I met a guy recently who introduced himself like this… “Hi, I’m Justin. I teach renters how landlords think so they can get better deals for their housing dollars”.   I immediately turned starry eyed and was thinking, we NEED this dude on the blog!!!

Here’s some Q&A I had with Justin and a little more about how he helps people. Justin also wrote a book called Rental Secrets, where all his research and tips are revealed. All you renters out there, listen up! (and Landlords, please pay attention too because negotiation goes both ways and renting should be a win/win sitch!]

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Justin! Welcome to the blog and thanks for sharing your secrets! First off, I’m curious why there are so many hidden tips given that renting is such a common thing. Why don’t renters know this stuff already?

Hey Joel!  Happy to be here.  I was baffled by this question early on as well.  Unfortunately, the conversations we have about rent tend to focus more on complaints than solutions.  But on top of that, as we approach adulthood there are typically no classes on financial education in general, let alone specific classes on controlling rent which is almost every young adult’s number one expense.  And to make matters even worse there weren’t any books on the subject until I wrote Rental Secrets.

This leaves young adults learning by trial and error, which is among the worst ways to learn.  It’s almost as if the goal was to set them up to fail.  Clearly, learning from the prior experiences of others would be a much better way to go.

But, there’s another reason as well.  We’ve been conditioned to have a consumer mentality.  We walk into a store and see an item we want on a shelf.  There’s a price on the shelf.  We pick up the item, walk to the cashier, pay the price, and leave.  Never once did it occur to us to negotiate with the cashier or their manager.  And the vast majority of people apply this same mentality to renting.

Correct me if I’m wrong, but you also *own* rental properties… So why would a landlord share rental secrets? It’s your job as a landlord to suck every cent out of your tenants as possible, right?

Yes, I own and operate rental properties and I also wrote Rental Secrets.  This is not as contradictory as it may seem at first.  There’s an unhealthy conflict between renters and landlords.  This conflict results in renters damaging property or allowing it to be damaged.  It leads to landlords not caring about renters.  It also leads to poor government policy decisions that ultimately serve renters or landlords.  I believe renters feel this way because they believe they have no power in the landlord-renter relationship. Rental Secrets is an attempt to correct that misconception and highlight just how valuable the renter is in the landlord-renter relationship.  Renters will never put hammer to nail to build their own homes.  And landlords choose to invest in badly needed quality housing for their retirement, so renters are living in the landlord’s retirement plan. When you look at it from this perspective, the importance of this relationship becomes much more clear.

Your second question goes directly to the heart of the animosity between landlords and renters.  It’s a common misconception that it is a landlord’s job to squeeze every last dime from their renters.  And it doesn’t help that some landlords do attempt to do this despite the fact that it isn’t in their long-term interest.

In reality, the landlord’s job is the proper stewardship and maintenance of the properties they are responsible for.  There are several factors to doing this well, and yes collecting rent is part of that job.  Rent pays for maintenance, upgrades, salaries, mortgages, and other expenses related to keeping the property functioning properly. Those landlords who don’t maintain their properties are asking for trouble down the road as this is a fundamental betrayal of the trust their renters place in them.

Second, Robert Kiyosaki tells this great story about the first investment property his wife bought.  She’d just invested in the property the year prior, felt it was time to increase her rents, and typed up a letter to her tenants.  Her goal was to increase the rent by a whopping $25.  She sent the letters and the renters promptly moved out.  The property stayed vacant for three months and the rent was approximately $400 at the time.  So in an effort to gain $25 more per month she lost $1200 in rent.  In addition to losing that rent, there were cleaning, repair, carpet cleaning, and painting expenses to prepare for new renters.  And let’s not forget the cost of locating those new renters. The point being that getting top dollar might be nice, but continuity of cash flow is what’s most important when it comes to proper real estate stewardship.

Third, there’s a conversation I had with one of my clients last year that relates to your question.  He owns a property management company in the San Francisco Bay Area.  I asked him about how the eviction moratorium had affected his clients.  His response was very interesting.  He said those landlords who had cared for their properties over time and had bothered to maintain great relationships with their renters by and large fared quite well.  Those who cut corners and didn’t bother to maintain renter relationships or their properties bore the brunt of the payment headaches.  Moreover, those landlords would also be left to the tender mercy of whatever payment assistance the government offered because his company would not be helping them go after their renters legally.  

And finally, renters have economic hiccups occur all the time.  Sometimes they lose their jobs.  Sometimes their cars breakdown.  There are always unexpected expenses that pop up.  As a landlord, if your goal is to squeeze every last dime out of your residents, you are setting yourself up for higher vacancy rates and increased interruptions in your rental cash flow because there won’t be any financial cushion for these common economic challenges.  So squeezing every last dime from your renters doesn’t really help the landlord in their true job which is proper stewardship of their property.

Give us your top 3 bits of advice that all renters should know…

The first and most important bit of advice is that rent negotiation is possible.  Landlords are people with problems but, if you know how to speak their language and know what the problems are, you can help solve them.  And people who solve problems get paid.  In this case, paid in the form of lower rent.

Second, summer is the most popular time for people to rent.  Students are graduating from school and parents are getting situated before the next school year starts.  Landlords know this happens every year, so their asking rents are higher in the summer.  But, apartments still become vacant in late fall and winter.  If you rent during that time of year, you could save up to 7% on your monthly rent.

Third, apartment community amenities are only great if you actually use them. Every amenity in an apartment community has a corresponding surcharge added to the rent for each apartment in that community.  The amount of that charge depends on the total cost of the amenity, the proximity of the apartment to the amenity, and the level of convenience that amenity adds. So only choose apartment communities that have amenities you will actually use, because you’ll be paying for those amenities whether you use them or not.

Many landlords ask for a rent increase every single year. It’s ridiculous sometimes! How can a tenant slow down these rent increases?

When you left high school or college and entered the world of renting residential real estate, there were no classes providing any guidance on the language landlords use.  And there’s a key phrase that relates to your question. “Our rents are competitive with the market”.

It sounds really nice, right. They’ve done all the work for you.  You don’t need to lift a finger.  And you can’t get a better deal.  But, unfortunately it’s a lie.  What they do is compare themselves to properties nearby, within a mile or two.  It’s not a lie because they didn’t do the research.  It’s a lie because their research has nothing to do with you or your situation.  They don’t know anything about you or what you need.  They assume the properties close by are their competition.  But, their competition is really any property that fits your needs whether it’s close by or not.

You can slow these rent increases down by showing them who their competition truly is.  You may have chosen their apartment community because it’s 30 minutes east of your job.  But, there may be really great options 30 minutes west of your job.  These other options aren’t considered in their pricing analysis to determine your renewal offer.  So the trick here is to use market data to counter their renewal offer because you have options.

Got any tips for people that aren’t great at negotiation?

When renting an apartment it can feel like the landlord has all the power.  As if they were the “Great and Powerful Oz”.  But, it’s important to remember that landlords are people too, with challenges and problems.  So the first tip is to remember the landlord is a person just like you.

People think they aren’t good at negotiation because they don’t know how.  Negotiation is just a conversation between two parties who each have something the other wants. But the key is knowing what’s important to the other party. That’s where my book, Rental Secrets, comes in.  It gives you a window into the landlord’s head and allows you to negotiate with the landlord in their language.  So, the second tip is knowing what’s important to who you’re negotiating with, in this case the landlord.

Lastly, just remember that if you are working, have a decent credit score, and know how to play well with others then you are exactly the kind of renter that landlords vigorously compete for every day. You are bringing something very valuable to the table and it’s not just about the money.

Your books says something about “FREE RENT”. How is this even possible?

Free rent may sound like a fairy tale, but it happens all the time across the country.  And it might surprise you to learn that Rental Secrets describes not one, but two ways to get it.  The most common way is that free rent is used as a marketing tactic.  Landlords are in serious competition for you, the quality renter.  The person who has a decent job, a good credit score, and knows how to play well with others.  And nothing says “Please tour my apartment community” like an offer of free rent. In this case, the free rent offer will last for a specific number of weeks.  I’ve actually seen some communities offer up to 6 weeks of free rent.

The second way you can get free rent often never occurs to people because they think of the landlord as their enemy. But changing this perspective can reveal an amazingly powerful opportunity to get free rent.  And that strategy is to work for the landlord. Yes, you can obtain free rent by working for your landlord.

And what makes this strategy so powerful is it typically has the same time requirements as a part-time job or side gig.  Some US states require property owners to provide residents with an on-site employee. While specific laws will vary, there’s no reason why you can’t use these laws to your advantage. And even without such laws, the landlord still benefits from having a representative live on site.

In this role, you’d be responsible for keeping the property clean, being the first point of contact for your neighbors, letting vendors in, and showing apartments when necessary.  When you consider that rents are as high as $2600 per month or more, you can see how this can be an amazing side gig.  But, it gets even better.  This free rent is an after-tax benefit because if you were actually paying that rent, you’d be using after tax dollars.  In my book, Rental Secrets, I tell the story of one young man who took advantage of the strategy and he had absolutely no prior experience. 

[**Note from Joel — there’s also the method of house hacking! It’s when you buy a small multi-family house (like a duplex or tri-plex), live in one of the units and rent the others out. In the right scenario, the other renters could potentially cover all your property expenses so you are living for free.**]

The market in my area is just SO HOT right now. How can I find more affordable options?

Every apartment is different. Even those in the same apartment community have differences.  Some of these apartments are less desirable than others just because of where they are on the property.  The apartment might face a busy street.  It might have a poor view.  It might be on the third floor with no elevator.  It might not come with enough parking.  But whatever the reason apartments can and do sit vacant even in hot markets.   

This actually happened to me.   It took two months to rent an apartment in one of the hottest rental markets in the country – Mountain View, CA.  We had lots of people tour the apartment but no one ever rented.  I asked my leasing agent what was going on.  He said they’d get to the master bedroom door, turn around and leave.  

The problem was the view from the master bedroom’s window which you could see from the bedroom door.  Because of where the apartment was on the property, the view was obstructed by wire mesh in the window that was required by the local fire code.  But, that obstruction was only part of the reason the apartment didn’t rent.  Since people stopped their tour at master bedroom door, they never saw the double closets or the fully remodeled master bathroom.  And if they don’t see it, as far as they’re concerned, it doesn’t exist.  They likely completed the full  tour at the other properties they visited.  Since they’d only completed a partial tour of my apartment it’s at a distinct disadvantage.  So yes even in “hot” markets it is not unheard of for apartments to experience significant vacancy.  And in those two month’s that apartment community lost $6000 in rental revenue. And that vacancy pushed property managers to make deals. 

Dude! Thank you SO MUCH for coming on the blog and sharing your tips! Any last words?

Joel, this was really fun and I hope we chat more in the near future.  Here are a couple of thoughts I’d like to leave you with.

The landlord isn’t the enemy.  In fact, thinking about them that way prevents people from identifying money saving opportunities.  Landlords are people too and they absolutely have problems.  By teaching renters how to save money on rent, I’m teaching them how to make being a landlord easier and making it easier for more people to choose to become landlords.  We need all the quality housing we can get and housing only comes from people choosing to invest in it. 

And I have a free gift for you!  Moving to a new place is seriously stressful but if your looking to make your next move easier, check out my FREE e-book Apartment Search Secrets!

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Justin Pogue is an award-winning author and real estate consultant based in San Jose, CA. His book, Rental Secrets, is very VALUABLE for renters, it is a MUST READ for landlords! Check out more of his stuff at RentalSecrets.net

Have a great day!
Joel

P.S. I have one last secret to share… I downloaded Justin’s book for FREE at the LA Public Library as an audiobook. Shhh…  

[This post, Rental Secrets – Getting More Value from Your Housing Dollars, was first published by 5am Joel on Elite Edge Money]

Happy Friday, happy people!

About 6 months ago, I wrote a blog post about plans to downsize my real estate assets. Specifically, the plan was to sell some physical rental properties and move that cash into more passive investments.

Well, the mission is now half complete! We’ve sold 2 rental properties so far and have 2 left to go. Woohoo!

Sale #1 proceeds –> about $35k

Sale #2 proceeds –> about $50k

These properties were joint partnerships with other investors, so the $$ proceeds represent me and my wife’s cut of the deal.

I’ve been getting a bunch of questions about the sales and learning stuff along the way, so figured I’d share some of these in an update post. Here you go!

Recap: Why we’re selling rentals…

First, here’s why we want to sell (or you can check out the original post here for full info: Why we’re transitioning away from rental properties). Main reasons are:

1. I don’t find it fun anymore. I know, I sound like a complain-y spoilt brat. But my new goal in life is to slowly shed the activities I don’t enjoy → to make more room for the stuff I DO enjoy.
2. My asset allocation is out of whack. We’re trying to downsize the real estate portion of our portfolio and increase our exposure to stocks. 
3. It’s not “passive” enough. In hindsight, this is probably my fault… I bought run-down shit box rentals that need constant maintenance. Some real estate is passive, but the physical properties I’m selling are not.
4. Some of my properties are sub-performers. I think we can make a better return on our money elsewhere in the long run.
5. Owning 20+ doors is emotionally draining. You’d think that the more properties you own, the thicker your skin grows… I’m somehow doing the opposite. My skin is getting thinner, probably because I am a wimp.
6. I don’t like holding so much cash reserves. My thoughts on holding cash are changing.
7. We can always buy more (or other types of) real estate later. We are not anti real estate! We just want to downsize our *physical* RE assets. We can still invest in other types of RE later, for example, syndication deals.

OK, now let’s get to some questions I’m receiving, and some of the stuff I’ve learnt through the sale process…

Where I’m investing the sale proceeds —> VTI

So far, we’ve just been dumping all the money into stock market index funds. In March we bought $35k of VTI, then again in June we bought another $50k of VTI after the second property sale. Our plan is to continue this with the next 2 properties.

I must admit it’s kind of scary putting money in the stock market while it’s at an “all time high” and so volatile! But, I’m practicing what I preach: You can’t time the market! And investing at all time highs usually has a better outcome than waiting for a big dip to buy.

Investing in the stock market solves a few problems for us… First, it helps shift our asset allocation out of real estate and into more equities. Next, it fits in with our long term goal to have more passive investments. The money that we invest we never have to touch or really even think about, ever again!

Selling during a “hot real estate market”…

I’ve been hearing this a lot lately… “Now is a great time to sell real estate! People are making ridiculous offers to buy property, way over asking price!”.

While yes this is probably true — it’s a sellers market right now — it’s important to understand the difference between residential home sales (the buyer wants to live in the place, driven by needs and emotion) vs. income rental properties (the buyer is an investor, motivated by ROI calculations).

Since the properties I’m selling are fourplexes (4 units all under 1 roof), the buyers interested in my props are mostly other real estate investors. They value the property based on the rental income it can generate from the 4 units (or 3 units if they want to move into 1 of them). While inexperienced or impatient investors might be willing to overpay a little for rental properties, most well-studied real estate investors won’t pay ridiculous prices.

So the best way I can boost my property sale values is to raise the rents for all the tenants within the units. This is much easier said than done! My property manager was able to do a little bit of this over the years, but not as much as what we hoped or initially projected.

Anyway, I just wanted to explain why we’re not making as much profit as people think we’re making. Not all real estate is equal! This current “hot market” gave us more interested potential buyers and a slightly shorter sales cycle, but not necessarily a huge increase in sale prices.

Selling the properties as a “bundle”…

A couple of people asked why we didn’t just package all 4 properties into a bundle and sell them as a group. This would’ve been the quickest way to get rid of them all.

But there were a couple challenges with bundle selling…

First, we didn’t know how many properties (or which ones) we even wanted to sell first. When there are multiple investors involved, making decisions takes a long time because every person has a different opinion. So at the beginning of the year, we really only agreed on selling 1 property to start with. Then the plan evolved from there.

Also, we realized that bundling our properties for sale isn’t really in our best interest financially. The type of people who buy packages of investment properties are more experienced investors (we prefer beginners that don’t negotiate as hard) and also they are looking for a bundle discount.

Since we’re not in a rush to sell, there’s no reason to give buyers a bundle price discount when we can sell the properties one by one for the best price we can get individually.

Boring Tax Stuff…

Here are some questions I got about taxes and how that might look this year for me.

“Have you thought about doing a 1031 Tax Exchange to defer capital gains?” —–>  No, not really. Our goal is to get away from physical properties, not get into new ones. I have heard of some groups that allow 1031 exchanges into syndications, but since I’m transferring from joint ownership, I’m not sure how this would work.

Also, given our probable tax bracket this year, my wife and I might be able to avoid some capital gains altogether. (My partners might be in a different situation, but my wife and I will have pretty low income this year, so locking in small cap gains is OK with us).

“Don’t forget to set some money aside for depreciation recapture” —–> Absolutely! My partners and I have a reserve account with money set aside for estimated taxes. Since our gains weren’t too big and we only owned the places for 3-4 years, we don’t have a too hefty bill.

(For those of you who don’t know what depreciation recapture is… When you sell a property that has provided you depreciation benefits or tax offsets in the past, the IRS will recapture that benefit by charging you for gains made when you sell. The only way to avoid/defer depreciation recapture tax is to a) do a 1031 exchange or b) sell the property at a lower value than you bought it minus depreciation – neither of which make sense to us.)

“Who pays the taxes for joint partnerships?” —–> For the properties that are in LLC’s, the LLC entity itself files it’s own tax return and “passes through” the tax liability to the members of the LLC through a K1 statement. All the LLC members file this K1 statement with their personal return. This splits the tax responsibilities fairly between the LLC members in proportion to their ownership percentage.

For properties that are in joint personal names, each person just claims their split percentage of the property on their personal return. 

For example (in either scenario) If you own 50% of a property, you report 50% of the income, claim 50% of the deductions, get 50% of the tax benefits, etc.

Setbacks, mistakes, and dirty dealings…

One setback we had on the first sale was a small water heater leak we noticed 1 week before closing. A repair man was at our property fixing an unrelated issue when he noticed a little bit of water in the drip-pan of a water heater. Being a good repair man, he reported this issue to my property manager and said we might want to get it checked out.

Since there was no real problem (yet), we could have just proceeded with the sale and turned the keys over to the new owner and made him fix the issue when he took ownership. But, that would be unethical (and probably illegal) because as a seller we are bound to disclose any known issue with the property to the buyer prior to taking ownership.

So we fully diagnosed and fixed the issue, which cost us ~$1000 out of pocket for a new water heater. It sucks to buy brand new appliances for another investor, but I couldn’t in good conscience hand over known potential faults. I never want to compromise my values for money – it’s not worth it!

Speaking of unethical dealings, we had a strange transaction with a realtor that I didn’t feel was 100% above board. Long story short, we were in negotiations with a potential buyer that fell through… and somewhere within our negotiations we exposed our “rock bottom” price that we would sell for. After the deal fell apart, we immediately received a different offer from that buyer’s own broker! (not their specific agent, another realtor in their office). It was for the exact same ending negotiation price we were settled on with their client just days earlier.

The reason I felt this was unethical is because I don’t think agents are allowed to share confidential negotiation details with other agents and use it for personal offers. It really put a bad taste in my mouth. After I raised a red flag, the broker denied doing anything unethical, and that offer fell apart shortly afterwards.

Anyway, this event (and a few other small things in the selling process) reminded me that real estate has many grey areas, and there’s a lot of room for greedy individuals to take advantage during the buying/selling process. It’s sad that this happens, but all I can do at the end of the day is to continue doing business the most ethical and responsible way I know how. 

Oh, one last shitty thing that happened (and this was my mistake) was that I promised one of the buyers some repairs as part of our contract negotiations… And I grossly underestimated the repairs costs. This ended up costing my partnership about $2700 extra, which I feel horrible about. Thankfully, we still made some great profits on the deal and all was forgiven in the end. My main lesson here is to never promise paying for repairs based on someone’s word – always get written quotes and second opinions for everything before agreeing to pay.

Windfalls and bullets dodged…

One cool thing that happened during the first sale process was an unexpected insurance claim. The buyer asked us to get a new roof as part of the sale contract, and we agreed, building that into part of our planned costs (It was about $6000).

But just before we got the roof replaced, someone suggested I file an insurance claim because there was a hail storm recently that might have done some damage to the roof. If there was evidence of any hail damage, we might be able to get insurance to pay some of the replacement cost.

We didn’t know if the claim would get approved, but there was no harm filing one anyway since the property was being sold. It took less than 1 week to file the claim and get an adjuster out there, and lo and behold they found some damage that was covered under our policy. So all in all we only paid about $3k for the roof replacement instead of $6k. A nice unexpected profit!

One other dodged bullet was some tenant issues that happened *after* the sale of a property… 

My property manager caught wind of some tenant problems (missing rent, bad behavior, etc) a few weeks after the sale of a property. Since the new owner inherited our existing tenants (willingly!), this was now their problem to deal with. If we had never sold the place we’d be dealing with that mess now, which sounds like a real headache.

All in all, our long term plan is working out…

So far, we’ve gotten rid of 2 properties, and I can’t tell you the weight that’s been lifted off of my shoulders. My partners and property manager feel the same!

Since moving the sale proceeds to index funds, we’ve had zero headaches, and even some great gains so far!

Next step is to sell 2 more buildings we’ve mostly agreed to list. I’ll keep y’all updated as we go along!

Got any questions I didn’t address? (sorry, can’t disclose specific sale/profit numbers due to partner reasons – but happy to tackle all other questions!)

Have a great day!

– Joel

[This post, Selling our rental properties… 2 down, 2 to go!, was first published by 5am Joel on Elite Edge Money]

Bugger! I just found out my rental property in Texas needs a new roof!

There was a nasty hail storm last month that ripped through the area and smashed a bunch of cars and houses — unfortunately, my rental property was one of them.

The good news is that nobody was hurt, and insurance will cover the replacement roof cost (~$10k). The bad news is I still have to pay the insurance deductible (~$2k) and figure out the claims process and stuff.

Surprisingly, dealing with insurance isn’t as bad as I thought it was going to be. Since it’s my first time filing a claim like this, I thought I’d share some notes, numbers, and things I’m learning along the way. This might give any new and aspiring property investors out there some insight into what it’s like being a landlord.

But before we get to the boring stuff, here are some fun facts I just learned while googling hail storms. Did you know…?

• There were 4,611 hail storm events last year (2020) in the US.
• 601 of them were in Texas! By far the most of any other U.S. state.
• ALL these events had hailstone balls larger than 1 inch in diameter!
• About 24 people each year are injured and go to hospital for hail hitting them Ouch!
• And sadly, 4 people have actually been killed by hail in the last 20 years.
• The world record for the largest hailstorm was in 2010 near Vivian, South Dakota, where 8-inch diameter (~20 cm) hailstones fell from the sky! Daaaaang!

This is the hail that hit my rental. The biggest stones were about the size of golf balls!

When Disaster Strikes Your Rental Roof, What Happens Next?

My property manager emailed me and said there had been a huge storm in town the night prior. Whenever this happens, she gets a million phone calls from every roofing company in town asking if they can go out and assess all of the roofs of the properties she manages.

Because roof assessments are free (or at least that’s how it was offered to me), I was glad to have someone go out to see if there was any damage at my duplex.

It’s pretty cool actually … roofing companies these days use drones that fly over the house with cameras to look for damage. They can zoom in, take photos, and sometimes even provide a repair quote the same day.

For my place, they determined that a whole roof replacement was necessary. There were no massive holes or water leaks into the house (thankfully), but the shingles were bashed so hard by the hail they need to be replaced.

How Insurance Claims Work for Your Rental Property

I’m no expert in this area. (And actually this is a great side note for new real estate investors — It’s OK if you have no clue what you’re doing… Owning rental properties is mostly about figuring stuff out as you go along. As long as you ask good questions and are willing to learn, every problem you come across is figure-out-able.)

Clueless, I called the 1-800 number for my insurance company (Travelers), and asked about the claims process. Here’s a simplified overview:

• They ask basic info about the disaster.
• 24 hours later, a claims person gets assigned.
• The claims person schedules a visit to the property.
• They write up a report and tell you how much $$ they think the damage will cost.
• They send you a check for that amount (minus deductible and stuff I’ll explain in a bit).
• You use that money to fix whatever happened.
• If the repair cost ends up being higher, you call back and ask for more money. If not, you’re all good.

Pretty simple, right?

How Much Insurance Will Pay for My Roof Replacement

My claims dude also used a drone to assess the roof. He emailed me this assessment and summary afterward, and also called me to walk through and explain it:

The depreciation line item can be a little confusing. But really all you need to know is that it is “recoverable.” Meaning it still gets paid to you, but only after you go ahead and complete all the repairs. The adjuster posted me a check for $3,810, and I’ll get an additional $3,673 after the roof is fixed.

All in all, my total out-of-pocket cost should be $2,310 (which is exactly my policy deductible). Kind of a bummer that I’m out 2 grand, but it only puts a small dent in my $15k+ rental property emergency fund!

What to Ask Your Insurance Company If You’re Thinking About Filing a Claim on Your Rental Property

Since this is my first property insurance claim, I took the opportunity to interrogate my claims guy and ask him as many questions as possible. Here are the main things I asked, as well as his responses:

How bad is the roof damage? Do I need to replace it right now?  (I asked this to understand if there was a time limit in which I needed to make the repair). He said there are no holes or leaks into the units, and advised me to hold off on making the repair until *after hail season is ove.r* Great advice! He said there is actually no time limit on my policy to make a repair.

If I file a claim, will my insurance premium go up next year?  Unlike car insurance, property insurance typically doesn’t go up for your individual policy after a single claim. Property insurance rates are more tied to the general area and fluctuate based on how many claims are filed in the whole region. (This is nice to hear, but honestly Texas and my small town have been getting hammered the past 12 months with disasters. My insurance premiums will go up regardless, so I don’t really know why I even asked this!)

What if the new roof costs like $20k, instead of $10k? If my new roofing quotes come in any higher than the estimate I was given, I can submit them to Travelers, and they’ll adjust my claim. The max I will pay out of pocket should be my deductible — $2,310.

What if the new roof cost is *lower* than the estimate? If I can repair the roof for less than the $10k, Travelers will actually lower my second reimbursement. It doesn’t matter how low or high the repair cost is — I will be out of pocket $2,310.

Can I choose the roofing company? Yep, I get to handle the repair and choose the company to work with. (Well, actually my property manager will do this).

Is the new roof cost tax-deductible? And do I pay income tax on the insurance reimbursement? THIS is such an interesting grey area… I asked the claims person, who quickly said I should consult a tax professional. But, from my initial research online it looks like a) I do *not* pay income taxes on the $7k reimbursement checks, and b) I *can* claim my new roof repair as a deduction for property expense. Seems shady — I’ve got a call with my tax guy this weekend anyway and I’ll bring it up.

Whelp, that’s it for now! Happy to answer any questions if you have any, or if any of you experienced real estate peeps have advice for me on how to handle this insurance crap better – I’m all ears!

TLDR Summary:

• Hail storm smashed my rental property roof! Booo.
• But property insurance is covering the repair. Woohoo!
• I’m only out ~$2,300 (my policy deductible)
• Waiting until Aug to do the repair (when hail season is over)
• Reminder to all: Owning a rental property is not really “passive income” because it actually requires work/effort to maintain.

Have a great week!
– Joel

[This post, How to File an Insurance Claim on a Rental Property, was first published by 5am Joel on Elite Edge Money]

My friend Christine just reached a pretty huge financial milestone… She and her husband have paid off their mortgage and now own their home free and clear! Woohoo!

This is a life goal many of us strive for, so you’d think everyone would be helping her celebrate. But instead, she’s been receiving some interesting and discouraging feedback! Here’s her story …

*****

My husband and I just paid off our mortgage, 13 years ahead of schedule! Pretty awesome, right? I thought so, too, except that one my subscribers disagreed with me. He replied to my celebration email by saying:

“Not a time to celebrate! You made a big mistake! A house is not how you build wealth, and have full control and liquidity.”

First off, I have no idea who this person is or his level of financial expertise. He could be a garbage man, a middle manager, or a financial advisor! Second, this man knows nothing about my personal finances other than the fact that I just paid off my mortgage early. Third and finally, many financial experts agree that homeownership is still one of the best ways to build wealth for American families.

I hate to admit it, but I really wanted to send him a scathing reply for raining on my celebration parade. But I decided to do something better. I turned it into a social media post that went viral on LinkedIn! I’m still getting comments a week later, and it’s racked up over 20k views!

… But it got me thinking, are there times when you shouldn’t pay off your house early?

When it Might be a Mistake to Pay Off Your Mortgage Early

You Have No Savings:

If your saving account has tumbleweeds blowing through it, then it might be a mistake to pay off your mortgage early. Why? If you have an emergency like a job layoff, major car repair, or big medical bill, you won’t have cash on hand to cover it. And that usually means you’ll be charging it on a credit card.

I like to see my coaching clients accumulate at least six months of their monthly living expenses in liquid savings before paying extra on their home. Plus, your savings will help cover large home maintenance items like a new roof or AC unit.

When You Have High Interest Debt:

My mortgage interest rate racked in at 4.125%. Thankfully, when my hubby and I use credit cards, we pay them off in full every month. What if you’re carrying balances on credit cards with 14% or higher interest rates? Then it would be a mistake to pay off your mortgage before concentrating on your credit card debt.

I typically advise my coaching clients to pay off debts in this order: credit cards, personal loans, student loans, car loans, home equity loans, then mortgages. It just makes sense mathematically to knock out the higher interest debts first because you’re saving more money. Sometimes we’ll do things out of order if it makes sense for cash flow purposes, but 99% of the time, I recommend paying off credit card debt FIRST before paying extra on the mortgage. 

When You’re Behind on Retirement:

If your financial planner has cautioned that you’re behind on retirement, you’re going to want to think twice about paying extra on your mortgage, at least for now. One of your biggest assets in saving for retirement is time. The sooner you get started, the better.

The compounding effect of interest and reinvested dividends was dubbed by Einstein as the 8th wonder of the world. Basically, your money is making more money for you, multiplying like frisky little rabbits. Additionally, your retirement accounts are tax-favored, whether you’re investing your money pre-tax (traditional plan) or growing tax free (Roth plan). Tax-favored accounts are a bonus on top of the investment growth. 

If you’re behind on saving for your retirement, do that first before paying extra on the mortgage. But I will say this: It’s my goal for all of my clients to be mortgage-free by retirement.

Paying off our mortgage early made sense for us!

In our situation, my husband and I have more than six months of our household expenses in savings, have no other debt, and are ahead of schedule with our retirement investments. So, my “hater” was wrong! This is a time to celebrate, and paying off our mortgage was the right move for us.

What do you think? Is there another scenario where it might be a mistake to pay off your mortgage early?

*****

J Money wrote a post many years ago that has always stuck with me… My Answer To All Financial Debates.

Basically, he explains while there will always be a financially “correct” answer to money decisions, sometimes we get a way bigger feeling of accomplishment doing something different. You can’t really fault someone for making progress toward the things that excite them in life. My 2 cents!

Have a great weekend, y’all!

– Joel

[This post, Is It a Mistake to Pay Off Your Mortgage Early?, was first published by 5am Joel on Elite Edge Money]

I got the following note from a reader the other day…

“Joel, I noticed you keep a big emergency fund for your rental property. 2 questions for you…

1) It seems like you have too much cash because shouldn’t you only need 3-6 months of mortgage payments as a cash reserve?

2) Also why do you keep this emergency fund separate from your personal emergency fund?”

Great questions! It’s been a while since I calculated how much to keep in rental reserves, and admittedly I do probably have too much right now! So in this post I’m gonna run some math and figure out just how much I should really be stockpiling for emergencies.

Right now I’m sitting on $14,360 in my duplex emergency savings account. If it turns out I’m holding too much cash, then we have the fun problem of figuring out where to put the excess!

How Much Emergency Fund Do I need for a Rental Property?

A general rule of thumb is about 3-6 months of expenses. While some investors only account for “PITI,” which stands for Principal + Interest, Tax and Insurance, I like to add a few other expenses in there to be on the conservative side.

Here are the PITI expenses for my rental property in Texas:

• Mortgage payment: $662 per month. This covers principal and interest only.
• Property tax: $432 per month. This is based on my 2020 tax year bill of $5,185. It increases slightly each year.
• Property insurance: $87 per month, based on my 2021 policy of $1,042 for the year.

Total “PITI” expenses = $1,181 per month.

There are 2 other expenses I like to add, and I’ll explain why:

• Utilities when vacant: ~$100 per month. When a rental property is vacant, the utility companies charge the property owner instead of a tenant. Even though there’s nobody living in the unit, workers need power for tools to fix stuff, and in Texas we need to keep the air conditioner on to make sure no moisture builds up in the house during hot and muggy days.
• Lawn maintenance & pest control: ~$75 per month. These expenses are necessary for all housing, whether I’m receiving rental income or not.

Total monthly expenses: $1,356!

All in all, based on the 3-6 months of expenses rule, I should keep somewhere between $4,000 and $8,000 in emergency savings.

Will this be enough to get me through an emergency? Let’s go through some potential disasters and look at the potential costs in an emergency scenario.

Disasters That an Emergency Fund Should Cover

The point of having an emergency fund is to cover unexpected expenses when shizzle hits the fan. Here’s what my emergency fund is mostly protecting me against…

Once-off disasters with large, upfront costs:

• Wind, Hail & Fire Disasters are covered under my insurance policy. My deductible is $2,310.
• Large appliance disasters like an A/C blow-up ($5k), water heater replacement ($1-2k), fridge/stove/kitchen appliance breaking ($1k).
• A new roof would cost me about $6k.
• Trashed units happen sometimes when a tenant moves out. If there’s property damage, it could be covered by my insurance policy, or if I need a small renovation I wouldn’t expect more than $5k of fixes needed.

This tree came down during a big storm a few years ago. Luckily, it fell the way it did. If it fell the opposite way, it would have hit my building, caused major damage, and displaced 2 tenants!

Longer term disasters are scarier, because they bleed you dry over months/years:

• Vacancies: With no rental income, I’d be missing out on $1,950 per month (my hard expenses are less — $1,356 per month like we calculated above). The beauty of having a duplex, though, is that it’s kinda rare to have both units vacant simultaneously. With only one renter in place, my loss is only half.
• Squatters or rent not being paid: Again, this would cost me loss of rent ($1,950 for both units per month). Thankfully, Texas has pretty decent laws that side mostly with landlords when it comes to eviction. The most I’ve ever had a squatter stay for without rent payment was ~90 days (under the first eviction moratorium in 2020).

So it looks like a 3 month cash reserve of $4,000 isn’t quite enough to cover some of the larger potential disasters. Personally, the minimum emergency fund I would like to keep is 6 months of expenses, so $8,136.

How to Build Up an Emergency Fund for a Rental Property

Before we go back to my personal scenario, you might be wondering if you have enough cash reserves for your rental property (or a new rental you’re planning to buy soon).

It never hurts to run through the exercises I just did above to evaluate your rental risks and potential disaster costs. Even if your bank tells you that “a few months of mortgage payments is enough to keep in reserves,”  you should save more if you think you’ll need it.

I always recommend people build and store a separate emergency fund for rental property in addition to their personal emergency fund. This way, your family and your assets can both survive separate disasters simultaneously. One is not dependent on the other for survival.

2020 was a great example of multiple disasters happening at the same time. As a landlord, I had a separate emergency fund for each rental property I own, as well as a personal emergency fund for me and my wife. It’s certainly a lot of cash to be holding, but boy were we resting well at night knowing we had plenty of runway should we be unemployed *while* have failing real estate at the same time.

Looks Like My Rental Savings Account Is Too Big :)

Well, we’ve determined that a safe 6-month emergency fund for my rental property would be around $8,136. I currently have $14,360 in cash reserves, so definitely more than necessary!

I like round numbers, so maybe I should drop this cash reserve account to an even $10k, and invest the excess $4,360 elsewhere. I could drop it into the stock market, pay down the mortgage a little, or see if there are any strategic upgrades to make to the property that could attract higher rental income?

I’d love to hear how other real estate investors store their emergency fund for rental property and any good practices we can all share!

Make it a great day,

– Joel

[This post, How Big Should an Emergency Fund for a Rental Property Be?, was first published by 5am Joel on Elite Edge Money]

In 2015 my wife and I bought our first rental property together. We were living in Los Angeles at the time and couldn’t afford to buy anything locally, which prompted us to start looking at out-of-state investments. We ended up making a real estate investment in Texas!

There’s a lot to share about our decision to buy a rental property — I’ll start with numbers and then get into our backstory about how and why we got our place.

Quick note: I don’t want to come off as some nonchalant real estate investor talking about “out of-state investing,” as if it’s some effortless hobby that people pick up easily. I can’t understate this … real estate investing is hard bloody work. And it’s scary! And it doesn’t always work out! Back when we bought this rental property, I was absolutely shitting my pants about the decision. It took a ton of research and courage to pull the trigger.

The numbers: Purchase price, down payment, mortgage, etc …

After evaluating about 50 properties and putting bids on about five, we settled on a brick-finish duplex built in 2003.

Purchase price: $188,900

Original loan: $136,500 (This is a 30-year fixed mortgage with 4.125% interest)

Down payment: $52,400

Total cash outlay: $55,213 This is the total cash that we paid out of pocket including down payment, closing costs, appraisals, option fees, seller concessions, pro-rata taxes, and a million other tiny little charges the bank adds when you close on a loan. We also set aside a $5k “reserve fund” dedicated to this investment property, so the total project cost is about $60k all in.

Over our five years of ownership, our investment has grown by an additional $60k! Here’s a breakdown of how this rental property has made us money:

Cash flow: $16,468 – After all our rental income minus all our expenses, this is the total amount of positive cash flow we’ve accumulated since we bought the place. An average of about $265/month!

Loan paydown: $12,792 – This is the difference between what we owed the bank at the beginning of our mortgage, and the current loan balance today.

Appreciation: $31,110 – Simply looking at property value, this is what it’s worth now vs. what we paid at time of purchase. 

Total gains: $60,360

A couple notes about these numbers:

• Because the interest portion of our mortgage payment is tax deductible, this property has saved us a little bit in income taxes over the years. I’m purposely excluding these savings to simplify the overview.
• Another advantage of owning rental real estate is depreciation. We claim a small loss each year as the property gets older and older. But I’m not including this in our figures, either. Depreciation needs to be repaid as gains when the property is eventually sold.
• We started with a $5k emergency fund and float account. This has increased over the years due to the positive cash flow, and along the way we’ve taken some money out to help buy other investments. Gains/losses on this cash aren’t included in our ROI.

All in all, I can safely say that we’ve doubled our money in 5 years. ($60k in gains on top of the $60k in start-up costs that we’ll eventually get back when we sell.) Pretty cool to think about! But real estate investing isn’t all roses — here’s some backstory to complete the picture:

Saving up for a $55k down payment + $5k reserve fund

It took me about seven years to save up the down payment money for this property. I did it the old-fashioned way — spending less than I earned. Keeping most of my savings in a checking account, I just watched my cash pile grow and grow over the years.

In hindsight, this was a poor move. I should have been putting my savings directly into the stock market, or at least in a high-yield savings account. This way it would have risen much quicker! A HUGE opportunity missed on my part as the stock market kicked ass from 2008 to 2015. Big lesson learned for me.

I’ve always been a good saver, but here are the main ways I was able to squirrel away money:

• House-hacking: Before moving in with my wife, I rented out part of my 525-square-foot apartment to roommates, dropping my rent by $700 per month.
• Moving in with wife: As soon as we moved in together, a lot of our living expenses were halved. More home cooking and packed lunches also allowed us to save money.
• Cheap car and travel costs: When we lived in Hawaii, we were within walking distance from my work, and later in Los Angeles the companies I worked for all paid me a mileage fee for any driving. Low car costs helped me save up for real estate investments.

The reason I mention this is that it’s kind of narrow-minded to look at this property and say that our investment has doubled in just 5 years. The true project cost started 12 years ago, when I began saving cash for the down payment.

Why buy a rental property in another area?

We moved to Los Angeles in 2012 (to live closer to family) and quickly realized the housing market was very expensive and not ideal for positive cash flow investments. This got me thinking about buying property out of state.

I started to Google the “best states and cities to buy rental properties” and Texas kept coming up as one of the top choices for rental property investing. Here’s why I felt good about Texas:

1. The barrier to entry was low in most small Texas towns. Good-quality houses can be bought for less than $200k. The rental market was also quite strong, with many properties meeting the 1% rule. (Basically, that’s making sure the monthly income on your rental covers the monthly mortgage payment.)
2. At the time I was searching (2014 and 2015), Texas had four of the top 10 fastest-growing cities in the US: Austin, Dallas, Houston and San Antonio. Population, job growth, and economic development were exploding, so it was an attractive real estate market.
3. Rent contracts tend to favor landlords.
4. There’s no state income tax in Texas. This sounded like a much bigger selling point at the time than it actually is. Because I don’t make much income from the property, the tax burden would be pretty low anyway.
5. If I’m being completely honest, I mostly felt good about Texas because that’s where everyone else seemed to be buying. Pretty bad advice for an investor — to just follow the crowds — but this dumb luck worked out for me at the time.

Texas has a bunch of downsides and learning curves, too … massive property taxes (more than $5k per year for this small property!), a slower appreciation rate, and a much different local culture that took me some getting used to. 

Property management and stuff going wrong

Right from the get-go I knew I didn’t want to be a hands-on landlord dealing with renters, leases, managing repairs, etc.  We hire a property management company to take care of all of this for us. I know many real estate investors who buy rental property close to home and manage everything personally — it takes a special set of skills that I just don’t have!

Although my property manager looks after the day-to day operations, this doesn’t mean that it’s all passive income and that I can take my eye off the ball. I stay involved with what’s going on and am constantly in touch with the manager.

As for nightmare tenant stories, this particular rental has remained pretty easy since I’ve owned it, and I’ve had good tenants there. I do have other properties with horror stories I can share later … domestic disputes, trashed units, evictions … and there was that one time when I found out a renter was running questionable “massage services” in my place. :(

Future options for this rental property investment

Past performance is great. But it doesn’t mean future returns will be just as good. It’s important to constantly evaluate the return on current equity and see if better returns can be achieved by making changes. As illiquid as real estate may seem, it’s actually quite flexible with exit strategies and refinance options as equity builds over time. Selling, refinancing, 1031-exchanging, or even using the property as a primary residence are all possibilities.

Selling a rental property

As of today, if I wanted to sell this property I would face several hurdles:

1. First, the transaction costs and commissions would probably cost me $15k to $20k.
2. I’d have to pay tax on the $30k capital gain that the property has increased in value, as well as regular income tax on the depreciation we’ve claimed in the past five years.
3. My biggest problem: We’d have to figure out where to invest the proceeds (do I buy another property? Invest in the stock market? Pay down other mortgages and debt we have?)  Because none of these can guarantee a better return, we’re choosing to hold onto the property for now.

Refinance options? Pull cash out or reduce my interest rate?

Because of how much equity has built up, I could refinance the property and possibly borrow $30k from the bank. Also, with interest rates so low, I could reduce my mortgage payments and start a new 30-year term.

However, I’d have some hurdles to jump there, too. Because my income is quite low this year, I’m not sure if I’d qualify for a refinance. Also, we’d still have the issue of where to put the $30k that we could pull out. It’s not quite enough money to buy a new property, and re-investing in renovations doesn’t make sense at this time.

Refinancing is something I’ll research soon. You never know what you qualify for until you ask!

TLDR; all things considered

• Total cash outlay for this project was $60k.
• It’s grown by an additional $60k over the last five years.
• Saving for the down payment took about seven years, in which I missed out on excellent returns I’d have earned if the money had been invested instead.
• Real estate is flexible in terms of finance and exit strategies, but it’s illiquid in terms of selling it quickly.
• Just like stocks, you can’t predict future returns on property investments based on past performance.
• The future plan is to hold this rental and make no changes in the short term.

More to come on this as we track and discuss over time!

Anybody own a rental property in a city or state where they don’t live — maybe like a vacation home? What has your experience been? Any tips or warnings for everyone?

*House pic up top by Ed Schipul on Flickr!

[This post, Yes, You Can Buy a Rental Property in Another State, was first published by 5am Joel on Elite Edge Money]

Good morning, all. Happy Monday!

Some of you are excited to learn more about real estate investing. I’m no expert, but I do have a few rental properties and will share my experiences (and screw-ups) over time.

I know real estate investing isn’t everybody’s cup of tea, so I’ll keep posts like this light and sporadic. (Plus, J Money will kill me if I turn this site into a boring technical blog about real estate!)

Today I’m sharing a weird, but kind of genius, investing strategy to retire with rental properties. I don’t know anyone who’s actually pulled this off in real life … but, it’s less about following the exact strategy/timeline and more about understanding the concept of “good debt“ and why it could be OK to carry a mortgage payment or two (or 12) with you into retirement. Check it out …

Retire in 15 years, with 15 rental properties, and 15 mortgages

Here’s how you can build a real estate investment portfolio that brings in retirement income …

Year 1: You buy one rental property with a 15-year mortgage. If the property accumulates enough rental income to cover the monthly mortgage and expenses, you will own the property free and clear after 15 years.

Year 2: You buy another rental property, similar to the first. You get another 15-year mortgage and make sure the rent money can pay for all the monthly expenses. It doesn’t have to generate positive cash flow, it just needs to break even. After 15 years, it will pay itself off in full.

Year 3: Repeat. Get another rental property with a 15-year mortgage whose monthly income pays for itself. Same deal as the last two places.

*By now you might be thinking — three rental real estate properties in three years? That’s ridiculous! How can I afford this!? Well, the investment property doesn’t have to be terribly big or expensive. Let’s just say each one has a purchase price of about $75,000, and you put 20% as a down payment. That’s $15k out of your pocket each year. Also, keep in mind this is a “fake and perfect scenario,” so just play along for a second and see where it goes …*

Year 4: Buy another property, 15-year mortgage, just like the last ones.

Years 5, 6, 7 … 15: Keep buying one place each year, and by the end of year 15, you own 15 real estate properties.

Now here’s where the fun begins …

Year 16: At this point, there is no more need to buy new houses. The first house you bought in Year 1 should be fully paid off. Now, you go back to the bank and do a cash-out refinance. You start another 15-year mortgage, making sure the property once again is breaking even with enough money from the rental income to cover the expenses.

The money you pull out from the refinance is yours to spend that year. (In our fake $75k house scenario, this would be about $60k in CASH income to live on throughout Year 16.) You can quit your job and take early retirement, enjoying financial independence for a full year on the money you just pulled out.

Year 17: At this time, the property you bought in Year 2 is fully paid off. You can go to the bank and refinance and get another $60k in CASH for retirement income for the year.

Year 18: You can refinance property No. 3 now that it’s fully paid off. $60k in CASH to live on for the year.  In Year 19, you do the same with property No. 4, and you keep repeating the process over and over on your way to financial freedom.

Each new year brings you $60k in CASH to live on, and each year you have another fully paid off property to refinance. Each house repeats the 15-year mortgage → paid off cycle.

Oh and the best part … the refinance money is tax-free in the U.S. You never need to sell a property, and you can retire even though you have 15 outstanding mortgages.

via GIPHY

Best-Laid Plans vs. Reality

Sounds like a wicked retirement plan! But, when theory is put into practice, there would be some hurdles. It’s not impossible, but it’s highly improbable.

Here are a few holes we can poke in the plan:

— It’s hard to find cashflow-neutral properties that pay for themselves on a 15-year mortgage. Not impossible, just difficult. Might be easy in some years (like when the real estate market crashes), but very difficult when the economy is roaring and housing is expensive. Just like you wouldn’t expect the stock market to continually rise for 15 straight years, a linear 15-year real estate market is unlikely, so you probably shouldn’t count on that for your retirement planning.

— Do you know a bank that will allow you to have 15 mortgages? Me neither. Personally, the most mortgages I’ve had at one time was seven, and that was with five banks. Each mortgage becomes harder and harder to obtain and requires good banking relationships. Again, not impossible, just extremely difficult.

— You’d need a pretty hefty emergency fund in case things went wrong with the properties. Estimating a minimum $5k in reserves for each property, this plan would need to also include a $75k cash reserve account, which means less money for other parts of your investment portfolio or nest egg.

— Your retirement portfolio would have no diversification. Unless you can afford to also do other kinds of investing, you would be depending on real estate to perform each year, every year. That’s a little scary.

— Let’s not forget that owning real estate can be a pain in the a$$. Many people fail at buying rentals and doing property management.

So, for this 15-year plan to work out, all the economic stars would need to align perfectly in your favor.

Flipside: There are elements of genius in this plan to retire with real estate!

Although it’s highly improbable, you can’t ignore how creative this retirement strategy is! Even if someone started buying rentals in year 1 and ran out of steam in year 5 or 6, they’d still be in an excellent wealth position later in life.

Here’s what I love about the overall concept:

— It’s a great example of what “good debt” is. The fact that you can borrow money from the bank, spend it however you want, it’s tax-free, and have other people pay off the loan is pure genius. If you use it correctly, debt can be a major advantage in retirement.

— It’s actually a pretty conservative plan. Buying small properties with low-ish leverage is sustainable and isn’t too aggressive or greedy. Hard work at the beginning pays off huge later on.

— There’s so much flexibility and multiple exit scenarios. Some houses could be put on 30-year mortgages and have excess cash flow. Some could be sold, 1031-exchanged, or even left paid off and generating monthly cash flow if you wanted to.

— With rising house values and rental increases over the years, you could take out more and more money each year in retirement. Appreciation would help keep up with inflation and rising expenses.

Your turn to respond!

No retirement plan is carried out perfectly or followed to a T. Like I said earlier, this story is less about the exact strategy and more about the concept. Having mortgages on many rental properties can be a huge advantage in retirement, and that debt can be used as income.

What do you reckon? Would you do this? Anyone know a real estate investor / early retiree currently doing this? I’d certainly love to chat with them! :)

*pic up top by Raivis Razgals

[This post, Can you retire with a mortgage? How about 15 mortgages!?, was first published by 5am Joel on Elite Edge Money]

Just saw this tweet and about spit my coffee out!

No house!! Or possessions!

From a BILLIONAIRE who can have anything and everything under the sun! Wowwww!!!

So WHY????

“Possessions just weigh you down.” BOOM. Damn truth right there.

And of course he still needs a place to live and HAS to keep at least one of his own cars, right???!, but seeing how he’s just listed a couple of his LA homes for sale, it looks like he’s starting to put his money where his keyboard is…

And I love him for it!! So does the rest of the minimalist community I’d imagine as it only amplifies our message! :) If a billionaire can keep their wants in check, why can’t the rest of us?? Or perhaps that’s precisely why he’s able to do it easier? Because the thrill of the “wants” are now gone?

Whatever the case, we all know that the more you own, the more you have to maintain, so if you’re going for pure FOCUS improvements this would certainly be a way to get it.

And I’ll admit I’m a tad bit jealous too! Not for his money at all, but just for the fact he can make moves like that without his family getting all pissed off! ;) Though from another tweet he shot soon after, it looks like his gf isn’t exactly on his side, haha… So even more power to him!

If anyone gives you $hit, Elon, just pass along this line mic drop style:

Freedom > Money > Stuff

3 simple words that have gone on to immensely change my own life. We’re all in different phases of this, but it ultimately comes down to the freedom to CHOOSE our own lives instead of letting others choose for us…  “Choose Yourself” as James Altucher would say.

Normal people get normal results, so if you want something extraordinary you need to make extraordinary changes! And rerouting your life towards *freedom* instead of *stuff* is a major first step towards that transition.

So keep doing YOU, señor Musk! Keep showing the world there are other ways to live your life than what’s expected, whether we want to head to other planets or simply create a better life for ourselves here on Earth. It’s not always easy to follow even when we KNOW what we should be doing, but hearing people like you just going for it definitely helps inspire.

So thanks!! And I’m rooting for you over here!

What say my other minimalists in the house? Think you could take it to this level or is it too extreme for you? What’s the biggest thing YOU’VE ever given up to improve your lifestyle?

******
Pic up top via Wikimedia Commons – It’s the Tesla Roadster orbiting Earth!!

[This post, Could you sell your house and all your possessions like Elon Musk?, was first published by J. Money on Elite Edge Money]

Morning, guys!!

Stumbled across an old comment on the blog I tagged to share some day, and decided today’s that day before I forget again! :) It was dropped in 2018 so it’s a tiny bit dated, but a majority of this still holds true and thought you might find it as fascinating as I did when I first read it…

Amazing that no matter where you live, or who you are, you still always have to deal with this money stuff!! And some places – most places – have it much worse than we do, yet people still find a way to power through!

Here’s the note from “silent reader” in response to our post on 7 money goals to hit by 35:

******

Hello, J. Money and everyone.

Long-time silent reader here…

I always read your blog with a great interest, because, yeah, the budget is sexy and it is pretty interesting to see how your (USA) financial system works.

I find your financial system more logical, stable and predictable, than ours. I was born in USSR, now live in Ukraine and our financial system, let’s face a truth, is $hit.

When USSR broke down, our people lost ALL their savings and stability. When the initial shock subsided, people started to save money from zero point again.

No one trusted banks, because they existed for a couple of years only, and then they suddenly disappeared in the night taking peoples’ savings with them.

So, people saved their money in cash at their homes and protected them (big and angry dogs, thick metal doors, high security locks, etc.).

Most savings were in a national money, because it was pretty hard to buy American $.

• At those halcyon times (1996) $1 costed around 2 grivnas (Ukranian money)
• In 2008, $1 costed 8 grivnas (financial crisis).
• In 2014, $1 costed 33 grivnas (financial crisis and war with Russia).
• Today, $1 costs 27 grivnas.

Loss after loss…

By the time we were 40, my husband and I both had an Uni degree and PhD, good jobs (I’m a medical doctor and he is a history scientist) and NO debts. We live in a big city and have a son.

We bought our own apartment when we were 35 (paid off in cash). This year we bought an apartment (paid off in cash) for our son (he is 13 now).

Also, we save money (10% of general income) for our son’s future Uni education. We want him to start his adult life having his own home, proper education and no debts. It is up to him how to live his own life further, but we did everything we could to help him to stay on his own two feet.

Although we’ll get a guaranteed pension in the future, we save money for our retirement also (20% of our general income). Who knows how our country is going to surprise us.

We live 20 mins ride from our work, so we never had a car. We use the public transport and, sometimes, taxi (emergency cases).

Our lifestyle is pretty minimalistic, but we have everything we need.

We always contemplate and discuss every purchase, and we have a principle – “we are not so wealthy to buy cheap things”. We buy 1 thing that has a high quality and a long lifespan, instead of 2-3 cheap things of the same kind. At the end of the day, 2-3 cheap things cost more in general, than 1 high quality thing.

If we both lose our jobs, we have a safety pad for 1 year of normal life or 2 years of “cheap” life. Plus, we always can sell my jewelry to have an additional 1-2 years of relatively good life.

We don’t have such an estate plan as you guys have, but if we die suddenly, our son would inherit everything (according to our laws).

That’s how life goes on the other side of the globe. Thank you for the attention :)

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So interesting/scary/inspirational, right?! Did you catch all those $$$ wins in there??

• Paid off house IN CASH!
• Paid off house #2 (apartment for son) IN CASH!
• 10% towards college savings
• 20% towards retirement savings
• LIVING MINIMALLY
• No cars
• Guaranteed pension!
• Ton of jewelry stacked up! Haha…

Definitely thriving in a world most of us wouldn’t even know how to handle :) And looking back at my response to her, couldn’t help but get jolted by the last line I wrote there too!

We have it SO EASY here in the States, and yet so many people still complain and feel they are owed more/etc/etc.. We’d have the biggest shock of our lives going through what hundreds of other countries have gone through over the centuries… And who knows what’s lurking for us too in the future with how politics and such are shaping up!

Eek! The politics are still going downhill, but little did we know a PANDEMIC was lurking around the corner! And just how are we responding to it as a nation??? Ugh… Still better off than most of the world, but boy do we have a lot more learning to do :(

At any rate – thought you might enjoy this perspective from halfway around the world, and maybe pick up some motivation along the way too :)

Not all of us will be able to pay off our houses anytime soon, but we can still keep striving to make a better life for ourselves!! Both now and into the future!

And lots of stuff to still be GRATEFUL for along the way too…

Thanks for not being so silent anymore, silent reader :)

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UPDATE: Got this email from another reader of the site who shares more insight on Ukrainian life :)

“I’m married to a Ukrainian, and his cultural background of paying for everything in cash took a little while for me to get used to, but it’s such a great way to ramp up net worth. I’ll note that flats in Ukraine are a lot cheaper than property in the US, and no one pays for upkeep of common areas so there’s no association dues (so they’re affordable, but dingy on the outside). You can get a decent apartment for $50-90k, depending on the city and area. As your commenter said, Ukrainians are wary of banks, and there’s very little credit available for mortgages. My in-laws think we’re crazy for having a mortgage and stand-alone single family home in the US.

[This post, Life on the other side of the globe!, was first published by J. Money on Elite Edge Money]

If you ever wanted to talk about toilets on this blog, today’s your day!

Got this text from my Auntie who asked if I’d ever shared something like this on the site before, of which I could confidently tell her no – I had not, lol…

But that changes today ;)

Here’s her text that opened up my eyes in more ways than one:

She then sent me an article to prove that she’s not crazy:

6 Feng Shui Tips For Healthy Financial Flow

But of course, I had to research this for myself, and before I knew it I was flushed even deeper into the dark secrets of financial feng shui’ness!

Places like Forbes, HGTV, and dozens of others were encouraging this “financial flow” of money, and even going as far to say it’s why we call it “curren(t)cy!” (nyuck nyuck nyuck)

Why the toilet bowl fascination?

“The toilet holds a downward spiraling energy. When you close the lid, you are protecting chi (energy) from going down and away from you…

Listen to the language of our world and don’t “flush away” your finances. It’s also a good idea to tie red ribbons on the pipes behind the toilet, with the intention of protecting your finances once and for all.” – MindBodyGreen.com

Who knew! But there’s a lot more to this stuff than just potties…

Here’s a list of a half dozen other tips I found while poking around this morning… A great way to expand your mind, if nothing else ;) (And honestly, whether you believe in this stuff or not, if it gets you to manage your own money better then so be it! Just be prepared for what happens when the lids get stuck! Haha…)

Money Flowing Feng Shui Tips:

#1. Clean your stove — The stove represents “abundance,” so it’s good to always keep it clean and rotate the burners so you “open up more channels of opportunity.”

#2. Fix leaks in your house — “Water in feng shui represents two things: (1) money and (2) your emotions… When you fix something in your home, you are fixing it in your life. You don’t want your money leaking out, do you?” – MindBodyGreen.com (Coincidentally, the more leaks you have, the more money you’re also spending on water bills ;) So it really is smart!)

#3. Create a strong front door! — “Creating a strong front door is important, because your house needs it in order to be able to attract Wealth Chi. The front door is called the Mouth of Chi in feng shui, and its strength and auspicious energy are important to a good feng shui house.” – TheSpruce.com (Also recommended: not keeping trash or recycle bins around the front door, getting rid of empty pots (or filling them with plants!), and then keeping the hinges squeak-free for “better balance and harmony”…)

#4. Keep your house decluttered — So you can attract, and *keep*, the energy of wealth! Not to mention better piece of mind, ease on finding stuff faster, less money out the window on more “stuff,” and thousands of other non-feng shui-related benefits ;) The power of minimalism, baby!

#5. Remove dead flowers and branches from your house — “Dead or dried flowers or branches represent dead chi – they are the worst thing to have in your home.” – LearnVest.com)

#6. Decorate your house with symbols of wealth — Like bamboo, fountains, fish symbols, “wealth crystals”, and then a number of colors that signify money as well like gold and purple.

#7. And then lastly, make sure your “money area” is prepared! — “Typically, this is your home office where you manage finances and other work. You will want to include elements like wood, which represent money and wealth. The color blue and pictures of rivers, lakes, and oceans represent water, which nourishes the wood. You can also use mirrors, plants, and small icons that symbolize prosperity.” – TheSpruce.com

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And that’s just the tip of the feng shui iceberg… If I had another 1,300 hours I’d list out all the other tips you could dig up, but for now you’ll just have to be good with front doors and toilet bowls :)

And turns out I actually lied up there to y’all! We HAVE talked about feng shui and finances before on this site! 10 years ago! –> “Is Your Home “Making” You Spend Money?”  I guess I had blocked it out after all these years due to the colorful commentary, haha…

Here was my favorite from Bridget:

“Seriously? You always have such great posts, what’s with the voodoo garbage you’re hocking today? Maybe after we all feng shui our homes, we can pray to Jesus for money. If he’s broke this month we’ll ask Buddha.”

(Much funnier to read now than back then ;))

But she has somewhat of a point.

You can feng shui your house all you want, but without the most important ingredient, ain’t nothing going to save your finances no matter how you re-arrange your place. And I think you know what that is:

TAKING ACTION

Using feng shui to get your mind and energy flowing right is great, but just make sure you’re tacking on some good ol’ fashion budgeting and investing along with it. Unfortunately there really isn’t any substitution for it, as much as we wish otherwise!!

So big thanks for the fun digression today, Auntie, but I’ll be sticking to my trusty FIRE path as it’s continued to flow just fine for me over the years ;) You can bet that I’ll now think of you every time I go to use the bathroom though! Haha…

Happy flowing!

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This post was originally shared in 2018, but had to bring it back in case anyone’s looking for something to do while stuck at home ;) A cleaner place = a cleaner mind at the very least, so you really can’t go wrong either way! See how many of those items you can check off and let us know what happens!

[This post, 7 Ways to (Financially) Feng Shui Your House, was first published by J. Money on Elite Edge Money]