Rental Property - Fixer Upper for cash 2

On March 16th we closed on this property!  The house had sat on the market for over 200 days so we were able to snag a deal here.  The exterior and interior of the property didn't require much to be livable.  One interesting thing that happened with this house, we were able to reduce our annual tax bill by 30% by contesting it with the local tax office.  This helped improve cashflow ofcourse!

Major work completed:
Tile in bathroom floors
New floors in utility room, kitchen, breakfast room and 2 bedrooms.
Paint throughout
New appliances
Minor plumbing repairs in bathroom.
Concrete crack repair on porch
Concrete walk outside
Guard rail for porch

Financial information:
Monthly cashflow: $535

Rental Property - Fixer Upper For Cash 1

In the afternoon of Friday March 13th (oooo scary), I went into the title office and cut a check for my next rental property.  Thats right, no mortgage paperwork, no waiting for other parties.... Just a few quick signatures and the transaction was complete.  I was in and out of the office in 5 min, really waiting for paperwork to be copied.

This will be the 4th property into the portfolio.  This house needed a lot of TLC, so I was quick to get to working on it.  The carrying cost of this property is very minimal, due to it being a small structure in a small town.  This small carrying cost, with the absence of a mortgage payment, is the reason behind the good cashflow.  

Major work completed:

Repaired foundation of the house

Tiled 100% floors

Completely remodeled bathroom

Made some changes to the electrical work, including addition of lights/plugs

Painted exterior trim

Added shudders

Painted inside trim and walls

Replaced several windows

Brought in appliances

Replaced all countertops

Minor Yard Work

Financial Information:
Monthly Cashflow: $395

Out of the Market, For Now.

On January 8th I finally hit the "sell" button on my remaining stock positions!  Sounds crazy right?  Well there is a good reason for it here.  And no, I am not a bear coming out of hibernation, warning that the markets will tank...

I wanted to take this time to share with others some things I have learned while participating in these markets over the years:

Like everyone new to investing, I had no idea where to begin.  I worked for Best Buy while attending college, and participated in a good stock matching program they offered.  I remember putting about $50 per paycheck into it, and they matched it (or a good part of it).  Well, back in 2002 shares were under $15 when I worked there and shares accumulated pretty quickly. Just by chance, when I graduated in 2005 I sold all of my shares at $54.  Not realizing it at the time, this happened to be the all-time peak of this position!  I definitely got lucky here, but I learned about 'diversification' and knew I needed to broaden my positions, in case something were to fail.

After school I moved to Texas, and used a good chunk of this money for a down payment on my first house, and still had money leftover to put back into my Scottrade account.  I looked around at various stocks but had no idea which to choose.  I remember on a website somewhere it discussed about how an offshore oil company was going to explode in growth, and how its stock was going to rise too.  Well, I figured the 'expert' who wrote the article may have been right, so I invested $100 into sea hawk drilling (HAWK).  There were 2 reasons for this, first the expert advise, and second HAWK just seemed like a cool ticker.  Needless to say, I learned several things rather quickly.  

#1 - The 'expert' advise was definitely far from the truth.  This stock collapsed rather quickly and I sold my position before the company bankrupt and got $40 of my investment back. The shares eventually went to pennies before the ticker was removed.

#2 - Low investment, resulted in getting eaten up with fees.  My $100 got me $93 in stock, since I paid Scottrade $7 for my purchase.  When I sold I also had to pay $7... So really 14% of my loss was straight up due to fees alone....

#3 - Don't invest in a company that has a 'cool' ticker symbol or a cool name, ever!

#4 - Cash adds stability, even in a portfolio with no diversification.  Aside from my single position, I had a good chunk of cash idle in the account.  Even though I lost 50% of my position, my account as a whole suffered less than a 5% loss...

Shortly after this point, I learned about dividends and the power of compounding account growth with re-investing dividends in "dividend champions."  I initiated several positions and have pooled my dividends together for future purchases of stock that I felt were under-valued at the time.

I then became heavily involved with SeekingAlpha, reading articles daily, and commenting on articles of author's that I enjoy following, such as Brad Thomas, BDCbuzz and Chuck Carnivale.  There is a wealth of information here and it really helped me develop my understanding of how markets work and how to find value in stock picks.  

I have been spending years investing between $100-$300 monthly.  This doesn't sound like there would be a lot in my account, but with the right dividend paying picks I have made, combined with the power of re-invested dividends, and rental incomes...has created a snowball big enough for me to help buy my next property, WITH CASH!  I am re-visiting a property this weekend that still has my attention, and I may be putting an offer together pretty soon.  

For the time being, its really nice not worrying about the market having a repeat of 2008.  If it does or not, I will be back into the markets later this year.

2014 Year in Review

The end of the year is approaching so I figured I would throw out a quick update on how things have been going during these busy times.

Interest Paid:

Since the student loan is paid off and all mortgage payments completed for the year, I was able to calculate total interest paid for 2014. This year $7917.57 went to the banks in the form of interest, vs. $9060.63 last year.  This represents a significant 16.82% decrease!  Its a good feeling knowing that $1143 additional dollars went into the equity of the properties rather than the banks. 

Debt Levels:

Regularly paying extra on the Victorian House 1 mortgage has brought the debt levels down this year.  The beginning of the year I had 77.52% of original debt.  12 months later, I'm now at 68.79% of original debt, resulting in a 8.73% decrease.  With all things being equal, I would be debt free in about 8 years from now with a repeat of 2014.  But all things aren't equal.  Every mortgage payment contributes more to the principle balance than the previous, thus pushing that debt-reducing snowball faster down the mountain.


Dividends:
Aside from rental income, dividend payments are my favorite things to look forward to every month.  2013 ended with an average $141.43 dividends received monthly.  Right now its looking like an average of $184.96 will be collected now.  This represents a 30.77% increase in monthly dividends.  Very good news here.

Rental Income:
Rental Income has remained stable this year.  There may be a slight increase in gross rents in 2014.  Thats the wonderful thing about having rental properties.  I can set how much income I'm collect every month.  How many of us can go to our day jobs and tell our bosses that we will be increasing our paychecks going forward?  Probably none of us.


2015
Next year will be an exciting year.  The dividend portfolio will be reduced in favor of a greater cash position.  Then when the opportunity arises, a fourth rental property may be purchased with cash.

August 2014 Update

Its been a few months since I published my last post.  The daily job has been very demanding and time-consuming.  As you can see from my tomato garden above, I am behind on work around the house.

As a result of paying off my student loans and further reducing monthly expenses, I have initiated more positions in the stock market.  With the market being over-valued in general, I only plan to use these positions as a place to park cash until I purchase the next rental property.

Here is a monthly passive income snapshot:

Average Monthly Dividends = $184.71
Average Monthly Real Estate Cashflow = $613
Average Monthly Lending = $9
Total Monthly Income = $806.71

If things go as projected, I should be purchasing an additional rental house during 2015 with cash.  I expect average monthly dividends to drop by 80%, while increasing rental cashflow by about $400.  This will be the tipping point for my investing adventure, as this would represent the point where passive income will cover all monthly expenses, and then some!

Milestone Reached: Student Loan and Medical Debt paid Off!

Things have been slow and steady lately.  I've been focusing on paying off debt while I work on things around the house.  This month I finally made the last payment on my student loan and medical debts.  This is a huge accomplishment.  Saving me about 300 bucks a month!

I will now focus on paying off "Victorian House 1."  Luckily this has the lowest balance and highest interest rate.  I plan on having this done by mid 2015.  Whats exciting here is my passive income by then will outweigh my bills and I could retire if I choose.

As it stands, 89% of my monthly expenses are covered by passive investing activities.  This is a very good situation to be in my late 20s.

I appreciate everyone's support with this blog, and want to the everyone for following up on my comments that I throw on other blogs =P.  The online savvy investor community has been a great motivator for me, and a great way for me to engage other people with the common interest of being financially independent.  Most folks I run into on a daily basis don't have the same financial goals.

Trouble with adding to the Real Estate Portfolio.

I am interested in adding an additional Rental property to the portfolio.  This time though, I am wanting to to make a cash-only deal.  I figured this would be as simple as refinancing my victorian house 1 (since it has the lowest balance and highest interest rate) and pulling cash out to throw down on the new property.

Here is the problem, TEXAS.  When it comes down to it, the state of Texas is looking out for its homeowners to keep them from going over there heads in mortgage debt.  With this, I found out I cannot take a second or a home equity line of credit on an investment property.  I supposedly will get the 'evil eye' when I acquire a 4th mortgage too.  So at this point my hands are tied.

Before I found this out I looked into getting a mortgage for the property. I learned that with Obama's new 'predatory lending' laws, any house I try to purchase under $60,000 will be considered a predatory loan because the banks $4,000 origination fees will be above the 5% loan amount threshold....

The local housing market here has homes dropping in price for the short term, making entry points more desirable for the long term.  I have a few options here:  One would be to continue saving away and waiting until I have the funds readily available.  The second option would be to open up an unsecured line of credit.  The third option would be to wait and continue driving down my various debts.

I'm thinking too that a 4th option would be to diversify my real estate portfolio by getting a rental property in a different town or even state... but I do like having my properties near by in case of emergency repairs etc.

What are your thoughts?  What would you do in my situation?  Imagine having 15k cash onhand, one investment mortgage of ~30k, and about 15k in the stock market.



Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.