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Mortgaging a Rental Property

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:

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.
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.
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.
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?

Olivia Wilde is Having a Baby: What are the first-month expenses?

Celebrities, Gossip

English: Olivia Wilde at a San Diego Comic-Con... — English: Olivia Wilde at a San Diego Comic-Con panel for Tron Legacy in July 2010. (Photo credit: Wikipedia)

Olivia Wilde recently announced her pregnancy with fiance Jason Sudeikis as she’s due with her first child in the coming year. Although the couple have declined to reveal their due date, they likely are expecting to set aside a budget for their baby, even with their high incomes. With forty percent of moms saying that having a baby is more expensive than they initially assumed, it’s important to look at the overall costs in the first month for plenty of preparation and financial planning.

Food

The first-month’s expenses can slightly range, depending on if the mother is using formula to feed the baby or is breastfeeding.

Breastfeeding is free and will not cost a dime, besides the breastfeeding supplies that cost an average of $15 in the first month due to nursing pads and milk storage bags for freezing.

Name-brand formula can be expensive, an average cost of $25 a week as the baby will be feeding on it several times a day, totaling about $100 in the first month. Generic brands of formula cost half the amount, an average of $12 a week.

Medical

Health insurance is one of the most expensive costs for newborn babies with 39 percent of mothers paying $1,000 with their childbirth. Some even pay at least $5,000. Health insurance will also likely increase to $200 a month for the child with co-pays that range from $30 to $100 per visit. Some health insurance will refuse to cover certain costs, which include vaccines and immunizations.

Daycare

Paid maternity leave is considered a luxury in the U.S. and is often unavailable for mothers who are self-employeed or do freelance work, making daycare a necessity. Daycare for newborns averages to $100 a month, but can be at least $1,000 for celebrities that use an in-home nanny.

General Care

Wipes will cost an average of $13 in the first month with a $5 increase in the water bill for the baby’s laundry and baths.

Diapers are one of the scariest expenses that are priced at $80 for basic Pamper diapers for newborns. Using cloth diapers are a one-time expense, so if provided by a friend or relative at a baby shower, they are free to use consistently and do not require much water or detergent to wash every other day.

Bath soap, detergent, and baby-safe shampoo will cost $30 a month to maintain the hygiene of your baby.

Although Olivia Wilde’s baby will be unique in its feeding habits and the materials for diapers used, the average cost in the first month will likely total $200 and can go as high as $4,000 for a celebrity. Many of the costs simply depend on the baby and are determined by the type of diapers used, the amount of doctor visits, daycare that may be needed, and whether the baby prefers breastfeeding or feeding on formula.

How Cheap Can a Disney Vacation Be?

Finance, Parenting

Earlier this month, I took my family to Disney World. That’s me, my wife, and my three kids (ages 8, 9, 16). Disney is one of the most expensive vacations you can take in the U.S.

We went from one Saturday to the next, in the beginning of August. August is just after peak season, so prices and crowds were down a bit from early summer. During the school year is out of the question because my wife is a school bus driver at an understaffed company. It was a bit hotter, but the price and family availability balanced out the heat nicely.

We stayed in a 1 bedroom resort on Disney property. It was a bit more expensive, but the room slept all five of us, my wife and I had a separate bedroom, and it was equipped with a full kitchen and laundry.

This wasn’t cheap.

We spent:

$1595.96 on airfare and car rental, as a package
$75 on upgrading the seats on our flight one way, because those were the only seats available next to each other.
$131.11 upgrading our rental car during pickup. The third row seating was nice, both for our day trip to Cocoa Beach and for our grocery run with five suitcases.
$4396.21 for the hotel, 4 days of Disney parks, and the included Magic Bands. Magic Bands are the awesomest way to handle hotel rooms, resort tickets, and food. You don’t need to carry a wallet in Disney World.
$715.26 on things charged to our Magic Bands, including miscellaneous coffee, snack, and water purchases in the park, a few small souvenirs, approximately $380 at in-park restaurants, and a couple of gifts for the people who took care of our pets while we were gone.
$15 for parking at the Cocoa Beach Pier
$152.28 for lunch at the restaurant on the pier
Roughly $350 on groceries and one fast food drive through meal one night
$118.31 at the horrible Wolfgang Puck Express restaurant at the Disney Springs shopping center
$31.59 on gas for the rental car.
$47.35 for a movie to kill time between hotel checkout and airport check-in
Total: $7628.07

We saved:

$1404.14 by using signup bonus miles from two Chase Sapphire cards, bringing the flight plus rental to $188.82 plus upgrades.
$1870.16 by using Capital One Venture card rewards. A bonus reward on one card, and regular miles on another.
Total: $3274.30

Grand Total: $4353.77

We had about $2000 of that saved before we bought the tickets and $2000 more budgeted to pay the remaining bill quickly. $4350 spent on a trip with a $4000 budget isn’t too bad.

We opened the rewards cards more than a year ago to make sure we’d hit the sign-up bonus qualifications in time.

A few Disney tips:

Your first day in the park, find a Disney Vacation Club booth. Go to a timeshare sales pitch. For real. It’s a low-pressure pitch that’s over in 45 minutes if you’re not interested (and you won’t be. Timeshares–especially at retail price–are stupid. Don’t sign up.) that will net you three tap-and-go fast passes and a $100 gift card. The fast passes alone saved us about 3 hours of lines.
Install the Disney app. You can get directions to rides and manage fast passes and dinner reservations.
Subscribe to Touring Plans. It costs $10 if you have a coupon, and there’s always a coupon. You can plan out your day at each park, including fast passes and breaks. It will give you wait times and walking times and suggest what is possibly the most efficient way to see everything you want to see. We saw 90% of everything everyone was interested in without running around. You really can do all of each of the parks in 4 days.
Take breaks. We got there early, then left a bit after lunch time to head back to the hotel for food, rest, and swimming. We came back shortly before dinner and spent the evening. That skipped the hottest, busiest part of the day and helped avoid small children getting crabby. Take breaks.
Go to each of the parks on their least busy day. It’s easiest to see it all if you plan to be there when fewer other people are competing for line space.
Don’t waste your fast passes on rides with short lines. We made it through the Pirates of the Caribbean line in 10 minutes. That would have been wasteful.
Try to book all of your fast passes in the morning, so you can schedule new ones for later in the day. You can’t add new ones while you have pending ones on your account.
Use the timeshare fast passes at Magic Kingdom. They don’t have to be scheduled and must be used on a moving ride. Magic Kingdom is the heaviest concentration of moving rides, and they have the longest lines.
Have fun. For real, don’t forget to have fun. If people are getting crabby, pack up and head to the hotel for a few hours. The only park that makes this a pain is Magic Kingdom, since they hide the park a mile away from the parking. Don’t force the park experience, just let go and let things happen. Says the guy who brought an optimized agenda to each park

This was a good time for us. I’m glad we waited. We’re in the short window where the girls will remember the trip and the boy hasn’t moved out and gotten a busy life of his own.

Twitter Weekly Updates for 2010-02-27

Misc

I tried to avoid it. I really did, but I’m still getting a much bigger refund than anticipated. #
Did 100 pushups this morning–in 1 set. New goal: Perfect form by the end of the month. #
RT @BudgetsAreSexy: Carnival of Personal Finance is live 🙂 DOLLAR DOODLE theme: http://tinyurl.com/ykldt7q (haha…) #
Hosting my first carnival tomorrow. Up too late tonight. #
Woot! My boy won his wreslting match! Proud daddy. #
The Get Home Card is a prepaid emergency transportation card. http://su.pr/329U6L #
Real hourly wage calculator. http://su.pr/1jV4W6 #
Took my envelope budget out in cash, including a stack of $2s. That shouldn’t fluster the bank teller. #

It’s Better to Buy a House than Rent

Finance

This guest post is brought to you by Lender411.com.

The debate is ongoing about whether it’s better to rent a home or buy one. Which is best?

To start, identify your goals. This includes short-term goals and long-term goals—anything relevant to your living situation or your finances. Are you someone who likes to move around and explore new areas, or have you put down strong roots in a specific location? Are you planning to raise a family? Is that family going to grow over the years? Do you plan to build up wealth? Are you aiming to retire a few years early? Work these things out as best you can. You need to know where you’re headed.

Beyond these life considerations, there are some specific facts about homeownership that typically make buying a house a better choice than renting one indefinitely. Specifically, you’ll save money in the long run if you buy a house. Studies have shown that if you plan to remain in a residence longer than five years, you’re better off buying than renting. Here’s why.

Equity. When you own a house, every dollar you put toward paying off the principal of your mortgage is actually going right back to your pocket in the long run. A house itself is an investment—it is a thing that holds value and, in fact, often gains value over time. It’s almost like a savings account. When you put money into a savings account, it stays there. Sure, you don’t exactly have access to the money, but it’s still there and, in the long run, it’s still yours. You don’t gain this value when you’re renting a piece of property. The money you pay out is simply gone.

Value. As mentioned above, a house, like any other financial instrument or investment, can actually increase in value over time without any effort on your part. Sometime property values just go up. Historically, in fact, just about all property gains value in the long run—often significant value. Real estate is a very popular form of investment even separate from the fact that it provides your family with a place to live. Even with a mortgage, the ultimate return you can get for your money is typically very good, especially if you’re able to find the best mortgage rates when you enter the loan. Renting doesn’t give you this opportunity to someday capture increasing property value.

Stability. One of the most appealing perks of home ownership is the consistency of payments month to month. If you have a fixed rate mortgage, your monthly payment is locked in at a certain amount for the next thirty years or so. This can be extremely comforting for some people and extremely helpful when it comes to budgeting long-term. When renting, prices may fluctuate from lease to lease, or you may move from one place to another and constantly have to readjust your budget and lifestyle. Also, mortgage payments on a house will, at some point, end. When those thirty years are up, chances are you won’t need to make any payments toward your house beyond property taxes from then on. Renting, however, never ends. You’ll never truly have a place of your own.

Despite the strength of these three facts in favor of home ownership over renting, the choice is ultimately one that must be made by individuals and families. Everyone has different long-term goals, and those goals must be identified first. But make the decision wisely. From a financial perspective, home ownership is the better of the two options long-term.

Update: I just realized I didn’t include the link to the Festival of Frugality that included this post. That’s fixed.

Halloween Decorations Ain’t Cheap

Finance

This year, Americans are expected to drop $5.8 billion on Halloween, with most people spending $66.28 per person. About 1/3 of that is candy.

The rest? Costumes and decorations. $4,000,000,000 on costumes and decorations. That’s a lot of freakin’ money.

Over the years, I have certainly spent more than my fair share on building that number. We are the Halloween house in our neighborhood. A few years ago, we were even featured on the evening news. Filling a yard with decorations is expensive. When money’s tight, or you just want to save some money, how can you decorate on the cheap?

1. Plan ahead. The best time to buy Halloween decorations is in the two weeks after Halloween. After that, all of the seasonal stores are closed. If you want the best selection, get up early on November 1st and hit all of the stores. Prices drop to 50% or lower the morning after the big day, but won’t drop below that, even when the seasonal stores are closing for the year. The goods will either be warehoused or bought back by the suppliers, so there’s no motivation to sell at cost.

2. Buy used. You can find some screaming deals on Craigslist, but always check the prices. I’ve seen cardboard and wooden coffins both going for $50. One is a good deal, one is a ripoff. Do some research and you can save a ton of money on some really neat pieces. Last year, a local haunt decided to close shop after Halloween and posted a “going out of business” sale on Craigslist. There were some excellent gory corpses for sale there.

3. DIY. When department stores close, you can buy mannequins for little-to-nothing. Throw some clothes and mask on that, and you’ve got a quick monster. Grave stones can be made by gluing two sheets of insulation styrofoam together and using a Dremel to shape it and add the epitaph. Make sure you brush paint it. Spraypaint will eat the foam away. Finally, if you can run a drill, you can cobble together some truly intense props with the aid of some monster mud and discarded lumber. Monster mud is made by mixing 1 gallon of latex paint with 5 gallons of sheetrock compound. I get a gallon of paint from the “oops” bin at the hardware store, preferably in a dark color. Dip some clothes in that, then put them on a a human-shaped frame built out of 2×2 lumber, and you have something not too disimilar from actual Hollywood props.

Over the years, I’ve managed to shrink my Halloween budget, while increasing the quality of my props. It just takes some time and research.

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