Real Estate Archives - Lazy Man and Money

One Solution to Planning College Expenses?

August 16, 2019 by Lazy Man 5 Comments

Nearly three years ago, I wrote, College Planning is Impossible (But Do It Anyway!). At the time My kids were just 2 and 3. The idea behind the article is that college costs vary so much, that there’s no easy way to plan for them.

If you want to be aggressive you could save a ton of money in a 529 Plan. That’s assuming you have a ton of money… which most people don’t. The downside to that (other than the lack of a ton of money) is that if you put too much in, you have to deal with penalties or other creative uses for 529 plans. Perhaps the best thing to do is just let the kids have the remainder for their kids… or maybe some schooling down the line.

Essentially, if you overshoot the 529 savings, your money is trapped. That’s not a terrible problem to have, but it’s less than optimal. You may even think that you are planning it well, but what if Jack/Jane gets a scholarship/grant or goes to a public school making the costs very different than what you planned?

College has just too many variables and you can’t plan for them…

… except we did. And I swear it was completely by accident.

Before I get to that I’d like to cover some ways to cover college expenses. Not all will be applicable to all families or students. There’s a lot of tools in the tool box and we hope utilize them all.

Covering College Costs

I focused on 529 plans above, because that’s the traditional savings vehicle for 529 plans. Sorry Mr. Coverdell… I have you, but you are mostly obsolete. Like Smelly Cat, it is not your fault. One of the reasons I got a Coverdell was that it could cover private school costs before college, but 529 Plans can do that now, thanks to the recent changes in the tax law.

How could one cover college expenses? Here are a few ideas:

529 Plans – That’s obvious one. It’s a great vehicle to saving money
Schoralships/Grants – It would be nice to get these. Some schools may give more than others, so our plan is probably to apply to a lot of schools?
Pay off adminssions – Just making sure you are paying attention. This certainly wouldn’t save you money. You might end up in the news… and not in a good way.
Student Loans – The old standby. It’s a big problem nowadays, so hopefully we can keep this down.
GI Bill – My wife’s military service gives benefits that we can split between the kids. I realize that not many people may have this option.
AP credit – If you can test out of a few classes, you can get some credit without having to pay for it.
Community College – Most community colleges are cheaper than traditional public and private universities. It may be possible to take some basic pre-requisits for cheaply and then transfer.

I feel that it is like having multiple income streams. The hope is that through some combination of the above (with minimal loans) paying for college won’t be impossible.

But we have one secret weapon that’s not listed above. We have rental properties. The mortgages will be paid off around the time the kids start college.

This means that we’ll likely have some $35,000 or so (after expenses) each year. Is it enough to cover college costs in 11-12 years? Who knows, but it will certainly help. The benefit of this accidental plan is that we don’t have to think about whether we are saving enough or too much in a 529 plan. If there’s extra money left over, that’s just living expenses.

So how might you be able to plan this more intentionally? Unfortunately, you’d need have the money for a good downpayment around when the children are born. Then with a 15-year mortgage, the timing should be right. Of course, it’s not great being a landlord while raising newborns. OF course if you have the money for a downpayment, you put it in a 529 plan and mabye expect it to quadruple (assuming 8% annual returns) by the time the child is in college. I think prefer the real estate plan, because it is more flexible.

I’m not saying you can do it too. Like my 6 year old’s new catchphrase, “Nope, not at all.” However, it is something that you may want to explore.

Your First Home Comes With Your First Mortgage – Here’s What You Should Know

June 30, 2019 by Guest Poster 2 Comments

Recently, I had a Twitter interaction that has had me thinking of going back to the basics in an attempt to reach some readers who may be towards the beginning of their personal finance journey. Around the same time, I had a guest post hit my inbox covering a topic that I had long forgotten – buying my first home. Enjoy this post from Lazy Man and Money reader, Ivana.

If you’re anything like me, you consider the purchase of your first home a milestone in your adult life. After all, nothing quite says “I’ve made it” better than owning a home of your own, and it signals a kind of stability that wasn’t really there in your younger years.

Of course, to get that far, you’ve got to get approved for a mortgage (unless you’re independently wealthy, and if so, I congratulate you). When I first went through the process, I hadn’t the faintest clue what I was getting myself into – and that’s a scary thought because my mortgage represents the largest single debt on my personal ledger.

As it turned out, I learned a great deal from the process. I just wish someone had sat me down and given me the lowdown on what to expect before I jumped in head first. If you expect to be in a similar position soon, you’re in luck. Here are some of the important things you need to know about getting your first mortgage, but didn’t even know to ask.

Lay the Groundwork, or Suffer the Consequences

The first bit of wisdom that I’ll impart here may seem obvious to some, but it never occurred to me before I applied for my mortgage: check your credit reports (all three, I’ll explain why later). The reason I say this is that your credit report may be hiding some surprises that you’d rather not encounter while sitting in front of a loan officer. In my case, I found out from my mortgage specialist that Experian was under the impression that I owed Verizon Wireless about $550 from an account I had closed in 2001. Interestingly, Equifax and TransUnion had no record of the balance.

It turned out that Verizon had not closed my account when I requested it, and instead let the balance continue to build until they sent it off to a collections agency. That agency had never contacted me and only reported the “debt” to Experian. The good news is that I was able to get it worked out and it didn’t impact my ability to qualify for a mortgage, but the lesson is clear: don’t let the fact that you’ve never paid a bill late fool you into thinking your credit reports are accurate. Make sure everything’s right in advance, and also do everything you can to lower your debt-to-credit ratio. Be aware that lenders extend the best offers to applicants with FICO scores of 720 or higher, so that’s where you’ll want to be before applying.

Choose a Mortgage, Don’t Let One Choose You

Another thing that I hadn’t considered when looking for a mortgage was just how many options there are. Seriously, if you’ve never shopped for a mortgage, you’ll likely be astounded by how many lenders there are out there. What’s even more shocking is that you’ll feel like you need an advanced degree to tell the difference between all of the mortgage products you encounter.

So first things first – learn all of the lingo and as much as you can about the various available mortgage types before you try to tackle a mortgage comparison on your own. You’ll need to understand not only the way interest rates work, but also what kinds of fees may be part of the loan (origination, title search, insurance), and any other closing costs that might (or might not) get rolled into your loan. Be aware that it’s going to seem like lenders go out of their way to make it difficult to compare these products, with opaque documentation and the like. Don’t be afraid to admit that you’re in over your head. Use a mortgage broker if you must. Whatever you do, make sure you understand your mortgage before you sign it – you’re going to have to live with it for a while.

Look Out For Gotchas

The last major thing I wish I’d been counseled on before getting my mortgage was all of the various little considerations that go into the mortgage package you’re offered. I call them “gotchas”, only because if you don’t understand what they are before you take out your mortgage, you don’t get a do-over. First, you’re going to want to make sure that your lender has approved you for a mortgage you can actually afford. That means informing them about your real monthly expenses as opposed to just what’s on your credit report. For example, if you have financial obligations like supporting an ailing parent, child support, or any other ongoing monetary responsibility, speak up! Remember that it’s the lender’s job to look out for their own interests – not yours.

Second, scour the details of your mortgage offer to look for things that may come back to bite you later on. The biggest one I encountered is known as a prepayment penalty. This common little trap is the lender’s way of extracting their pound of flesh from the borrower, come what may. The idea is, you’re bound by contract to only pay back a certain amount of your mortgage within specific timeframes. It exists so you won’t be able to save on interest by paying down your principal when you’re flush with cash. The thing many don’t realize, of course, is that such an arrangement doesn’t only apply to unexpected financial windfalls.

It also means (depending on the language in your agreement) that you’ll get hit with the penalty if you sell your home (since you’d be paying down the mortgage with the proceeds). It could also mean you can’t refinance if interest rates improve without paying the penalty, too. And if you’re thinking it’s no big deal, consider that the typical prepayment penalty is equal to 80% of six months’ worth of interest, which can be a hefty sum. The good news (if there is any) is that prepayment penalties typically phase out after one to three years, but if you’re subject to one, it may mean you’re trapped in your mortgage for that amount of time even if you have an emergency and need to sell your home.

Welcome to Homeownership

If you’ve made it this far, that should mean you’re at least twice as prepared to go out and get a mortgage than I was the first time out. Don’t rest on your laurels, though. What I’ve covered here is by no means encyclopedic – far from it. On the contrary, getting a mortgage is one of the most complex and consequential financial decisions anyone can make, and they come in all shapes and sizes.

That’s why the best bit of advice I could ever give to anyone who’s about to look for their first mortgage is to take their time. Do as much research as you can beforehand because the more you understand in advance, the less daunting the process will be. The results will be better, too. After all, the last thing in the world that anyone should want is to have the home of their dreams come with the mortgage of their nightmares. With any luck, I’ve done a bit to spare you that fate – the rest is up to you.

Editor’s View

My own experience was helped quite a bit by the support system I had. My mother was right there with me. My older brother was buying a house around the same time. One of my best friends, who I had lived with previously had recently bought his first house. My real estate agent was the spouse of a good friend. My closing agent was a groomsman at my wedding. It was almost impossible to imagine a better “Dream Team” of support.

Despite all that, I was still very nervous. So if you feel nervous, that’s to be expected. I hope you can surround yourself with at least a few people who have a lot of experience.

Starting Your Kids on a Financial Independence Path

May 16, 2019 by Lazy Man 9 Comments

Everyone is a product of where they focus their time and energy, right? As you can tell from this blog, much of my focus is on personal finance, especially financial independence. In my personal life, much of my focus is parenting two boys, ages 5 and 6.

Getting them started on a path of financial independence is inevitable. Given their age, we are working with simple things like chore charts and saving money for special toys.

One of my biggest concerns is the changes in the world. When I growing up in the 80s, I knew programing a computer was the future. Nowadays, retail stores and newspapers are closing. The automotive industry may nearly disappear as robot, on-demand cars may mean car ownership and driver jobs are a thing of the past. Artificial intelligence promises to disrupt more markets.

I know that most people think new jobs will be created. That’s probably true, but who knows if enough good jobs will be created. It seems that the current trend is replacing journalist jobs with influencer jobs. That should concern us all.

We can’t change where the world is going, but we can help prepare my kids. Here are a few things that we’re doing:

Teach Core Life Skills

This is a no-brainer. Some skills never grow old and can directly influence your bottom line. Here are the first two skills that came to mind. If you can think of more, I’d appreciate it if you could please drop me a line in the comments.

1. Cooking

Food is often one of people’s largest expenses. It doesn’t have to be. Eating out at restaurants is expensive. If you know the basics of cooking, going out to eat is less appealing.

We’ve got the kids enrolled in an after-school cooking class. They might not be learning much. (I’m still waiting to be served breakfast in bed.) However, they are learning and enjoying it. Those are the important things at this age.

In conjunction with learning cooking, I hope to teach the boys how to shop to save money. This will include updated versions of the following articles:

Being able to manage and limit one of their largest expenses can only help their financial bottom line in the future.

2. Handyman

I’m not handy at all. I can’t fix anything. I can barely work a screwdriver. If something breaks, I have to write a check.

That’s not good, especially for landlords like us. If you are good at fixing things and home improvement in general, you can create a lot of real estate opportunities with just sweat equity. You can fix up the house and move repeating the process over and over. You may even be able to keep the money tax-free when you sell. It may be a long time before artificial intelligence replaces carpenters and plumbers.

Perhaps someday, one of their jobs could be a managing our real estate “empire” and we could pass money and equity to them over time. I haven’t figured out exactly how this arrangement would work, but in theory there’s an opportunity there.

For now, I just want my kids to be better than I am with any handyman stuff. Home Depot has “kid workshops” once a month, but we haven’t had a chance to get to one yet. They also have workshops for adults, so maybe it’s not too late for me to learn a thing or two to pass on.

Personal Finance

I don’t think I’ll have to focus on teaching them too much about personal finance. I half suspect that they’ll learn it from osmosis perhaps like I did from my mother. However, I can give them a couple of boosts.

If they don’t master personal finance from osmosis, they can fill in the gaps with my Ultimate Guide to Financial Freedom. I’m hopeful that when they are older they’ll give their old man 10-15 minutes to read the Cliff’s Notes to financial success.

As a practical matter, I recently wrote about their kid Roth IRAs which will give them a head start in saving for retirement.

Education

Education is one of the foundations for a high-earning career. We’re investing a lot in private school now in hopes that it will set them on a great path for the future.

I’m still not sure that’s an optimal investment. For example, an episode of Teen Titans Go! (one of my favorite kid shows) brings up the idea that investing in a rental property is better than college. I don’t agree, but it’s an interesting topic. Of course, the Teen Titans teach a lot of personal finance.

Finally, it’s helpful that the the best financial independence book is actually a kids book.

Final Thoughts

One of things that I’m hoping to balance is giving an opportunity versus handing them too much. That’s why they are earning their kid Roth IRAs by picking up dog poop. That’s also why I think they would have to be property managers before they reap the benefits of the rental properties.

Buying a Home? You May Need a $100,000 Salary.

January 29, 2019 by Lazy Man 2 Comments

Today, I’m picking some low-lying fruit of the “newsy” variety. It comes straight from the top of my email inbox courtesy of Zillow’s Media Room.

I know the title gave it away. (I’m terrible with clickbait.) Zillow’s research found More Than a Third of Home Buyers Now Make More Than $100,000.

Before we break apart that title, let’s do a little commonsense math check. That means that nearly two thirds of home buyers make less than $100,000. You still have a better than average chance of buying a home if you make less than $100,000.

When I first read the article, I was thinking that it was a comparison of haves (home owners) and have-nots (renters). However, it’s really three groups: The getting (home buyers), the haves (already home owners, and the have-nots (renters). Usually the home buyers and home owners make similar household incomes, but lately it’s changed so that home buyers actually make a little more… an average of ~$80,000 vs. an average of $75,000.

The press release does a little analysis, but it’s a little confusing. It seems that maybe first time home buyers need to make a little more a year so that they can save a little more for a down payment. In other words, there’s nothing too surprising.

The renter income numbers were a little more interesting to look at. The average household income there was $38,300 or about half of the home buyers/home owners. Zillow points out that young and single people are more likely to rent (makes complete sense). Who would have guessed that a single person with one income might choose to rent, but change his/her mind if they pair up with a partner creating a second income? (That’s sarcasm.)

I think I takeaway two things from the article:

A rule of thumb to buying a home might be to have a household income of around $75K-80K.
As with all rules of thumb, the individual situation matters greatly. In this case, Zillow breaks down the numbers for some of the largest metros.

That second point is most likely the most useful information in this report. In Pittsburgh and Tampa, buyers are getting in ~$65,000. In New York or Boston, buyers are getting in at ~$120K. You can use the chart to see what your area average is. Of course few people buy an exactly average home, but at least it’s at least a number you use.

If you are an investor, you can even crunch the numbers a different way. It didn’t take me long to notice that Tampa’s earners are one of the lowest, but it’s renter earns nearly the national average. The renter makes 57% as much of the buyer. Maybe it makes to buy a property in Tampa and rent it out? They’ll likely be able to pay their bills since it supports a higher rent.

On the other end of the spectrum, Philadelphia’s first time buyers earn $98,000 (well above average) and the renters earn a below average $35,300. Their renters are making as much money as even Tampa and it looks like a tougher market to buy into in the first place. Spending more on an investment property if renters aren’t likely to pay as much doesn’t seem like a smart plan.

Zillow’s chart made it extremely to put in a spreadsheet and pull out these numbers. It was literally almost a full 60 seconds. Since it was so easy, I’ll leave it as an exercise for the reader (it’ll take me longer to upload it).

So what do you think? Did you find anything useful or interesting in this data? Let me know in the comments.

Should You Invest in Condo Hotels?

October 6, 2018 by Lazy Man 8 Comments

Happy Beach Dog — Beach Dog Says: I love my new condo hotel home!

I started writing Lazy Man and Money in 2006 due to a unique wake up call: My fiancé was going to retire at age 43, with a military pension due to 20 years of service.

Who wants to work another 22 years after their spouse retires? At the age of 30, I could look to retire in about 12 years with her, or work 3 times as long and retire at 66.

My mission: Explore and build income streams.

I didn’t know you could make money with a blog, but I did know that it could help you connect with like-minded people. (This was when social media was defined by MySpace.)

Around that time I had read that investing in hotel rooms was a hot new market. This isn’t just buying shares in publicly traded hotel company. This is buying something called a condo hotel.

What is a Condo Hotel?

A condo hotel is exactly what you may imagine it is: a combination between a condo and a hotel. Basically it works like this: You buy the hotel room as if it’s a condo. You can stay in that room whenever you want (it’s your room after all). Alternatively, you can release the room back to the hotel for a split of the proceeds when it’s occupied (the hotel gets money for managing it). The rules seem to be different for each property, but that’s the gist.

It’s legally managed like a condominium, but the operated as a hotel. When I first heard of this back in 2006, it seemed like a crazy, but cool idea. Nowadays, it makes more sense to think of it as a condo that you buy with the intention of turning it into an AirBnB.

Sounds like an exciting investment right?

Why I seriously considered buying a Condo Hotel

I find that often get enamored by the best case scenario.

Even if I had to pay fees for maintenance, at $150 a night is over $50,000 a year. This was also around the time that Paris Hilton was starring in the Simple Life. Not everyone is able to start or buy a whole chain of hotels. However, one room? That’s something that an individual investor might be able to do.

Around the same time that I was reading the article above, I had heard that the The W in Las Vegas was looking for investors. The main big investors were in place, but they were looking for individuals to buy in. That helps with their building costs too, right?

I was definitely attracted by four things:

It’s tempting to be a landlord and an hotel owner without having to do any of the maintenance, right? (Of course I’d still be paying for the maintenance, it’s just great not to get those 3AM calls about a broken water heater.)
The premium W brand and quality. At the time, I had a friend who traveled a lot for business and he really loved the W brand.
The premium tourist location – Las Vegas. When I think of people vacationing in Las Vegas, I presume that a certain large number have a lot of disposable income. I like the combination of people with a lot of money looking to spend it on a luxury experience.
The pre-construction pricing, which I presumed would be the best rates. While this is not always true, it feels like the early bird should get the worm, right?

Ultimately, I decided not to buy into the W condo hotel opportunity. If you’ve read the Wikipedia write-up that I linked above, you know I made the right decision. It sounds like it was an unmitigated disaster.

Why I didn’t buy a Condo Hotel

One of the easiest ways not to buy something is to literally not have the money. I might have been able to make some terrible financial decisions like sell off some retirement accounts (absorbing a big penalty) and leveraging a mortgage. That’s not a good idea for almost any investment scenario.

Let’s pretend that wasn’t an obstacle. When I reached out to the the organization planning it, I found that it was impossible to get all the numbers. For one, they didn’t know what vacancy rates might be. They certainly had a better idea than me as they were in the business and familiar with the area. I was working with no knowledge. If the place has a high vacancy rate, there’s not going to be a lot of profit for me to sell my room. (I’m not ready to buy a white lounge lizard suit so I would have needed it to be rented.)

However, even if they had good vacancy and nightly cost estimates, they couldn’t give them to me. If they give out that information, the condo hotel qualifies as a security to the SEC and gets regulated much more rigorously.

Where Can I find a Condo Hotel?

Typically condo hotels are in resort places like Orlando or Miami in Florida and, of course, Las Vegas.

I wish I knew some reputable companies to work with. This is why I felt a little better working with a big trusted brand. I don’t think I would have given my business to Joe’s Condo Hotel Sales ‘R Us. If you know a trusted, household name that works in this area, I’d love for you to leave a comment with that corporation’s name.

Lessons Learned from My Condo Hotel Experience

When I decided to do this review, I wanted to pluck out all my nose-hairs for even considering it in the first place. However, I as I reflect more about it, I am taking a more balanced view. I’m not sure if all condo hotels are a bad idea. Perhaps it could work for some people in some situations. I’m trying not to make a blanket judgment based on one ill-suited (to me) condo hotel that seemed to have difficulty.

After all, this condo hotel example is precisely why I started this blog. I wanted to share ideas to sort out which are good and and which are not so good.

I did find one example of someone who did find a condo hotel that works great for them. My friend J$ did the heavy lifting in an < href="http://www.budgetsaresexy.com/we-bought-hotel-room-called-condotel-live-in-it/">interview with someone who lives in a condo hotel.

I hoped that readers would help me by keeping me grounded from bad ideas. Along the same lines, I wanted to help others where I can as well.

It’s always great to have discussion around a topic. That why I am begging you to leave comments at the end. If there’s one topic that needs more discussion, it’s condo hotels. I rarely see anyone talking about them.