Landlord Report – September 2017

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…. This report will actually capture the past two months; I have been busy and could not keep my regular posting schedule.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Other topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) it took. I want to show the world being a landlord is a wonderful thing.

Throughout this process I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income and allow you to buy back your time faster. Please feel free to contact me with any questions – happy to provide insight.

The Landlord Report – September 2017

landlord

This month had two minor items to mention.

The first was a small repair or rather an odd occurrence at rental property #3.

The second, was a house keeping item at rental property #1.

September in general was an uneventful month and only a few hundred dollars shy of a marked another perfect month (a month with no expenses or repairs) for my rental portfolio.

Full disclosure – October (next month) will be juicy. A sneak peak – vacancies, leaky faucets and raccoon invasions!

Digressing back to September…

The table below outlines all my income and expenses for the past month month:

As you can see, September was another great month for my rental property portfolio. Rental property #2 had a perfect month. Being a landlord is great. Rental property #1 and rental property #3 had minor expenses (see below for details).

Rental Property #1

The Starter Home

Rental Property #1 Summary

In summary, rental property #1 – earned $81.76 and I spent 15 minutes of my time collecting the rent. This is $300 less than the previous month since I had to pay $300 for some significant landscaping.

The current tenants have not been the most active in maintaining the back yard. Weeds, trees and other vegetation were starting to take over the backyard. 

The backyard actually looked more like a jungle. Unfortunately, I did not take a picture before the guys cleaned the place up. Total time spent for the backyard took about 15 minutes worth of phone calls.

My mortgage debt dropped by $734.79 from my monthly mortgage payment. When considering principal reduction, I came out ahead $816.55; not bad for 30 minutes of time.

Rental Property #2

The Fixer-Upper

The tenants paid their rent of $4,000 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. There were no repairs or expenses this month, which is AWESOME! And something that happens more frequently than you may think. Damn, it feels good to be a landlord.

Rental Property #2 Summary

In summary, rental property #2 – earned $1,591.43**. I spent maybe 10 minutes of my time depositing the checks with my smart phone. As a result, I earned $1,591.43 for 10 minutes of effort!!! September 2017 was a great awesome PERFECT month for rental property #2. Does this income beat your day job?

My mortgage debt decreased $716.29. When factoring paying down my debt, rental property #2 made me $2,307.72.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

This was the third full month for rental property #3. The utilities were $280.21 this month, which was about the same as last month. This includes water and gas for the entire building along with electricity for one of the units.

One of the tenants accidentally locked themselves’ out of the kids bedroom. This resulted in about an hour of my time and $8.97 for a new doorknob.

Also, I had to drill through the existing lock, stop by Home Depot and install a new doorknob. Fun fact, I installed a doorknob that does not lock. This will not be an issue moving forward.

In summary, rental property #3 – earned $1,526.74 and I spent only an hour of my time managing this property.

Rental Property #3’s mortgage debt also decreased $402.23. When factoring paying down my debt, I earned $1,928.97

Portfolio Summary

In summary, I spent about 2 hours of my time maintaining my portfolio of rental properties.

The landscaping expense at rental property #1 was mildly annoying but manageable and worth the expense.

The minor repair expense at rental property #3 was less than $10.

Overall, I was very happy with my rental portfolio

In September, my rental properties provided me with $3,199.93 in cash flow. There is nothing like (mostly) passive income.

My mortgage debt decreased $1,853.31 last month which further increased my net worth.

Factoring in repayment of debt and cash flow, my rental properties earned me $5,053.24.

What else can you do for 2 hours and make this kind of income? Being a landlord and owning rental properties sounds pretty good, right?

Q3-2017 Dividend – The Dividend Report

As many of my readers may know, I love dividend stocks and believe dividends provide a great source of passive income. Moving forward, I will be providing quarterly updates regarding my dividend income. Utilizing ‘The Dividend Report’ section of my blog, I will share my progress towards my dividend goals. I will also share dividend growth stock ideas and thoughts. Additionally, I will share the rational behind any future purchases or sales. Dividends are truly a wonderful thing.

The Dividend Report

The current goal is to average $1,500/month in dividend checks. I would like dividends to provide between 25-33% of my monthly retirement income. However, this goal may be revised upwards over time.

Q3-2017 Dividend Income

When creating this quarter’s dividend report, I was slightly discouraged by the results. Why? Well my dividend income quarter over quarter actually decreased. However, this quarter’s dividend progress (or lack their of) is misleading and I look forward to sharing Q4-2017 data in January.

My Q3-2017 dividend income was $537.76. Last quarter (Q2-2017), my dividend income was $686.46. This equates to a $148.70 or -21.6% decrease from the previous quarter. The decrease is solely due to a few of my larger 401K holdings not providing a distribution during Q3-2017. I know this is a bit odd but some of the funds also do not provide a Q1 dividend. Ultimately, it all balances out as the funds provide two dividends in Q4 (October and December).

Last year’s Q3 dividend income was $521.31. This equates to a $16.45 or 3.15% increase from the same quarter last year. However, this figure is a bit misleading. Why? Well this time last year I was still at my old job which had four regular quarterly dividends.

In past four quarters, my total dividend income was $3,066.74 (~$16 increase annually). I am proud to report that my dividend income is continuing to trend upwards. This growth is fueled by my individual stocks increasing their dividends and continuing to invest (mostly via index funds).

Even more so, I am excited to see my dividend income for Q4-2017 as I will have two distributions from many of my funds. I am expecting that my 2017 annual dividend income will increase nicely compared to 2016.

My average monthly dividend income is now $255.56 ($3,066.74 / 12 months = $255.56), which is 17.04% of my current goal of $1,500/month. I am only am now almost 0.1% closer to my goal; Previously I was at 16.94% of my goal. This is a bit misleading as I switched jobs in the third quarter of last year. Next quarter will show a more meaningful measurement

The graph below outlines my quarterly dividend income dating back to Q1-2013:

The table below outlines my quarterly dividend income dating back to Q1-2013:

 

New Purchases

No individual stock purchases in Q3-2017. Currently, I do not see many (any?) undervalued dividend growth stocks. The market is STILL at all-time highs and I cannot justify buying an individual stock at these levels. I am patiently waiting for a pullback to present a buying opportunity. It’s tough to make sense os current valuations. Maybe I am crazy and missing the boat (on individual stocks). At least I am buying index funds as I am automating my way to financial independence.

What is a House Hack or House Hacking?

House hacking’s popularity has increased over the past few years. Bloggers and podcasts alike are discussing the topic. Twitter is tweeting about house hacking. Heck, house hacking allowed me to go from a negative net worth to over $500,000 in 4 years. But….

What is a House Hack or House Hacking?

Simple.

House hack noun – an owner occupied property that keeps the owner’s cost of living low. This is achieved by renting out extra rooms or apartments. In some cases the owner makes a profit while living at the property.

House hacking verb – the act of living in a house hack to keep one’s cost of living low or getting paid to live while living in said house hack.

Example:

Bob: Dude, Joe just bought a duplex and will use it as a house hack.

Jessica: Yeah, Joe will rent out one unit while living in the other. I heard his tenant’s rent is $300/month more than the mortgage.

Bob: House hacking sounds amazing; I bet Joe will be financially independent in no time.

A house hack or house hacking sounds pretty good right about now, right?

Ways to House Hack

Single family homes and multi-unit buildings with four or fewer units are two common property types used for house hacking. Why? Because the financing options are attractive and it’s easier to qualify for a loan. We will get more into the financing options later.

house hacking

Single Family Homes

Single family homes provide a great way to house hack, especially for younger people that are single. The single family house hack is not rocket science. In fact, it’s very simple.

The following steps will help you house hack with a single family home:

  1. Buy a home with multiple bedrooms. The more rooms the better. Seriously, find a property with three, four or five bedrooms. Or, find a property that you can add a room or two to.
  2. Advertise the extra room(s) for rent. I recommend using resources like Craigslist, Zillow or Apartments dot-com; these sites provide free listings. Paying for marketing is silly in the age of technology. I market my properties this way and have enjoyed great success finding roommates and tenants.
  3. Host an open house to meet prospective roommates/tenants.
  4. Have interested renters fill out a rental application.
  5. Screen your applicant(s). This includes landlord references, credit checks and employment verification. Hint: this should all be in your application.
  6. Select your tenant(s), collect the security deposit, first month’s rent and sign the lease. Make sure you have a real estate attorney review or prepare your lease. Attorneys are an important member of your real estate team.
  7. Move in and have a beer.
  8. Sit back and get paid to live.

Sound simple enough? Thought so. House hacking is not rocket science.

Multi-unit Buildings

Multi-units buildings with four or fewer units provide another great way to house hack. Duplexes (2 units), triplexes (3 units) and quads (4 units) can be financed with low down payments or conventional financing. FHA will provide a loan with as little as 3.5% down on owner occupied properties that have four or fewer units.

Also, anyone at any point in life can utilize this house hacking method. Some people may be turned off by the single family house hack if they are married or have a family.

Steps to multi-unit house hacking:

  1. Buy a property with two, three or four units.
  2. If the property is not fully rented when you buy the place, advertise the vacant unit(s) on Zillow, Craigslist or any other free marketing site.
  3. Show the vacant unit to potential renters.
  4. Have interested renters fill out an application.
  5. Screen your applicants. This includes landlord references, credit checks and employment verification. Hint: this should all be in your application.
  6. Select your tenant(s), collect the security deposit, first month’s rent and sign the lease. Make sure you have a real estate attorney review or prepare your lease.
  7. Tenants move in.
  8. Sit back and get paid to live.

The multi-unit house hack offers a few advantages over the single family house hack.

First, house hacking with multiple units allows you to not live with your tenants.

Second, the income from the other units counts towards your income to qualify for the loan.

Third, multi-unit house hacking generally provides better cash flows.

Also, multi-unit buildings reduce vacancy risk. Assuming you move out of your house hack (single family home or multi-unit), there will inevitably be a vacancy one day. With a single family home, its binary – you either have a renter or you do not.

A four unit building allows you to weather vacancies much easier. If you have four tenants and one leaves, you are still collecting rent on 75% of the building.

How I have House Hacked

My first property was also my first attempt at house hacking. The house was a 3 bedroom/2 bathroom duplex of which I owned only one side of the duplex. I bought this property less than a year after graduating college and rented the two extra rooms.

This property served as a great house hack by keeping my cost of living extremely low. Equally as important, I did this in the Washington, D.C. area which is a high cost of living (HCOL) city. House hacking is possible almost anywhere if you are willing to search for opportunities.

Currently, I live in my 2nd (of 3) property which was a fixer-upper. The house was built in 1910 and had 3 bedrooms/1.5 bathrooms. After a complete gut renovation, the house has 5 bedrooms and 2.5 bathrooms. I currently get paid to live at this house. This is my best house hack so far.

I also had the honor of appearing on The FIRE Drill Podcast where I shared my experiences house hacking and path to FIRE. The FIRE Drill podcast is awesome and I highly recommend checking it out.

You can also listen to the podcast here:

Examples of House Hacking

There are several great stories about people using house hacking to build wealth, keep their cost of living low and achieving financial independence. You can find a house hack most anywhere. Below you will find four great examples of house hackers house hacking around the country.

Gwen from Fiery Millenials

Gwen from Fiery Millennials was kind enough to guest post about her first house hack earlier this year. She was only 26 when she bought her triplex.

Gwen and her triplex

Gwen also shares more about buying her first house hack with a VA loan.

Her triplex is a great example of house hacking in the midwest. I recommend following her journey; she writes about  what it’s like to be a live-in landlord, renovating her property, dealing with contractors and even EVICTING tenants.

Coach Carson

Coach Carson bought his first house hack with private financing. The property was a quad (4 units) and a fixer-upper. He fixed the property up, lived in one unit, and rented the other three. Nothing like getting paid to live somewhere.

Coach Carson’s house hack before renovations

Coach Carson’s quad was in a college town in South Carolina. In addition to house hacking, he has successfully invested in real estate for more than a decade and owns dozens, yes, DOZENS of properties. His blog is definitely worth reading. I also recommend checking out his online real estate courses.

Coach Carson’s house hack after renovation
Erik from The Mastermind Within

Erik bought a a single family home which he uses as a house hack. He rents the extra rooms to friends and former roommates from when he was a renter. Erik provides a great example of single family house hacking and an example of house hacking in the North (Minnesota – not the midwest, right?)

Bonus, Erik shares REAL NUMBERS for his house hack. He is in his mid 20s and house hacking increased his net worth by more than $100,000 in two years; very impressive guy.

Scott Trench from BiggerPockets

Scott Trench from BiggerPockets has a great story about house hacking in expensive markets. He lives in Denver, which is provides many potential challenges.

Denver is a higher cost of living city, the local real estate market is on fire, and the market is not friendly for first time home buyers. Despite these obstacles, Scott was able to find a great house hack close to Downtown Denver. He proves that house hacking is possible in most any city.

Buying a House Hack with Little Money

Real estate is a wonderful thing. In some instances it can be a great investment that provides passive income. Unfortunately, real estate also requires at least some money.

Why? Well, in order to purchase real estate you must have money for a downpayment. The days of $0 downpayment loans are essentially gone unless you are a veteran or active military. BUT! You do not need to be Warren Buffet to buy real estate either. There are plenty of options that require less than a 20% downpayment.

FHA Loans

FHA loans require a 3.5% downpayment and provide a great way for young investors or those with little cash to buy a home. This type of loan is a great way to break into house hacking.

The loan requires the home to be the buyer’s primary residence and can be used to by a single family home or apartment building with four or fewer units.

FHA loans are easier to qualify for since the underwriting metrics allow for a debt to income ratio (DTI) up to 50%. Most ‘conventional loans’ will not allow a borrower’s DTI to exceed 41-43%.

FHA loans offers a lower interest rate compared to conventional loans but the lower interest rate is negated as borrower’s are required to pay PMI (private mortgage insurance).

Given that FHA loans are subsidized by the government, some fixer-upper properties may not qualify. FHA loans require that the home be in decent shape.

I used an FHA loan for my first house hack. About a year later, I refinanced to lower my monthly payment and get rid of my PMI.

As of June 2017, the median home price in the United States was $258,300. A house hack that costs the median price would require a $9,040.50 downpayment. With some planning, frugality and side hustling, many can save this amount in a year (or less).

Bonus fact – if you buy a two, three or four unit property with an FHA loan, you can count 75% of the market rate rents on the other units towards your income to qualify for the loan.

203k FHA Loans

Similar to the traditional FHA loan, 203k FHA loans are subsidized by the government and require a 3.5% downpayment. Borrowers also enjoy the easier underwriting metrics which make it easier to qualify for the loan. The 203k FHA loan can be used for either type of house hack (single family or multi-unit) and also has PMI.

So what is different about this loan? The property can be in any condition. In fact, this type of loan is great for ugly homes that are falling apart.

Guy, what are you talking about?

Well, the 203k FHA loan allows you to buy a home in any condition. Why? Because this loan product also lends you additional money to fix up the house.

Want a new kitchen or bathroom? Boom, roll the work into your loan.

Want to buy the ugliest house in a gentrifying neighborhood and completely renovate it? Boom – this is the loan for you. In fact, I used a 203k FHA loan for rental property #2.  This property needed a complete renovation and I replaced almost EVERYTHING.

So, what’s the catch? The closing process takes longer. The government requires a certified 203k FHA inspector to inspect the property and monitor draw request. The loan also requires a licensed contractor and scope of work prior to closing.

The permitting process requires a modest amount of time and energy. Rehab/construction funds will only be released after the inspector and contractor sign off on the work. The loan also requires that all work must be completed within six months.

If you are willing to put in the effort time and energy, 203k FHA loans provide a great way to build sweat equity and buy a house hack with a small downpayment.

VA loans

Veterans and active members of the military have access to VA loans. This loan product is a great benefit for members of the military. VA loans do not require a downpayment and typically provide the lowest possible interest rate.

Similar to the FHA loan products, VA loans require the property to be in good condition. Most fixer-uppers will not qualify for a VA loan. Also, the closings process for VA loans does not move quickly.

VA loans provide a great way for members of the military to break into house hacking since no downpayment is required.

Benefits of House Hacking

The average American spends roughly a third (32.9%) of their income on housing. In larger cities like San Francisco, New York City and Miami renters often spent more than 50% of their income for housing.

House hacking allows individuals to reduce their housing expenses dramatically. Some house hacks will require an owner to pay only 10% of their income to housing, which frees up an extra 20% of income for saving and investing.

The best house hacks eliminate housing expenses for house hackers. By house hacking, some individuals are able to free up to 33% of their income that would otherwise be consumed by renting.

Successful house hacks give house hackers the ability to easily increase their savings rates. The higher savings rates and increased investing shortens the time to financial independence.

To Sum it All Up

In summary, and to simplify the benefits of house hacking, you save a shit ton of money. In some instances you even make money.

More money saved means more money available for investing. More funds available for investing means acceleration towards financial independence….

Financial Independence allows us to buy back our time. More time = more cowbell

What are your thoughts on house hacking? Do you own a house hack? After reading this post, do you have plans to house hack? Or, do you think house hacking is crazy and reserved for us weirdos?

We are currently working on a house hacking guest post series and would love to hear your story about house hacking. Please comment below. Oh and we are not sorry if you were offended by our demands of more cow bell 

Update: The Giving Challenge

A few weeks ago, I challenged my readers and the personal finance/FIRE blogging community to assist with the Hurricane Harvey recovery efforts through The Giving Challenge.

What Was the Giving Challenge?

I wanted our generally privilege community to stop focusing on high savings rates, real estate investing and passive income for a moment. Instead, I wanted our community to focus on giving back and helping those in need.

Asking people to donate is simply not enough. So, I offered major incentives to entice people to donate. How?

First off, I offered to match up donations dollar for dollar up to $1,000/day for five days. If we did not reach $1,000 at the end of each day the challenge would be over.

Second, in addition to matching donations, my employer would also match any donation I made. Now every donation people submitted would be matched 2:1.

A small $5 donation would turn into $15 of aid for the victims of Hurricane Harvey. In some instances the donations we received were also matched by donors’ employers. This means a in some instances a donation of $5 turned into $20.

Sounds a lot like compound interest, right?

How did it go?

Donations were slow at first. Disappointment sank in with the lack of interest or people not sharing their donations during the first few hours of the Giving Challenge.

However, the word slowly started to spread and donations picked up over time. After five hours, The Giving Challenge raised over $600 and we hit the first $1,000 mark in less than 12 hours.

This was a good sign. Reaching $1,000 also meant that the challenge would make it to at least day 2.

People began sharing the Giving Challenge with others and the donations started to flood in. Some individuals were very generous and gave large sums of money. While others sent in a note saying that they could only spare $5 or $10 but still wanted to help those in need. Both types of donations were equally important.

The challenge was very successful. Thanks to the generous donations, we were able to max out all 5 days. These acts of kindness gave me more faith in our society. While the news displays nothing but chaos, it’s refreshing to see selfless and caring acts from dozens of donors.

In summary, we received $5,056.92 in donations. Of those donations, other employers matched $232.00. I matched the $5,000.00 as agreed and my employer matched my donation with $5,000.00.

Thanks to everyones efforts and caring donations, we raised $15,288.92 for the recovery efforts in Houston and the other areas impacted by Hurricane Harvey.

P.S. – here is proof of my donation:

Keeping the Party Going

As you may know, I have worked on several houses both for myself and with Habitat for Humanity. Several homes in the Gulf Coast region are going to need extensive repairs. This will require significant amounts of time and money.

With that said, I would love to set up a volunteer trip and help restore a few homes. If anyone is interested in taking a week off to volunteer with such work, please let me know. It would be awesome to get one or multiple groups together.

Landlord Report – August 2017

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…. This report will actually capture the past two months; I have been busy and could not keep my regular posting schedule.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Other topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) it took. I want to show the world being a landlord is a wonderful thing.

Throughout this process I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income and allow you to buy back your time faster. Please feel free to contact me with any questions – happy to provide insight.

The Landlord Report – August 2017

landlord

This month was rather uneventful. August marked another perfect month (a month with no expenses or repairs) for my rental portfolio.

The table below outlines all my income and expenses for the past month month:

guy on fire

As you can see, August was a great month for my rental property portfolio. Rental property #1 and rental property #2 had perfect months. Rental property #3 also had a perfect month; the expense item is my share of the utilities for the property.

Rental Property #1

The Starter Home

Rental Property #1 Summary

In summary, rental property #1 – earned $381.76 and I spent 5 minutes of my time collecting the rent. How? Well, I had dinner at a restaurant down the street and stopped by on my way home. My mortgage debt dropped by $701.94 from my monthly mortgage payment. When considering principal reduction, I came out ahead $1,083.70; not bad for 5 minutes of time.

Rental Property #2

The Fixer-Upper

The tenants paid their rent of $4,000 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. There were no repairs or expenses this month, which is AWESOME! And something that happens more frequently than you might think. Next month will require a bit of yard work; thankfully the weather will be mild.

Rental Property #2 Summary

In summary, rental property #2 – earned $1,591.43**. I spent maybe 10 minutes of my time depositing the checks with my smart phone. As a result, I earned $1,591.43 for 10 minutes of effort!!! July 2017 was a great awesome PERFECT month for rental property #2. Does this income beat your day job?

My mortgage debt decreased $714.11. When factoring paying down my debt, rental property #2 made me $2,305.54.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

This was the second full month for rental property #3. The utilities were much higher this month and I am hoping it was an anomaly.

One of the units utilities are included in their rent and I pay the water bill for the entire building. This expense costs me $270.85.

In summary, rental property #3 – earned $1,554.07 and I spent only an hour of my time managing this property.

Rental Property #3’s mortgage debt also decreased $401.51. When factoring paying down my debt, I earned $1,946.58

Portfolio Summary

In summary, I spent less than 20 minutes of my time maintaining my portfolio of rental properties. Rental property #3 utility bills will be interesting to observe. I decided to have one unit with utilities included. The other tenant pays for their utilities (except water). This experiment may be a bit costly but we shall see.

In August, my rental properties provided me with $3,518.26 in cash flow. There is nothing like (mostly) passive income.  My mortgage debt decreased $1,817.56 last month which further increased my net worth. Factoring in repayment of debt and cash flow, my rental properties earned me $5,335.82. What else can you spend 20 minutes and make this kind of income? Being a landlord sounds pretty good, right?

The Giving Challenge: Making Your Donation Go Further

I would like to take a moment and step off my soapbox where I normally shout about dividends, passive income and why being a landlord is awesome.

Rather, I would like to use this post and platform to raise awareness and discuss a humanitarian issue. No, I am not about to go on a political rant. I can promise you that I never will either.

As I am sure you are aware of by now, the Gulf Coast region of Texas is in a state of emergency. Hurricane Harvey dumped record amounts of rainfall on the gulf coast, left a path of destruction with hurricane strength wind, and flooded one of the most populated cities in America.

It’s still too early to know the true damage caused by this powerful storm, however it’s safe to say that thousands upon thousands of men, women and children are in need of aid. Countless people are without food, shelter, water or dry and clean clothes. People’s entire lives have been washed away by this storm.

The victims of Hurricane Harvey need our help.

The Giving Challenge

All too often in the personal finance, financial independence, and investing blogosphere we get lost talking about money and reaching our goals. What we do not discuss often enough is our privilege and giving back to society. I am not going to rant on about how great we have it; you should already know that by now.

This is a public challenge to all of you (bloggers and readers alike) to donate to Hurricane Harvey relief efforts. Moreover, I am going to incentivize all of you to donate with this giving challenge.

But what do I mean by this?

I am going to match all of your donations dollar for dollar up to $1,000 for the next 24 hours. If we reach this lofty goal, I will extend the challenge for another day and another $1,000. Given that I am not Warren Buffet or Mark Cuban this challenge will be capped at $5,000 (of 5 days of giving).

BONUS – my employer will match my contribution dollar for dollar. SO your contribution will actually be matched $2 for $1. If your employer matches donations (many of them do) your contributions will be matched $3 to $1.

What you need to do

Ok, so now that I have convinced you to donate (if you are not convinced, go turn on the news for 5 minutes then come back) you are probably asking yourself what you need to have your donation matched?

 

  1. Select a creditable charity or nonprofit.

The Consumer Reports recommend the following: https://www.consumerreports.org/charitable-donations/best-ways-to-help-victims-of-hurricane-harvey/

NPR’s advice for donating: http://www.npr.org/sections/thetwo-way/2017/08/28/546745827/looking-to-help-those-affected-by-harvey-here-s-a-list

  1. Check to see if your employer will match your donation (many will; this will further increase our giving power)
  2. Donate to the charity.
  3. Email me (guyonfire.us@gmail.com) proof of your donation and that it has taken place after posting this article. Please let me know if you would like to remain anonymous; I plan to give a big shout out to all those who donate.
  4. Share this post with as many people possible

 

Let’s get out there and help those in need! Together we can all achieve more. Every bit helps. Your $5 donation can turn into $15-20.

Buying Back Time Through Financial Independence

Earlier this week I met with a client at their office. Two of my co-workers accompanied me in an effort to grow the relationship between our firms.

After the meeting, my two co-workers and I visited the Starbucks next door. While enjoying overpriced iced coffees (thanks corporate expense account) we debriefed the meeting and shot the breeze. We all agreed the meeting went well and then the conversation transitioned to careers.

My boss, who is a 58 year old male, joined our firm just over a year ago; he started two months before me. Prior to joining our company, he worked for two other companies; both careers lasted 10 years. His new ’10-year plan’ includes staying at our company for a decade and retiring at the ripe age of 68.

The other co-worker is a lady who joined our company a month ago. She is in her late 40s and sees herself working another 20 years. She dragged on for about 5 minutes outlining all of her wonderful accomplishments in her career; she thinks very highly of herself.

Out of the blue, she turned to me and said, “You probably have 40 years left in your career.” The statement completely caught me off guard and… well… honestly scared the living hell out of me. I am 27 and will be 67 in 40 years. No thanks.

I cannot imagine working another 40 years when I am 4 years (or less) away from financial independence. In my mind, the worst case scenario is working another 10 years which means her prediction would be off by 30 years.

Her comments really got me thinking… Why do we choose Financial Independence (FI)? And, how much time does FI save us?

Let’s start with the former… but please stick around for the latter, you are going to like what I have to share (hint: it’s really cool).

Why do we choose FI?

Recently, I posted a poll on twitter asking the twitterverse why we choose FI (see below for results)? The responses were entertaining and enjoyable to read.

Two poll options received an overwhelming majority of the vote. The options ‘spend more time with family & friends’ and ‘pursue other interests’ combined for 84%.

The common theme with both these options… We value our time and desire flexibility and freedom to do what we enjoy.

I am pretty sure no one on their death bed ever said, “gee, I wish I spent more time working.” – IF they did, I feel sorry for them.

Zero Day Finance provided great feedback:

Your Average Dough – enjoys time her family & friends but its more than that. She wants her free time too. Bonus, there is nothing average about her; she runs a great blog.

Steve from steveonomics – his big bucket list is his motivator. I share this view as well. Many of my bucket list items are on hold as my 9-5 gets in the way.

We do not choose financial independence because we are lazy or entitled. Some of us do in fact hate our jobs (I am one of them), but many of jobs they enjoy… just not as much as the freedom on FI.

Choosing financial independence its much more than not wanting to work. Financial independence removes monetary needs from decision makings and allows us to focus on happiness.

Debts to Riches – provided great insight.

If I were to ask – “If you could do anything for the next 8 hours that brings you joy and happiness, what would you do?” –  I am almost certain work would not make the list of activities.

Better yet – if you had one last day to live and you could do anything you wanted with unlimited resources at your disposal, what would you do? Something tells me those TPS reports would not make the list.

Value Investor understands the value of short term pain for long term gain. He is willing to put the time in upfront to buy back decades of his life.

Digressing back to time…

Buying Back Time

So… How much time does FI save us? Obviously it’s not just working 20, 30, or 40 years since we all are afforded the *luxury* of nights, weekends and holidays.

According to multiple government reports, the average American work year consists of 2,087 hours. If my co-worker’s assumptions are correct, I have 83,480 hours of work in my future (2,087 x 40 = 83,480)

There are 8,760 hours in a year (24 hours * 365 days = 8,760). Still assuming her assumptions are correct, my career will consume 9 and half full years of my life (83,480 / 8,760 = 9.5 years).

Being trapped on the hamster wheel and wasting away 9 and half years of my life in a cubicle is not an option.

I can think of 100 ways to better spend my time. Volunteering, traveling and time with loved ones are the first three that come to my mind; maybe not in that order.

Time Vs. Money

In life there are two limiting factors to most everything, time and money. Money is my second most valuable resource. In modern society money serves as the medium of exchange.

Before there was money, people were stuck bartering for goods. Below is a quick story to demonstrate why having a medium of exchange is beneficial.

Imagine, I am a farmer that grows corn.  Now imagine that I have two neighbors, Bob and Tom.

Bob and Tom raise hogs and make shoes, respectively.

Trading with Bob is great. I provide him with three baskets of corn so that he can feed his hogs. In return he provides me with 5lbs of bacon. Who doesn’t love bacon?

One day while walking back from Bob’s house, I noticed the sole of my shoe gave out. Damn – now I need a new pair of shoes.

So, I walked over to Tom’s house hoping to trade some fresh corn for a new pair of shoes.

Tom said, “I do not want your stinkin’ corn. I like bacon and pork chops!”

Well, this sucks…. So I had to go all the way back to Bob’s house to trade corn for bacon. Then go back to Tom’s house to trade bacon for shoes.

BUT, by the time I got back to Tom’s house he no longer wanted bacon.

Tom said, “Bob was over here early to buy his family shoes. I have no need for bacon. Now I want peaches.”

You gotta be kidding me. The only person who grows peaches is three towns over….

See how annoying bartering is? Having a medium of exchange simplifies life. Money saves everyone time and energy.

Finally, there is no shortage of money or limitations to how much money an individual can have. I can make millions, loose it all and make it back again. Heck, there are stories out there of people doing this several times.

Time, however, is the most precious and FINITE resource we have. There is absolutely NO WAY TO GET MORE TIME. If you have a way to make more time (you don’t) please email me; I will make it worth your time.

Introducing the FI Time Saving Calculator

Without further ado, I would like to introduce the FI Time Saving Calculator (also see below).

Let’s assume the average American plans to retire at 67. Some retire earlier than this while others are less fortunate and may need to work past the age of 67. Some are actually crazy enough to WANT to work past age 67 (read more below).

For every decade of retiring early, FI buys you back 20,870 hours. This would be 870 days, or 124 weeks or 2.4 years.

Every year of retiring early provides 12.4 weeks of time that will not be spent in an office or working for the man. This is 1/4 of a year or about 3 FULL MONTHS.

I hope this calculator provides a new way to look at FI and helps you find your why.

This exercise really changed my perspective on FI. My career  has never provided enjoyment, purpose or fulfillment. Rather, I am happiest when I am helping others, enjoying nature, spending time with loved ones and exploring the world.

I look forward to reaching FI and buying back my time so that I can pursue what really matters to me in life.

What are your reasons for choosing FI? How much time will FI save you?Did you realize how much time you will buy back through financial independence? Do you know your why and how you will spend your time? Please discuss by leaving a comment.

Solidifying and Automating My Way to Financial Independence

Recently, I shared how I went from a negative net worth to over $500k in 4 years. The past four years have provided a great foundation for financial independence. However, I still need to think through a few items and finalize my plan. My rental properties provide great monthly income but I will need more than rental income to leave Corporate America in the dust.

The following actions will get me to my goal retiring early:

  • Automate investing
  • Increase dividend income
  • Increase assets in non-retirement accounts
  • Buy one more rental property
  • Budget & Spending
  • Debt Reduction
  • Cash buffer

Automation

Like a car on cruise control I want to automate my path to financial independence. Paying bills sucks. In fact, I have over 20 bills I must pay every month. Going forward I want to will automate as much of my life as possible. This will free up more of my time, reduce stress, and eliminate the possibility of late payments.

Likewise, I also want to automate a portion of my investing. Moving forward, I will be opening up a new brokerage account. A portion of every paycheck will be directly deposited into this account. The funds will go towards weekly purchases of a low-cost index fund.

Also, I am not giving up on dividends. This strategy will allow me to dollar cost average into the market AND increase my dividend income (index funds pays dividends).

I am fortunate to save a lot of cash every month, however, I am not comfortable with so much cash sitting idle. These funds are not providing a return. I plan purchase index funds while saving for another investment property.

The brokerage account will be with Vanguard. I looked at several options and all the major brokerage firms offer low cost index funds. However, Vanguard does not charge you a commission when you buy their funds. Vanguard’s funds also offer one of the lowest expense ratios to manage the fund. This will save me hundreds or even thousands of dollars over the next few years.

Increasing Dividends & Non-Retirement Account Investments

Dividends will provide 25-33% of my income when I achieve FIRE. Ideally, I would like an average of $1,500/month in dividend income.

Most of my stocks and index funds are in retirement accounts (Roth IRA & 401K). There are ways to access these funds early, however, I would like to increase my non-retirement account balances and dividend income.

As previously mentioned, this will be accomplished by regularly buying index funds. Additionally, I will continue to buy undervalued dividend growth stocks when the opportunity presents itself. Divided growth stocks provide a great hedge against inflation since most dividends grow faster than the rate of inflation.

Buying One More Rental Property

My rental property portfolio currently consists of three properties. The portfolio provides quality passive income which is evident by last month’s Landlord Report.  However, I would like to purchase an additional rental property before stepping away from my day job. 

Why?

My first property was an accidental rental. I bought the place to keep my cost of living low and to house hack with roommates; they paid most of my bills. The cash flow from rental property #1 is not very strong. The other two properties provide great cash flow and were bought with the intension of being rental properties.

Adding one more property with strong cash flow will greatly improve my (mostly) passive income. In fact, the cash flow from an extra property will likely help me hit my estimated FIRE number and cover most (all?) of my annual expenses.

Also, there is a good chance rental property #1 will not be rented once I go FIRE (more on that below).

Solidifying a budget/spending

Several members in the FIRE community track spending and budget religiously. I do not have an exact budget and may never make one. Additionally, I am unable to report my monthly spending since I do not pay close attention to my spending habits.

I do have a general idea of my expenses and could guestimate my income needs. However, we do not want to leave FIRE planning to guess work.

Over the next year or two I will hone in on my spending habits. Knowing how much I spend every month will help determine how much I need to save and how much income my rental properties and stock portfolio must generate.

My current goal is $45,000/year in passive income. However, I believe my spending is closer to $30,000 annually. Fun fact, I lived on less than $1,000/month for two years after graduating college.

Clearly I need to do some work in this department to finalize my FIRE plans. Determining my spending needs may show that I am a lot closer to FI than I anticipated.

Debt Reduction

Debt is a wonderful thing. Debt also has the ability to crush dreams. One of my goals is to pay off all debts except my mortgages before going FIRE.

When I graduated college, I had five figures of student loan debt. I have always paid more than the minimum payment and I am aggressively paying down my student loans. My student loans still have a few thousand dollars outstanding. This must be crushed before I can claim FI

In my FIRE life, I plan to have rental property #1 paid off (or very close to paid off). This house will serve as my ‘FIRE HQ’. I love the location and the neighborhood is very walkable. Additionally, the house is one block away from a major running/bike trail; this trail connects to over 100 miles of tails.

The upkeep on the house is minimal given it’s small size. The utilities are very manageable for the property; this will help keep my cost of living low.

The Cash Buffer

Cash is king.

I plan on having three years of living expenses in CASH when I step away from my job. Why?

Well, this will allow my portfolio to grow for three years without taking any distributions. This will likely translate into the ability to safely withdraw more funds in the future than if I were to start withdrawing funds day one. In fact, this may lead to me using a withdrawal less than 4.0% rule.

The cash buffer will also provide protection if there is a down market or recession during the first few years. I will not have to sell when prices are low and avoid losing money.

Peace of mind and further accumulation are two other reasons I would like to have three years of living expenses in cash when I retire.

The cash buffer will protect me from catastrophic events. Perhaps I will incur a large medical bill or need to replace a roof. Cash has my back.

I will be able to pocket my rental property income as well during this time and potentially reinvest the proceeds.

Lastly, I am fiscally conservative. The cash buffer will dramatically increase my chances of FIRE working.

What steps are you taking to solidify your FIRE plans? Have you automated your life as much as possible? Have you thought about a meaningful cash reserve?

Landlord Report – July 2017

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…. This report will actually capture the past two months; I have been busy and could not keep my regular posting schedule.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Other topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) it took. I want to show the world being a landlord is a wonderful thing.

Throughout this process I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income. Please feel free to contact me with any questions – happy to provide insight.

The Landlord Report – July 2017

landlord

This month was rather uneventful. I was one plumbing problem away from a perfect month (a month with no expenses and repairs).

The major highlight revolves around being the ‘Midnight Plumber’. Ok, the phone call came in at 10:30pm but midnight plumber sounds cooler. One of my tenants called me because the apartment’s plumbing was backed up and water was flooding into the kitchen sink.

Reluctantly but willingly, I got out of bed and drove 20 minutes to rental property #3. A few minutes with the plunger fixed the toilet.

The kitchen sink still filled up if water was running for an extended period of time. I took apart the P-trap and cleaned out debris. The problem was still not fixed. The plumbing for the kitchen sink needed to be snaked.

The next morning I gave a quick phone call to my handyman. He went over to snake the drain. Problem solved

The table below outlines all my income and expenses for the past month:

guyonfire

As you can see, July was a great month for my rental property portfolio. Rental property #1 and rental property #2 had perfect months. Rental property #3 took still had a great month despite the plumbing problems.

Rental Property #1

The Starter Home

Rental Property #1 Summary

In summary, rental property #1 – earned $481.76 and I spent 20 minutes my time collecting the rent on my way home from work. My mortgage debt dropped by $787.57 from my monthly mortgage payment. When considering principal reduction, I came out ahead $1,269.33

Rental Property #2

The Fixer-Upper

The tenants paid their rent of $4,000 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. There were no repairs or expenses this month, which is AWESOME! And something that happens more frequently than you might think.

Rental Property #2 Summary

In summary, rental property #2 – earned $1,591.43**. I spent maybe 10 minutes of my time depositing the checks with my smart phone. As a result, I earned $1,591.43 for 10 minutes of effort!!! July 2017 was a great awesome PERFECT month for rental property #2. Does this income beat your day job?

My mortgage debt decreased $711.64. When factoring paying down my debt, rental property #2 made me $2,303.07.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

This was the first full month for rental property #3. As I previously mentioned, we had a small plumbing problem at rental property #3 this month.

The repair took an hour of my time and also a phone call to my handyman. He was kind enough to snake the drain for free since I recently referred him a lot of work.

One of the units utilities are included in their rent. This expense costs me $80.40.

In summary, rental property #3 – earned $1,735.52 and I spent only an hour of my time managing this property.

Rental Property #3’s mortgage debt also decreased $398.50. When factoring paying down my debt, I earned $2,134.02

Portfolio Summary

In summary, I spent 1 hours and 30 minutes of my time maintaining my portfolio of rental properties. Rental property #3 is FINALLY up and running. And guess what? It’s kicking butt!

In July, my rental properties provided me with $3,808.71 in cash flow. There is nothing like (mostly) passive income.  My mortgage debt decreased $1,897.72 last month which further increased my net worth. Factoring in repayment of debt and cash flow, my rental properties earned me $5,706.42. What else can you spend an hour and a half on and make this kind of income? Being a landlord sounds pretty good, right?

Together Everyone Achieves More: Building an All-Star Real Estate T.E.A.M.

guyonfire

T.E.A.M, the acronym commonly found in sports locker rooms and offices around the country, is a cheesy saying designed to promote collaboration. In fact, my boss has this written on his whiteboard and I am forced to see this message everyday.

Despite the acronym’s corny nature, the statement contains a lot of truth. The same holds true for having an all-star real estate team. You cannot expect to succeed in real estate on your own and will need to surround yourself with a team all-stars if you wish to succeed.

Most people believe a real estate agent is the first person to to engage; this is a common misconception.

Lenders

First and foremost you will need a lender or mortgage broker. This is the MOST IMPORTANT PLAYER ON YOUR TEAM. I kid you not, your lender, banker, or mortgage broker should be a perennial M.V.P.

Lenders, bankers and mortgage brokers all serve the same function; their job it to get you a loan. There is little difference between the three. My personal preference is a mortgage broker since brokers typically have a larger number of products to offer.

A quality lender is a game changer for your team. Lenders are very knowledgeable and will help determine your buying power. A good lender offers various loan products. The products may vary based on down payment, fixed rate or adjustable rate, and loan term (how long until the loan matures).

Additionally, your lender will provide you an approval letter. This document is required for submitting an offer on a house (unless you are buying all cash). Approval letters legitimize your ability as a buyer and provide sellers comfort in your offer.

I highly recommend going with a seasoned lender who has experience closing loans. This is not a position you want filled by a rookie.

The Real Estate Agent

The real estate agent is the second most important team member. Truthfully, most agents are horrible and not worth their commission.

However, when you find a quality agent you now have a master negotiator and someone who knows the market like the back of their hand. If you are interested in rental properties, you should not be looking for just any agent. Preferably, your agent is an experienced investor.

You want to find an agent who owns and/or manages investment properties that provide POSITIVE cash flow every month. This type of agent will assist you in analyzing deals, provide insight to market rents and help you avoid any pitfalls.

The Inspector

Never buy a property without a home inspection. Let me repeat that. NEVER buy a property without a home inspection. NEVER EVER! You are about to invest tens or even hundreds of thousands of dollars to buy property. Do NOT skimp on the inspection.

A quality inspector will tell you everything you need to know about the property. The inspector’s job is to look under every nook and cranny; if there is a problem they will find it. The inspection may take a couple of hours. Be patient – its worth it. Your real estate agent will refer an inspector if you do not know one.

I ended up walking away from the first property I ever had under contract. Thankfully, I had the guidance from my lender and real estate agent to order a home inspection. A simple home inspection saved me a small fortune.

At first glance the property looked great. The house was modestly renovated and reasonably priced. On the surface everything looked great. However, the inspector found a BIG problem.

The attic access was painted shut. After cutting into the paint to open the hatch, he discovered an alarming problem. Most of the beams for the roof were rotted out and moldy. The roof and all of the framing would need to be replaced. This was a serious problem. Walking from the property saved me a tens of thousands of dollars and countless headaches.

INSURANCE

Like the property inspection, insurance will protect your investment. Insurance brokers are boring and mundane but provide a vital service. Banks will require that you have insurance. On the off chance you are buying all-cash, you should still purchase insurance. Why would you spend a small fortune to have a renter burn the place down and lose everything? Insurance protects you from those “oh shit” moments.

In addition to insuring the property, most policies provide liability coverage up to $250,000. The liability coverage will take care of accidents such as someone slipping on ice or cover legal expenses if are sued you for a indecent that took place at the property.

Furthermore, you can purchase an umbrella policy. This type of policy is in addition to your home owner’s policy and protects you and everything under your ‘umbrella’. I highly recommend an umbrella policy once you have more than a few properties. The policies are affordable; $10-$20/month will get provide well over $1 million in coverage.

Role players

Not every player can be an all-star. You will need a few role players to round out your real estate team. Each role player has a specific skill set that is only needed during crunch time or an emergency.

  1. The LICENSED electrician – unless you enjoying being shocked and know what you are doing, I highly recommend finding a LICENSED electrician. Electricians are hard to come by but good to know. Want a new light fixture installed? Need a heavy up? Bought an old house and need to install new GFI outlets in the kitchen and bathrooms? Or perhaps the property is so old the entire electrical infrastructure needs to be replaced. An electrician, more specifically, a LICENSED electrician can help with all of these problems. You should only use a licensed electrician; bad electrical work could lead to bigger problems such as fire.
  2. Mr. Plumber – plumbing problems will almost certainly occur if you own rental properties long enough. Some problems may even require a plumber. This team member can assist in snaking drains, installing new fixtures, outdoor faucets or assisting in the building of a new bathroom.
  3. HVAC – ever lose air conditioning during the hottest day of summer? What about heat during the coldest day of winter? That shit sucks! Having a reliable HVAC repair person/company is vital. Without one, you may be stuck with nagging tenants begging for a hotel room until heat/ac is restored.
  4. Appliance guy – refrigerates, ovens/stoves, washers, driers and dishwashers are typically cheaper to repair than replace. Having a great appliance repair person will save you a small fortune. Ideally, you would like an individual or company capable of repairs all appliances. Additionally, you would want a quick turnaround (next day or two).
  5. The Generalist – Jack of all traits and a master of none. You will want a generalist to round out your team. This member is capable of doing various small and medium size products and repairs.
  6. The Lawyer – When push comes to shove, you want a quality real estate attorny in your bullpen. A good lawyer can help you review lease agreements, navigate the local landlord-tenant laws, and assist in any legal proceedings. Be sure to find an attorny with local real estate knowledge.
Finding Your Teammates

There are many ways to find your teammates. Generally, your real estate agent will be a good referral source.

Also, I highly recommend going to local real estate investing clubs. These events are great for networking, finding likeminded individuals and mentors. Additionally, attendees at such events will likely refer you to potential teammates.

You can also ask your existing team members. I once found a plumber through my electrician; they worked on a job together a while back. This is a people business and its who you know.

Your local home improvement stores like Home Depot might be a good way to find a few team members. Perhaps will bump into a handyman/generalist in one of the isles. You may also find an electrician picking up wires.

Also, you should always request recommendations or references before hiring a team member. Hiring the wrong person is costly mistake and a project will quickly go over budget if you have to replace them. Save yourself headaches by doing your due diligence up front.

Lastly, I highly recommend that all your team members are local. You do not want to depend on someone who is an hour away and three towns over. Having local team members makes them more accessible and cuts down on repair times.