March Financial Update

We have been surprisingly busy around here. I’ve been juggling a few rental issues, staying on top of some billing issues, and trying to make it through a commercial loan process.

At one point, most of our loans were held by one company. That was a more simple life. Even though we’re down to 6 mortgages under our name, it’s through 5 different companies. I’m really struggling keeping up with them and getting in a groove after our most recent refinance. I’ve mis-paid things 3 times now. I’m always on top of our payments, but something just isn’t clicking right now for me. I just paid one of our mortgages due April 1 instead of changing the date to be an April pay date. At the moment, we have a buffer in our account because we’re getting to this closing next week, but we usually don’t, so hopefully I have this figured out now that I’ve made so many mistakes.

RENTAL PROPERTIES

LEASE RENEWALS

We had 3 properties process their renewals this past month. Each of them had cost increases to their lease renewal (875 to 950 effective 5/1, 850 to 900 effective 8/1, and 1025 to 1100 effective 5/1). We have another property that will have a renewal offer go out this week. Then we have 3 that will need action by the end of April because the leases expire 6/30, and one that will need action by the end of May because it expires 7/31.

MAINTENANCE

We had a tenant reach out to us that they found bugs in their bathroom tub. She sent pictures and, sure enough, they were termite swarmers. I have way too much experience with termites. I called our pest company, and they sent someone out for an inspection to confirm they were termites. Then I got a call that because we didn’t pay the annual fee to keep our warranty current for the last 3 years (we had the house treated for termites in February 2019 when we bought it because there were active termites and extensive damage by the front door that needed repaired), they could charge us $650 again. However, since we’re considered a business account, she’d be happy to let us back pay the termite warranty and they’re treat it. So I paid $294 for the treatment instead (split with a partner on this house). She also informed me that they had cut off the hot water to the kitchen sink because there was a leak. I don’t know why tenants don’t tell us these things right away! I had my plumber out there the same day, and he replaced the whole faucet. That was $378. That’s one of those charges that’s frustrating because we could have replaced the faucet on our own, but we don’t live there anymore. Oh well; it’s also a cost split with our partner, so that helps.

We had another tenant reach out saying that her kitchen sink drained slowly. She’s been with us since we bought the house and never asks for anything. She’s on top of communication and was super appreciative each time we agreed to renew her lease. We had done a huge sewer line replacement project at this house, so I was skeptical of the issue. It turns out there was a plastic fork lodged down there, but I just let it go (meaning, she’s then technically responsible for the cost). Our property manager let her know that if it happens again, she’s financially responsible, but we’ll cover the cost ($200) this time.

RENT COLLECTION

We FINALLY got the check for one of our tenants that had an approved rent relief application. They submitted an application in November to cover December, January, and February rent. By mid-December, they ended up paying December rent because they hadn’t heard (and the application expires, meaning their protection from eviction expires (not that I would have pursued eviction for this group because they’ve been great tenants for several years)). They received approval for 3 months worth of rent and 2 late fees on January 11. We received the check on March 4th. So frustrating in that process, but still better than an October approval and us getting those 3 months paid at the end of January.

We had our usual suspects not pay rent. On the one house, they didn’t tell us they weren’t paying rent for the longest time. Now, they tell us they’ll pay us on a later date. I let it go this month, but with them paying on the 23rd, that means we’re in a perpetual cycle of not getting rent on the 1st. We have a partner on this house, so I plan to address it next month if they claim another 3+ week delay in getting us the rent. On the other house, she let us know in February that she’d struggle to pay rent and she gave us random amounts throughout the month. I let her know she was still $106 short from February and that she was now in default of March’s rent, and I got no response. Then Mr. ODA had $1000 show up in his account on Friday. She still owes $371 between the two months, but at least we have the mortgage payments covered. She’s also the tenant that we plan on not renewing her lease because she’s caused issues throughout her tenure.

BUYING A NEW PROPERTY

We’re still in the process of getting through closing on a new rental property. We’re expecting to close not he 24th, so we’ll see how that goes. It’s a commercial loan, and it operates different from residential mortgage underwriting, so we’re in the dark. Communication has been next-to-nothing. We’re currently waiting on the appraisal to come back. That was our one hurdle to getting into the house. I said once the appraisal clears, then we (as the buyer) shouldn’t have any risk in getting to closing. Therefore, we were hoping to have the house painted before we close (I would do the painting), then we could refinish the floor and get the rest of the cleaning done the weekend after closing, and get it listed for rent for April 1. I suppose I wouldn’t be trying to get to the house before Friday, so I guess I can be patient and wait to see what happens with the appraisal for a few more days (even though the appraiser was on site last Tuesday, and I’ve never had it take more than a day or two to get the paperwork).

REFINANCE FOLLOW UP, STILL

We still have an issue with the mortgage that I ended up paying 3 times for the 2/1 due date. Our refinance was difficult, and the communication continued to be difficult after closing. I asked on 2/1 whether our loans had been sold yet because I was surprised I hadn’t heard. Usually, I see a note saying to pay the new company before the first payment, thereby not paying the first payment to that “first payment notice” place that comes with the closing documents. The company’s contact said to keep paying them because they hadn’t sold the loans yet. I didn’t open the attachments in his email because I assumed he was reiterating what he said in the email. Turns out, one of the loans was already sold, and I should have paid the new company. Well, I processed a paper check to go to a completely different company (started with a C, and I didn’t catch that I selected the wrong one in bill pay). Luckily, that company sent us our check back, saying they think our loan is closed with them and they can’t process the payment (thank goodness we once had a loan with the address I put in the memo line so they could clearly make a connection and say “we don’t want this!”). When I noticed my mistake on the 14th, I sent a handwritten check that I rushed to the post office at 4:55 to get post marked. In the meantime, I found out that I was able to set up an online account with the new company even though I didn’t have the loan number yet (they gave it to me over the phone). I paid the new company online to make sure I didn’t have anything on my record claiming I didn’t pay by the 15th and it was late. I figured I’d rather manage 3 payments being made than fight the credit companies to change my credit report. Well, the initial company cashed my handwritten check, but they still haven’t sent the money to the new mortgage company. They just kept telling me they have 60 days to get it to them, and I said that’s unacceptable that they’re holding my money. That was a week ago that I was told I’d get a call back, and I haven’t heard from them.

PERSONAL EXPENSES

Now that the basement is done, I had a strong urge to finish projects. There were several things that were starting but not completed. Those final punch list items always seem to take forever. I was impressed that Mr. ODA pushed to get some of the things in the basement done right away, even though they weren’t on a critical path. However, I didn’t uphold my end of the project by painting those things, so I got back to that. I mentioned several of the projects in a recent post, and I’ve done a whole lot more since that post. But all that to say, I’ve spent a lot of money in the last month. I bought a lot of supplies to finish off these open projects. I also had big purchases of cabinet hardware, a dining room table, a desk, and a wood. We haven’t done very much out of the house, so we don’t have a lot of other expenses than these projects, which means our credit cards are actually have the usual balances. We did book an AirBnB for a trip at the end of the summer with friends of ours. That was a big hit on the credit card for a week at the beach, but they reimbursed us for their half.

SUMMARY

It feels like I just keep lowering the balance in our investment accounts each month, but I went to look at February 2021 to see the total. Even though some balances have decreased, we’ve still contributed to the accounts, so overall they’re $21k higher than last year, which is encouraging. I guess I should also focus on the property values raising significantly. We’re over $500k higher than last year in our assets, and our liabilities (i.e., mortgages) are about 13k less than February 2021. We’re also still over $3M on net worth, even if we’re hovering right around that. We’ll add about $50k to our net worth by the end of the month, as long as we close on the new property on time.

House 11

Our 11th purchase was a 4 bedroom and 2 bathroom house, which we were excited about. We only had one other 4 bedroom, and it only had 1.5 baths, so this was a new demographic we could meet. We again needed a mortgage, but we were tapped out (max of 10 mortgages allowed per Fannie Mae), so we went to our partner. I went through the process of establishing the partnership in the House 10 post.

The house had been listed for sale in July 2018, dropped the price in October 2018, and we went under contract on it on December 1, 2018. We went under contract at $129,000, which meant, according to the 1% Rule, we would look to rent it for at least $1290.

The house required a lot of cosmetic work (relative to our usual purchases) before we could rent it. The biggest hold up was the carpet replacement, but we had to do a lot of cleaning and painting also. We closed on February 4, 2019; got to work on the house on the 6th; and then had it rented on March 3, 2019. That’s a longer turnaround time than we’d like, but we thought the long-term benefits of a 4/2 house would be worth it. Plus, with our goal being $1290 based on the 1% Rule, we were happy that we rented it at $1300 and through March 31, 2020.

LOAN TERMS

We were given two options from the loan officer. Both options required 25% down. We could do a 15 year mortgage at 5.05% or a 30 year mortgage at 5.375%. The 15 year mortgage payment was $865, while the 30 year was $640. Since both options required 25% down and we aren’t concerned with our monthly cash flow (as in, we’re not living off of every dollar that comes out of these houses right now), we chose the 15 year. Escrow changes over the last few years have increased the mortgage to $941, unfortunately. However, we’ve been paying off this loan with pretty substantial chunks of money thrown at it. The loan started at $96,750, and the current balance is $21,350. We would have liked to have this paid off a few months ago, but we need to time our payments with our partner, who recently paid for a wedding, renovations to a new house, and a new tear-down property adjacent to his personal residence that he’s going to build a garage-type thing (city living = street parking for him).

We went under contract at $129,000, and the house appraised at $140,000, so that was a nice surprise. The current city assessment is at $148k, but it would likely sell for more than that.

PARTNERSHIP

Since the LLC was already under way when we purchased House 10, we needed to add this one to the LLC. We contacted our attorney. He processed all the paperwork, and we showed up just to sign everything in a quick meeting. At this time, we also requested an EIN be established for the LLC. To process adding this to an established LLC, it cost us $168 (which we paid half of since we’re split 50/50 with our partner).

PREPARING TO RENT

This house was probably the second most effort we had to put in to prepare it for renting. We had to replace quite a few blinds that were broken, do a deep clean of everything, install smoke alarms, paint, replace the carpet, and do some subfloor work.

We had to paint nearly every room (one room we even painted the ceiling the same color as the walls because the ceiling was in rough shape, and it wasn’t worth the time for precision of the edges).

The floor at the front door was rotted by termites. The guys had to cut out the floor and replace the wood before the new carpet could be ordered. We needed the house treated for termites at that point since there was an active infestation that we found. Depending on time and price, I’d rather replace carpeted areas with hard surface flooring for easier maintenance. Since we were already losing time with all the maintenance on this house to get it ready to rent and it was a small area, we just went the easy way out and put new carpet in. The carpet was only in the living room and hallway; all the bedrooms have hardwood flooring.

FIRST TENANTS

We were able to get a family in the house fairly quickly after we finished our work. We rented it at $1300. They signed it on March 3rd, and I had set the terms until March 31, 2020 (this comes into play later). The family had been renting with a roommate (and the husband’s boss!), and that guy had wanted to leave the house. In January 2020, the tenant said, “we signed the lease on March 3rd, so we want to be out at the end of February.” That’s not how leases work. The lease signed said until March 31, 2020. Some time between us telling him that he was in our lease until the end of March, not February, and the end of February actually coming, they decided they wanted to renew their lease. They signed a new lease with us on March 11 to cover 4/1/2020 through 3/31/2021.

In April 2020, the tenant received a job offer in Texas. He asked about a lease break, and we offered an option. All the communication was done via text message, so it was technically in writing, but there was never a “wrap up” text that identified all the agreed upon terms to allow for the lease break. I used this as a teaching opportunity for the 3 of us in the LLC that clearly documenting agreements in writing (preferably with signatures) is important.

The tenant offered to pay May rent without prompting, so we thought that was covered. The part that needed to be detailed was what was considered a “lease break” fee. We had agreed to 60 days worth of rent, and the security deposit couldn’t be used to pay that. Mr. ODA tried to contact the husband on multiple occasions to get rent paid at the beginning of May, but there was no response. I finally sent an email, detailing that they agreed to pay May’s rent, and that technically, they were on the hook for the entire year’s worth of the lease (quick aside: while that’s what the lease says, I think a caveat in the law actually means they’re not really liable for the whole amount because once the house is vacant for 7 days, it defaults back to our ownership, and then we have to show due diligence to re-rent it, leaving them liable for only the gap period). Well, as usual, the landlord gives us a guilt trip (their daughter was in the hospital in TX) instead of separating that from the concept of “pay your debts owed.” As a person, I feel for you on this; as a business owner, it’s not my responsibility to manage your finances and personal life.

The tenant called Mr. ODA and yelled at him. A few hours later, presumably with a more clear head, we received a fair response via text. He even apologized for yelling on the phone. He paid the last few hundreds that were owed, and we all moved on.

SECOND TENANTS

After our first tenants vacated the house, we had to get the house turned over. There was a good bit of work that needed to be done for just a year of someone living there. They had also left stuff behind that became our responsibility to get out of the house. We listed the house for rent. Our partner showed it to 3 younger people who would rent it together. They seemed great until we ran their background and credit check. They had evictions they didn’t disclose (claimed they didn’t know), so we shared the report with them and continued showing it.

We ended up showing it to a couple, and they liked it. After we accepted their application, we were able to get the lease signed on May 7, 2020. Since this was at the very beginning of the pandemic, we had to get creative. I signed this lease on a street corner (hadn’t realized that the place I had selected with outdoor seating was closed!), and they paid their first month’s rent, security deposit, and pet fee in cash that he handed to me in a sock (with a warning that told me this wasn’t the first time he handed someone cash like this haha). They’ve been great tenants, and they renewed their lease.

MAINTENANCE

The new carpeting when we first bought the house cost us $700. Between the termite treatments and other general pest control, we’ve spent $950.

Once the first tenant moved in, we learned of some other issues that weren’t apparent by us just working there and not living there. We had the plumber come out to fix several issues with the hot water that cost us $1450! Then we found out that the master bathroom shower wasn’t installed properly, and it was missing a p-trap; that cost us $325.

Our insurance carrier didn’t like that there wasn’t a handrail for the front steps of the property, so in March 2020, we had to have one installed at $190.

We had to replace the washing machine in April 2020 for about $500. As I’ve shared, we try to not include any ‘extra’ appliances because then maintenance and replacement are our responsibility. This was a fun one – we replaced it just to make the tenants happy and not deal with maintaining it, and then those tenants left right after that, and our new tenants brought their own appliances (so they just have two washers and two dryers in their kitchen).

We had an electrical issue with the master bathroom that cost us $150.

Luckily, I did the inspection over the summer, and nothing came of that initially. We did end up replacing a fan in the master bedroom because the light part of it stopped working with the switch. Since we don’t live near the house anymore, and our partner was in the middle of getting married, we went through Home Depot to have it installed, so all together (fan/light and install) it was about $175.

SUMMARY

This has been a good house. We didn’t realize that the house is located outside the city limits, so we needed to figure out trash pick up in the county (not included in the taxes). Other than a few maintenance hiccups, things have been smooth sailing. We’re happy with the tenants who are there, that they’re maintaining and cleaning the house, and we’re getting our desired rent amount (that they pay on time every month). The street is in a decently nice neighborhood with a lot of original owners, which helps it keep (and increase) its value.