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An Easy Way to Evaluate a Rental Property

evaluate a rental propertySince discovering the recent foreclosure that I convinced myself I needed to swoop up, I’ve been doing a lot of research on what makes a good investment property.

With flipping, the calculation is easy. You simply need to sell the house for more than what you have invested in it. But the problem with flipping is that it’s not easy.

There’s huge risk associated with flipping a property – being the property doesn’t sell. In this event you’d either have to walk away without a profit, a possible loss, or rent the property.

And for me I’d definitely go the renting route.

Here’s the easy method I’ve discovered to evaluate a rental property.

The 1% Rule

The one percent rule for rental properties is simple: your gross rents should be at least one percent of the purchase price.

While I’ve contacted the bank that has the property I’m interested in, I’ve been thrown from place to place without any answers. So I can only guess at how much this property will go for.

I check real estate listings in my area regularly and my educated guess is that my property will sell for around $50 – $60k.

Using $60,000 as the purchase price and assuming rent of $700 (which I think is extremely reasonable for this property) I’d be in the clear. (One percent of $60k is $600.)

The Cash Flow

The property I’m interested in should definitely meet the one percent rule. But if I had to rent it out what about the cash flow?

Let’s take a look.

  • Purchase Price: $60,000
  • Down Payment: $12,000
  • Loan Amount: $48,000
  • Interest Rate: 5%

Monthly Mortgage: $257.67

  • Insurance: $100.00
  • Property Tax: $77.60
  • Vacancy & Maintenance: $100

Total Monthly Cost: $535.27

Monthly Rent: $700

Monthly Net: $164.73

The monthly net income on this property doesn’t get me excited. But I still believe that if this property is fixed up that it would have huge resale value. So again, I want to flip.

I feel like it would bring a pretty significant property.

The Plan

I still want to go for this property and even though I’m trying to save separately for it I have just enough cash to cover the down payment and hopefully the closing costs, should it come on the market soon.

In the meantime I’m going to keep trying to get ahold of the right person at the bank and see if I can’t make a deal.

And as promised I snapped a few pictures so that you could see what I’m getting excited about. Unfortunately, the front of the house is pretty hard to see due to overgrown trees and grass.

evaluate a rental property

front of the house

back of the house

back of the house

the garage

the garage

Where Should I Go on Vacation? (Plus a Credit Card Rewards Rant)

credit card rewards rantI’ve been thinking lately that I need to take my kids somewhere fun for a weekend and make some awesome memories, but I don’t know where to go.

Unlike, most of mankind I don’t really care for traveling. It doesn’t get me excited. But I would like to have a fun, inexpensive, low maintenance 2-3 day getaway with my two daughters.

Show Me the Money

Jamie has generously offered to cash in all the change he’s been hoarding over the last several years to use as vacation money for the four of us.

Take a look:

vacation change

It’s kind of hard to tell in the picture but this is a huge jar! So I’m only guessing, but I think there’s at least $500 in there.

Please Don’t Tell Me to Use Rewards Credit Cards

Over 99.999999% of the personal finance blogs I follow have at least one post a week telling you why you should sign up for a rewards credit card for vacation. #nothanks

Since I’m told so much that I need a rewards credit card I’d figure I’d tell you why it’s never going to happen.

I don’t care about travel.  I could care less about traveling to far off and exotic places. Really, I don’t care. Maybe it’s just because I like where I live but I’d rather be at home. You can call me boring but I’m just being true to myself.

I’m not signing up for twenty cards. So do you wonder how all these bloggers are getting free vacations every 2-3 months? It’s definitely not from one card. What you probably don’t know is that they sign up for 10-20 cards, maybe even more.

Can you imagine trying to track 10-20 credit cards? You’d have to figure whether you’ve met the spending requirement for each, pay off the monthly balances each time (because if don’t pay them off and are charged interest you just cancelled out all the card rewards), and cancel the card before the annual fee hits. That’s a lot of freakin work.

Credit Cards Make You Spend More. Sure credit cards don’t make everybody spend more, just the majority of the population. And it’s not by a small number either (12-18%.) Don’t believe me? Check out this study.

So if you’re subconsciously spending more money because you’re using a credit card you could have just saved the difference and paid for your vacation with cash. Then you wouldn’t have to worry about keeping up with a dozen cards.

My Expenses Aren’t Enough. My budget (not including taxes) doesn’t drift off far past the $1600/month. I’d have a super hard time meeting the minimum spending requirements on one card let alone 10.

So if you have a low expense lifestyle you’re really not going to bank on credit card points.

Sorry I just had to get all that in there.

I don’t what you to think that it’s not possible to use credit card rewards to fund vacations, because obviously it is.

I just don’t want you to jump in and sign up for ten credit cards at once and then get screwed. It’s very risky and attention to detail is absolutely crucial. You need to manage those credit cards like it’s a business.

Most people don’t have the discipline to do that. I know I don’t.

Funding Vacation with Cash

Since I don’t want to deter my savings the whole plan is to just cash in all the change we can find between the two of us.

I’m pretty confident that it’s going to be in the $500-$600 range. (But then I’m completely guessing so I could be way off.)

So the things I’ve thought of so far include

-camping (or renting a cabin for a couple of nights)

-two days at  Kings Island

What would you do for vacation with $600?

Link Love 7/18/14

Happy Friday.

I hope you’re having a good day.

And just in case you’re in need of some weekend reading here are a few of my favorite posts from the week:

Have a good weekend!!

Tiny Houses: Yay or Nay?

tiny housesIt’s no secret that tiny houses are becoming extremely popular. They are the earth loving, money saving, minimalist’s dream.

These tiny houses can often be no bigger than 150 sq. ft. (Don’t believe me? Check out this tiny home constructed in a truck. That’s what I call a mobile home.)

With the media pining over tiny homes more and more people are starting to prefer this alternative living. But could you live in a tiny home?

The Pros of Living in a Tiny Home

There are a ton of pros that I can see right off the bat. These include:

Financial Freedom – As I’ve been perusing tiny house blogs I’ve seen several of these homes be built for less than $10,000. How awesome would it be to pay $10k and be done with your housing costs forever? Pretty awesome considering homes are typically the biggest expense for the average American.

Less Stuff – You know how you get the urge to make every home in your house look just right? Imagine only having a couple hundred square feet to decorate. You would be able to afford whatever you wanted since you’re space is so small.

Self Sufficiency – A lot of these tiny homes have no electric and if they do have electric it’s run by solar power. And my guess is that if you wanted to live in a tiny home you’d also be looking for other ways to take care of yourself – like growing your own food, building fires to keep warm, etc.

Mobility – So besides the fact that you can make your tiny home mobile you also have the ability to save a ton of money and travel when you like. You’re not tied down to huge monthly expenses. You can do what you want, when you want.

The Cons of Living in a Tiny House

Of course it’s not all rainbows and sunshine. Nothing in life ever is. So what are the cons of living in a tiny home?

The Limited Space – I don’t know about you but I have two kids. There’s just no way I could live in a 200 sq. ft. home with my kids. We’re in 900 sq. ft. right now and I’m not sure that I could go any smaller. Mommy needs her space.

The Limited Space – Did I mention how hard it would be to live in a tiny home with kids? And what about sleepovers? Yikes.

Final Thoughts

The tiny homes that are being built now a days are very intricate. It blows my mind how builders and homeowners are able to put so much function in such a little space.

Being that I’m a tad bit Closter phobic I don’t think tiny house living is for me. But I can definitely see enormous benefits for the homeowners.

What about you? Could you live in a tiny home? Have any desire to do so?

Are You Afraid to be Different?

are you afraid to be differentEvery month I publish my monthly income numbers online and even though the money I’m earning is more than enough to get me by, I always mention the same thing. “This may be considered a low income but it works for me.”

And all of a sudden I’m wondering why I even add this statement.

To fill you in I earn somewhere around $2,500/month and all of my expenses only come to $1,600/month. In my opinion I have a good life. Two wonderful kids. An awesome family. A place to live. Work I enjoy. And no debt.

But compared to other income reports bloggers publish, my income equates to a tiny fraction of theirs.

I have been working to earn more money and the extra I do earn goes straight to savings. But even though I’m perfectly happy with where I’m at I feel the need to state that what I’m earning isn’t that great. And I don’t know why.

Not Being Afraid to Be Different

I try hard to live my life the way I want without conforming to what others think. After all I bought a $1,500 trailer to fix up and live in. I know a lot of people, even in desperate financial situations, wouldn’t live in a trailer because of the stigma associated. (You know the whole “trailer trash” thing.)

I’ve worked pretty darn hard to build up my own freelancing business – working two day jobs and working online on the side for many months.

So, no I don’t think I’m afraid to be different. But I think self-comparison is so hard to avoid even if when we don’t realize that we’re doing it.

The Benefits of Being Different

I’ll admit – when I was first out on my own I didn’t want to be different. I wanted the big house, nice furniture, and nice cars just like my parents had had.

I maxed out my credit cards buying things like flat screen TVs and new curtains. I bought a car that costs as much as my yearly salary.

Then I had kids. And things changed.

All I cared about was giving them the good life and all the superficial, consumer driven madness vanished. I now had priorities and new cars and big screen TV’s weren’t among them.

I wanted to be debt free. I wanted to do work I enjoyed doing. I wanted to be living the life I loved. And I’m here now.

When you choose to be free of what society expects of you and the live the life you truly enjoy – no matter what that might be – your whole world changes.

Now my life consists of digging up worms in the backyard with my daughters. Reading books and laughing together. Playing dress up and fixing hair. (And dealing with the occasional temper tantrum that comes my way.) Fishing, target shooting, and bonfires with my brothers. And waking up in the morning with a smile on face because I’m doing work I enjoy.

(Okay, technically I don’t wake up with a smile on my face but you get the point.)

Moral of the Story

Self-Comparison in some form or another is really hard to avoid one hundred percent of the time. But if you’re intentional on living life according to your values and priorities you can build the life you love.

Stop caring what random people think about you and do what makes you happy. After all you only have one life to live.

Are you afraid to be different?