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Last year, I introduced the concept of why you should consider buying a home with an FHA loan. In the original post, I outlined the ‘base case’ for this series based on historical data. We also discussed the merits and disadvantages of using FHA loans. Additionally, we covered the requirements for an FHA loan.

Some object to FHA loans because of Private Mortgage Insurance (PMI) The base case assumed annual property appreciation of 5.4%, which is the historical average over 40 years. Under the base case scenario, new homeowners could refinance their loan and get ride of their PMI in less than three years. The homeowner’s financial wellbeing also exceeds the renter.

Part II – Modest Inflation

In Part II of this series, we are going to look at what happens if property values increase at a slower rate than the historical average. In the base case scenario, we assumed a 5.4% annual appreciation which was the historical average over 40 years.

Today, some may argue that property values increasing by 5.4% annually is too aggressive. This scenario will assume a more modest assumption of an annual appreciation of 3.0%. We will assume the same purchase price, down payment, and monthly PITI (principal, interest, tax, and insurance) payment as the base case. Additionally, we will keep our monthly rental assumption of $1,492 in place.

As of March 2017, the US Existing Home Median Sales price was $236,600. Buying a home with an FHA loan requires a 3.5% down payment.  A prospective homeowner would need $8,281 for a down payment if they were buying a home with an FHA loan. Yes, I know its 2019 but we are using the same data for each scenario. This makes things more apples to apples.

The table below breaks out the down payment, loan amount, and monthly mortgage expenses associated with buying a home with an FHA loan. The FHA loan interest rate is lower than a conventional mortgage by 0.25% to 0.50%. This is because of PMI.

Purchase Price	$236,600
Down Payment	$8,281
Loan Amount	$228,319
Interest Rate	4.00%
Amortization	30 years
P&I	$1,090.03
PMI	$133.19
Taxes	$177.45
Insurance	$50
PITI	$1,450.67

For comparison purposes, a prospective homeowner would need $47,320 for a 20% down payment. That’s $39,039 MORE than what it would cost to buy a home with an FHA loan.

Ask yourself, how long would it take you to save an additional $39,000?

Saving Per Month	# of Months Required	Years
$100	390.4	32.5
$250	156.2	13.0
$500	78.1	6.5
$750	52.1	4.3
$1,000	39.0	3.3

Depending on your savings rate, it may take you between 3 years and 3 months or over 30 years to save up for a 20% down payment. Buying a home with a low down payment is starting to seem more attractive, right?

That’s because it is. But this is not the only factor to consider. While saving for your 20% down payment, more of your income is going towards rent. Time does not stand still while you are renting. As time passes by, property values are generally appreciating.

Using the same assumption as before, the table below illustrates how much you may spend on rent while saving for a down payment. The rent calculation assumes today’s median rent of $1,492/month. This figure does not include any rent increases or account for inflation; you will likely pay more given rents go up over time.

Saving Per Month	# of Months Required	Years	$ Spent on Rent
$100	390.4	32.5	$582,462
$250	156.2	13.0	$232,985
$500	78.1	6.5	$116,492
$750	52.1	4.3	$77,662
$1,000	39.0	3.3	$58,246

Property Values Continue to Increase

Likewise, property values generally increase over time. In this scenario, we assume property values will increase by 3.0% each year.

Let’s assume you have enough money saved for a 3.5% down payment based on today’s median home price. However, let’s also assume you wanted to put 20% down instead of buying a home with an FHA loan. Today you have $8,281 but you would need $47,320 to avoid PMI. This means you are short $39,000.

Let’s also assume you can save $500/month towards your down payment. At this pace, you will accumulate $47,320 in about six and a half years. A lofty goal, but not unreasonable if you are dedicated.

But, during the same time property values continued to grow. The median home price is no longer $236,600. While you were saving for the past six years the median home price increased to $282,513.

A 20% down payment is now $56,503.  You are now $17,464 short of having a conventional downpayment and still cannot avoid PMI. This means if you wish to avoid PMI, you’ll have to save even longer, and continue paying rent. Meanwhile, property values are probably still increasing.

The table below shows how much more you’ll need to save based on your savings rate:

Saving Per Month	# of Months Required	Years	New Home price	New 20% Down Payment	Gap
$100	390.4	32.5	$609,265	$121,853	-$82,814
$250	156.2	13.0	$347,455	$69,491	-$30,452
$500	78.1	6.5	$282,513	$56,503	-$17,464
$750	52.1	4.3	$266,295	$53,259	-$14,220
$1,000	39.0	3.3	$258,539	$51,708	-$12,669

Now, let’s take a look at what would have happened if you bought a home today instead of waiting for a 20% Down payment. The table below shows how much principal, interest, PMI, taxes, and insurance were paid for each of the first four years.

Year	Total P&I	Interest	Principal	PMI	RE Tax	Insurance	Total	Loan Balance	Property Value	LTV
1	$13,080	$9,060	$4,021	$1,598	$2,129	$600	$17,408	$224,298	$243,698	92.0%
2	$13,080	$8,896	$4,185	$1,598	$2,129	$600	$17,408	$220,114	$251,009	87.7%
3	$13,080	$8,725	$4,355	$1,598	$2,129	$600	$17,408	$215,759	$258,539	83.5%
4	$13,080	$8,548	$4,533	$1,598	$2,129	$600	$17,408	$211,226	$267,494	79.0%

The table also shows the loan balance decreased while the property value increased over time. Based on this scenario, the homeowner would achieve 20% equity somewhere between years three and four.

The lower inflation scenario, compared to the base case, suggests it will take the homeowner an additional 12-months to get rid of their PMI. Upon doing so, the homeowner would experience $133/monthly savings.

The Economic Benefit

At the end of year four, the homeowner accumulated $56,268 of equity. This includes $8,281 from their down payment, $30,894 from the property’ value appreciating over four years, and $17,093 from paying down their mortgage

Property Value @ the end of Year 4	$267,494
Original Property Value	$236,600
Equity From Appreciation	$30,894
Down Payment	$8,281
Original Loan Amount	$228,319
Loan Amount @ the end of Year 4	$211,226
Equity from Principal Reduction	$17,093
Total Equity @ the end of Year 4	$56,268

After four years the homeowner would have paid their loan down to $211,226 and the property would be worth $267,494. The homeowner’s loan to value (LTV) is now 78.9%. This means the homeowner now qualifies for a conventional loan and can refinance to get rid of their monthly PMI payments. Heck, the owner could even refinance the closing costs into their loan and pay no out of pocket costs.

In this scenario, buying a home with an FHA loan now would have been better than renting.

The rental alternative

The renter would have spent $1,984 more on rent over four years than the homeowner spent on their mortgage payment (principal, interest, taxes, insurance, and PMI). The renter also missed out on over $30,000 in equity through appreciation. Additionally, the renter will never see their rent money again. The homeowner pocketed $17,093 by paying down their mortgage. After four years of savings, the renter still may not be in a position to make a 20% down payment on a home.

Buying a home with an FHA loan or low down payment has many benefits. In the future, we will continue to explore other scenarios.

Future posts will include the following scenarios:

The Base Case – Buying a home with an FHA loan or low down payment

Slightly more conservative approach:  Modest Inflation

The Flat Scenario: No inflation

Booming market: The Austin Housing Market

Making Extra Payments

House Hacking Scenario

House Hacking and Extra Payments

The Bust Case: When the housing market corrects

Doomsday Scenario

As many of my readers know, I love dividend stocks and believe dividends provide a great source of passive income. Quarterly, I provide updates on my dividend income, dividend goals and if I buy dividend stocks.

Using ‘The Dividend Report‘ section of my blog, I share the progress of my goals. I also share dividend growth stock ideas and thoughts. Additionally, I will share the rationale behind any future purchases or sales. Dividends are truly a wonderful thing.

The Dividend Report

For over three years, I have been working towards the same goal. I want my average dividend income to provide $1,500/month. As I solidify my path to financial independence, I want dividends to be 25-33% of my monthly retirement income. This goal may be revised upwards over time. I track my dividend income with Personal Capital and store the data on a Google Sheet.

In case you were wondering, real estate will provide the rest of my retirement income.

Q2-2019 Dividend Income

2019 is my 7th year of tracking dividend data! I’m making some huge progress this year. I cannot believe I’ve been tracking my progress for so long. It’s true what they say, what gets measured gets improved. It’s fun to watch the progress I’ve made over time.

The graph below shows my dividend income history since 2013:

The table below shows my dividend history since 2013:

As you can see from the chart and graph, my dividend income has slowly and gradually increased over time. This is one of the many joys of compound interest and dividend growth stocks. You can also see the presences of exponential growth in my dividend income.

Q2-2019 vs Q2-2018

Last year’s Q1 dividend income was $987.86. This quarter I earned $1,667.79. This is $679.93 or 68.83% more compared to the same time period last year. Imagine if your job paid you 60% more this year. There are two main reasons for the large increase in my dividend income. First, I have more money  invested. Second, most of my stocks keep increasing their regular dividend payments. I also drip (dividend reinvestment plan) some of my dividend stocks. This means each quarter I own more shares of the same stock and collect even more dividends.

This quarter vs. last quarter

My Q2-2019 dividend income was $1,667.79. Last quarter (Q1-2019), my income was $1,288.85. This is a $679.93 or 52.75% increase from last quarter. The strong improvement is partially from individual stocks increasing their dividends and continuing to regularly invest. I still buy an index fund every week and aggressively contribute to my 401k.

Progress towards my goal

My average monthly dividend income is now $538.88 ($6,466.57 / 12 months = $538.88), which is 35.93% of my goal of $1,500/month. Previously, I was at 32.15% of my goal. I hope to build off this success and get even closer to my goal this year. My stretch goal is to achieve $1,500/month by the end of 2019. Candidly, this will be near impossible. However, I will continue to offensively build wealth and invest regularly.

New Purchases

I made no new individual stock purchases in Q2-19.

Hey readers, friends, and fellow bloggers. Yes, I am still alive (and well-ish).

I owe all of you an explanation of where I’ve been and what I’ve been up to. I have not posted in almost 4 months and nor have I shared any explanation.

Well, sometimes life becomes hard. The past few months have been physically and mentally trying. At times I’ve been stressed, happy, tired, depressed, energetic, and burnt out. Also, sometimes life deals you a shitburger and you just have to eat it (more on that later).

This post may ramble but will provide some updates on my life, work, rental property portfolio, my dividend investing and what to expect going forward.

Life

Well, a lot has changed over the past few months of my life. First, I moved out of my tiny room. You know the room that was only 52 square feet. If you are not familiar with my prior living arrangement, you can have a good laugh by reading my guest post on Steve from Think Save Retire’s site.

This decision was for my mental health and to improve my quality of living (big thanks to Gwen at Fiery Millennials for pushing me in this direction). I had enough of extreme minimalism after 3 years and 4 months of living in a room many would consider uninhabitable. I moved into this room when I was 25. Now, as I approach 30, this arrangement is not as cool or enjoyable. Sure, I am not making as much by living in my house hack, but that’s ok. I am still getting paid to own my home which is way better than paying rent in one of the most expensive cities in the country. Besides, it’s not all about money anyway.

I’ve also had some fun this year in the form of hockey and travel. Things got weird in Austin, Texas for one of my best friends’ bachelor party. Wild time and great city.

I attended game one of the Caps/Canes series where the Capitals won. I also took a road trip to visit a college buddy for game three in Raleigh where Ovi knocked out Svechnikov; unfortunately, that was the only Caps victory of the night.

In March, I travel hacked my way into a mostly free 10-day vacation in Portugal. The trip was fun and provided a great cultural experience. I spent time in Lisbon, Porto, and Sintra where I enjoyed awesome Portuguese food and watched the national team play Ukraine.

Naturally, we all have personal drama and family problems we must deal with. This has also been a time suck over the past few months. I won’t bore you with the details.

Oh, I’ve also been busy with work in ways that I haven’t experienced before.

Traveling for work

Last year, I shared that I accepted a new job offer. I’ve been at my ‘not so new’ job now for about 16 months. This year, my travel schedule has been insane and uncharacteristically frequent. I’ve been on a plane or train weekly for work (sometimes more).

Traveling for work sounds cool and fun but it quickly loses its sex appeal. Sure, collecting frequent flyer miles and hotel points is great. Oh and work pays for everything while I am on the road, so saving money is a nice perk. Not going to lie, I also DID enjoy my recent upgrade to a penthouse suite in Miami.

But being on the road also means not being at home. I spent three nights in my own bed in February. Traveling for work also means less time with family and friends. Frequently traveling for work leaves little time for running run errands and taking care of basic necessities like laundry. This has also presented a few challenges running my real estate side hustle which I will share more about later.

A longer work day and heavier workload were byproducts of all my recent travel. You see, when I am on the road, my day is often jam-packed with meetings. At the end of the day, there is usually a happy hour and/or dinner function with a client. Meanwhile, my email inbox fills up, my normal work responsibilities still need to be completed, and I fall behind. This leads to working more nights, early mornings, and weekends.

Unhealthy side effects of work

A longer commute accompanied my newish job. Most days I find myself spending between two and three hours in the car. This eats up a lot of my time. The longer commute means less time to work out, less time to focus on my business, less time to write, and less time with family and friends.

I also sit in my office on most days. My lifestyle has become more sedentary between sitting at work and commuting. This is something I absolutely hate and want to change. I biked to work once now that the weather is warmer. However, my commute is 20 miles each way (40 miles round trip) and something I cannot do regularly. Often, I need my car to attend meetings. Also, I’m not in triathlon shape anymore.

Work has also impacted my mental health and wellbeing this year. I am not particularly fond of the current work dynamics in my office. Some days have ended with me hating life because of my job. Some mornings have started with not wanting to get out of bed because of work. I crafted my resignation letter but am saving it for another day. I will not share too many details since this site might be known in the office now.

Technology Detox

I also intentionally stayed away from the blog, twitter, and technology for a while. I wanted to detox myself from extra information and distractions. Previously, I found myself living too much on the internet and not living in the real world enough. I am striving to be more present in life.

This detox was needed and great in many ways. Though, candidly, I didn’t have the capacity to post even if I wanted to. Between travel, work, and trying to have some social life, there simply weren’t any hours left in the day. As a human, I still need to eat and sleep and tend to normal life requirements like errands and laundry.

Real estate stuff & Landlord report updates

I have all the data to catch up on a backlog of landlord reports. If you are behind, you can catch up here. I did win the eviction saga and will share a full account of the eviction. Cool sneak peek- there were three guns drawn and the US Marshalls were in full tactical gear.

For the first time in my real estate career, I had an opportunity to ‘be the bank’. This was an investment opportunity I walked away from but look forward to sharing in greater detail with you. Long story short, someone I knew needed a partner on a deal.

Oh and that shit burger I mentioned earlier. Yeah, while my rental property portfolio is doing just fine, I have not been able to manage things as well as I would like. Hint, my job taking me away from makes it hard to manage properties well.

Dividend Reports

I am still tracking my dividend income as well. Q1-2019 Income was great and will come out later this week. I still love dividends and feel a jolt of excitement everything the dividend payments hit my account.

Existential crisis

For almost a year, I’ve been faced with an existential crisis. I am no longer driven by monetary gain. Making more money will not make me happier. I turn down opportunities because I value my time over money. My career provides no fulfillment, though, I never expected it to. I’ve viewed my career as a means to the end. However, it’s draining to do something five days a week when your heart is not into it.

This is a concept I will expand on in greater detail in a future post. I am 29 and will be 30 in less than a year. I want to make the most of my next 30 years, live a life of fulfillment and no regrets. More importantly, I want to live a life of meaning and impact.

Moving forward

Moving forward, I will continue to post. I will be more active in the community and twitter etc. I will try to stay current with the countless emails (keep them coming – I love hearing from all of you). At times, my posting may become irregular; I do have a life outside the blog. Until I quit my job, I will not have the bandwidth to run this site like a full-time business.

/end rant.