Real Estate Investing: Myths and Presumptions

People tend to make assumptions the second they hear that you own rental property and, for those who aren’t knowledgeable, many of those are wrong.

1. You’re rich. (Correlated: You will be rich tomorrow if you just got started today.)
2. You’re always making money, usually hand over fist.
3. It’s easy money, and profitable as hell.
4. Landlords can charge anything they want.

Obviously we’re not rich. Far from it. I certainly intend to be but this is one part of a long term plan to get there, this isn’t the end all be all.

The point is to make money but it’s not easy and not an overnight get rich quick scheme.

There is a risk and a truckload of expenses involved: I took on a mortgage, with all the associated home buying costs like closing costs, realtor fees, inspection and appraisal fees, and a higher interest rate because it’s not an owner occupied property.

And whether or not we have renters (aka income), I’m still responsible for all taxes, damages, repairs, and association or other fees every month. My profit is AFTER I pay all those bills, if anything is left.

Profit margin is dependent on two main factors: fixed expenses and rent. I’d love it if I could engineer a 50% profit margin but the only “control” I have is on the expense side. It’s down to what decisions I make when buying. The price point has to be low enough with a high enough property value so that when the mortgage and all the other costs are added up, they are less than the amount of rent I can charge. And I can only charge what the market will bear. If rents in the neighborhood or region are $1200/month for a 4 bedroom, 2 bath single family home, and I’m trying to charge $1500/month for a comparable property with no distinctive features worth $300 more per month, all because my expenses are $1400/month, guess who’s got 2 thumbs and is SOL?

Or say your expenses are lower and you can still make a small profit charging market rates – if you get hit with multiple repairs, month after month, even small ones, you’re still looking into an ever deepening hole.

You’d better have some slush fund saved to keep covering your expenses during times of vacancy, and any rental income budgeting sheet worth the paper it’s printed on includes a minimum assumed vacancy percentage, because just try crying to your bank about how you can’t pay this month because the rent was paid late or your property stood vacant.

Believe me, they’re just fine and dandy taking the house along with whatever money you’ve already sunk into it if you were fool enough to believe that you didn’t need to pony up more cash out of pocket from time to time.

I didn’t get into this intending to lose money but as an investor you have to know the basic risks you’re running, and yes, losing money is absolutely a real risk.

Catch up on past real estate posts!

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Just a little (link) love: elephant trunk edition

LinkLive

CAREER + MONEY THINGS

Just how often would you have to fly in a month to justify this membership?

Shifts in the economy have NOT favored the less educated.

Mind your info at irs.gov, it’s not that safe!

Amazon’s successful self publishing authors. Every time I take another crack at my “secret” writing project, I wonder if it’s worth the time to write, edit, edit, edit. Who would read it?

I worry about this for older friends. I guess the upside to my parents not having money is I won’t have to worry about this.

FUN THINGS

Illustrated envelopes from the ’40s.

I haven’t read All New X-men in a long while but it looks like it’s time to revisit.

INTERESTING THINGS

Preparing for a huge earthquake here is scary (assuming we survive!), Katmandu’s got a rough road ahead. If you want to donate, regular reader Kris has organized a funds-matching campaign to a Nepal relief group she’s worked with.

You know what? I didn’t have to be a parent to understand. Neither do you. Because ….

I might make choices for myself differently now, but I don’t think that’s because I have children. I think it’s because I’m a responsible adult with a sense of respect for my time, my life and others’ right to do what they want so long as it’s not harmful to others.

Oh, white relatives. Hint to the authors: we’ve converted 1 white guy to be more Asian than I am in the family. Their formula was apparently a 100:1 ratio of Asians:him.

Poor dudes in Hollywood. They have to work so hard to be objectified.

Guys who create issues about women in their own minds, it’s simply not the same thing as women who are targeted as a result of those issues those guys have formed.

The memories created by Alzheimer’s, from NYTimes, thanks to @Clareyfrey
This piece took me back to life with Grandma, and then with Mom. I simply couldn’t get past the heartache to play along with the stories.

Establishing The Wall Street Journal’s editorial integrity in the ’50s. I wonder if this would still hold true today.

Hi friend! Friend? What’s wrong with your face?

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Net Worth & Money News: April 2015

DollarSign

Change from Jan 2015: 8% increase

On Money

I’m working away at Swagbucks to earn Amazon money for household, Little Bean, and dog things we need. Feel free to join using my referral link if you like!

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Retirement: I’ve been doing lump sum contributions to my IRA at the end of each tax year, but I should really do it monthly instead. Mostly for superficial reasons: seeing $5500 come out of the savings at once is more painful than ~ $500/month. Plus I can probably cash flow that $500/month if I’m creative, rather than taking it out of savings at all! Or am I getting greedy?

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Update: screw it, I’m cashflowing that sucker. 2014 contribution, done.
2015 contributions, set up as recurring withdrawals.
2016 contributions, will automatically go forth and withdraw.

It’s like a monthly gift to myself!

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Also retirement: I had three different accounts at Vanguard, plus a Roth IRA. That’s silly. One was a rollover from my former employer, one was a rollover IRA from my very first IRA of all, and one was the traditional IRA contribution I’d been making since I no longer have a 401(k). After checking with Vanguard, all of them can basically be dumped into the same Rollover IRA, so I went ahead and put those in for consolidation.

Edit for comprehension: I combined the three different accounts (an employer 401(a), a traditional IRA and a rollover IRA), but NOT the Roth, that stayed separate. I wanted to be left with 2 IRAs: a Roth and Rollover.

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I opened an Ally Raise Your Rate CD last year. Interest rates went up a bit and I’m not interested in interest rate-stalking so I went ahead and took my one time bump.

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It’s been about 18 months since my last App-o-Rama, I may go on and do another round if credit card bonuses are good.

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On Life

I’ve been trying new medications to help me function. Well, new for now but not new to me. This particular one had dealbreaker side effects the first time I tried it but it did make me actually functional. Days where I can hardly get out of bed or struggle to breathe are fewer but the side effects previously trumped that. This time, I’m on a much lower dose. It’s not enough to eliminate pain or fatigue but it reduces them to a couple fewer areas of pain per day and tiredness, rather than a soul-deep ache of emptiness where energy would live. That’s worth it in my book. I’d rather not be on anything at all when breastfeeding but that’s a pipe dream.

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We’ve (ahem *I*) finally figured out I can’t keep doing all the night shifts. PiC has adjusted and has taken to spiriting a grumpy LB away to the other room, shutting bedroom doors as he goes, to spare me at night. That causes some weird “I need to know where everyone is” instinct to rise in me and so sometimes I follow them, thus utterly defeating the purpose. But sometimes we’re just happier together, even if we’re both sort of grumpy. At least we’re not grumpy at each other 98% of the time.

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LB has blossomed into a Roly Poly and Angry Inchworm. Ze decided that ze wants to do all the things that a real human would do but seriously lacks the muscle control and that really pisses hir off. We’ll see how quickly ze figures it all out.

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I’m antsy. I need to be planning something and it may be travel. We have dear friends who are older and whose health is declining. We’d like to spend as much time with these friends as we can.

If you haven’t already signed up and like to send/receive mail, go fill out the poll for the Postcard Party!

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Estate planning (ICE): Advance Health Care Directive

Who do you trust to make health care decisions for you?

We’re making out our advanced care directives and while we have a basic idea of how we’d take care of each other, we need to designate decision makers if both of us are out of commission.

Our criteria

Who has enough basic knowledge of medicine and the medical establishment to be an advocate?
Who would understand our wishes AND comply with them regardless of their personal feelings, philosophy or religious beliefs?
In sum: who could we trust to intelligently make health care decisions that are in our best interests as we see them?

Our candidates

It might seem like “family” is the automatic answer, but as with other issues, that’s not necessarily the case.

I have a couple relatives who work in the medical field directly or indirectly and I would trust one of them to take the time to exercise good judgment, and seek the expertise or resources necessary to make the best possible decision for us.

PiC has a couple of friends in the same position. We would trust one of them to do the same or serve as a resource to the primary decision-maker if medical complications had to be addressed.

The other considerations are location and availability.

The person/ people we designate would have to be willing to drop everything to come to us to make those decisions in the event. While we’d certainly pay for those travel expenses, there’s no doubt that would be highly disruptive to their family lives.

Aside from the actual legalities, we need to have a clear conversation with the nominees to be sure this was something they were ready and willing to do, and make sure they have all our pertinent information as well as what we want done in case of incapacitation in writing.

At the moment, I’m fairly certain I know who I’d designate as mine. We still need PiC’s decision.

:: Have you got either a designated decision-maker or do you know who you’d trust to do the honors?

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