December 12, 2016

Real Estate Investing: reducing costs

I can’t make a decision on my property manager just yet, I need to run some projections on the potential costs and benefits, so I moved along to do quick research on the other list items.

This turned out to be a great idea.

Refinancing! or not.

I ran some initial numbers with Quicken Loans, they wanted to give me a 30-year-fixed loan with $4899 in closing costs and 2 points for a rate of 3.625. I’d save $238 monthly, but with the closing costs, it’d take 21 months to break even.

My current company offered me a 15 year loan, 4.25 / 4.38 with 2 discount points, and the monthly payment goes up by $247. Not the goal.

They also offered a 20 year loan, 4.375 / 4.25 points with 2 discount points, and the monthly payment goes up by $250. Also not the goal.  These loan costs are before we calculate the other costs of refinancing: an appraisal running somewhere between $575-625, and closing costs.

Overall, it seems like it’s just not the time for refinancing.

New home warranty

My old home warranty company was bought out by American Home Shield who tried to increase the premiums by 20% at the time of renewal. Even if my profit margins weren’t quite slim, that wouldn’t be acceptable.

My property manager found me a second policy with First American Home Buyers Protection Corporation, at a lower rate than I was paying before, for just about the same coverage and lower call-out costs. Savings: $200 for the annual policy, and $10 off each call-out.

New property insurance

I’m usually all about automating bill-paying so I went for holding the property taxes and hazard insurance in escrow. Pay three bills in one, what’s not to love?

Here’s what – I didn’t see the bill, therefore I didn’t think about it much, therefore I didn’t put it on the list of bills to attack. It did catch my attention briefly when the bill went up bit at renewal time, then it slipped back off my plate shortly after.

No more!

In a burst of productivity, I have …

  • gotten a quote from a new insurance company,
  • started a new policy
  • submitted a request to remove the property taxes from escrow,
  • had the new company send a cancellation notice to my old insurance company to avoid having to tell them that I’m dumping them, but we’ll see if they make me talk to them anyway.

The new insurance agent was very responsive by email, exactly how I like doing business, which meant I wrapped the whole process from quote to finish in 9 days.

With any luck, I’ll come to a decision about the property manager soon and then I’ll have shelved a year’s worth of administrative maintenance stuff – woo!

The unfortunate thing is that this stuff always occurs to me at the end of the year. Because what better time is there for sorting out all your paperwork and paying big lump sums like insurance policies then at the end of a long year? The only good thing is that, for the rental at least, I keep all the expenses and income in a separate account so it doesn’t impact our personal finances.

:: When’s the last time you evaluated your insurance, property, auto, renters, life, or otherwise? Do you carry any other than the required auto insurance?

Read more of our experience with real estate investing!

October 17, 2016

Real Estate Investing: hiccups and the routine things

Real estate investing: I'm on the hunt for a new property managerHas it really been so long since my last update? Whoops.

Things have mostly been going well, but I’m definitely seeing the downside of hired property management. Not that I have a choice, the property is an unrealistic distance from us so I can’t drive over there and manage it myself. But when your property manager’s responsiveness goes down by 55% despite your specifically calling them out for it, then it’s time for a change.

I’m also in the market for a new home warranty company, and a new loan! If possible, I’m looking to refinance since my original interest rate was not favorable at all and I need to bring our monthly costs down.

But let’s start with one thing at a time since I get that “mountain sitting on my chest” feeling from all the things that feel like they must be done NOW.

  • I contacted my broker, and investing friend, to get recommendations for a new property manager. (Turns out that same friend is also considering a change because we use the same person and it’s not just me, the service has been much less attentive than it should be.)
    • The broker gave us a recommendation for a boutique property manager. The fees are pretty high, in addition to the monthly 10% off the top, so I’m thinking about what it is I want and how much I’m willing to pay. I want the kind of hands-on detailed service this manager provides but I have to consider whether my income will bear it. My monthly profit margins still aren’t high enough to cover more than a little over our expenses by the end of the year.
  • I read through some Yelp reviews and sites, and sent an email asking about services and fees, to the one that seemed to be a possibly good fit.
    • They replied the next morning saying politely they were not taking new clients because they have a full docket. That’s actually a good sign, I think, when a company knows how much they can handle well and sticks to it. Not great for me personally but good to know they’re not the sort to just take in as much business as they can get and damn the consequences.
  • My friend is inquiring after a larger company. He and I both came up with their name independently, I’m guessing because it was because they advertise.
    • My preliminary research turned up mixed results. They have all their information up front, which is great, and they state pretty baldly that if you’re asking about the kinds of restrictions you want to put on who gets to rent from you, you’re very likely trying to screen out people based on discriminatory reasons. This isn’t the first time I’ve been told that screening renters based on certain characteristics is really a racially motivated screener, I’m glad to see this company is speaking plainly about what that’s code for. I like that because of their size, they have easy ways for the renters to pay electronically. But I’m not sure that I want to work with a huge company that only gives you a price break after you own 40 units. For one thing, that’s a hell of a lot more than I intend to take on, so I wouldn’t benefit from adding one or three more properties with them the way I would with the boutique manager. For another, while they have the infrastructure to be more technologically up to date, that also means they may not be motivated or willing to consider updating where they’re lacking.

:: If you were renting, would you prefer to deal with a large somewhat faceless company, or a boutique property manager? If you were hiring a manager, which would appeal to you more?

Read more of our experience with real estate investing!


October 10, 2016

Reaping Dividends: September 2016 report


My brokerage is TradeKing, I’ve been very happy with their low fees and service.

The third quarter of 2016 has been pretty quiet on this Western front. I have about $15,000 in cash from various CDs rolled over to wait for the next purchase but I’m not stalking anything in particular at this point.

  • Dividends income this past quarter: $203.50. If nothing changes, we’ll see about $600 in dividend income this year.
  • I’m considering whether this particular course of investing continues to make sense for us. I like seeing replacement income come in with an eye towards a before age-65 retirement, but I need to do a better future income projection to see if there’s a better way to expand our portfolio.
  • I’m also considering folding this report into my monthly net worth report. It won’t show such dramatic (hah) increases monthly instead of quarterly but perhaps it makes more sense there. Thoughts?

Dividend portfolio as of Sept 30, 2016Year to Date Dividends: $434.50, Fees: $9.90, Net: $424.60

Income Replacement

For perspective, I like to think of the dividends investing project in terms of how much of our income it can replace, or how much of our fixed expenses it can cover.

At a whopping $424.60, this year’s dividends can pay 40% of one mortgage payment. Over the past 6 years, I’ve made a total of $1,146.50.

:: How did your portfolio do this quarter? Would you try to replace income this way, or do you have another preference?

July 6, 2016

Reaping Dividends: June 2016 report

June 2016 brokerage update: our year to date net dividends hit $221!Philosophically speaking

Building up a portfolio that throws off anything like real income in annual dividend income is challenging. We need a lot more capital invested.

To add to that challenge, as I shared at the Jolly Ledger recently, I have some rules.

  • I’m a long position investor, otherwise known as buy and hold.
  • It cannot be built on blood money. Companies need to conduct their businesses in a way that would make me want to work for them. Disclaimer: I aim to invest in ethical companies as far as is practicable – I’m not an expert and don’t have an army of researchers at my fingertips to confirm that all my choices are good but I’m doing my best.
  • I won’t invest in tobacco or gun companies. Even though I do not disapprove of gun ownership in principle, the way this country is unduly influenced by the NRA and gun lobby isn’t acceptable. There’s a difference between short term mistakes and long term wrongdoing or simply being harmful and the gun lobby has long ago crossed over to the dark side.

I wouldn’t feel comfortable working for any of those companies as a direct employee, no matter how nice a salary I could pull down, so I’m not sure how I’d justify owning it in my portfolio. It’s much like how it doesn’t make sense to me that the University of California system was holding stock in the prison system in their portfolio.

And now, the updates!

June 2016 brokerage update: our year to date net dividends hit $221Year to Date Dividends: $231.00, Fees: $9.90, Net: $221.10

My brokerage is TradeKing, I’ve been very happy with their low fees and service.

The first half of 2016 has been all kinds of volatile. The recent Brexit Leave vote made for an extra bad week globally. I wish I’d moved sooner but I was mesmerized by all the bad news and watching the stocks plummet. I can’t decide if it’s worth sharing specifics of my portfolio or if that’s a bad thing, so for now, I’m going to be general. Let me know if you think it does or doesn’t have value to you as a reader. I’m not recommending stocks, mind you, and don’t want to give that impression.

  • My Financial Services Stock #1 dropped more than 10% from my previous purchase price so I bought more. Reminder: dollar cost averaging is a good thing. I have confidence in the company in the long-term and this lowers my average purchase price by $5 per share.
  • In a departure from my usual strategy, I picked up an automaker stock. There was a time I wouldn’t have touched an auto stock, like an airline stock, but this was a spontaneous Buy based on the company’s recent moves to be more flexible with their suppliers, and moving with the times on technology. This surprised PiC, and honestly me too, but I thought I’d see what comes of it in 2 years. We’ll see if my instincts pan out or if the Brexit vote tanked that experiment.

Income Replacement

For perspective, I like to think of the dividends investing project in terms of how much of our income it can replace, or how much of our fixed expenses it can cover.

At a whopping $221.10, this year’s dividends can pay 20% of one month’s mortgage.

:: How do you invest? Have you peered at your portfolio this quarter?

If you liked this post and found value in it, I’d appreciate your pins and shares.

*Part of Financially Savvy Saturdays on brokeGIRLrich, Disease Called Debt and Little House in the Valley

March 21, 2016

Being a landlord: HOA violations and other nuisances

Landlord adventures in paperwork and maintenance “Business as usual”, since LB was born and we got new tenants into the property, has been quiet. Once a month the rent comes in. Once a quarter, I send the tenants the sewer bill and the property manager, let’s call them “Lou”, collects that.

Unfortunately, did I mention this?  Things don’t always go smoothly in money matters and this is no exception.

The current tenants pay on time and don’t have a lot of needs. They’ve requested a few minor repairs and those issues have been addressed pretty quickly.  But they have a problem with complying with a relatively minor HOA policy about clearing their curb on a weekly basis as required. It’s not that they object to complying, they simply didn’t comply on time for several weeks in a row.

They’re good tenants so far as I can tell, so I hated dinging them for something like that but the HOA is a huge stickler and sent a violation notice every time it happened. After three violations, the HOA proceeded to start fining for the violations, even though the tenants had been informed and were doing their best. The fines were $100 per occurrence!

It’s more than a little alarming to get a bill for $100 per week, with a grand total of $600, when the fines start. It’s a lot alarming that the latest bill is up to $1500. Lou assures me that they’re working on it which means that they’re confirming the lack of violations each week for the HOA and after several weeks of “clean” behavior, the fines will be removed.

That’s little consolation while I see the fines skyrocket. This is the part I hate about going through third parties. As much as I like that having Lou lets me stay hands off, the part of me that manages money and the household particulars chafes at not being hands on so I can fight the charges if shenanigans occur. The bills are in my name!

So that sucks. But the whole point of the manager is to deal with stuff like this.

Basic appliance repairs eat into a slim profit margin

I have a home warranty which covers the repair and replacement of appliances. We’ve called them out to take care of three plumbing problems and 2 appliance replacements. Their timely responses keep the tenant happy and a good tenant is worth keeping happy IMO. Though, what the hell is going on with the plumbing??

The $75 per call out fee is steep in contrast but DIY isn’t an option for this property. I was only breaking even in the first seven months on routine costs (mortgage, property tax, and insurance). We had to get new tenants and raise the rent to bring in enough to have a little extra left over to cover the irregular expenses.

We’d need to raise the rent another $100 to have anything like “profit”. Unlike the “pay yourself first” mantra in regular employment, the leftover money each month after subtracting regular expenses goes into savings. It’s the buffer against the inevitable repairs and maintenance, not money I take out of the business. This is conservative but other than my initial down payment stake, the goal is for the unit to break even overall first. Only after costs are covered, thus preventing any need to dip into personal funds, do I consider that leftover cash mine. The long term goal is for this property to generate some rental income and appreciate in value over time.

Read more of our experience with real estate investing!

*Part of Financially Savvy Saturdays on brokeGIRLrich, Disease Called Debt and From Cost to Coast*

January 25, 2016

Reaping Dividends: 2015 year-end update

My brokerage account is held at TradeKing. Referral Bonus: Open an account, fund with $3,000 and place 3 trades within 90 days, we both get $50!

TK 2015 end

  • The market went up, down, up again, and down again. It would have been nervewracking if I looked at anything but my earnings which trickle in 9 months of the year.
  • Nothing exciting in the latter half of 2015 on the dividends front: no stocks splits or  special dividends.
  • I did buy shares of AXP too early. It’d been on my Buy list for months and  should have waited for it to drop to my original price point but I had a brain blip and forgot they’d just ended their partnership with CostCo which was big income for them. Whoops.
  • Long term: If my buy was a mistake, I may eat it in a tax-loss harvest move, but it’s way too soon to be worrying about that. For now, I’ll revel in the highest annual earnings to date and see if we can’t double or triple that in 2016.

Other Reaping Dividends posts:

Reaping Dividends: Stock split and half-yearly update

Reaping Dividends: slow and steady

September 14, 2015

Real Estate Investing: principles, maintenance, and budgeting

Linda made a good point about how some landlords, slumlords, use their rental properties to generate tax losses to offset their gains in other areas of their net worth.

Call me foolish but I’m not ok with that idea. Even if I’m going to have to pay more in taxes each year because I’m showing a profit on paper, I’d rather find some other way to even out that tax bill than to let my property where actual humans live go to shambles. I’ve been on the other end of that stick and it sucks.

Even though some of the rundown at the other house is due to Dad’s inability to keep up with all the house maintenance, a lot of it is long term stuff that the owner of the property should be tending.

Chatting to a long time homeowner friend, she’d expect most of the wear and tear to be paid for by the homeowner / LL: carpet, paint, drapery. That was an interesting thought. While I’m willing to budget for it, as a renter, we never had a refresh or cleaning of anything of these things that we didn’t pay for under normal wear and tear. We’re not going to vacuum for the renter but we will do a carpet cleaning between renters and replace it if need be in say, 20 years? That’s the normal life span of good carpet, I think.

I provide and maintain all the major appliances, which isn’t actually a normal thing in my experience renting in California, but it is for the rental area. Would you also expect that other stuff as well?

My current plan is to save all the income from at least the first five years to pay for expected major repairs and unexpected anything else that’s not covered by the warranty.

Read more of our experience with real estate investing!

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