April '22 update

[Manybills]

As requested (YG), update on Manybills and family.

We are 18 months above water this month.

We do use cards and pay in full. No interest or late fees paid to date. Instead, they pay us a little.
We are working and hustling a LOT, but I did go a solid 3 months over the winter without overtime.

We paid off the rest of the mortgage, but hold the applause…

As of last week, we are right back in debt. We opened a HELOC in January and used it to buy a rental house last week. It wasn’t a great deal as far as ROI, cashflow, cash on cash, 1% rule and such, but it will help us in a couple of ways. We will pay this off entirely over 5 years at which point it will provide us a monthly income. At least that is the current plan, and we will revise as we go. This house gives us OPTIONS as to when/where/how to best invest week-by-week going forward. We are also helping our daughter by leasing it to her for a bit under market and insulating her from rising rents. She has taken great care of her previous dwellings and kept them immaculate. We consider her sort of a placeholder tenant for the next 3-5 years as we pay this off. It will also help her save for her own place.

Real estate people here are shuddering. How is that for a crap ton of red flags, haha? Well here we are. We have a plan. We’re making mistakes. We’re taking action and learning as we go. It isn’t yet clear whether this is our first rental or our last, but we’re in it and we’re learning.

As far as debt goes, that’s it. One heloc. I’m not yet sure if we will convert the heloc to a mortgage on the rental or just pay fast and furious on the heloc. Rates are rising. The heloc rate is low for now, but variable. Closing costs are under $1k if we go the mortgage route.

Meanwhile, we haven’t upgraded. We are living “poor.” We are good at pooring after all these years. Our home is tired. Our clothes and furniture and carpet are beat. Our vehicles are elderly. The lawn, landscape and mower are spent. We have achieved a decent spread between income and expenses at this point, but we’re basically investing it all. Living poor really sucks when you are broke, have low income, and can’t breathe. Pooring isn’t as bad when it is (sort of) by choice.

On other fronts, I need to re-read some of the ThyPeace advice about taking care of self, finding balance, etc. I think we’re at a place where that stuff can start to get more attention.

I want to thank you all for helping us out of a deep dark hole. As always, suggestions welcome. Here we go again, but not really.

[FuskieBP]

Sounds like you have a solid and functional plan that will give you a chance to learn and grow. Even with variable rates rising, it may take a year or two before they reach fixed rate levels from the time of origination. Of course, the longer you wait, the higher the new fixed rate will be, so you’ll just have to play it by ear. In 5 years, who knows what the real estate market will look like.

Fuskie
Who thinks it sounds like you have control over your spending and debt management but would just encourage you to not be “unnecessarily poor”, and to not deny yourself an enjoyment of life just to avoid spending money; if your house needs improvements to be a home, or your car is costing more in maintenance than the utility it serves, it is OK to plan for and execute strategic plans to improve your quality of life…

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[ThyPeace]

We are 18 months above water this month.

This is absolutely excellent. I’m so glad you have that figured out!

As for the living poor, yeah. It’s much better when your clothes are beat – but you can, over time, make slow replacements and upgrades there and in a lot of other areas. My lawn mower had been repaired a half-dozen times. It still works, but it’s loud, smelly, tough to manage on the steep part of the yard, and keeps deciding to clog up. This year, DH finally looked at me and said, “Okay. I want an electric one.” So you know, we went and bought an electric mower for his birthday. Because we know the balances and all the money we have, we didn’t have to worry about a bigger-than-usual birthday present at all. You will get to that point, too, though it will take a while.

And yes, this is where I re-insert a recommendation to think about the rest of life. You can still do minimal spending in these areas. It’s just that long and healthy lives come from reducing stress (which you did by getting above water), having really strong ties to family and community, moving your body in ways that make it strong and resilient, and by eating real, healthy food.

You can look at each area to assess whether you are underwater or above water.

Stress: Lots of things cause stress. Every source of stress is a debt, every technique you learn to manage it is a credit. The three biggest stress management techniques are getting enough sleep, getting enough exercise, and learning to be mindful of your body, your mind, and your reactions.

Family and community ties: Are there toxic relationships that are destructive? That’s a debt to deal with. Are there just not very many really solid positive relationships? That’s a place where investing your time and energy will pay back multi-fold. I would say that having a close enough relationship with your daughter that she can rent a house from you is a good sign. Working to make sure the relationship stays strong and healthy is a very good thing. Luckily, it’s usually also fun.

Exercise: Do you move your body for at least 60 minutes every day, some of that being things that build your heart and lungs, some of it things that build strong muscles and bones, and ALL of it that protects your joints because Lordy, messed up joints are the worst.

Food: Processed foods are debts, unprocessed “real” foods are investments. The WAY you eat is also an investment. Do you have a leisurely dinner with family (see above re: relationships) every night? Or do you eat over the kitchen sink while typing crazy things on your phone?

Examples that combine areas:

• Commit to going for a 30 minute walk with someone you care about every single day. Get that solidly in place before you do anything else. (Family and movement.)
• Join a group that picks up trash along roadways or in parks. (Community and movement.)
• Start a “real food dinner club” with three other couples. Plan quarterly menus and share out who makes what, then get together for an evening of fun, chatting, and eating delicious stuff. (Community and food.)
• Start attending a local religious service that aligns with your beliefs. Join the members for study sessions on mindful/prayerful living. (Community and stress.)
• Join a club that repairs bicycles and scooters for people who can’t afford a car. (Community and movement.)

There are a million more possibilities and you don’t have to do them all. Literally ONE item is where you start. Stuff you care about, that really resonates with who you are. You’re already starting, really, by buying a house that your daughter can live in and that, presumably, you will do some work in/on over the next few years. Just keep building along these lines!

ThyPeace, fun stuff!

[YewGuise]

We opened a HELOC in January and used it to buy a rental house last week.
I admit I gasped.

We are also helping our daughter by leasing it to her for a bit under market and insulating her from rising rents. She has taken great care of her previous dwellings and kept them immaculate.
Oh, well that makes all the difference! I think this is a great idea. Later, when your daughter’s ready to move on, you can decide whether to sell or look for another tenant (hint: screen very very carefully, because tenant quality will make or break your investment).

I’m not yet sure if we will convert the heloc to a mortgage on the rental or just pay fast and furious on the heloc.
I’m not a landlord, so take my opinion on this with a grain of salt. Personally, I’d be spooked by the prospect of a rate increase, and convert to a 15-yr mortgage to keep payments fixed and low. You can always throw a few dollars at the principal to accelerate the payoff, but technically it would be better to put the amount into a separate savings account, and only put it toward the mortgage when you have enough to pay the mortgage off entirely.
That way, if anything comes up, you’ll have a cash cushion and not have to take out another loan.

Our daughter recently noticed she has enough in savings to pay off her mortgage, and DH & I advised her to “stay liquid” instead. We don’t feel her job is quite as secure as she seems to think it is. Right now her company is hiring like crazy, but it’s a feast or famine business, so who knows what’ll happen next year or even in a few weeks. So, if she finds herself between jobs for a few months, she’ll have savings to tap in case unemployment payments aren’t enough.

…it will provide us a monthly income…
My dad once said that in retirement, what you have saved is not as important as what you have coming in monthly. So, besides Social Security, he has pensions from his time in the Navy and from his time working for the State of NJ, which is great. He also bought a few properties over the years with the idea he’d have rental income, but that didn’t work out, and he has no properties now.
But being a landlord works nicely for a lot of others. If you haven’t already, you can check out the Owning Rental Property board and/or the Real Estate Investing board. There are tax advantages to owning a rental that are worth looking into, and other tricks of the trade that might be useful.
https://discussion.fool.com/owning-rental-property-114196.aspx
https://discussion.fool.com/real-estate-investing-113590.aspx

Thanks for the update. I’m very happy to hear that things have come together, congrats!

[aj485]

We are also helping our daughter by leasing it to her for a bit under market and insulating her from rising rents.

Careful there - if it’s leased to family or a friend for under market rates, that’s considered personal use - so, it’s not a rental property. Expenses on personal use property are not deductible. And your HELOC interest also won’t be deductible, since it wasn’t used to build or improve the home that the lien is on, and the home that you bought is used for personal use.

But you still have to declare the income.

I’m not yet sure if we will convert the heloc to a mortgage on the rental or just pay fast and furious on the heloc.

Well, you messed up by not getting a mortgage on the property in the first place, unless you can still close on the mortgage less than 90 days after you purchased it. After that, the mortgage will not be considered ‘acquisition debt’ but rather, will be considered a cash out mortgage. Interest on cash out mortgages for is not deductible, either for personal properties or rental properties.

That said - by having a family member live in the house, you may be able to get a lower rate than you would have to pay for an investor mortgage. You should check with your loan officer.

AJ