I’ve told you about my trials and tribulations searching for tenants. It took a while, but we have tenants we love in both apartments now. I also told you about my experience using Cozy.co to vet tenants and collect rent online. Overall, the apartment rental scheme has had a few minor bumps, but it’s basically been pretty easy.

I’ve even run the optimistic return projections. But one thing I haven’t done is finish an actual income statement… until now!

The Numbers

I treat the rental property as its own entity, aside from our personal income and expenses, so I can see how it’s doing as its own business. Is it self-sustaining? Sure seems like it. I mean, I see the rent roll in each month, but what kind of profit is this place really making?

Even though we bought the place in July, I am counting from September 1 to March 31, since September is when we made our first mortgage payment.

Rental Income Apt 1: $2,981.94 (2 + 3/4 months) Apt 2: $5,209.68 (5 + 1/2 months)

Total Rental Income: $8,191.62

We were lucky enough to find tenants for Apt. 2 immediately after advertising it in September. Apartment 1 took some more time. We didn’t find tenants that we wanted until December, and they didn’t move in until January. So during the seven months, the units sat empty for a while.

Rental Expenses

After seven months
Rental Income: $8,191.62
Total Expenses: ($15,219.10)
Total Profit: ($10,282.72)

Well that’s not very encouraging! A ten thousand dollar loss so far?? Let me explain why we are showing a loss.

Maintenance – The biggest expense so far has been what I label “maintenance.” This includes many things that we had to get done before we could get tenants moved in.

Washer and dryer – We knew that when we bought the house, one unit had a washer and dryer in it. Well, apparently they were strictly for decoration, because there was no electrical hookup or plumbing hookup. Someone between our inspector, our realtor, and us, should have, but didn’t notice this. I only noticed it about a day after coming home from Japan, and the day before the tenants were going to move in!

As much as I would’ve loved to do everything DIY, there just wasn’t enough time.  We promised the tenants a working washer and dryer, and I had to scramble just to get an electrical contractor to put in the correct 220 volt outlet and a vent for the dryer, and a plumbing contractor to put in the washer and dryer connections. All told, our tenants were without a washer and dryer for a week and a half, but were very understanding about it.

Chimney – We’re lucky that our inspection went so well. We knew the house was in very good shape, and our inspector found nothing wrong with the house except for the hot water heater exhaust was clogged with dust from the chimney.  Long story short, we had to get the chimney re-lined, and that cost $1,805. We were happy to just get it done and not worry about it.

The other washer and dryer – Even though our first apartment was rented in a heartbeat, our second one sat on the market for weeks without an inquiry. We decided it was because there was no washer and dryer in the unit. What I thought would be a good way to attract two different types of tenants to the two different types of unit (one with w+d, and one without) didn’t work out. We spent $950 (after Lowes coupons) on a new washer and dryer and actually had our tenants agree to move in just based on the promise that the washer and dryer would be there by their move-in date.

Property Taxes – $3,606 is the bulk of our property taxes for the year.

Gas  – Since the heating is gas, and it is included in the rent, we pay for it. This statement covers the coldest months of the year. This should be much lower for the next five months. We’ll see how close my initial estimate of $100 on average per month will be.

Okay, so imagine that we drop all of the maintenance expenses ($5,317) and that the two units were occupied for all seven months (another $5,983 in rent), and suddenly we’ve turned a profit.

The good news is that, so far this year, we’ve made a profit in January and March, and probably will in April. The only reason February was not in the black is that part of our property taxes were due, and we bought that washer and dryer. I see our property turning a tidy profit soon. I’ll post another income statement after the first twelve months.

Any rough experiences out there for first time rental property owners?

The post Our Rental Property Income Statement, The First Seven Months appeared first on RidinKulous.

A little background. I have been bouncing around the idea of buying a rental property ever since we bought our house in 2008. Since then, I’ve probably bought four Rental Properties for Dummies-type books on the subject.

On the plus side, it would create a new income stream. It seems like everyone who is financially independent has rental income. On the negative side, things can go wrong. Owning a rental property means work. And the biggest of all, buying a rental property runs roughshod into my biggest financial goal: Destroy All Debt Forever.

See, the only way to make a good return on an investment property is to take out a mortgage, thereby establishing a cash flow with only a small down payment. If you were to pay cash for a building outright, the rental income would be the same, but ROI would suck.

So while I haven’t been super-serious about searching out rental properties, I have kept it in the back of my mind. I am really only interested if it meets my critera:

• Close to home, ideally within walking distance and the historic district.
• Between 2 and 4 apartments.
• Costs less than $50,000 per apartment.

Luckily, where we live, housing is affordable. Our 1,900 square foot house cost us $130,000 in 2008. Rental properties are even cheaper. Marge and I have even tossed around the idea of basically owning our entire block, a rental empire! At these prices, this is not so far-fetched. So I had an alert set up for multi-family homes in the area. It went off yesterday. Ding ding ding!

About the house: It is a two-family and lists under $100,000. Both apartments have two bedrooms and one bathroom. It’s a historic building that the listing claims was built in 1890, but from the outside at least, it looks just like our house built in 1860 which is just down the street. The outside is really pretty. Green painted brick with red accents. They even have a walled-in porch.  It doesn’t look like many abuses of history have occurred, like vinyl siding.

I can only speak to the outside, because there are no photos of the inside. A previous listing shows photos, but only odd fisheye lens photos with an HDR filter applied making it impossible to tell what size the rooms are, or even if those are stains on the carpet or just effects from the filter. Yes, this house was previously on the market last year for $10k more and didn’t move, which concerns me. Although this new listing says there is all new plumbing, carpet and paint.

A 30 year mortgage would probably mean monthly payments of $350, and a 15 year mortgage would mean payments of around $510. Not bad! Those crazy low payments of $350 are very appealing, but the rates on 15 year mortgages are under 3% right now and that’s even more appealing. Of course, I’m not sure if the rates for multi-families will be that good.  Property taxes are probably around $3,000 a year, and you have to add insurance.

If everything went right with this building, the return on the investment of our down payment could be 70%.  Of course, that’s given that the two apartments are both rented out, and there are no maintenance issues! I don’t see many empty apartments in our neighborhood, so I don’t forsee big vacancy issues. Apparently, the current owner is also an accountant who thought “the numbers looked good.” But he lives out of the area, had a bad tenant, and wants to get out badly. The real estate agent told us this. Is this house cursed for accountants who think the numbers look good? Uh oh.

But you see my point. Nowhere could you make a return like that on your $18,000 down payment investment. I even looked ahead to age 55 when I could begin to collect my pension, and a two-family rental would produce almost as much as the pension!  Meaning that a couple rentals like that and I wouldn’t even have to worry about how much my pension was.  And so I think I have to swallow the idea of Destroy All Debts Forever, shove it deep down inside for a while, and think about this cash flow.

Anyway, we’re going to look at the building in person tomorrow.  I guess I’m here to ask, does anyone have any tips on what to look for when inspecting this house? I mean, we should be the best judges since we live in a very similar house in the same neighborhood and would be familiar with the problems. It is totally vacant right now, so we should get a clear look at everything. I just have never looked at a rental before.

The post Rental Property Advice Emergency! appeared first on RidinKulous.

Before Marge & I even bought a rental property, I was looking into easy ways to collect rent. For me, the dream of owning a rental property is all about watching the monthly payments roll in. Instead of imagining all of the work that would go into running a property, instead I started investigating ways for tenants to pay rent online. Possibly, this is what all early retirement types fantasize about in their spare time. Passive income just showing up in the bank account.

There are some leaders in this online rent collection space who I won’t name, but overall, I was surprised that there wasn’t really one agreed upon website for processing tenant payments. After reading some positive reviews and seeing how they kept expanding their box of tools available to landlords, I decided to start an account with Cozy.co, a startup based in Portland, Oregon.

I initially wanted to join Cozy for the rental payment system. There’s no charge for collecting rent electronically, which is more than can be said about some of their competitors. But I also really liked the additional services they have set up before you even have tenants.

Firstly, and this is very recent, you can make a listing for your property online. Similar to other listing services, you can upload photos, write a description, put your contact information and check off the applicable amenities. That’s great. I don’t know how many people are finding listings on Cozy.co, so it’s definitely not a replacement for Craigslist or your favorite real estate listing website, but it’s nice that it’s there.

Then from the listing, prospective tenants can click through to go to an online application. You can also just straight up link to the application on Craigslist, which is where we’ve found all of our tenants. Cozy’s website is the only way I accept applications. I want to use as little paper as possible as a landlord. I am bound to just lose paper, forget to make copies of things I need, etc.

When people apply through Cozy’s rental application, I get an email alert, and their application appears on the website. This was also nice because I didn’t want to have to search for an example of a rental application to use. Their application includes spaces for a references, work history, contact information, and even a little bio which some of our tenants have filled out in rather adorable ways.

Also you’ll notice, one nice detail is that Cozy will calculate what percentage of the applicants’ income will be spent on your rent. This is an important metric to vet your tenants’ by. And as soon as you visit the site to see a new application, there is a nice percentage in the corner.

The number one best thing about the application process, though, is that you can require a credit and criminal background check before the application is submitted. I love this. I require both checks with any application, and applicants do it right through the Cozy website. Once someone applies and fills out the background and credit check, the application and credit check come in almost immediately. The background check sometimes takes an hour or two to come back. But I get everything and it’s all linked together with their application on the website.

What I don’t like is that Cozy kind of markets their credit and background check as free. Well, it’s free to you, because the tenant has to pay for it. It’s $34.95 to complete both. I don’t know how common it is to have your tenants pay to have these checks done. So I tell my applicants up front, if I accept you, I will refund you the $34.95. It’s definitely been worth it. I can even adjust the first month’s rent bill on the website so their bill is lower by $34.95.

Nice to see this

Basically the only thing I do outside of Cozy is verify employment. I require two weeks’ paystubs (this is too difficult for some people). Now wouldn’t that be great if an applicant could upload a photo of their paystub directly through Cozy’s mobile site? Then I’d be all set. I wouldn’t have to ask for anything. The website would be doing all the work! Uh, Cozy, is anyone listening?

Machines can do the work, so people can think. Which reminds me of one of my favorite videos…

Once you’ve approved someone, you can set up their lease on the website, and link your bank account to it. The tenant can then link up their bank account and either pay manually each month or set it to draw automatically. There are other options like not allowing partial payments, which is important because if you are thinking of evicting someone, if you accept even a partial payment, that can constitute your acceptance of it as a month’s rent in court.

The website keeps a ledger of payments. As you can see here, these tenants paid their security deposit and first month’s rent as money orders, so I created an Offline Payment to credit their balance on the website. Otherwise, this all happens automatically. Both of our apartments’ tenants pay through Cozy, and that has worked flawlessly, although the payments take 5 days to show up.

I am fairly lenient on payment dates. I have it in my lease that if they were sending a check, it would have to be postmarked by the 5th business day of the month. Similarly on Cozy, I want the payment made on their side by the 5th business day. The fact that it doesn’t actually hit my bank account for a week doesn’t bother me. So if immediate payment is an issue for you, you should know that your rent will not show up for a week. You can blame America’s antiquated ACH system for this more than you can blame Cozy.

So in short, so far my experience with Cozy has been great. It’s taken out a lot of the paperwork, footwork, and just plain work, from vetting tenants and accepting payments.

What about other rent collection services?

Cozy is far from the only landlording website. There’s Rentulations, TenantCloud, TurboTenant… I haven’t tried them, but lucky for you, Domenick at Accidental Rental has, and he’s done a bang-up comparison of all of these services so you can make an informed decision!

If you own a rental property, how do you collect rent and screen tenants? Do you hate paper as much as I do?

The post My Review of Cozy for Landlords appeared first on RidinKulous.

It was an odd job. I worked only a few hours a week, and a lot of that was spent listening to her tell stories about her life, past and present. She had a great mind for finance, and I picked up some useful advice that I probably changed my life. For one, I learned how to use Quicken, and I saw the benefits of tracking your expenses. I started tracking my own expenses right after that, and I’m still using the same copy of Quicken today.

The biggest takeaway might’ve been when she said, “Do you know what compound interest is? It’s the greatest thing in the world!” She owned some shares of IBM stock, and had seemingly owned them since the beginning of time. Over the years, she said she would buy sometimes, or sell some other times. But always, always the dividends were re-invested in more IBM stock. She told me about DRIP (Dividend Re-Investment Plan) funds, which we never learned about in school, as a good way for someone young like me to get involved buying stocks.

So I did. I opened a DRIP at the beginning of my senior year with Coca-Cola. Only the oldest, reliably dividend-paying companies seemed to offer DRIP funds, and Coca-Cola seemed like a more fun company to invest in than IBM or Exxon-Mobil or what have you. Plus, I figured that no matter what fads or technologies come along, people will always need something to drink, and whatever you want to drink, Coke will sell it to you.

Computershare is their DRIP fund administrator. So I bought the minimum required (probably $25 worth) through them and started automatically investing $10 a month, every month on the 15th. Fifteen years later, I’m still investing in a monthly basis. The only thing that’s changed is that I’m investing $75 a month instead of $10.

It’s worth about $8,500 now, which doesn’t sound like much considering I’ve been at this for fifteen years. Those financial tips you hear like “by just saving $10 a month, you can start a retirement fund!” are fibs. You need to do more than that. Luckily, the Coca-Cola holding is just a small percentage of our investments.

Who needs a DRIP fund?

Well, I’m thinking of officially ending our DRIP fund, in a way. Computershare charges fees for re-investing dividends and investing monthly. They charge $2 per automatic investment, plus 3 cents per share, and 5% for each dividend re-invested. Their website sucks, and it’s a minor annoyance that the Coca-Cola holdings are separate from everything else we have. (See Is Vanguard Getting Too Big?)

Aside from that, Comptuershare is a bastard if you try to sell shares. I don’t think they’re alone among DRIP fund administrators in this respect. They punish you for leaving. It costs $15 or $25 to sell shares, plus 12 cents per share. So it would probably cost us about $50 just to completely sell our position. And that cost will only increase as our position increases. So better to move out sooner rather than later, right?

If I move everything to Vanguard, re-investing dividends would be free, but new investments would cost $7 every time. That’s more than what Computershare charges. So I’m thinking of continuing to invest in Coca-Cola only once per quarter, instead of once a month, purchasing $225 every time (three months worth of $75 investments).

I’m not sure how much the exchange will cost (I’ve read conflicting reports), but it would be cost less and be less risky than selling and attempting to re-buy it at the same price.

Anyone else have, or used to have, a DRIP fund?

The post Who Needs a DRIP Fund? appeared first on RidinKulous.

We haven’t owned any CDs for probably ten years. It was one of the first investments I made after graduating from college. Back then, you could get a one-year CD that paid over five percent! After the bottom fell out of the economy, the rates dropped like so many bricks, and they weren’t worth bothering with. Besides, we had more important things to put our money towards, like buying a house and investing for our retirement.

Today, we basically hold most of our financial assets in retirement accounts, whether it’s my 457 Plan, Marge’s traditional IRA, her 401(k), or our Roth IRAs. Then we have some taxable investments, which is the Vanguard Wellington Fund and some individually held stocks. Then there is the Cash Equivalents, which is the Vanguard Prime Money Market Mutual Fund (MMMF). And then there’s Lending Club.

The MMMF (Cash Equivalents) functions as our emergency fund. It includes 8 months of expenses, plus some savings for our rental property, our tenants’ security deposits, plus more to pay big bills like property taxes and home insurance. So there’s a lot of cash in there.

Our taxable investments  are the Wellington Fund and some individual stocks. They spin off some fun dividends and capital gains, and although that can be annoying at tax time, it’s not a ton more income that we have to report. I always look forward to the Wellington Fund’s year end distributions and call it our Christmas present.

I have started winding down our Lending Club investments. About a year ago, the default rate on my portfolio started going up. So for the last six months, I’ve been taking withdrawing our payments and putting them in Vanguard instead of reinvesting in more Lending Club loans.

CDs Instead of Stocks?

So I’ve got some cash in Vanguard to use, and I was hoping to use it to buy some stocks. The problem is, are there no good stocks to buy these days? I have a wishlist of companies, mostly your standard blue chip corporations. I don’t pay much attention to the stock market, but I know people have been saying it’s overpriced.

Here are some stocks I’d consider

We already own the first three, and I would add more shares of them. All of those dividend yields aren’t bad. But considering how highly those stocks are priced historically, I don’t know… Here’s a chart of the last 25 years in the S&P 500:

There’s the 90’s buildup, the 2000 crash, the 2008 crash, and the gains during the Obama years, and then the buildup after the Trump election. Does anyone else get nervous looking at that very last bit? I’m no Seeking Alpha nerd, so anyone who knows better, please speak up. To me, it seems like we’re bound for a downturn. Or a correction as they’re euphemistically called.

We’re still doing our usual retirement account investments, of course. As Vanguard says, you should stay the course and not react to market fluctuations. (This is usually followed by a silent “Praise Bogle.”) But I’m thinking of holding off on any more after-tax investments and putting that money into CDs instead.

Here’s Vanguard’s current CDs on offer:

Basically I’m thinking of parking some cash in a CD for 12 or 18 months, and once those mature, buying stock after a potential price correction? I guess this is a version of “playing the market,” which I’m not supposed to do (praise Bogle). But an 18 month CD pays 1.5%, which is almost as much as some of those stocks, and it doesn’t have the downturn risk.

The flipside is that CDs don’t have the upside potential of stocks. And though the stocks don’t pay huge dividends, the economy could keep improving and those prices could keep increasing. But like I said, most of our savings does go to stocks in our retirement accounts, so we would still catch any more upside there. What do you think using some CDs as temporary parking?

Laddered CDs for an Emergency Fund

While I was researching these CDs, I came across the concept of laddered CDs. Again, this is probably a concept I was aware of back when we did own CDs. Laddering CDs is a way to get CD returns in your emergency fund without having to potentially break a large CD and incur a penalty (usually some months’ worth of interest).

Bogleheads goes into depth on it, but basically to ladder CDs, you put the total amount you want invested across multiple CDs, so that one of them is always coming due within the next few months, or year at most.

So say you have $25,000 you wanted to invest. Vanguard’s 2.40% rate on their five-year CD is very appealing to you. Instead of investing it all for five years, you would split it up. You could put $5,000 into five different CDs, each lasting a different duration from one to five years. After one year, your first CD comes due. You re-invest that in a five-year CD. The next year, your two-year CD comes due, and you re-invest that in another five-year CD.

After five years, all of your money is invested at the five-year CD rate, yet it is broken up into discrete $5,000 blocks, so if you need it, you only need to break one CD (hopefully). And you are earning the difference the five-year CD rate (2.40%) instead of something like the one-year rate (1.10%).

I’m thinking of doing this for our emergency savings, but more conservatively than five years. I would max out at 18 months, and break it down into six CDs, maturing every three months. There is a big jump between the 12 month and 18 month CD rates, and they don’t increase much beyond that.

Vanguard’s Prime MMMF is paying more than it has over the past five years, but is still at 0.56% right now. With $25,000 invested, the MMMF pays $140 a year, but the 18 month CD pays $375. No one’s getting rich on that difference, but it seems like a risk-free way to make a few extra hundred dollars a year.

Have any thoughts on laddering CDs for an emergency fund?

The post CDs Ladders for Emergency Savings… And Beyond! appeared first on RidinKulous.

Since its inception ten years ago, this peer-to-peer lending site has slowly become a mini-darling in the personal finance sphere. Mostly this happened after the big boy himself said he was experimenting with it in September 2012.  That was about 18 months after I started using the site, I might add. I started as an investor (read: lender) at Lending Club in April of 2011. Since then, the total amount of loans at Lending Club has exploded, from about $500 million when I joined, to well over $18 billion today.

Initially we got returns around of 12 or 13%. But as the loans have gotten older and more people have defaulted,our returns have pretty much flat-lined around 9.5%. That’s still really good, and though I haven’t invested anything new in a year, preferring instead to max out all of our tax-advantaged retirement plans, I don’t have any plans to withdraw from the account either. And since they enabled automatic re-investing based on your own customizable filters, I spend hardly any time on the site anymore.

I believe in the business plan and mission of Lending Club. As you probably remember, I don’t like it when financial institutions take more than their fair share of our money. So anyone helping the common man to claw back profits from the likes Visa, Mastercard or any of the big banks is a friend of mine. I also think the promise and implications of peer-to-peer lending are huge. “Sharing economy” and all that. I was such a fan boy of Lending Club in 2011 that they sent me a fancy glass water bottle which I display prominently in my kitchen.

So when the company went public in 2014, I bought 100 shares.  Like many Lending Club lenders, I got in at the IPO price of $15.

So what’s the problem?

All is not well in Lending Club Land. As an LC diehard, I put a lot of trust in their sailing Frenchman CEO Renaud Laplanche. He talked the talk about seeing inefficiencies in the consumer credit market and really did seem like he was trying his darndest to make Lending Club a behemoth. But he made a couple very bad decisions, and that’s why Lending Club has been in the news recently.

From what I understand, he didn’t disclose his financial interest in another company that Lending Club invested in. Also, they sold some bundles of loans to Wall Street banks, but misled the banks about what types of loans were in the bundles. I don’t like the idea of Lending Club selling securitized loans to Wall Street to begin with, but this is doubly bad.

Renaud, how could you! This is a guy who, two weeks before the news dropped, was receiving awards with another Ridinkulous favorite, Lin-Manuel Miranda!

So now I’ve gotten a letter in the mail from some law office putting together a civil action lawsuit  because the company made false statements and was lacking internal controls. I think what they will be seeking is a return of the equity lost from the time before the information was known to after it became known. Maybe something like $3 or $4 a share? So the question is…

Do I sue Lending Club?

I still believe in the company. I definitely still believe in the mission, and I still think there is money to be made for lenders and money to be saved for borrowers.

I do feel terribly for suing a company I hold in such high esteem. It’s akin to a tech geek suing Apple, or a mid-life crisis biker dude suing Harley Davidson. And it isn’t really the company’s fault for failing to recognize the conflict of interest. It’s Renaud’s fault. So conflicted!

My current thinking is that I should sign on for the lawsuit. If the lawsuit goes through, it’s going through whether I am in it or not. I can personally justify it by using any money gained to make more loans through the website.

What do you think? Any Lending Club investors out there? What are you doing about this?

The post Should I Sue Lending Club? appeared first on RidinKulous.

Can you believe it? It’s been two years now since we bought our rental property! In 2015, we had been maxing out our retirement accounts and looking for a new type of investment. Going by all the early retirement blogs I was reading, it seemed like the next step was adding rental property to our portfolio. The jerry-rigged returns you can conjure by buying a rental property with little cash down are pretty incredible. So I bought some books and read up on what to expect.

We bought a two-family house that hardly needed any work. We had more money than time, and were strictly interested in having a positive cash flow as soon as possible. We didn’t want to be stuck paying for renovations and waiting to rent it out.

Here’s a summary of what’s gone on for the past two years:

July 2015 – We buy the house for $134,000. It’s vacant and in good shape, so we get to work cleaning it up and doing some maintenance. The chimney needed re-lining, and we needed hookups for a washer and dryer on the second floor apartment. We had a lot of discussion about what prospective renters would be looking for in an apartment, and a washer and dryer seemed right at the top.

September 2015 – We find out first renters after listing the apartment on a Saturday, giving them a tour on Sunday, and getting the lease signed that week. This was extremely lucky. They move in in mid-October.

December 2015 – The first 1st floor apartment is still vacant after doing numerous showings and getting some unattractive applicants.  We eventually get a couple and they move in in just after New Years, after we purchase a washer and dryer for that unit. (We had been leaving this one unit without a washer and dryer in order to attract those tenants that have their own. That didn’t work out, as you can see)

Winter, Spring, Summer 2016 – This was the golden time. “They were serene days and quite undemonstrative.” Rent was always paid on time, we hardly heard a peep from the tenants, and everyone was getting along. We didn’t have any major repairs, although the 30 year old washer in the 2nd unit broke, so we bought a new one.

October 2016 – Our first tenants let us know that they won’t be renewing and are moving to be closer to work. We become dizzy with greed and get anxious to fill the unit as soon as possible! We accept new tenants and they move in just after Thanksgiving. The less said about them, the better. Pretty soon, we realize…

February 2017 – After a few nightmare months, we buy out our tenants’ lease by giving them a free month’s rent, and then vow to better vet potential tenants in the future, even if it means the unit stays vacant for longer. We soon get a referral from the 1st unit tenants. Their friends visit, love the place, say they are looking for a place to stay long-term, and sign a lease. We let out a huge sigh of relief.

June 2017 – We replace the ancient fridge and stove in the 2nd unit. (My parents laughed when they saw these appliances) One of the 1st unit tenants start mowing the lawn and raising a garden in the backyard. We let out another huge sigh of relief and for the moment, we’re back on easy street.

So far, it’s been some work, but with huge variations from month to month. This summer, we’ve only been to the apartment a few times for minor things (replace six window blinds, replace kitchen sink sprayer, re-paint backdoor stairs). Compare that to seemingly endless showings you have to do sometimes to get a renter. I wish I could estimate how much work it is on average per month. Five hours possibly? I have no idea.

Here’s our income statement for the past two years:

So after two years, we have finally turned profitable to the tune of… $2,526. Not huge, but everyone has to start somewhere, right? And if my 5 hours of work per month is correct, that is $21 per hour.

On the plus side, our profitability has seen a huge swing from Year 1 into Year 2. We basically ended our second year with $9,000 more in income than we made in the first year. The big swing is due to a few things:

1. Spending $4,500 less on maintenance. We repaired the chimney, had electrical and plumbing work done, and replaced several appliances in the first year. Much less this year.
2. Taking in $2,000 more in rent.
3. Spending almost $3,000 less on insurance… although that’s due to a timing difference. Whoops! Looks like we paid part of Year 2’s insurance in Year 1.

What is our Return On Investment?

That may be a silly question after just turning profitable, but let’s do the math anyway.

Out of pocket, our down payment and closing costs were $12,456 in cash, so let’s call that our initial investment. $25,000 of our 20% down payment came from that home equity loan.

ROI = ($2,526 profit/$12,456 investment)/2 years = 10.1% annualized

OK, that’s actually not so bad. Ten percent is good for passive investment income, but income from a rental property isn’t truly passive income, no matter what the personal finance commentators might suggest. I’ve never had Coca-Cola ask me for a lawn mower or ask to have the heat turned up. They just pay me dividends! So maybe the better measure of rental property income is the hourly wage I attempted to calculate above.

Do you have an investment property? What is your return and how do you measure it?

The post First Time Landlords: Second Year Income Statement appeared first on RidinKulous.

It all depends on the interest rate we’d earn on the savings bonds versus the interest rate we’re paying on the loan. Let’s have a look.

To figure this out, we’ll need some facts. For one, the car loan is at 4%. Well, that was easy!

The savings bonds, however, are much more complicated. To track the current value of all our separate paper bonds (stowed away in a fireproof box), I used the Treasure Department’s handy Savings Bond Wizard. To use it, you’re going to need to convince yourself that it’s 1998 again and download their software.  I’m not sure why they haven’t figured out a way to track your bonds with an online account, but needless to say, it’s the federal government, and they are incompetent when it comes to anything technology-related.  Except spying on citizens.

Man, if every federal agency had just had a few NSA snoops on staff, imagine how much better off they’d be.

After plugging in all of our savings bonds, graciously given to us by family members over the years, I came up with his listing:

That shows the price originally paid, the interest accrued to the present date, the total value, the interest rate, yield, and maturity date. The interest rate is what the bond is earning currently. The yield is what the bond has earned, on an annualized basis, since it was purchased.

Really analyzing this will require us to look at the rules on savings bonds, which have changed over the years. For most of these bonds, the pre-1995 rules apply. These bonds basically earn a guaranteed interest rate, either 4 or 6%, until their maturity date, which could be 10, 12 or 18 years later. After that, they earn a guaranteed minimum, which looks to be 4%. They would earn a market-based rate if that was higher, but.. ha ha ha ha! Can you imagine? T-bills earning more than 4% today?? Ha ha ha ha!

For post-1995 bonds, it looks like they are guaranteed to double in value in 17 years, a 4.16% return, and after that you will only earn the market-based rate. Hence the paltry 1.42% returns seen in the later years.

For for these bonds, the answer to selling or not is, narrowly, sell. Technically, there are three bonds that haven’t finished maturing (purchased March 1998 and later) and so are still earning 4%, although the Bond Wizard shows those retuning 1.42%, so who know?

The post-1995 savings bonds are worth  $373.31 and are basically earning 1.4%. If kept in savings bonds, those post-1995 bonds would earn $5.22 a year, or 43 cents a month. And don’t forget, that’s taxed! So it’s even less than that.

But putting the $373.31 into the 4% car loan would save $14.93 a year, or $1.24 a month.  For post-1995 bonds, car loan wins.

For pre-1995 bonds, it’s a slightly different story. They are all earning 4 percent! That’s the same as the car loan! So it’s a push, right? No, wrong! Savings bond interest is taxed, while paying down your car loan results in a pure 4% gain to you, not taxable.

The pre-1995 bonds are worth $1,533.26 total. So if you’re accruing interest at 4% in the bond or in the car loan, that is a total of $61.33 a year, or $5.11 a month.

But again, the savings bond interest is taxable! And for us that means 25% disappears into Uncle Sam’s pockets. The bonds are actually getting us $46 a year, or $3.83 a month. For pre-1995 bonds, car loan wins again.

In total, by trading savings loans (approximately $50 a year in interest) for a car loan paydown ($76.26 a year in interest) we are keeping an extra $26 a year, or two bucks a month. That’s not much, but you do what you can, right? And the only work it took was going to the bank, cashing in the bonds, and making online payments.

The only way this move wouldn’t make sense is if you expected the savings bonds’ market rate to rise higher than 5%, about what it would take, before taxes, to beat the car loan rate. And that has a snowball’s chance in hell of happening in the next five years.

One added bonus: I don’t have to worry about the paper bonds sitting around in the house. They were in a fireproof box, but still, it doesn’t feel safe having that much money just around, ready to be lost or stolen or burned. Listening to Suze Orman’s show today, a woman called in saying she used to have $50,000 in cash in her underwear drawer because she had an irrational fear of money managers. She only recently put it in a bank. Gah! Can you imagine! I don’t even know what $50,000 looks like! Wouldn’t it take up, like, your whole socks section?!

Do you have any savings bonds burning a hole in your pocket? Do you have $50,000 in your underwear drawer? If so, what is your address?

The post Savings Bonds or Car Loan? appeared first on RidinKulous.

——————————————————————–

“Max out your 401(k)!”

So goes the typical Early Retirement maxim. Save every penny and “make mine tax-deferred, please!” Sounds good in theory, but after some recent discoveries, I see the flaw in this advice. Sometimes, you really, really shouldn’t max out your 401(k)!

Marge was finally able to start contributing to her company’s 401(k) retirement plan recently. Through some absurd reasoning, common at many private companies, I believe, you have to work at least one year before you can put your own money into their retirement account. It’s nonsense how companies hold out on benefits! But I have to admit, once she was finally eligible, I was excited to look at our new investment options!

Exciting Day!

There it is! The newest “It’s Your Story” retirement fund guide! I felt like I’ve waited so long! The first bunch of pages, as usual, are for all the investment dummies out there. They make sure to hammer home how important saving for your retirement is, and give you quizzes to find out your risk tolerance.

But we know all that.  We want the good stuff. Show me the investment fund choices! What was there going to be inside? Target date retirement funds? Large cap stock indexes? International? Bonds?? Emerging markets!?? The suspense was killing me, and I tore into that prospectus!

You know how we do: We invest in broadly diversified index funds to reduce our risks and keep the fees to a minimum, so I was all keyed up to find what this 401(k) company had to offer…

WHAT! YOU’VE GOT TO BE SHITTING ME, MAN! LOOK AT THOSE FEES!!

I’M GONNA KILL YOU!

I CURSE THE HEAVENS ABOVE! WHY?? WHY GOD DO YOU ALLOW THIS TO EXIST! Oh Saint Bogle, deliver us from fees!!

I tell you, Ridinkuloids, I could not believe my eyes looking down the list of investment options. My eyes were literally burning! You’re gonna pay two percent for virtually any of them! SEE THE RAGE IN MY EYES AND FEEL MY WRATH!

I guess it’s been a while since I’ve looked at one of these 401(k) guides. Is this the norm now?? I’m lucky enough that my work’s plan offers a variety of low cost investment options. Half of them are even with Vanguard! So through my work, I am very accustomed to paying somewhere between 0.02% and 0.15% in annual fees.

So what’s the deal? Surely, if they’re charging so much, these funds must be better! Let’s have a look at them!

For whatever reason, this guide is from December 31, 2011. For comparison’s sake, let’s see who beats Vanguard’s Total Stock Market Index Fund (VTSAX), a very boring, very broadly invested fund that provides exposure to the entire stock market, and is not actively managed. In other words, no one is really in charge. This fund is a central part of our retirement portfolio.

For the five years ending 12/31/11, VTSAX returned 3.13%.  After a 0.05% fee, that is 3.08%. It was not a great five years for the stock market. But these funds are actively managed by investment professionals. This is what they do for a living! Surely, they must’ve all beaten boring VTSAX, where no one is managing anything.

OK, zoom in on that listing there and see. Alright… so scanning the 13 stock funds they have on offer, I see one that beat the Total Stock Market Index. One… ONE.  Invesco Small Companies Fund.  Five others had returns that did beat VTSAX, but their exorbitant fees destroyed any benefit gained! As for the other seven funds that did worse than the index fund, I have no excuse for them. They bit the big fucking boner.

Look at Invesco’s Global Real Estate Fund. Even spread over a generous five years, their annualized return was -6.58%! You really have to try to bomb that hard!

Yes, on that listing, you might see all of the hash marks I made, instantly ruling out funds all over the place. They are just awful. But there is one fund I reserve a certain special level of stomach-burning bile for: Oppenheimer Cash Reserves.

YOU’VE GOT TO BE SHITTING ME! WHAT THE FUCK WHAT THE FUCK WHAT THE FUUUUUUCK!

If anyone finds me dead of a heart attack, please go break down the doors at Oppenheimer headquarters and demand justice, because they’re responsible for my death!

There are no words!! No words for the highway robbery they are committing! Why hasn’t anyone been thrown in prison! Why hasn’t a mob burned the building down!

You put your money in a “cash reserve” basically as a safe haven. It is free of any market fluctuations. It’s supposed to be a good place to save for short-term expenses. The fund simply invests in government securities and high-quality debt instruments. As such, the past five years have meant basically zero growth. The equivalent at Vanguard again is the Prime Money Market Mutual Fund.

But the difference is that Vanguard can leave your money alone for a 0.16% expense fee. Oppenheimer, doing the exact same thing, demands as 1.52% fee!! Not only are you paying them to do nothing, in the current environment, you are ensuring that you will lose money!  $10,000 in the first year will turn into $9,848 in the second year, $9,698 in the next year, and $9,551 year after that. Three years in, you’d have lost almost $500. Some safe haven!

You’re destroying everyone’s lives!

Irresponsible 401(k) Operators: Destroyers of Retirement

What the hell is this 401(k) company thinking? What the fuck does Oppenheimer think they’re doing by ensuring a negative return and raping your retirement funds with fees. This is somebody’s retirement you’re screwing around with!

Not only are the fees outrageous, but the types of funds on offer are nothing that should be offered in your run-of-the-mill retirement plan. I would say these funds are even irresponsible to offer! The average worker doesn’t know the difference between a growth and a value fund, but here’s a 401(k) operator offering goddamn junk bonds and natural resources?

How is anybody supposed to make a respectably diversified plan out of shit like this? By asking for help. They are basically setting you up to be locked into needing their advice!  Unless you feel comfortable dealing with these esoteric investments (I don’t) this is one huge bad idea wrapped in a stinky old diaper.

On the bright side, this whole mess with the investment fees got me thinking in a broader sense about retirement accounts. How many different types there are, the pros and cons of each, and I came to realize, hmmmm, for the past few years, Marge and I had entered the 25% federal tax bracket. Maybe it was time to start thinking about tax deferred accounts?

Previously, I hadn’t paid this subject much mind, because we didn’t have much money to deal with. Well, now that the tax man is taking an additional 10% from us, maybe it’s a good time to visit this topic. So I am working on an analysis ranking all of the types of retirement accounts based on some variables. (And you might be surprised that a rape-based 401(k) plan like this is not always the worst choice!) Stay tuned for The Retirement Account Decision Tree!

Are you outraged? If not, then you’re not paying attention.

The post For The Love Of God, Don’t Max Out Your 401(k)! appeared first on RidinKulous.

Some financial blogs compile their expenses on a monthly basis. Not me! I’m far too lazy! Plus, through our constant churning of credit cards, and the fact that I record every expense on a cash basis, our monthly totals get skewed in weird ways. Quarterly reports allow for smoothing out aberrations and for easier spotting of terrifying and harmful trends in spending!

Q1 2015 Total Expenses: $18,646.13Avg Per Month: $6,215.38

Excluding Debt Payments Total Expenses: $10,919.23

Avg Per Month: 3,639.74

The Necessary Evils :

Our normal mortgage payment is $697, but we have been paying $1,000 extra into it each month.
Our monthly student loan payments are about $210 total, but I also put another $500 into them recently.
And for payments on the car loan, technically they are little under $250 a month, but I just randomly throw money in $500 increments at it, and that seems to work.
That’s our entire home insurance bill for the year, and most of our property taxes. I believe another $1,600 or so is paid in September.
The medical bill is completely related to our recent trip to Peru. Gotta stay healthy!

Home Maintenance and Improvements:

Not entirely sure what all this was for, but I made some trips to Lowes and Home Depot.

Food:

In our never-ending quest to spend less on food, we saw a huge decrease in grocery spending from January ($587) to March ($315). We’ll see how it goes from here.
The wine and beer was mostly for gifts, with a bottle of beer for me as a congratulations gift for all that beer shopping!
The only time we dine out now is basically when people ask us, and even then, it’s through my gritted teeth.
Takeout Food, that is a tough one.  Here and there, it all adds up.

Transportation:

This year is the real beginning of my bus experiment. On average, we spent $90 on gas for January-March, but some of that is holdover from the holidays. I fully expect that to fall to probably $60 a month.
The parking expense is some jive BS. My work takes it out of my paycheck automatically. Since I take the bus most days now, I could cancel it, but if I ever need a parking spot again, I would be on a waiting list of hundreds, so the spot would be as good as gone.
The only other fee was an EZ Pass toll re-fill.

Utilities:

Cable looks irregularly low because a month is skipped  due to credit card due dates. It really is about $70 a month, despite all my rage.
Our gas heating bill was exceptionally low, almost unbelievably low now that I’m looking at it. Here in Cohoes, this February was the 4th coldest month in 150 years! Despite that, we only spent $147 in February heating our 1,900 square foot, drafty old house. That is a real accomplishment! How the heck did we do it? Damned if I know. We keep the thermostats between 58 and 64 if that helps.
Electric bill was normal and boring.
Even more boring than the electric bill is the quarterly water and sewer bill. It hasn’t changed much in years. Exciting stuff here, folks! Can you stand it!!??  You’re reading about my sewer bill!
Telephone was only our Ooma bill for the month, which is just FCC fees.  I believe I have a cell phone payment coming up in June, though. Perish the thought.

Fun Stuff:

Entertainment includes Netflix and Hulu Plus, the cost of shipping books through PaperbackSwap, any music I bought (I won’t chew your ear off about the new Björk and Ariel Pink albums, I promise… but they are both great) and two tickets to see They Might Be Giants in April! (My 14th show, Marge’s 10th, I think)
Recreation was mostly one big expense: flute repair for Marge.
And then there’s Travel. What can I say? It’s a big focus for us. And despite using frequent flyer miles like a boss, we still manage to incur a lot of expense. On the plus side, what you see here not only constitutes most of our 10-day trip to Peru (hotels, train tickets, Machu Picchu tickets) but also our trip to Naples in January, and part of our trip to Japan this October! Two nights at an AirB&B are included, as well as our two round-trip first-class tickets on Japan Airlines (salivate here), which only cost us $161 total out of pocket! So we are getting a lot out of that $1,406.
A breathless travel log and expense recount of our Peru trip is forthcoming.

Pets:

Pets sure are expensive. But at least we are off on a better foot than last year when we started by having to get the rabbits neutered (super expensive) and by the end of the year blew through $3,500.
As for food, Maeby eats Nutro, which is not cheap, but it’s also not junk. For the rabbits, I made my normal order of timothy hay which comes in a huge box about 4 feet tall, costs about $40 with shipping and is enough to last a couple years. They also get regular kibble food. And as for their litter, well, let’s just say that in a future post, you will learn more than you ever cared to know about rabbit litter!
There’s also a city dog license in there.

Miscellaneous:

I donate to charities automatically through payroll deductions and increase the amount every year because it makes me feel like I’m a good person.
Computer expense includes an awesome used tablet we bought on eBay for $69 and three years of web hosting for this blog! Say what you will about Ridinkulous. One thing is true: It will be online for at least three years.
Gifts given? Yes, that’s Christmas, pushed ahead into January because of credit card payment dates. It was much lower than last year’s Christmas total, and hopefully helped along by our excellent homemade apple butter gifts.
In home furnishings, that is mostly our new heated blankey. We can turn our heat down even further and save money with our heated blankey!
Home supplies includes all kinds of things like shampoo, toilet paper, and even last year’s Christmas tree!
Personal Care includes things like Marge’s annual smellgood lotion purchase and a 10-year supply of DIY winterbeard oil ingredients for me.

Anyway, after excluding debt payments, $3,600 seems like more than I’d want to spend every month of the year, but this quarter did include a bunch of large, annual non-recurring expenses. That $940 home insurance bill is only once a year. $2,124 is, sadly, not all of our property taxes, but at least it is most of the annual bill. And the over $500 of medical expense was completely for travel vaccinations, which we won’t need again for many years. It will be interesting to see how much lower our Q2 total is without these non-recurring expenses.

Yearly Goals Progress:

Now, back in January, I made up some goals for the year on the fly. Here’s how we’re doing with them.

Gas:

• Yearly Goal: Under $1,000.
• Spent This Quarter: $270.00
• On track to spend: $1,080

Like I mentioned above, I fully expect gas expense to drop now that I am commuting almost fully by bus, and biking more as usual in the summer.

Dining Out:

• Yearly Goal: Under $1,000.
• Spent This Quarter: $166.28
• On track to spend: $665.12

I think this will be easy. I probably should’ve made this goal harder to attain. But we will probably have to eat out a lot on vacation, which is cheaper in Peru than in Japan.

Takeout Food:

• Yearly Goal: Under $1,000.
  
• Spent This Quarter: $252.52
• On track to spend: $1,010.08

This is going to take some work. We have tried to institute Frugal Fridays, but it still might not be enough. You really have to plan to avoid eating junk food at airports and highway rest stops. And honestly, an artisanal doughnut shop opened recently, and what was I supposed to do? Not try it?

Clothing:

• Yearly Goal: Under $1,000.
• Spent This Quarter: $321.52
• On track to spend: $1,286.08

Uh-oh. We are overspent in this category. All I know is that I only bought two pairs of my favorite Banana Republic pants for $25 each, and a few t-shirts. I don’t know about the rest. *eyes Marge suspiciously*  Hey, what’s that sound…

Marge Says:

Slow your roll, Frugal Path Guerrillas! Let the record show that the clothing items in question were purchased in December 2014 which I feel should not count against Q1 2015 numbers.  I have purchased naught one shred of “apparel” in 2015 save for a replacement pair of *Keens .  This was at Norm’s suggestion, mind you, because mine had holes and there was hard core hiking coming up.

*Keen Footwear is in no way affiliated with Ridinkulous, Inc. and has not sponsored this post. However if they wanted to, it would be totally cool….. For the ways I create, care and play,  I’m always in Keen.  Keen Footwear, for your “Hybrid Life”!

Years of Savings:

This magical calculation demonstrates how far we could get if we kept living every month like this ones listed above.  We take our investable assets and divide them by our monthly expenses above. The number to shoot for is 25 years, because at that level of savings, you could theoretically afford to live forever on your money stash, based on a 7% return and 3% inflation.

This quarter, according to our monthly average expenses and our investable assets, we have…

2.6 years of savings

But if you take out the all of the debt payments and consider only what we would have been paying had all of the loans been paid off, we have….

4.4 years of savings.

This will probably improve in the future, right? Right?

Retirement Location Possibility!

If we take that number of years of savings above, and divide by 25, we can figure out where in the world we could afford to retire right now by dividing another country’s cost of living  price index by our own cost of living. I used Rochester, NY, for our own cost of living (154) since it is the closest city to us on Expatistan’s index and is very comparable price-wise.

Our International Retirement Cost of Living Number is….

26.8

According to Expatistan’s index, that means we can retire… nowhere!

You can calm down now. I know how super-exciting this all was. Maybe make yourself a cup of tea and have a lie-down. Is the kettle on?

The post Ridinkulous Quarterly Expenses: Q1 2015 appeared first on RidinKulous.