Lazy Man and Money

Ultra Frugality Mode Activated!

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From the beginning of starting Lazy Man and Money, I’ve been a proponent of both saving and investing. I’ve found that this is kind of an unusual stance amongst personal finance bloggers. While most everyone agrees that both are important, I usually see them lean heavily in one direction or the other.

I don’t think there is necessarily a right or wrong way to work. I know people who make six figures that begin with a crooked number, but they have little savings. There are others who don’t make a lot of money, but they find a way to squirrel it away and watch it grow to financial freedom.

The math is extremely simple, the different between what you make vs. what you spend equals freedom. You can create more freedom, or get freedom faster by making more or spending less.

I believe in the two equally, probably more than most personal finance bloggers. That’s why you can go from one article yesterday: Time to Buy Yahoo Stock? to today’s article about becoming extra frugal.

With that long-winded explanation out of the way, our family has embarked on a mission to kick the frugality up a notch for a couple of months… at least as much as possible.

Why the sudden change?

One of the tenants moved out of one of our investment properties. The kitchen cabinets and counters were the original ones from the early 80s… and I don’t think they were particularly well-made then. Even with a small kitchen and the most basic cabinets, the costs kept rising and rising. We thought it would be around $6500, but legitimate, though hidden costs started to creep in. And then there was the mold removal from a pipe that had been leaking for who knows how long. By the time we are done, we’re probably going to put 10-12K into this.

That’s a lot of money to spend in a month, especially when you don’t have a tenant in the property to pay rent.

None of this is really a surprise and I’ve created spreadsheets to depreciate and amortize most of the major maintenance. At the same time, it’s psychologically a big deal. That’s one of the interesting factors at work here.

Seeing a big drop in available cash is never a good thing. When it comes from one account it can seem worse than it is. My wife and I ran a comprehensive net worth that we tend to do every few months. The result was that we still had a plenty of accessible cash… it was just spread in a few different accounts (some mine, some hers, some shared). This was a huge step in mitigating the psychologically big hit.

The other interesting thing is that it triggered us to move into an “ultra frugality” mode. Well, maybe not “ultra”, but “very, very mindful.” Here are some changes we found we could make nearly right away:

  • Eat Out Less – We have an Entertainment-type book and though we feel like are getting a good deal, we are not saving money with it. We’ve been using it a lot this summer to “get out of the house.” By a lot, I’d say about twice a week, not five times or anything like that. We should be able to cut it down a bit.
  • Eat Down the Food – We have a chest freezer and it’s full of food. We also have shelving units full of food. I got most of this food by stocking on great deals. Now it’s time to eat it down. We’ve challenged each other to make each meal with something from this storage. Aside from staples like milk, the hope is to not have to spend money to bring in more food for little while.
  • Have “Limited Spend” Days – My wife had Friday off and we paid for day care anyway, so we took the kayak to the beach and paddled around a bit. (Now you know why there was no article last Friday.) Saturday we took the kids to a free playground. Little Man (2 years old) had a ton of fun. Mini Man (8 months) enjoyed watching and doing a little crawling. Sunday, I watched the Patriots play one of their worst 2nd halves of football in the last 14 years. As they say, “Two out of three ain’t bad.”

    We still ended up spending money on these days… but it was small amount.

We’re also trying sell excess stuff Ebay. In some ways, that amounts to drop in the bucket, and it can be a lot of work, but every little bit helps.

It sounds like a perfect plan except for two things.

The annual financial blogger conference is this month. That’s in New Orleans. Fortunately, I literally wrote the post on how to visit New Orleans on a budget. Also, finance companies sponsor lunches and the occasional libation. (Note to any such companies reading this, please send me your invites.)

The other thing is a two-week trip to Aruba a couple of months later. We have our Marriott Vacation Club time share that was bought a decade ago now. I’ll be applying everything from Save Money in Aruba and Save More Money in Aruba to minimize expenses.

I think what it comes down to is that I’ve always been frugal with my purchases, trying to maximize value. However, over the next couple of months, I’ll try to combine that with an eye towards not spending money at all, when it is reasonable.

Found Our Investment Property

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Remember a few weeks ago, when I wrote that we were looking to expand the real estate empire, despite our tenant troubles?

It didn’t take us long to find the property that I was looking for. It turns out that there were three condos that were all competitive. One was asking $105,000, one was asking $102,500, and one was asking $96,000. The cheapest place, as you would expect, required a lot of work. The most expensive actually appeared to be lower quality than the middle-priced property. That made it easy to eliminate. We put that aside and only look at it if the negotiations for the $102,500 one went sour. This middle-priced property had almost everything going for it. It had some nice extras, good paint, great staging (the couple just lives like Martha Steward as it was their stuff), newer appliances, etc… the works.

That left a choice between two properties. The real estate agent saw what was coming. I love a good bargain and I thought that we could get the cheap one even cheaper, fix it up and have a great property. It was a better layout (in my opinion) and it was a little bit bigger, so when everything was done it would be one of the better places in the complex. (This would be due to the “newness” of everything, we weren’t going to put SubZero fridges in or anything). My wife, on the other hand, definitely preferred something that was already “done.” Even though I’d be doing most of the calling with contractors, such things do inevitably bleed into her workload.

We went to lunch, where I surprised my wife by saying that she was completely right in going with the polished property as our first choice. It’s good to be able to surprise her after ten years. We’re already pretty busy people with the aforementioned tenant problem and the new boy coming. If we can get 80% of a great deal for 5% of the work, it beats 85% of a great deal for 60% of the work. (Hopefully that sentence makes sense to others and not just in my own head.)

My wife confessed that while she was previously a little nervous about the whole idea of an investment property, having a move-in-ready (or is it “rent-away-ready”?) property definitely made it seem better. We decided that we’d look at the cheaper place as a back-up only if negotiations went sour. Back at our real agent’s office we debated between placing a bid at $95,000 and $97,000. The sellers had given several signs that they were eager to move on, so we went with the $95,000 starting offer. To our surprise, they took it, no questions asked!

We’ve still got a few minor hurdles to cover for the closing, but nothing that’s a show-stopper yet. When all is done, we’ll have a place with a very sweet 6.05 price-to-annual rent ratio. If you read my previous post, you’d know that this is extremely low, which is a very, very good thing for building a real-estate empire. I’m keeping my figured crossed.

My real estate agents’ husband, who is also an investor, brought up an interesting question about investing in condos. He prefers 2-families and 3-families that have no monthly condo fees. He was wondering why we’d want to pay those, which directly cut into the profits. I explained that we don’t mind the condo fees. They go towards things like roofs, exterior paint, driveways, snow removal, and landscaping that we’d otherwise have to pay for… and manage. In many ways the condo fees gives us half of a property manager. In addition, condo fees go towards amenities like tennis courts and swimming pools, that some tenants are looking for. Our real estate agent supported the decision adding that the properties that we have attract a higher quality of tenant, those starting families, than the ones they had. It was a great discussion though, and one worth considering if you are thinking about investing in real estate to rent.

Update: We were able to close on this property, but there were some last minute title issues that were thankfully solved by my favorite Massachusetts real-estate lawyer, who has guided me through a few purchases now. I hadn’t had a title issue in the past, so I presumed that step in the process was a little like throwing money away. Turns out it is money well-spent.