Mr. BFS and I would love to diversify our investments for retirement, and the rental property we have is making us crave more. We’re looking at our buying options and finances right now to see if we really need to wait until next year like we originally planned. Here is how it is looking.
I was browsing foreclosures in our area last week and noticed two in our old neighborhood. That area is perfect for rental property!
- Homes built in 2004 and 2005.
- $110,000 to $130,000 foreclosures with 3-4 bedrooms and 2.5-3 baths.
- The homes need less than $10,000 in repairs and basic renovations before renting.
- Great school district.
- A solid market for tenants at $1300-$1500 per month since the area is nice (safe suburbia close to groceries and entertainment).
- Well built homes (we have had very low maintenance costs on our first house in these last 6 years).
- Affordable property taxes ($2500-$3000 a year).
- No home owner’s association. Score!
- 5 miles away from our new house (10-20 minute drive depending on the time of day). That’s close enough to keep an eye on our properties but far enough away that we won’t be physically visited by our tenants very often.
The only thing holding us back is the cash on hand needed to buy another house.
The Financial Picture
At 4% interest, a 30 year mortgage after putting 20% down for one of the foreclosures available right now would run about $450-$500 a month plus about $300 a month for property taxes and home insurance. That’s $800 a month for a property that can easily rent for $1300 right after it’s fixed up. That looks to be a great investment!
Plus, even in the no-tenant months, we can cover $800 extra without risking our overall financial health. It would bring our monthly nut including taxes to $8000 again like late 2012 instead of the $7200 it is at right now. We have been hitting that income target for 2 years. We also only have one debt – the $205,000 mortgage we have left on our current house. So this would bring our debt up to about $300,000, but our properties would be valued at a combined $500,000.
BUT, buying another house right now would also mean we would need the cash on hand for 20% down, closing costs, and renovations. A realistic estimate on the high side of all of that would be $40,000. We do have a little more than $40,000, but that would pretty much wipe out most of our cash savings. We never would do that since padding is just plain necessary when you are self-employed.
- Wait until next year and see how much cash we can save up by then. The risk here is that there won’t be any foreclosures available in our old neighborhood by next year. We may have to expand outside of our comfort zone or pay $130,000-$150,000 for a non-foreclosure.
- Take out a home equity loan on our paid off rental home to cover that $40,000 needed around closing. But then we’d have two more loans on top of our current mortgage.
- Look into loans that don’t require 20% down. We do have 2 years of self-employed tax returns now, so finding a loan will be easier than it was last year hopefully. But self-employment may simply mean that banks will want 20% down. We’ll visit a couple and see what they suggest.
- Ignore rental properties completely and open up a SEP IRA as soon as possible instead. I just can’t see retirement accounts making the interest that would make them more profitable than $1300-income rental properties that only cost $800 a month. Property values in this area are still pretty low and make for great long-term investments (there aren’t many places where you can get a 2000 square foot home for $110,000).
We’re leaning towards talking to some banks and seeing what our loan options would be. If 20% down is necessary, we’ll probably wait until next year.
What would you be leaning towards in our position? What obvious options have I missed?
Okay, so my last post about our home owner’s association (HOA) covered some letters I was receiving about cars being parked in the street for more than 6 hours, weeding, and stuff like that. Well, it’s now worse.
Thought It Was Wrapped Up
I thought all of our main troubles had been wrapped up:
- I have been to both HOA meetings since my post in February (they are every other month).
- I explained my personal frustration with the system and letters. They really didn’t have any sympathy for that but did those nice nods and noises that polite people do.
- So I volunteered to be the welcoming committee for our neighborhood to help future people avoid the stress. I actually made an info sheet that I’ve been hand delivering along with a map and some sort of welcome food to the new home owner’s. I’ve delivered 5 so far and have 5 more to do this Sunday.
- And more importantly for our HOA, we have been parking all 5 of our vehicles in our driveway and garage religiously. We just deal with the crappiness that is the Chinese Fire Drill…swapping the cars around as necessary.
- Lastly, I was impressed by the board members during both meetings – especially how they handle money decisions. So I thought there was light at the end of the tunnel.
Since all of that in mid-February, we had only received two letters. One was about edging, which was being done the very next Tuesday (3 days later) by our lawn guy anyway. That was the beginning of April, so he was just starting his biweekly schedule. Hopefully they notice we have a guy every other week now.
The other was about a patio we were building (which we weren’t since our back porch area was part of the house), and they apologized at the first meeting I attended for sending the letter to the wrong address. The management company also gave me a written reply that it was a mistake and not on our record. That is also when I found out that our next door neighbor on the other side of the utility easement, was the one reporting us most of the time. Great.
Not Done Yet
Anyway, like I said, I thought it was all wrapped up and they would be happy to leave us alone. Nope. Yesterday I received an emailed letter that is also being sent via USPS that asked if we were still renting out a room of our house since that was against deed restrictions. They also wanted to pass along the concerns of someone that we were having too many parties and the street was being parked up too often (like 2-3 times a month).
Here was their letter:
June 5, 2013
Re: Renting Rooms
Dear Ms. Stemberger,
At the Board of Directors meeting on March 21, 2013, the board shared their concern that you were renting out rooms in your home. As you learned at the meeting, this activity is not permitted under the deed restriction and you told the board they would be leaving in about two weeks.
Can you confirm that you are no longer renting out rooms and your tenants have moved out?
Additionally, there is concern regarding the frequent events or parties at your home which create an excess of onstreet parking. The parties seem to occur 2-3 times per month and presenting a nuisance to the surrounding area.
Efforts to decrease this activity are appreciated.
I look forward to your response regarding the renting of rooms soon.
Here was my response:
My younger sister is still renting out a room of our home (which the board was fine with when I asked at that meeting, let me know if that changed), but our two friends moved out and had to come back due to family problems. But they are not tenants while they look for more permanent accommodations. As it is our private home and they are our friends, I assume this is fine too. They just need a safe place to stay and we don’t mind.
But all 4-5 of our vehicles (we park the truck on a public lot occasionally when possible to try to appease our board members) have been kept completely in our driveway on a day-to-day basis religiously, so that part of the board’s concerns have been handled too. And we are making sure not to block the sidewalk as often as possible as well.
As for our get togethers, we throw one potluck a month with 10-15 people attending. It’s generally on the second Saturday of each month. Other than that, we sometimes have friends over for board gaming but that is not more than 5 or so, so I doubt that is the car issue that anyone has noticed.
But we do live next to the utility easement that is used for extra parking for the whole street, and at least two of our neighbors throw large get togethers once a month too, so maybe that is being blamed on us as well? In any case, I certainly hope it isn’t against deed restrictions to have friends over to your own home. Please verify.
I hope this resolves both issues. If not, I need to know now.
Don’t Know What To Do
Like I said in my response, our friends stopped renting from us after I found out at the first meeting that I couldn’t rent out rooms. My sister still rents a room but they said that what happens between family is not their business. So that shouldn’t be an issue anymore, but obviously it is.
And we have one potluck a month with a big group (10 or more people), but our friends do come over other times in smaller groups (4 or so)…are they seriously telling me that is not allowed? What the hell is the point of owning your own home if you can’t have visitors?! I mean, what if they are talking about all 2-3 times a month that more than one of our friends comes over? What can I do?
Feeling Like Crap
I’m frustrated, angry, scared, and worried all at the same time. The management company dude only does his drive through check once a month during the week days, so we are being watched and reported by one or more of our own neighbors. That is insane. We board game and eat food inside the house. Once in a while, a handful of us will talk and laugh while we walk around the lake. That’s the whole gist of my friend group. No loud music or anything like that. The cars are parked along the double-wide street in a single file so traffic is never blocked. The same strip is used for everybody else’s parking when they host events. And it’s only a big potluck once a month!
In short, we could eventually be fined or worse if I can’t figure out how to appease either my next door neighbor that reported me before or someone new that I haven’t pinpointed yet.
I don’t want to spend money on legal stuff if we don’t have to, but I’ve already introduced myself personally to all of my neighbors and am trying to fit in. It’s not working. We are one of the younger couples in this neighborhood and have no kids…is that making us a target?
I still don’t understand why having cars, especially visitors’ cars for a day of board gaming, parked neatly along a wide public street is an issue anyway. But there is a deed restriction that says no parking anywhere other than your own driveway for more than 6 hours. I asked soon-to-be neighbors before we moved in about how strict they are about that restriction since we do have friends, but only one neighbor said that the HOA would care and only if it was habitual. After our first letter about it late last year, I asked the management company and then the board at the first meeting about it, and they both said it was to keep people from parking in the street overnight and that occasional guests were fine. Apparently not…
I will hopefully get on the board when their next annual meeting takes place this September or October, but that won’t solve anything unless whoever has us in their line of sight eases up a bit. They seem to be annoyed with us to the point that they are looking for problems as opposed to just reporting things that affect their own property values. Or just talking to me…that would be nice. Everybody seems so friendly to my face, so I have no idea which ones are so upset.
They are making me sad to live here even though I thought this neighborhood was perfect for us. I’ve cried, I’ve gotten mad, I’ve tried to make nice…what the hell do I do now?
I had grand plans for our front yard. I was going to redo the flower beds and have a whole row of Boxwood bushes, roses, and Crepe Myrtles added along our right-side property line. Then I would have an automatic sprinkler system added to keep me from having to move the sprinkler all the dang time. Best of all, I was getting a quote to have all of this done for me by our lawn guy.
The Quote That Hurt
Yeah, that’s not going to happen anymore. The landscaping idea itself included 25 new plants and totaled $750 for just plants and soil. He added in $250 of labor to give me an even $1000 quote. That’s not completely nuts for the scope of the project, but I rather not spend $1000 on pretty stuff out front right now. He also quoted $1900 for just an automatic front yard system or $2700 for a front yard and back yard system. I don’t want to spend that right now either. In short, I’ll be putting $3000-$3700 of quotes aside and have made other plans.
Okay, so the landscaping is paused until I have some time to buy some Double Knock-Out Roses to replace the Boxwood in the front flower bed. Then we’ll also start to add plants along the property line as we have time. I may go out and spend $20-$40 right now on some more colorful yet temporary plants to brighten the flower beds with, but the grand landscaping plans can be put aside for a little while for sure.
As for the automatic sprinkler system, I took some advice from my mom and a few other readers and bought an automatic digital faucet timer from Amazon.
It was easy to program and screwed onto the right-yard’s faucet with no problems. It has 3 different “stations” to screw hoses into, and two of those stations are programmable. Station 1 is set to start at 5:10am for 28 minutes and then Station 2 starts up at 5:40am and waters that section for another 28 minutes. I have it set to start daily but will probably change it to every other day when the yard is taking off. I have also simply set it to “Off” a couple of days ago since it was going to rain that evening. I remembered to change it back to “Automatic” a day later when the weather went back to hot and dry.
Overall, I am super happy. I will be buying two more of these timers – one for the faucet on the left side of the front yard and one for the backyard. According to Amazon, their batteries will need to be changed every couple of months, but it’s still a cheap alternative. I also spent $31 on two longer hoses (one 50 foot and one 100 foot) for the backyard so I can use our four existing, shorter hoses for the front yard sections. Next time I’m out and about, I’ll also pick up two more sprinkler heads for large sections of lawn since our backyard is so big and I only have two big-section sprinklers right now (and they are in my front yard).
Cost-wise, this new plan will cost us less than $300 total (so about 10% of the original plan):
- First digital timer - $40
- Second digital timer – waiting for $45 or less deal again
- Third digital timer – waiting for $45 or less deal again
- Two new hoses – $31
- Two new sprinkler heads – $40
- Some rose bushes and some perennials – less than $100
Eventually, I’ll even do a good job of hiding the hoses along the edges of my home and flower beds so it will not even look intrusive. I will also be winding up the hoses on one of our hose reels or storing them in the garage every two weeks so the lawn guys can mow like normal. So this new plan will give me back most of the lawn-watering time (about 30 minutes a day of going outside and manually switching the locations around to water different sections), but isn’t quite as low maintenance daily as a built-in system. But I also won’t ever need to worry about unseen leaks or broken pop-up sprinkler heads.
I’m satisfied. How about you? What sort of yard plans or maintenance do you have or what are you planning for?
These last couple of days have been annoying as heck at home because of freaking fruit flies. We got the first few with some fruit I bought last week, but they didn’t really take over in full force until Tuesday night. I’m writing this Thursday afternoon.
How to Handle Fruit Flies
Apparently, you bring the eggs into your home from fruits and vegetables from the store. So first step to prevention is to immediately wash all of the fruits you bring into the house to get rid of the eggs. But if you didn’t do that (like me), you now have a whole set of different problems. Our infestation came from some old vases of water and a pot of boiled water we left out that we had used to boil corn. Ewww.
First you have to get all food off the counters and into the fridge or freezer since they need food and water to live and breed in. Plus, they die in the cold. Then you need to really clean the house so there won’t be any crumbs or standing water for them. Dump old vases, don’t leave drinks out overnight, and take out the trash every single day. This also means even taking house plants outside since they can live off of the fermenting leaves.
Then set out fruit fly traps and keep all of your food locked up until they are all dead. The traps that are working the best for us right now are bowls of syrup and a little dishwashing liquid combined with warm water that are covered with plastic wrap that I poked holes into with a fork. The Raid fly strips are also working really well. I do feel a little cruel with the fly strips since it seems meaner than drowning them in syrup, but at this point, I just need these things out of my house.
This one has killed quite a few in 12 hours.
This is a picture of the product itself before it was opened. It has only been hanging for a few hours and already has quite a few on it.
It’s only day three of the real battle, but I feel confident. I’ll let you know next week if I am still fighting the little buggers.
Have you ever been taken over by fruit flies? How did you get rid of them?
It’s the gardening time of year again, especially here in Houston, TX. It’s gorgeous, heating up to the 70′s and even 80′s regularly, and I’m trying to get our front yard to look the way I like. The builder’s gardener did pretty well, but I like color.
Here is what our whole front yard looks like currently. It’s pretty open since the Crepe Myrtle on the left and Japanese Magnolia on the right are still pretty young.
Yeah, it’s pretty open right now…needs some love!
Here’s just the left side of the yard…
Here’s the right side of the yard…
First off, I am tired of manually watering everything, so I am looking into automatic sprinkler system options for at least the front yard. We were going to have that done when we first built the house, but we decided to hold off to keep some extra padding on hand during the move and those first expensive months. Now I am ready to splurge and talk Mr. BFS into it too.
I would also like to remove the boxwood from this flower bed and move them over to the right side of the yard to edge off our property. I’ll replace them with 3 Double Knock-Out Roses since they are pretty year round and will add a layer of thorns between the windows and the world.
Here’s my very elementary try at showing how the flower bed could look with some rose bushes, lol.
And here is my funny attempt again to show what the right yard could look like with a row of Boxwood and more Japanese Magnolias up the property line.
I think the biggest obstacles to my plans are money and time. We have the cash, but it’s hard for us to justify hundreds or even thousands of dollars for a yard.
The sprinkler system just in the front yard could run $1500 to have it installed by someone else, or $600-$800ish (depending on who you ask) for us to do it ourselves. Buying more Boxwoods, Japanese Magnolias, and a few Double Knock-Out rose bushes could run me $250-$300. And I may see how much my lawn guy would charge to actually do the digging and planting since I don’t see myself carving out a whole afternoon or two to get it done.
Overall, even if I skip the sprinkler system and do everything else I want, I’m still looking at a few hundred dollars and I’m not sure it’s worth it. I want everything to be pretty and perfect, but I also rather not spend a ton of money on something I just don’t pay attention to all that often.
Have you been hit with the gardening bug yet? Would you pay for having stuff done by others? Any idea what I should be expecting to pay for an automatic sprinkler system?
When I wrote about paying off our rent house, a few people emailed me about the mortgage deduction benefit that we’d be losing. Luckily, that wasn’t ever an issue. Even with two mortgages, our mortgage interest and other deductions simply never added up to more than the standard deduction (which was $11,900 for a married couple filing jointly last year).
Here’s the breakdown for us. The following are the deductions that can taken and what they added up to for us last year (and I rounded up):
- Medical Bills – $1000 in some copays and medicines (which I am not even sure are deductible)
- State and Local Taxes like sales tax – less than $2000
- Charitable Deductions – $500 (I volunteer time)
- Mortgage Interest – less than $2500
- Losses from Theft – $0 thankfully
- Job Expenses like travel - $1000 and that would really be pushing the definition
- Total = $7000
So in our case, the $11,900 standard deduction was definitely more to our benefit and has been since we got married in 2005. We always run the numbers just to make sure, but for us, the standard deduction is simply the way to go.
When Itemizing Works
Yet, itemizing is still obviously a great choice for some people. One of our close friends, J, files as a single individual. Between her medical bills and her mortgage interest, it was just a smart idea for her to itemize since that total was greater than the $5950 standard deduction that she could have taken. I also know several couples living along the coasts where housing is more expensive so their mortgage interest is astounding comparably. The standard deduction would be a bad idea for them.
So I am by no means saying that the standard deduction is for everybody. I just wanted to remind everyone that mortgage interest is not always tax deductible for everyone. It isn’t automatically a benefit of home ownership or debt.
For us, the biggest decision was whether to pay off debt or invest, so at best, we made a 4.5% return on about $22,000 this past month. At worst, we have to accept the opportunity cost of anything else we would have done with that money instead. In the end, I like the guaranteed return and being down to only one main mortgage again. The feeling of security is worth a bunch to me, but I do have a ton of respect with everyone with a better risk tolerance than me.
Do you take the standard deduction or is itemizing better for you?
On April 2, 2013 I wired $22,200 to Chase to pay off the mortgage on our first home – what is now our rent house. I held off on writing the happy post about it since I wanted to receive something official that would confirm we indeed own our first home 100%. Well, here is a letter we received yesterday:
We are writing to tell you about a change in your status in the Mortgage Cash Back Program.
We want to let you know that you are no longer enrolled in the program because your mortgage has been paid off prior to maturity. You may be able to enroll in the program in the future if you decide to refinance your mortgage with Chase.
Note: Any rewards that you may have earned before cancellation of the program have been forfeited.
If you have any questions, please call us at one of the telephone numbers listed below.
So I forfeited $48 in cash back to save $60 in interest for the rest of April. I’m okay with that.
WE PAID OFF A MORTGAGE!!!
So even though we don’t have a deed in hand yet, I am super happy to say that we have officially PAID OFF the mortgage on our first home purchase ever!!! We officially own a 1750 square foot, 3 bedroom, 2 1/2 bath home outright!!! Woot!!! And the $505 mortgage payment that was usually drafted from our account the 9th of every month didn’t happen! Yay to an extra $500 a month!!!
Okay, I’ll lay off the exclamation points. I’m just super happy.
We own this baby outright!!! Yay!!!
Just so you know, I was a little worried about the process of paying off the mortgage since I hadn’t done it before. It ended up being pretty easy:
- I called the number I found online to use an automated system to receive a mailed payoff quote.
- I moved the $22,200 over from CapitalOne 360 to Chase (our brick and mortar bank and the one who had this mortgage).
- Once I received the quote a week later, I wired the payoff amount along with all of the info they asked me to include in the “Memo” section of the wire.
- I then saw that they charged me a $25 wiring fee (I was too excited to pay attention to that little note before).
- I emailed them asking them to waive the fee since I was a long-time customer and the money went from them to them.
- They waived the fee.
And there you have it – 3 steps to pay off a mortgage and 6 to do it and get a fee waived, lol.
What This Means Now
Now we own one home outright that we use for rental income. We still have a $205,000 mortgage left on our current home, so we are definitely not completely debt free yet, but that is the last debt left. And we really love our current home and being landlords, so we are not regretting our decision to move last year at all. Overall, we’re exuberant.
Based on our last budget update, we needed about $8000 a month for just bills plus taxes. Now that is at $7500. Still way too high in my opinion, but $500 a month is $6000 a year. I’ll take it.
This also means that real estate has truly become a part of our current income and our future retirement plans. Even taking into account annual property taxes, annual home insurance, and all repairs/maintenance items, we should be netting about $10,000 a year from our rent house. We haven’t had any super expensive repairs yet, but I am budgeting high for those since all appliances will break eventually and probably all at once since that is how it always happens, right?
The rest of our retirement plans are sort of up in the air. We max out Roth IRA’s every year and that’s about it right now. So now that the mortgage is paid off, we need to look into all of our options and make a plan. We know we want to invest in the stock market and are leaning towards opening a SEP IRA since I can’t contribute to my old 401k anymore. We could even look into more rental property.
When we hit our golden years, we’ll need to look at how we will take distributions. We may even look into using a portion of our retirement savings to buy an annuity. I thought some guaranteed income would be nice. Really though, the more immediate decisions need to be figured out first. We will probably start small with SEP IRA contributions and more stock market investments. It’ll take a year or two before we will probably look any further into real estate…we’ll see…
Mortgage Payoff Race
Finally, I am happy to say, we also won the mortgage payoff race! Jason from Live Real, Now and I made a bet at the Financial Blogger Conference last year about who would pay off their mortgage first. Sorry Jason, but you will be expected to visit ”hell” (as you put it) sometime soon. I’ll provide the sunscreen. And don’t worry, we have air conditioning. This may have worked out for the best since I forgot you owned a cat and I would have had asthma attacks the whole time I was in the frozen tundra that you call home, LOL.
Are you debt free or working on it? Own a home outright? On track to? What do you think?