Rental Update

Rental #2 has turned over.  Our last tenant broker her lease and has moved out of town.  We already had her last month rent (September) and her lease break fee.  She never really moved all the way in and wasn't there much so the rental turn over consisted of changing the locks and cleaning.  

This is our best rental property and as such we have already rented the place for October and collected the first month rent.  I wanted to increase the rent by $30 a month, and we did initially advertise it at that level but then we reduced it as Mr. Sam would rather not lose a month of rent than collect a few hundred over the course of a year.  Before our new tenant moves in we are having the property tented for termites.  

Rental #3 is also vacant.  The tenants that were in rental # 3 were there for quite some time.  I have no idea as to the status of the property although I'm sure Mr. Sam has checked on it.  I assume there will be some turn over costs and we are unlikely to have the property ready for advertising for October.  Which means we likely will be losing a month's rent.  

This is our worst rental property for a variety of reasons but because it is a three bedroom we do get quite a few family candidates who are interested in it because it is cheap.

Refinance - Part 10

Well it took four hours, 25 e-mails, and three conference calls, but we signed our refinance paperwork yesterday.

As I previously posted, I have not been particularly impressed with the level of service we have received from either the mortgage broker or the closing agent.  But, as I noted previously we are very happy with the rate and term and the bigger banks (the ones with better service) were not able to match these terms.

First, lets start with the positives.  We got a 2.75% fixed interest rate, which is a rate reduction for us of 2.05%.  We also went from a 25 year term, on which we had 22 years to go, to a 15 year term, which means we are cutting seven years off our loan term.  Overall, the new loan will save us approximately $180,000.  Our actual mortgage payment is only going up a $100 a month.

Additionally, our closing costs were approximately $3,100, which is about $1,700 less than we paid in closing costs when we refinanced in 2009.

And, while I thought there was a prepayment restriction the first two years of the loan term, I was incorrect.  Rather, there is no restriction on prepayment so we can continue to work the goal of getting our primary home paid off.

Now the negatives . . .

If you follow my adventures regularly, you know that I am not a fan of bank escrows for tax and insurance.  But to get the best rate, we were required to escrow our property taxes.  I plan to, once the loan is assigned (the mortgage broker will be immediately reassigning our loan), contact the lender and see if we can reach an agreement to waive escrow after a certain period of time.  I have done this before and have had success. We also have to prepay our property taxes, as part of our closing costs, since our property taxes are due to be paid in November.  However, I don't count that as closing costs since we would be paying that money in November regardless of whether we refinanced our property.  And, since we do our own escrowing, we already had that money set aside.

I thought the level of customer service during the closing process was dismal.  I had asked to receive our closing documents a day in advance of the closing and I was told that I could not have them until closing.  We have bought, sold, refinanced a number of properties in the last 10 years and I have never had a problem with requesting documents a day in advance.  The mortgage broker actually suggested, and I would say pressured, us to sign the documents without reading them because there is a three day rescission period. I'm not sure how the rescission period would help me if I found an error after the fact, since the rescission period applies to the whole loan and we would likely lose our great rate and term.  We actually went several rounds, before I put my foot down and demanded sufficient time to review the documents in advance of signing them.

So, the closing documents were delivered to my office and then closing was scheduled for three hours later.  Do you want to guess what I found in the documents?  Errors, errors and more errors.  My husband's name was incorrect throughout the documents.  My husband and I, like many professionals, do not share the same last name and his name on many of the closing documents utilized my last name.  While he is used to being called Mr. Sam, obviously on legal documents you need to sign your legal name.  For a while yesterday, it was unknown if we would be able to close, but it was determined that the important documents were correct (i.e. the note, the mortgage, etc.) and on the other documents he could correct and initial.

Regarding the HUD-1 settlement statement form, borrowers are entitled to receive the document one day in advance of closing.  Despite repeated requests, we did not receive same until the day of closing and only shortly before we were supposed to close.  After closely reviewing same, I located an issue such that the HUD-1 had to be corrected and reissued.  The problem I uncovered related to how much daily interest was calculated to pay off Wells Fargo versus the amount of daily interest the new lender planned to collect until our first mortgage payment is due.  There was more than a week where there was overlap, such that double interest was calculated to be collected.  I fully expect that we would have gotten a refund either from Wells Fargo or the new lender, but I'd rather the figures just be correct.  Since we did not receive the HUD-1 a day prior to the closing, we could not make arrangements for payment of the closing costs at the actual closing.  So now, we will be wiring the closing costs funds tomorrow.

Again, these are all issues that could have been address and corrected prior to closing, if I had received the documents as requested and, for the HUD-1, as required by law.  The mortgage broker kept blaming the closing agent and the closing agent blamed the broker.  I would say that they were both at fault and I certainly would be cautious in recommending either company to others.  I might recommend the broker because he was able to give us such a great rate and term and I thought the closing costs were reasonable, but I would absolutely warn others about the closing issues we encountered 

Refinance - Part 9

We are scheduled to close on our refinance today.  I can't say that I have been particularly pleased with the level of service we have received from either the mortgage broker or the title company.  But, I keep reminding myself that we are getting a great rate and term.  I further remind myself that Wells Fargo, which gave us great service when we originally got the loan (it was Wachovia then) and when we refinanced in 2009 could not match the rate we are getting.

I know/suspect/expect that as soon as we close, the loan will likely be reassigned to one of the bigger banks.  And I hope that we will get better service from the servicing institution.

Wish us luck.

2012 Goals - September Update

(1) Max out 401k(s) - $27,697 (81%)(goal is $34,000)
(2) Max out IRA(s) - $5126 (51%)(goal is $10,000)
(3) Add to e/r fund - $7200 (72%)(goal is $10,000)
(4) Pay down mortgage - $2490 (50%)(goal is $5,000)
(5) House projects - $900 (18%)(goal is $5,000)
(6) Trading account fund - $50 (1%)(goal is $5,000)

Total - $43,463 (63%)

At present, we are approximately $5,600 behind on our 2012 goals and the gap is widening.

Due to the mortgage refinancing, our mortgage pay down goal is on hold.  Our thinking was that we will have closing costs approaching $4,000 and we ought to save our pennies for those costs.  Do we count the closing costs towards this savings goal or not?  Once the refinance is completed, our closing is scheduled for this week, we will have two years in which we are not permitted to pay off the mortgage in full.  I need to understand whether that restriction extends to paying extra towards the principal or not.  If we are restricted on paying extra towards the principal do we keep saving the money we committed to the mortgage pay down or do we put it towards another goal?

For the house project goal, when we were getting ready for our refi appraisal, we spent close to a $1000 on getting the house cleaned up.  Do we count those expenses towards our house project savings or not?

We also have the added expense of the life insurance policies coming up.  And, we also have to get our 2011 taxes done which will include a payment to the IRS.

In sum, we have a lot of outgoing expenses in the next few weeks, but we need to get our savings back on track.  Mr. Sam will max out his 401k savings by the end of September which will free up some extra cash to put towards our other goals.  We also need to get ourselves refocused and recommitted in order to close out the last year with saving success.

More on Insurance Home Work

As I previously posted, Mr. Sam and I are working on obtaining term life insurance, we met with our insurance agent last night and completed the life insurance application for each of us.  We have settled on $1 million in life insurance for each of us for a term of 20 years.

We also are exploring  umbrella insurance.  An umbrella insurance policy provides broad and additional insurance above and beyond home owner and car insurance.  Because we have three rental properties and an additional property (just land) and because our net worth has now hit the $1 million mark (and has held there for a few months) an umbrella insurance policy makes sense for us.  We don't have control over four properties that we own from day to day, the three rental properties obviously involve people who may or may not hurt themselves or invite people onto our properties that might hurt themselves.

Step one of obtaining an umbrella policy is to increase our car insurance coverage.  Luckily, increasing our coverage and combining our previously separate policies, as a married couple, will decrease our overall car insurance costs.  The umbrella policy we are looking at requires underlying $250,000 bodily injury per person and $500,000 per accident coverage which is normal for umbrella coverage, so we are increasing our coverage.

Step two of obtaining an umbrella policy is to increase our liability coverage on each real property (and/or determine that we have sufficient liability coverage).  The umbrella policy we are looking at requires underlying $300,000 liability coverage for each home and property we own.  At present, we have determined that one of our homes has sufficient coverage, the other three homes covered by Florida's Citizens Property (the state run insurance organization) most likely do not because Citizens has reduced liability coverage across the board.  But, we need to check.  To the extent our Citizens' insurance policies do not provide sufficient coverage we will need to purchase gap insurance to provide the additional $200,000 in liability coverage which will run $200 per year per property (so probably $600).  We also have property up north which is undeveloped, and, as such, it never crossed my mind that we should have an insurance policy on it.  But, of course there is a chance that someone could enter our property, get hurt and sue which is why a liability policy is required on that property before we can get an umbrella policy.  So I've called an insurance agent up north to see how much a liability policy will cost, hoping its cheap as the risk seems quite low.

Tax Time

It is that time of the year and we have just received the notice of proposed property taxes for our various properties in Florida.

Florida's homestead law complicates the real estate tax situation.  Florida's homestead law provides protection against forced sale of one's primary home.  One of the reasons O.J. Simpson  lives (or lived, he is in jail at present) in Florida is because of the generous protections from creditors provided for one's primary dwelling no matter how big or expensive.

For our purposes the homestead law provides a tax exemption from our real property taxes.  A family with a homestead property receives a $50,000 tax exemption for all real property taxes except for school taxes (for which $25,000 of that exemption applies).  So a family with a home valued at $200,000 would only pay taxes on $150,000 of the value and $175,000 for the school district taxes.

Even more important though is the protection provided against the rate at which taxes can increase from year to year.  For a Florida homestead property, the rate at which taxes can increase is 3% or the rate of inflation which ever is less.  For 2012 that increase is  3%.  So, that means, when we receive our proposed taxes for our primary home there are two numbers for our home, the assessed value (which is the market value for our home and land less the $50,000 homestead tax exemption) and the taxable value.  The taxable value can only rise by a maximum of 3% year over year and that is the number we pay taxes on.  For our Florida investment properties the assessed value and the taxable value are the same and there are no exemptions.

While the Florida real estate bubble deflation has been hard on our net worth, the upside (gotta look on the bright side) has been that the assessed value went down on all of our Florida properties, which means that our real estate taxes and overall carrying costs have gone down.  Now that property values are starting to edge up we have the 3% tax rate cap protection for our primary home so it will be quite few a years untill we are paying taxes at the level we were paying back in 2007 and 2008 (at least on our primary home).

For some long time Florida home owners, during the recession their real estate taxes continued to go up because there was such a huge gap between their assessed value and taxable value.  For folks like us, landlords to three Florida properties and our primary home was purchased in 2004 our real estate taxes have come down to be similar to the rate that the long term residents of our neighborhood pay.  We live in a very eclectic area so the disparity in real estate taxes is not as glaring as newer construction areas, where you could have, during the boom time, two identical sized homes with one owner paying $4000 in real estate taxes and the other non-homesteaded resident paying $8000 in real estate taxes.

Financial Poker Face

I recently ran into my former assistant out and about.  This is a sweet woman, single mom, about my age.  Because we worked closely for a few years, I have general knowledge of her financial status.

Anyways we were catching up on respective news and she proudly announced that she had a new car.  She goes on to tell me its the same brand as my car, one model level down from mine.  Of course I had to ask, new or used?  New, she tells me.  And this is where I fail, I make a face of disapproval.

When we were working together she had a late model small SUV, nothing that needed replacement in my mind.  But, I have no idea as to what happened to it, maybe she got in a car accident or maybe it required an expensive repair.  So, I start calculating how much the car cost and then I move on to calculating the cost of  a 5 year loan, and what she would have probably have gotten for her trade in . . .  and I come up with probably at least a $450 payment per month.  And, I make that face of disapproval.

And she knows me well enough to know I'm one that hates debt and that I am much more structured and conservative when it comes to our personal finances.  So she knows what I'm thinking when I make that face.

Frankly, I shouldn't be so judgmental.  Buying a new car may not be for me, but for most people it is an event to be proud of and to be excited about.  Our financial path and plan is not appropriate for most people so I need to get over it when I hear people making financial choices that are different from ours.  I shouldn't share my opinion (even non-verbally) unless someone asks for my advice.

Lease Break

Ugh, one of our tenants has decided to break her lease.  Our tenant has a job opportunity that is requiring her to move and its an opportunity that she can't pass up so she has opted to break her lease.  

Mr. Sam normally handles the interactions with our tenants, because I can be too tough and over the years he has done a better job at working and managing our tenants.  This is our plan, we will review the lease and abide by the lease.  I'm sure you are thinking, of course you'll abide by the lease, well Mr. Sam can be too nice and not charge fees that we ought to be charging.  So, because we only got notice late in the month, we will charge her the last month of rent (which we have in our tenant account) because we won't be able to lease the unit before September first.  If we rent the place quickly (i.e. mid-month) we will refund part of her last month's rent, meaning we won't collect the rent twice for the same unit.  We also will charge her the lease break fee (which we also have in our tenant account) since she is breaking the lease.  The lease break fee covers the expense of advertising the unit and any other expenses related to re-renting the unit (i.e. there is a utility fee for transferring the utilities back to our name).