Net Worth and other stuff

Net worth

This was not a good year for our net worth.

Over the summer, we remodeled both of our bathrooms.  At the same time.

1 out of 10: Don’t recommend.

We love the bathrooms, but–as with any project–it went over budget.   Sucks to be us.

Then, towards the end of the year, we decided to push hard and pay off our mortgage in 2015.   Part of doing that meant paying the credit card off slower than we’d like.   It wasn’t the best long-term decision, but we’re mortgage-free now.

Those decision, coupled with a small slump in our investment accounts means we are worth $7650 going into 2016 than we were at the start of 2015.

Disappointing.

I’m also disappointed that our credit card discipline slipped last year.

New plan:  No debt before tax day.   Every cent of Linda’s paycheck, every cent of my monthly bonus checks, and every cent of any extra money we make is going into the remaining credit card debt.   My math says that last debt will die on April 1st.

Then we get to talk about what to do with out money when there’s no debt.   But never fear, I have a plan.   A boring, boring plan.

  • We’re going to save for college at a rate we should have started 10 years ago.
  • We’re going to max out both of our retirement plans.
  • We’re going to take some nicer family vacations.
  • We’re going to buy a pony.

So not that boring.

And when our kids all decide to become certified sign-spinners, we’ll have a huge nest-egg in the college fund savings account to spend on lottery tickets.

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Mortgaging a Rental Property

English: Offering subprime mortgage.

English: Offering subprime mortgage. (Photo credit: Wikipedia)

Now that we’re down to the last ten grand on our mortgage, we’re starting to look into getting another rental property.  The one we’ve got has worked out pretty well over the last two years, giving us about $800 extra  each month.  We broke even on all of the repairs we had to sometime in the spring.  That’s almost $5000 in pure, almost-passive income.

With numbers like that, if we can get a similar property and keep the mortgage under $800, we should be golden for getting another property and avoiding having it as a new drain on the budget.

However…

There’s always a however.

Our current tenants are moving out at the end of the month, which means the passive part of the income is over while we either find a renter or hire a property manager to do that for us.  Since that came at the same time I got the opportunity to be unemployed, there was a bit of panic at my house.

The idea of having a mortgage, no job, and no renter scared us into waiting to buy another property.

It’s not stopping us from getting ready for the next property, though.

We live in a fairly high-cost area.  Our house is on an eighth of an acre and is valued at around $250,000.   Our rental is on a slightly larger lot, but is a smaller house valued at around $200,000.   We don’t have a quarter of a million dollars laying around waiting to hatch into a new house, so we’ll be getting a mortgage.   A mortgage for a business property is a bit different than one for a home you’re planning to live in.

First major difference? You need a 20% down payment, with a 25% down payment getting you a much better rate.    We don’t quite have that, but if we pushed, we could have it in 6 months, I think.   And then we’d have no cushion if anything bad happened in our lives.

The next thing is that we’ll need a reserve that covers all of our expenses–personal and investment–for 6 months.  That can be home equity, savings, cash, or retirement accounts.  We’ve got this one covered.

We don’t qualify for a standard mortgage plan right now, but there are options:

  1. Live poor and save hard for a year.  We could make it happen in 6 months, but I will still want an emergency cushion just in case a job or tenant go away.
  2. Buy as an owner occupant.  This would mean we buy a new house, then move into it and rent out our current house.  We’d have to stay there a year before we’d be allowed to rent out the new property.
  3. Compare mortgages online.   The internet is a wonderful thing, full of the complete knowledge of the human race.  There is no better way to try to find an affordable mortgage than hopping on the net.  Just make sure you’re looking at a reputable site and dealing with a legit mortgage company.
  4. Live comfortably and save slower, then buy the property in 2 or 3 years.

Honestly, of all of the options, we’re probably going to do a combination of 3 and 5, but 2 is a serious consideration, since we’ve talked about moving out of the suburbs a bit anyway.

Did I miss anything?  How would you fund a rental property?

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The Evils of a Reverse Mortgage

Fritos Logo

Image via Wikipedia

Picture it: Sicily, 1922.

Sorry, wrong channel.  Let’s try again.

Picture it: 20, 30, 50 years from now.   You’re old.  The money you’ve been failing to save so you could stock up on Fritos and obsolete video game consoles(to survive the zombie apocalypse in style) would come in handy about now, since the end of the world never happened.   Note to self: Never trust an ancient Mayan.

You’re 70, with no savings and no income aside from the Social Security check that hasn’t been adjusted for inflation since the Palin(Bristol) administration.

But you own your house and that nice young man down at Yersk Rude Bank recommended a reverse mortgage.   That could give you all of the money you need to live a comfortable retirement and pay for a bit of a funeral.

Right?

Nazzofast.

Of all of the possible social security strategies, this is one of the worst.

What is a reverse mortgage?

In a traditional mortgage, you’re given a chunk of money guaranteed by your home.  You have to pay that money back over time, or you’ll lose your house.  In a reverse mortgage, you’re still converting your home’s equity into cash, but you don’t have to pay it back until you die or move, including moving into a nursing home.  You are effectively abandoning future-house in exchange for now-money.

Who qualifies for a reverse mortgage?

If you are 62 or older, and live in a home you own, you qualify.  Credit and income are not considered.

Why would you want a reverse mortgage?

If money is tight and you have no prospects, a reverse mortgage may be a valid consideration.    A better consideration would be to take out a traditional loan and make monthly payments out of that lump sum, or sell your house outright and move someplace more affordable.

What are the downsides of a reverse mortgage?

You lose your house.   Technically, your heirs lose your house.  A reverse mortgage becomes due when you die.  If your heirs can’t cover the loan, the house will be foreclosed.    Also, this is a loan.  It accumulates interest, even if you aren’t paying it back.  If you borrow $200,000 and die in 10 years, your estate may owe $400,000 on the reverse mortgage.   If this is a treasured family home, losing it could come as a shocking blow at a time when your family would already be reeling from the loss of, well, you.

What if you really don’t like your heirs?

I’d still recommend getting a traditional mortgage.  You can throw a killer party and then, you’ll rebuild equity over time.  That way, if you live longer than you expect, you can refinance and throw another killer party.  If you go this route, don’t invite the kids, but be sure to hire a videographer so they can see how you’re spending their inheritance.

I’m not a banker or a financial advisor, but I’d recommend against a reverse mortgage in almost all circumstances.

How about you?  Would you get one, or recommend one?  What’s your preferred method to hurt your ungrateful heirs?

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Mortgage Race

I spent last week at the Financial Blogger Conference.   Saturday night was the big debauch, a 90s themed hip-hop dance party.

Yeah.

Instead, Crystal, Suba, and I hosted a super-secret pizza party to let some of the less “dance party” inclined attendees discuss things like the sanitary concerns of group body shots, sex toys, and horror movies.

During the course of the party, Crystal and I decided to race to pay off our mortgages.

Her balance is just under $25,000.

My balance is $26,266.40.

We both technically have the cash to pay off the balances right now, but we are both dealing with secondary housing issues.  She’s building a new one, and I’m updating an inherited house.  Neither of us is willing to use our cash reserves to pay off the balance right this moment.

Now that my credit card is paid off, I’ve moved that money to an extra interest-only payment on my mortgage, effectively doubling my mortgage payment, which puts my projected payoff date as about the end of next year.   Crystal’s aiming for June, so I’ll have to hurry.

We do have tenants lined up for February, and all of the non-expense related rent will go to the mortgage.

I think I can win.

Update:

I forgot to mention the terms of the bet.   The loser has to go visit the winner.  When I win, Crystal’s going to fly to Minnesota to experience snow.

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