage. The property manager agreed that the toilet was running and causing higher bills, but also admitted that they attempted to fix the toilet twice over a 3 week period, with multiple days between receiving a maintenance request and taking action. While I agreed that we could compensate her for the issue, I couldn’t quite pinpoint why this was my financial burden and neither the tenant’s nor the property manager’s. I followed up with more information from the property manager with questions like: Why did it take the tenant from 9/20 until 10/11 to identify the issue still remained and that there was a waste of water? They indicated that they believe they made a good faith effort to address the issues as reported. I eventually settled on a $25 concession on one month’s rent.

Property13 had several issues with the hot water installation that were eventually resolved, which was frustrating after we tried to manage issues with the hot water heater through the home inspection process and received documentation as if it was complete. The tenant requested pest control in July 2020 claiming that a vacant house next door caused an increase in pests. I was frustrated because that’s not how it works. I approved treatment at that time, and then she came back with another request in October. Luckily, I haven’t heard about pests since then. In my Virginia leases, we’ll handle some pest control requests, but if there are roach issues once a tenant has been there for some time, we don’t typically pay for that type of treatment.

SUMMARY

All in all, these tenants have been pretty quiet. They ask for random maintenance things here and there, but they’re not usually big-ticket items (except that HVAC replacement!). Our property manager has been more difficult than the tenants.

Being that we were used to the 1% Rule when we purchased these houses, it’s unfortunate that even at 3 years in, we’re not renting it at 1% of our purchase prices. Our cash-on-cash isn’t completely accurate right now because I won’t see our taxes for this year for another month or two. Being that jurisdictions kept the tax amount steady through the pandemic, I’m expecting to see an increase in assessments for this year. I’ve also seen big increases in our home insurance policies, so that will probably eat into our cash flow as well. Our cash-on-cash analysis on Property12 is about 6.5%, and it’s about 7.5% on Property13. These numbers are only slightly lower than our expectation/desire, with our average being about 8%.

In the upcoming year, we’re going to look to get rid of our property manager, so these houses may begin needing more attention from us. It’s been hard to take on more when paying a property manager has been a sunk cost at this point. However, the frustration of managing their management (e.g., making sure charges are correct, not getting a full picture of what work is being done, and then paying them a significant amount of management money and leasing money only for them to claim that checking on the property requires additional fees) has led to us wanting to take it on since we’re in town now. The current lease terms are up in April and May, so if we’re going to take on management, it should be before the possibility of paying them half a month’s rent for leasing it (not to mention they’re notoriously 4-6 weeks out in every leasing attempt they’ve done for us, whereas I’ve never had an issue getting a property leased within a week).

Property 2 Turnover

BACKGROUND

Unlike the other property we turned over this year, we knew this one was coming. The tenant living at this house moved in back in 2017. A few years ago, there was a domestic violence incident that led to a restraining order against one tenant from the other. Legally, we had to let the one tenant out of the lease. At the time, we didn’t have an immediate reason to release the second tenant from the lease, so we offered her a new lease in just her name. That was our downfall.

Since January 1, 2020, she paid rent on time in only 3 instances. I can think of only one instance where she told us up front that rent would be late. Every single month, I was stuck chasing her down. She’d say she would pay on the 17th, and then on the 18th, I’m asking where rent is again with another lie coming my way. She had quite the array of excuses. They were always elaborate. After getting stuck in Costa Rica for half a month in September because of a positive c-19 test, she didn’t even bother letting us know when she was back in the states or when we’d see rent. She applied for rent assistance. They paid 3 months of her rent for her (which was of course was significantly late from the state), and yet the month she had to pay, she still couldn’t.

Her lease was expiring June 30th this year. We provided her notice that we would not be continuing the lease and she was to vacate by 5 pm on the 30th and no later. Since we live 500 miles away, and I don’t trust her one bit, I hired my property manager that we use on other properties to take this one over. I wanted her to be the one to check that the tenant turns over keys and has the house empty before I drove 8 hours out there to find out the tenant is squatting.

THE LAST DAY

Sure enough, the tenant had a few more games to play. At 3 pm on the last day, she texted my property manager that she needed a bit more time, and asked if they could meet at 5:30 instead of 5. At 5:15, my property manager texted her saying she hit unexpected traffic, so she wouldn’t be there until about 5:35. My property manager pulled up to no people at the house, but there was at least one dog (not on the lease). The tenant didn’t show up until 6:50 pm.

My property manager means well, but she always seems to be advocating for the tenant while I’m the one paying her for services. The tenant asked if she could stay for a little while longer and remove the rest of her stuff. Well, based on the pictures, this wasn’t a “one more load” type situation; there were hours and hours of removing clothes and crap. All her furniture was out, but there was still garbage, dog feces, clothes, and some decor items left behind. My property manager was trying to say that she should be allowed to stay to remove her things and then she’d lock up on her way out. Nope. She absolutely didn’t have a place to stay that night, and it wasn’t my responsibility to keep catering to her. There was nothing that showed me allowing her access any longer was going to leave me in a position that was any different than I was currently in (meaning, hiring a junk removal company and having to pay someone for extra cleaning services).

Burned counter top
All of the cabinets still had things in them.
Just one of the rooms
Carpet eaten and ripped through the pad and to the subfloor.
Just part of the post destruction.

Oh, let’s not forget that she didn’t pay a dime of June rent. She claimed it was to be able to secure another place to live. However, she left her mail as garbage laying in the living room where we found she had been rejected due to her record. Sometimes I wish I could say, “we were giving you a chance; perhaps you should have paid your rent and communicated issues timely so you still had a place to live.”

I stuck to my guns and said get the keys. My husband was more compassionate and said that she could come back over the weekend to get her stuff while someone was there working on the house and supervising her actions.

TURNOVER WEEKEND

Her last day was a Thursday. She couldn’t come back on Friday because she was working the whole day. She said she’d be there first thing Saturday morning. At 9:20 am, nothing. She said she couldn’t get her trailer until 10:30 or something like that. At lunch time, still nothing. When questioned on her whereabouts, she made a list of things that she wanted us to put outside for her so she could grab on her own time. HAHAHA. She showed up at 1:10 claiming her dad was right behind her. Mr. ODA let her in the house, she grabbed a handful of things, and then left. That’s the last we’ve communicated with her.

TURNOVER ACTIONS

Mr. ODA and his dad went to Virginia to handle the turnover. I was going to go by myself, but being pregnant and alone inched out over my desire to make sure things were handled correctly. They arrived Friday evening and left Sunday evening. I was quite impressed with how much they got done.

All the stuff left behind had to be moved out of the way to get to work. Mr. ODA and his dad put it all in the living room so they could start painting. We paid a junk removal company $625 to get rid of her stuff and the old carpet.

The front porch post had been torn off the brick porch. Our untrained assessment seemed like someone had backed into the post. Mr. ODA was able to raise the porch roof back up to get the post back in place. He replaced the post tops and it looked good as new, surprisingly. There are still broken bricks, but that’s not a structural concern like the post itself was.

The entire interior of the house got a new coat of paint.

Mr. ODA had to replace missing and broken nuts in the bathroom faucet (how does this happen?!).

Blinds had to be replaced, as usual.

All the carpet had to be replaced. We didn’t have time to lay luxury vinyl planks (LVP) like we’d have preferred, so we settled on new carpet. While we were telling our handyman this, he said he’d lay the LVP for us, so we jumped on that. It’s more expensive up front, but we won’t have to do a full floor replacement in 3-5 years like we’d have to do with carpet or have to replace everything for a section damaged beyond repair. Mr. ODA and his dad pulled up the carpet, pad, and most tack strips.

We paid a cleaning company to clean the kitchen and bathrooms. She was supposedly there for 5 hours. That was $250.

We had to pay our handyman $100 to “paint” our countertops because there was a huge burn mark in the counter. They paired nicely in the multiple burn holes in the kitchen floor vinyl, which got covered by LVP.

We also had to pay someone $45 to mow the lawn. That seemed like an astronomical price, but we don’t have a lawn mower there, and it was easier to just let this guy do it when he asked.

After the new tenant moved in, they let us know the washer and dryer weren’t working. A diagnostic test of the washer seemed to say it wasn’t a user error and just coincidental timing, but then finding out that the dryer didn’t work right after that was interesting. The new tenant had their own washer in storage. We offered them the ability to buy their own dryer for $20 per month off the rent, which they accepted.

After we subtract out her security deposit, we’ll go to court for just under $10k worth of expenses. About $2,250 of that is unpaid late fees, so I don’t expect that to actually go anywhere once it gets to court. The first step is to send her a letter outlining all these details. Since the balance owed is so high, I preemptively offered a payment plan over 6 months. While $1650 per month is high for someone who couldn’t pay me $1150 each month, I don’t want to drag this out for a whole year. She’s not reliable, and I don’t want to be tracking and fighting her for a year to come. I also expect no response or resolution via this letter, and that we’ll have to go to court eventually anyway. Once it goes to court, she becomes responsible for court filing fees, and the judge will award interest on the balance, which adds up quickly.

SILVER LININGS

We bought the house with renters at $1050. We had worked on raising it $50 every two years (approximately), but rent was only at $1150. We recently refinanced the house, and the rental appraisal on it came in at $1600! If we don’t count that the tenant never actually paid June rent, we only dealt with a vacant house for 21 days and got it rented at $1,450. We probably could have pushed higher, but we were happy to get movement on it as soon as it was listed. To only be vacant for 21 days with the extensive damage and work to get it turned over is impressive to me.

While it was $6,000, the whole house got new flooring. Instead of trying to patch the vinyl in the kitchen and get new carpet installed for it to only last a few years, we were able to get LVP throughout the house. LVP will last much longer, and if there are damaged boards, they can be replaced individually instead of having to replace rooms and rooms worth of carpet.

CONCLUSION

This could be a horror story. However, we have 13 houses that help float expenses on the one or two where someone doesn’t pay rent timely or we have higher expenses. While we had to manage her month-to-month to track down rent, she did eventually pay all but that last month. In the end, for it to be a few things to address and it to take less than 21 days is great. This doesn’t go down as a reason to not hold rentals!

Laying LVP

We had a tenant abandon a property, and he left it a mess. There was some furniture and garbage left behind. I’d love to know what tenants do that destroys the walls in less than two years. I’d say the dog never went outside based on the carpet stains, but there was a giant pile of grocery bags fulled with poop outside the back door. We hired a carpet cleaner that was available the fastest, and that was a mistake. They basically just came and put lines in the carpet. I was not happy. Not only was their effort the absolute minimum of the task on hand, we had asked for it to be “rotovacced,” and it clearly wasn’t.

Recently, we received an updated assessment from the county, which included the comps they used. We bought the house for about 86k. The comps range from 110k to 130k. The comps at the high end had no carpet and upgraded fixtures. The low end had all original things. Looking to resale value, I wanted to lay Luxury Vinyl Planks (LVP) in the living area instead of replacing the carpet. Since we were nearly a month into unexpected lost revenue, the goal was just to address the main living area that would catch your eye.

WHAT IS LVP?

LVP is vinyl flooring made up of planks instead of being one sheet. It’s a floating floor, which means you don’t glue it or nail it down to the subfloor (e.g., plywood). The boards “click” together. When you get the connection right, the board lays flat on the subfloor.

Ironically, it was hitting the market around 2015/2016, and I declined it in the house we were building. I didn’t realize that it was going to be the “go to” flooring by 2020, and that it would be in our new construction house we bought then.

INSTALLATION TIPS

First, we had to remove the tack strips and staples from the subfloor after the carpet was removed. The floor needs to be mostly level. There was one spot where two pieces of plywood were not level, and it did cause issues with keeping the pieces connected.

Start in a left-most corner of the room, on the longest wall. Our living room is nearly square (13×13.5). The deciding factor on which way to lay the floor was to eliminate cuts against a schluter edge where there’s tile in the kitchen and dining room. When you enter the house, you walk up a flight of stairs, and you see the tile edge right away. Since this was our first time installing flooring, we wanted that edge to look good. The best way to do that was to not put any cut edges against it, but to lay the planks parallel to it.

Stagger the boards and create a random pattern. You don’t want to see a pattern in the flooring (e.g., don’t lay a full board, then a half board, then a full board, to start the rows). You also want to open 3-5 boxes at a time and mix up the boards. Different boxes may have different variations in the coloring, and you don’t want a splotch of a lighter shade of flooring in one section, so it’s best to mix up the boxes.

You’ll have waste. When you plug quantities into Home Depot or Lowes, they typically ask if you want to add 10% for waste. We calculated needing 9-10 boxes, and we opened 12, with 3 full boards left. There was a mishap with one of the boxes, but that probably lost us 4-5 planks, so I think we still would have opened 12 boxes.

Lay the short edge together first. The second board lays under the connection of the first board that’s already on the floor. When you connect the long edge to the board above it, just wiggle it until it lays down flat and you see no seam. Sometimes you need to use a tapping block to get it to fit together better, but when you get the right connection, it’ll literally just fall in place.

To cut a piece to fit at the end of a row, use a utility blade along a straight edge. When you go to snap the board, hold the straight edge in place. Both Mr. ODA and I tried snapping a board without the straight edge, and the board snapped in a different place.

When needing to cut the entire length fo the board, use a circular saw or table saw. It won’t be easy to score and snap because of having less leverage. To cut small areas within a board, such as floor vents, you can use a jig saw. Cutting the board with the circular saw makes a gigantic mess. Think of it like packing material that just explodes on you. However, there is a benefit that it’s not the clingy type of material, and it does sweep up easily.

At the end of each row, cut the board about a quarter inch too short. You’ll need to fit a tool into the crevice to pull it into place. I had been cutting it to fit under the baseboards, but then you can’t get the boards connected. At the end, you add shoe molding or quarter round to cover the cuts.

COST & TIME

The flooring, shoe molding, threshold to cover the carpet to floor transition, and an installation kit cost us about $700. We picked LVP because it comes with a cork type material attached to the back of each plank, and it doesn’t require underlayment.

We picked the LVP instead of getting new carpeting because of resale and because of the cost and time associated with carpet installation. At Home Depot, if you pick in stock carpet, it’s not subject to the free install. If you spend $499 otherwise, you get free installation. We would pick a carpet that is about $1/sf, so we wouldn’t get to the $499 price for free installation.

We arrived at the property at 10:30 am. We had to remove the tack strips and staples. Mr. ODA removed all the tack strips, and I started on the staples. When I got an area clean, he started laying the planks while I kept working on the staples and sweeping. At 2 pm, I will still working on staple removal, and he took a break for a work meeting. I took over laying the boards. We finished laying the floor, installing the quarter round, and caulking the seam between the baseboard and quarter round at 6:10 pm.

There was a big learning curve on how to get the boards to click together most effectively. We could have probably eliminated an hour of work where we were trying to figure things out rather than laying the floor. I also had a big speed bump trying to get the piece at the bottom of the stairs in place (a lot of cuts and having to figure out leveling the board since it couldn’t be butted up against the bottom of the step, which wasn’t level), which was probably a 25 minute delay. With that said, my back was killing me. It’s probably a project that’s better suited to be split over multiple days as a newbie, rather than powering through 8 hours of work.

I asked Mr. ODA if he would do it again (as we both complained about how much our bodies hurt), and he said yes! We just wouldn’t be in such a rush to finish one room in one day in the future, even if it was only about 200 sf.

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.

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.

House 5: Bought and Sold

This was a mess. I learned my lesson to research each property individually and not to make any assumptions. I also learned my lesson to hold true to our standards and expectations for a renter. We owned this house for a year and a half, but we learned a lot about tenants and the selling process. Hey, every struggle is a learning opportunity for next time, right!?


Mr. ODA showed me House 6 first (5 and 6 closed at the same time, and on my numbering list, this one came second… so try to overlook this awkward numbering!). I researched the area and the house’s history in detail, and I decided that it was worth pursuing. Very shortly after that, he approached me about House 5. The house was in better condition than House 6 and was literally only half a mile away. I assumed it was in the same neighborhood. I was wrong, and that’s where things went downhill fast.

LOAN

This house was so cheap that we needed an exception approved to get a loan. The purchase price was $60,000, which means a loan with 20% down is $48,000. The cutoff for even approving a loan with our regular lender is typically $50,000. Since we were below that threshold, we were ‘penalized’ by the rate.

I covered the closing snafu in the House 6 post, which also highlights the decision-making on the loan terms. Since this house was below that $50k threshold, our options were: 5.125% with a $200 credit or 5% with no credit. The higher interest rate would cost us an additional $1300 in interest, which isn’t offset by the $200 credit, so we chose the 5% rate. Hindsight: If we had known we would sell it just 18 months later, the credit would’ve been the better choice!

We purchased the house in July 2017. We immediately started aggressively paying towards the mortgage since it was the lowest balance and the highest interest rate.

We rented the house for $775, which far exceeded the 1% Rule.

WORK ON THE HOUSE

We did a lot of work in the yard. Here’s what the house looked like at some point before we owned it. It’s cute!

While it was under contract, the house sat vacant, so there were a lot of overgrown bushes, flowerbeds were filled with debris and no remnants of flowers having lived there, the lawn hadn’t been cut in a long time, and the tree in the front left had been removed at some point, leaving behind a mound of a stump and mulch that also collected debris. It’s a shame, and I kind of wish we had brought this little 2 bed/1 bath house back to life like it was in this picture. But I digress. Although this picture shows that the previous owner took care of the property, and that’s what attracted us to the purchase.

The floors were in immaculate shape, and the kitchen was quaint, but in decent shape. We purchased a new refrigerator before we could list for a tenant.

The bathroom needed a lot of help, but we didn’t want to overhaul it. The medicine cabinet wasn’t working anymore and the glass was cracked, so we wanted to replace it with just a mirror that covered the old medicine cabinet hole. Interestingly, we found a stash of 100s of razors behind it! (Apparently this is a thing from times gone by. You finish your blade and then you shove it behind the medicine cabinet for it to reside in the wall for all eternity.) We had several plumbing issues in the house. The drain pipe for the tub had multiple kinks in it, which caused the water to drain slowly and be more easily clogged. This would have been a major overhaul to get new plumbing installed in a way that was more direct.

The electric in the house was in need of work. We fixed quite a few electric-related-things while we owned it, but re-wiring the house was a major expense that would’ve come due in a few years.

TENANT ACQUISITION

The house was in great condition, had a big lot, was in a located close to the downtown area, and was on several bus routes (I even had a bus driver stop and ask me what the rent was on the house while I was working out front). It seemed like a great investment. We had several showings to qualified individuals….. who then went home, researched the house, and saw that it was in the highest crime area on Trulia’s crime map.

After sitting on the market for 5 weeks, we lowered our standards. There’s a reason you have standards as a landlord – it’s because if you select the right tenant, you’re saving yourself time, money, and headaches in the future. Here’s the email from our property manager. There are multiple red flags, and yet we gave her a chance.

The prospective tenant provided us with an employment verification letter showing that she had just started a new job, her most recent pay stub corroborating the employment verification letter, and wrote a decent introduction in her application. Between it being 5 weeks with no tenant and it now being mid-August (with it harder to rent in the Fall), we overlooked her credit score of FOUR HUNDRED AND FORTY EIGHT (448) and SEVEN (7) accounts sent to collections. I don’t recommend you do this. Oops.


EVICTION

This is the fun part to recount. It’s detailed, but I think it’s interesting.

RENT COLLECTION

She moved in August 2017. By December 2017, we already had enough issues that she wasn’t going to be trusted going forward. We’re very flexible landlords, and we’re happy to work with you on any issues as long as they’re communicated up front and timely (meaning, if we have to continuously reach out to you for rent, you’re not in a position to ask for favors).

We had allowed PayPal to be used to pay rent, but every month there was an issue. She either sent it in a way that incurred fees (after being told that she would be responsible for such fees) or it was sent in a manner that caused PayPal to hold the funds and not immediately release them. After December’s rent was late, the late fee wasn’t paid in full, and there were fees taken out by PayPal, we cut her off from electronic payments. Our property manager informed her that going forward, all rent had to be received by her office (either by mail or drop off) before the 5th.

Speaking of flexibilities – we noticed that she needed to send us rent based on each pay check, versus having all the rent money at the beginning of the month. She was paying us a late fee every month. Her rent was $775, and her late fee was $77.50. That meant every month, we were collecting $852.50, which really wasn’t necessary. We offered a change to her lease terms – rent was due on the 1st and 15th. As compensation on our part, rent would be increased to $800, split into two $400 payments. However, if rent was late, the late fee was now 10% of the late payment ($40) or up to $80 if she was late on both installments. She agreed to this, as it saved her money each month and set her up for success by being able to set up a system with each of her paychecks. We didn’t like that our relationship with the tenant had come to us hounding her over money, so we thought this was the best path forward for both sides of the party. Here’s the addendum to her lease.

And yet this didn’t change anything!! The addendum was signed at the end of January 2018. She paid February’s 1st $400 late. Then she didn’t pay February’s 2nd $400, and we had to reach out to her several times before even getting a response… after she also didn’t pay March’s 1st $400.

Our property manager filed unlawful detainer (eviction) with the court, and that got the tenant’s attention. She then had to pay the balance due, as well as the court filing fee, before March 30th (court appearance date) to dismiss the court action. She showed up to court with the cash to pay and then everyone just went home. You can’t evict someone who has paid in full, even if the process of collecting rent was unnecessarily burdensome.

And then came April. There was another story about a medical emergency and a new job on the books. We had agreed to a new one-time schedule for April’s rent payment, and she missed those deadlines and was incommunicado. We sent her another default notice on April 25. Note that this medical emergency was for her “husband.” This is the first that she had implicated herself that someone may be living in the house other than her and her son. She paid her balance owed on May 4th.

On May 8, she was given another eviction warning notice for lack of May rent (the 1st $400) and gave no response to requests for information on when to expect rent. After continued lack of payment after that notice, she was served with another eviction notice. On May 17, she was given 30-days notice to vacate the premises by June 17, 2018 at 5:00 pm. But then she paid in full and on time. We then changed her lease terms to state she was on a month-to-month basis and she would be granted 30 days notice when we (or she) decided to terminate the lease agreement. It was signed on July 16.

Guess what? She didn’t pay September’s rent. At this time, we also addressed her husband.

She was married when she applied, but we didn’t know. Just now as I was looking back through our files to write this post, I saw that her pay stub she used for employment verification said that she was filing her taxes as married. I hadn’t seen that before. In all our visits to the house, there were always other people there. There was one man that seemed to be around 90% of the time. We overlooked it, but our lease did stipulate that anyone who stayed for more than 2 weeks was required to pass a background check and be on the lease. I strongly suspect that this individual was not going to pass a background check, which is why it was never disclosed to us that she was married and another adult was living there. Our property manager informed her that only she and her son were on the lease, and that if anyone else was living there, they had to be on the lease. She asked if we were referring to her mother-in-law visiting, our property manager said that it appeared to be her husband was living there, and then she ignored us.

We gave her our 30 days notice on October 5 to vacate, meaning she had to be out by November 5. Our property manager reached out to her on October 26 to see if she would be out earlier and set a time for key pick up. The tenant nonchalantly stated she wouldn’t be able to make it out by the 5th and she’ll be out by the 9th. Umm, excuse me, ma’am, but that’s not how this works. We held strong to the 5th and she lost it. Our property manager said that her lease is over on the 5th, and if she was not gone by then, the court fees would be her responsibility for us to get the court and local police department involved for her removal. She got angry and claimed that we didn’t handle the rental well at all, that we couldn’t charge her any court fees, and that she should charge us for not being able to use her tub because it was clogged (guess what on this one? The plumber removed things like a dental floss pick from the drain, immediately making it her fault (and at her cost) for said clog). She then said: “Lets just hope your (sic) as speedy with my deposit as you all were with terminating the lease.” I laughed out loud on this one just now. We should have terminated her lease an entire year before this discussion happened, but we kept working with her! Hysterical! Gosh, and to think this wasn’t our worst eviction process (more to come :)).

SELLING

A friend-of-a-friend was attempting to purchase a house in the same neighborhood as this house, and they ran into multiple issues causing them to walk away from other deals. Mr. ODA approached him with an opportunity to sell this house, which had similar specs to the one that they were pursuing. The buyer spoke to his wife and father about the deal and agreed to move forward. Of course, this deal was not easy.

The contract was ratified on October 31, 2018. We didn’t close until January 8, 2019. Our typical close time on our purchases is 4 weeks. We’ve done faster, and we may have done a bit longer if the time of month lined up better for our finances, but over 2 months was horrendous. Since our tenant was moving out on 11/5, and the closing was expected to be no later than November 30th, we didn’t pursue finding a tenant.

The appraisal was late being ordered, which was somehow allowable. Then it came in at the beginning of December at $65,000; our contract was for $68,000. We split the difference ($1000 from the buyer, $1000 from the seller, $1000 from the agent who was dual representing).

On December 18, our Realtor finally pushed back on the buyer’s side of the transaction to get things done. But it was Christmas time now. With so many offices closing for the end of the year, we weren’t able to get a closing date until the first week of January. The buyers were signing paperwork from Pennsylvania, which caused more delays because of having to send the paperwork back and forth for everyone’s signatures.

We sold in January 2019 for $67,000, after having purchased it for $60k just 18 months earlier. While this seems like a great deal, it’s not an automatic $7k in our pockets. You need to account for our closing costs from the purchase and sale (about $6,500), loss of rent for two months while trying to close the sale and the 6 weeks of no tenant when we purchased it, utility costs associated with vacant times, and costs to fix things around the house during our ownership. However, during that time, we had a tenant paying our mortgage (covering the loan interest and paying down the principal), and we were collecting more rent than projected because of her continued late payments.

1031 EXCHANGE

We made the decision not to pursue a 1031 exchange on this house. A 1031 continues to defer the depreciation to the next property, and it allows capital gains to be deferred. Based on current tax law, it can be done infinite times. However, there are extra lawyers and fees that come into play, so it becomes worth it when you have big dollars at stake, and that you have another property to purchase quite quickly after selling the first one.

The appreciation on the house was minimal given that it had only been 18 months since purchase, we had two sets of closing costs to add to the cost basis, and we hadn’t earmarked a place for that money to go upon selling. Plus, the cost of an intermediary would continue to eat into the “profit” versus tax paid, so we just went ahead and planned to pay capital gains taxes on it. Unfortunately, since we had depreciated the structure and the fridge over the prior 18 months, that paper money had to be brought back into the fold when calculating our taxes the following April. That’s several thousands of hidden money that is easy to forget about.

Depreciation is a great tax break when you own the property. The IRS assumes the value of your asset is being reduced by wear and tear and father time. This is true. It’s why if a landlord neglects the property and isn’t active with maintenance, renovations, and other replacements, the property will turn into a trash-heap in time. However, when you sell the property, you show the IRS that it in fact did not do that. If someone is willing to buy my property for more than I bought it for, then it obviously didn’t depreciate to a lesser value. I have to pay the IRS back for the depreciation assumptions that I was allowed to make over the time I owned it, plus pay the tax on the actual profits. Bummer, but logical.


In summary, we bought a cheap house and got a poor tenant. We had a TON of headaches with that tenant. We had to do a few house/yard projects over the ownership life of the property, but nothing worrisome and not already built into our numbers. Somehow, we made it work that eventually the tenant always paid up and then some (late fees). We made mistakes, we learned lessons. We figured out a set of streets to avoid for future purchases, learned how to sell an investment, and learned how to file taxes on an investment property sale. The story is fun to look back on. I’m glad we experienced what we did. But I don’t want to do it again.

House 6: Easy Peasy

This is probably our easiest house to own; the closing process was the hardest part here. We closed on House 5 & 6 at the same time, so I’ll cover the closing story here because House 5 has a lot else to be said when I write out that whole saga.

TENANT

This property has a property manager on it (10% monthly rent). She processed a couple of applications at the onset, and it took 2 weeks to find the tenant. The lease started on August 18, 2017, and that’s been the same tenant in the house to date.

Rent is $850 per month. She pays on time, and it’s usually early. She just asked about her renewal, and we decided to keep her rent at the same price, even though it’s the start of her 5th lease term. Our cash-on-cash return was ahead for the last 4 years, so even though our taxes have increased by $400 since we purchased the property, we decided it was best to keep the tenant than to get a few more dollars per month.

She asked if she could paint the kitchen cabinets that were definitely old, and we figured they couldn’t be made any worse. When a tenant wants to make your house their home, it’s most often is a sign they make taking care of the property their priority, and that they want to stick around for a while.

We had to treat the house for ants over this last year, but the only real issue we’ve had on this house is that the main sewer line had to be replaced due to corrosion and tree stump intrusion into the pipe. The poor tenant had her toilets backing up into her house. It was $4,000 to replace the line from the street to the house. Honestly, I expected it to be more.

LOAN DECISION

Option 1 – 20% down payment – conventional 30 year fixed at 4.95% with 0 points
Option 2 – 25% down payment – conventional 30 year fixed at 4.7% with 0 points

We weighed these two options for our loan (purchase price of $66,000). The difference is an increase of $3,300 in down payment to save $5,700 worth of interest over the life of the loan. Being that we closed on several houses in a short period of time, we chose Option 1. Having cash for the down payments and closing costs of the other houses was more important than the marginal savings in interest of putting 5% more down.

We’ve been paying down this mortgage. At the time of our decision on which house to pay extra principal towards, this was the smallest loan amount with a relatively high interest rate. We started paying extra towards this mortgage in October 2020. To date, we’ve paid an additional $35,500 towards principal, leaving a balance of just under $14k.

CLOSING

During the Spring and Summer of 2017, we saw a lot of houses. We also made offers on a lot of houses that didn’t end up going anywhere, either because there was no consensus on a purchase price or because the home inspection was unsavory. We closed on House 4 at the end of June, walked away from a deal on one house due to a home inspection issue, and then closings on House 5 & 6 got lost along the way by the attorney’s secretary. We worked with a specific attorney who we had a great relationship with, and who eventually helped us with a difficult purchase (see the story for House 8), but this was a hiccup.

The attorney’s office let us know they were unaware of these two closings around June 20th (in reality, they just missed the ‘all clear’ to move forward with a title search, but they were definitely made aware of them), which left us scrambling. Our rate lock expired July 7, and the secretary responsible for filing all the paperwork was taking her vacation the week of July 2. Since she was taking the week off, our attorney scheduled a surgery of his for the same time, so the office was closed. She said she would find a way to make it work, but then we didn’t hear from her and had to reach out to the attorney himself. Here’s that email, outlining all the details.

It wasn’t until June 30th that our attorney confirmed he was able to hand off our closing to another attorney’s office. We had a few questions about their fees, since we explicitly stated that we didn’t want it to cost us more because we had to change our closing location, and then the secretary there got defensive and gave us an attitude. I was quick to call her on it, explaining that we just wanted to better understand the break down of what they put on our closing disclosure. She backed down, and then we had an awkward interaction a few days later when we showed up in her office to sign the paperwork. It’s interesting how people don’t understand that writing in capital letters can come across as rude. Turns out this other firm was an old law school friend of the attorney we normally use, and they worked out a favor among themselves on the fees to ensure they didn’t lose any future business from us.

At the end of the day, we closed on the houses on time and without costing us anything extra, but it wasn’t a stress-free path to get there.


Luckily, this house has been easy to manage and the tenant has worked out perfectly. Our rent at $850 far exceeds the 1% Rule; with a purchase price of $66,000, our monthly rent goal would be $660. Tax assessments have recently risen given that the local market has appreciated substantially, so we will consider a rent increase in the future. However, at this time, having a long-term tenant on a house that has hardly any issues is more important than risking a rent increase and having her leave.