Working Hard for the Money

Mr. Sam worked all weekend on Rental #1 and the results are great.

First, the house looks wonderful with clean, bright, spacious rooms. The yard and landscaping are also looking good (as they should be since we pay a yard service).

Second, we had two good applications submitted this weekend. A good application, in our opinion, is a group (family or roommates or couple) with income that is well in line with the guidelines on housing expenses (30-35% of net income). Both applicant groups are very interested, as they should be since Rental #1 is a great bargain, and both communicated to Mr. Sam that Rental #1 is the best rental property they have seen in their price range (Mr. Sam was happy to hear that after all is hard work).

So today we will be running credit and background checks on both applicants and we hope to make a decision and get a deposit this week. Wish us luck.

Looking for Good News

Since our financial house is in disorder this month with departure of our tenants from Rental #1 and the costs associated with repairs, improvements and re-rental I have been enjoying watching my 401k and other investments improve.

My year to date 401k performance is a healthy +24% which, of course, ignores the fact that for the prior 12 months the return was -19%. We have stocks, that we hold in our IRA accounts, that are up 90% and 100%+ since we purchased them.

To Vacation or Not To Vacation

To go on vacation or not go on vacation, that is the question.

We both work very hard. We both regularly clock 60-70 hours in the office per week and we also spend time working on and managing our rental investments each week or month. The fact is that we need time away from work and projects (at our home or the rentals) which means that we need to get away from Florida. A staycation does not really allow us to recharge as we will keep working on home repair or other projects.

So, we have plans to take an out of state vacation this month but now the debate is whether we ought to move forward with vacation because (1) I just took a 10% pay cut (2) we have one rental empty that we plan to list this week and would probably need to be showing over the next few weeks (3) we likely will have another empty rental next month (4) we have been spending money on upgrades and repairs and rental #1 and we probably should not be spending money to travel. I have already blocked the week at work and it will be hard, but not impossible, to change my vacation plans to a later time. Mr. Sam has also already had the week approved.

What to do? What would you do?

Someone Has Questions Part II - Continued

FC said - I just read your entire blog backwards ... in sequence from newest to oldest. I would love to hear more about your background as far as being able to attain such a high net worth ... it seems like you both earn a relatively high income from your jobs/careers but also what else goes into it. I'm hoping that you can provide advice on landlording ... including how long you've owned the properties, how far apart you bought them, how did financing investment properties differ from financing primary home, what were some positive things that you've done versus some things that you would have done differently now that you are wiser, is it ever overwhelming having so much mortgage debt as a liability, how is the actual cash flow now versus a year or two ago versus what you initially planned/expected?

Investment property #4 is not a rental property as it is just land. The property was purchased by me in 2003, individually, and it is still titled just in my name. I put down 13% and the mortgage is a fixed 15 year mortgage.

This is a property that we plan to build on in the future. We would like to build a home in the next 10 years, use it as a vacation home for us/family/friends in the off season and a vacation rental during season. This would be our retirement home in 20-25 years.

The hope is that our rental properties, which would all be sold before we build, will finance a good chunk of the cost to design and build the home. This is the primary reason we invested in real estate.

Someone Has Questions - Part II

FC said - I just read your entire blog backwards ... in sequence from newest to oldest. I would love to hear more about your background as far as being able to attain such a high net worth ... it seems like you both earn a relatively high income from your jobs/careers but also what else goes into it. I'm hoping that you can provide advice on landlording ... including how long you've owned the properties, how far apart you bought them, how did financing investment properties differ from financing primary home, what were some positive things that you've done versus some things that you would have done differently now that you are wiser, is it ever overwhelming having so much mortgage debt as a liability, how is the actual cash flow now versus a year or two ago versus what you initially planned/expected?

Rental properties:
Rental #1 was purchased in 2002 as Mr. Sam's primary home. This was Mr. Sam's first home and he purchased it with 20% down, 30 year conventional mortgage. Mr. Sam lived there from 2002-2004 when we purchased our current home together. We have been renting out this home ever since and its been our best rental property, as it has always been rented and we have always made a profit.

Rental #2 was purchased in 2004. Again we put down 20%, 30 year conventional mortgage. Rental #2 is our second best rental property. Rental #2 rents very easily but it is a tiny property so our profit is small as it is really a one person rental.

Rental #3 was purchased in 2005. Again we put down 20%, the mortgage is in my name only as Mr. Sam did not qualify to take on a third mortgage (this was before we got married and before we paid off all our non-mortgage debt in 2007). Rental #3 is our worst investment property as we bought at the height of the South Florida real estate bubble in what was an up and coming neighborhood and is now a stagnated neighborhood in disrepair (we have a foreclosure to the south and we had a foreclosure to the north which recently sold for almost nothing). Right now we are losing money on rental #3 by about $100 a month.

If I had it to do over again, I would not have bought Rental #3. We totally got sucked into the So.Fla. real estate bubble and we were greedy when we should have been scared ("Be greedy when people are scared, be scared when people are greedy").

Mid-year Adjustments

(1) Max out 401ks - $33,000
(2) Max out 2009 IRAs - $10,000
(3) House project and furniture - $6,000
(4) Add to baby fund - $5,000
(5) Add to emergency fund - $10,000
Total - $64,000

(1) $20,900 (63%)
(2) $10,000 (100%) [this goal is completed]
(3) $865 (9%) [this goal has been reduced]
(4) $376 (8%) ($5376 in our ING baby account)
(5) $1333 (17%) ($23,614 in our ING e/r account)
Total - $33,874 (53%)

With a 10% pay cut for me, everyone in my company took the cut - ouch, we have decided to scale back our 2009 savings goal by $9,000. We reduced our house project and furniture to really just furniture of $6,000 (I've already picked out and priced the new furniture) and we cut out the lasik surgery for Mr. Sam.

Empty Rental Property

Question from FC regarding our tenants:

What are the reasons the tenants are leaving? Were they able to find a better deal somewhere else, were they unhappy for some reason that is potentially fixable (or not), or for some other personal reason? What kind of incentives will you offer to try to convince them to stay? Lower rent, one-time credit, different terms, home improvements?

Rental #1 they have decided to move on because the two roommates have made the choice to go their separate ways. Why? We don't know, as we can only ask so many questions. We did offer a concession on rent of $150 a month and also offered to make some improvements.

Rental #1 has been rented for the last five years without ever having to advertise it and the tenants that just moved out had been there two years.

Rental #3 has always been our worst rental, the neighborhood is in disrepair, we have a foreclosure to the south and a recently sold foreclosure to the north of this rental. As an aside, now that the foreclosure to the north has sold I will be filing code complaints since the new owners (an investment company) have done nothing to rehab the property. The folks in rental #3 have decided to stay another month but we did not make any concessions as they are not the greatest tenants and I'd almost rather have the property empty at this point.

Upset Tummy

Today is the first paycheck for me with a 10% reduction in salary. Everyone in my company took that cut so we are all sharing in the pain.

And we have two tenants who are on their way out, which means two additional mortgages that we are responsible for paying next month (unless we can convince them to stay, which we are working on).

As a result, my tummy hurts thinking about how we are going to manage for the next few months while also trying to reach our savings goals. Ugh!