Author: Small Budget Retiremet Page 2 of 6

I am an elementary school teacher, landlord and father of four amazing kids, trying to reach my financial retirement in the next ten years. We enjoy frugal living in one of the most sought after Chicago suburbs as we manage our small budget to push us towards financial independence and early retirement. This blog will share some of our strategies and stories of our journey from $0 to FIRE.

Setting Goals for 2020

New year means new financial goals.

A bit late confessing my 2020 resolutions but this has become a must for me. Setting up financial goals for the year helps me stay focused and stick to the plan. If you have not set yours I hope this inspires you to do so.

So far, from the moment that we started our journey towards FI, besides getting out of debt, my second goal was to free up some cash. We didn’t have big amounts on credit cards and it was relatively easy to pay them off once we got on a budget. However, my wife’s student loan was a total  @#$**!!! We had acquired it around 2003, and by 2016 we had barely made any progress. After moving to our new place and settling in we became   landlords but we were still sitting on the debt pile for the student loan  for $22,000.

After looking at our budget and sticking to our guns we decided to go hard at the student loan. If our calculations were right, after two years of making extra payments the loan would be gone. A little miscalculations made us miss the finish line but not by much, and we actually had some unexpected gains that we didn’t account for, which I explained in my previous post here.

But finally and without hesitation, I can say proudly that we have accomplished our goal. We have completely paid our student loan!!!
Now we have available to us all the cash we were using towards that payment. The regular payment was $235, but we were paying $716.
Now we have set free those seven-hundred-sixteen bucks, who are now diligently working for us 24/7 helping us to increase our net worth.

What’s next?

Well, after surviving our first run as landlords we have stepped up our game bringing some extra rent income. Now we have some extra cash-flow in rent and $716 that were previously going into student loan payments. All this together gives us a lot of flexibility and brings awesome investing opportunities.
Besides all these good news, we have always had an awesome tax return averaging about 10K . This year we broke that mark!
I know. We loan money to the government for free but we love that juicy check in the spring. It’s like a forced saving stash of cash.
In the past, we have used whatever we get in tax returns to just pay credit cards and do few little repairs around the house. We would stay afloat for few months, and then around November we were gasping for the next tax return again to pay off debt. A pretty frustrating cycle. Sounds familiar?
Luckily, that’s a thing of the past. After working our budget, we were able to brake that cycle and become more intentional with our hard earned income.

Debt Snowball Method

If you haven’t heard of the snowball method to pay debt, it is one strategy that can really help you further your financial success.
How does it work? It’s pretty simple. You determine what debt you would like to pay off, such as a credit cards, student loan or even mortgage; the general recommendation is to choose the smallest amount of debt with the higher interest rate; most likely credit cards. After paying one debt, and eliminating that liability you will repurpose that payment and dump it on the next bucket of debt.

To illustrate, I would use my own case. We first chose to pay off our credit cards by making not only the minimum monthly payments but also paying additional cash towards the principal we owe. Once we paid the credit cards, instead of saying, “look! Now we have extra cash to spend,” we pretended the money was not there and kept a tight budget. We looked again at our budget and chose what debt was next. In our case the student loan was next, with a balance of 22K at a 6.5% rate. We used the regular monthly payment of $238 we were obliged to, plus the cash we had freed up from the credit cards debt. Our final number was $716. Now, instead of continuing paying $238 to the student loan debt, we were paying a total of $716; $478 extra towards the principal every month.
Was it easy? Well, some months were better than others. Some months were a real squeeze. But we stuck to the plan.
One of the strategies we used to help us out a bit paying off the student loan was using a home equity line of credit. By doing so, we reduced the interest rate from 6.5% to 4.5%. This gave us an estimated saving of $416 yearly if we committed to pay the debt within two years.
However, if we didn’t pay this debt and continued on the minimum payment track we would have stayed on that same track until 2028; that was the loan’s maturity date and it also included accruing $1430 of interest payment yearly (22K x 6.5%)!
Instead, we saved 8 years of burden saving us $11,440($1430 x 8 years) of interest payment! This is nuts! Now I can expect that number to eventually come on my side of the ledger as years go by.

Next target

Now we are aiming to pay our rental’s mortgage off. That is what I envisioned as part of our blueprint to reach FI. This one is not going to be an easy goal and will require some perseverance to endure 4 years of sticking to a plan. By doing this, we will increase our yearly income by 35K.
17K from gross rental income, 8.5K from cash that we have freed up from debt( Student loan and credit cards), plus approximately 10K that we get yearly in our tax return.
In 2024, we are thinking about getting one or two more rentals, in the same area we have the current rental. We feel like we could comfortably manage one or two more properties as the first rental will be completely paid off.
In 2024 I will have only four more years left before I reach my goal of retiring in the summer of 2029. In this mix, of buying real estate we also would like to buy a small house in Michigan. This may be the place where we think we would like to retire once the kids are done with high school. That’s a bit ahead of the game and will remain a thought for a while, so more on that in future posts.

Silent Weapon

Something that I highly recommend and has helped us tremendously as well is technology. I like using regular Excel spreadsheets or even Google Sheets to keep track of our budget. But I also like using Personal Capital and Mint.

With Personal Capital I can really look closely to all my accounts, budget, and even take a quick snapshot of our Net Worth.
Mint, on the other hand is what I use on my phone for just a quick look of bank accounts and ongoing expenses on a daily basis.

However, the ONE silent weapon that we use all the time is automatic money transfers through our bank. We look into the budget, set up a goal and schedule these transfers as a one time event or re-occurring events. By doing so, all you need is to figure out your strategy, setting it in motion and forget about it.

In our case, we sat down to determine the amount we needed to pay toward the student loan in order to meet the pay-off date we desired and we were done. At times we just made sure we were still on track and simply kept on going.
If you are in the same situation of trying to pay off debt, start with your budget. That is really a financial GPS. Determine what is the maximum extra payment you can make and schedule that payment to be made as soon as you get paid. Don’t wait for the month’s left overs in your account to figure it out; that’s a recipe for disaster. Pay yourself first. Figure out how many payments will be required for you to reach your goal and stick to it. Ask yourself what will be your next goal? Pay more debt or invest? Likewise, is there anything you could do to increase your income? Maybe a side hustle or cutting off some unnecessary expenses like cable?

Conclusion

Financial literacy is a must for everybody. I wish I would have taken a more active approach in my early years and set some financial goals as my younger self. However, I am amazed at how much progress you can make financially by just paying attention to your expenses, determining your priorities and setting financial goals every year. It’s never too late; never too early.
You don’t have to be on a beans and rice diet to achieve financial goals. I still have an amazing life with my four kids and wife. I have become just more intentional with my money.

I would love to hear about your financial goals for this year 2020 or any achievement (Big or small) you feel proud of on your FI journey.

How to Get Out of Debt

GPS showing financial destination
Start with a budget, set the course, get to work.

First off, let me tell you this: You won’t find anything here that will fix your debt problem in an instant. There is no magic wand. There is no secret. Likewise, there are no smoke and mirrors trying to sell you anything. Usually, my posts are a personal snapshot of my finances with enough information to help somebody else.
Just like when people are trying to lose weight, there is no magic pill or secret that will take you there. What really makes a difference in reaching your goals is the subtle changes you make on a daily basis. Small changes compound and yield the best results!

In June 2018, after catching up with the FIRE movement( Financial Independence Retire Early) movement, my wife and I started looking at all our debt and liability. Things that we could do to be in a better position financially.
Now, let me backtrack 4 years ago, when we had about nine thousand dollars in debt with one of our credit cards, plus a student loan on my wife’s name that had started at 27k in 2003 and it had barely changed 15 years later when we still had 22K to pay.
In other words, our starting point was -9K at 25%, and -22K at 6.5%. My teacher’s salary kept going up every year but somehow we always found ourselves gasping for the next tax return to pay down debt. Not long after paying the card, more debt started accumulating again and before we knew it we were back in the same situation- repeating the same vicious cycle. Sounds familiar?
To add more stress to our financial situation our neighborhood was pushing us out and we were determined to find a better school environment for our kids. If we sold, we would have ended with about 5-6K in our pocket. Instead, we decided to move and rent out our house for at least a year. A year turned into two and recently I just survived my first 42 months as a landlord.
Anyway, we moved and life was great. The rental was cash-flowing about $500 a month after expenses, but we were still in the same financial predicament fighting off debt. After getting in touch with the FIRE community, things started to change. In June 2008, my wife and I sat down and started looking at our budget. Not only going through the motions of looking at how much we are spending, but we were trying to find where the holes of our financial vessel were. Where was the money going? What could we cut to save? What debt could we pay fairly quick to free some of our precious cash coming in?
After getting rid of some ludicrous expenses like cable and a magazine subscription we realized that we had a decent amount of cash coming in but somehow was disappearing in miscellaneous expenses. We started a spreadsheet that accounted for every single penny and decided to charge against the pesky credit card and student loan debt.
We transferred the credit card debt to another credit card with no interest for 24 months. With help of our tax return, we paid the card off fairly easy.
At the time, the monthly payment of our student loan was $235 monthly. We cut the cable saving $150. That was right away allocated as an extra payment to the student loan. We decreased my 403B contribution and started paying $716 monthly towards the student loan.  In my calculation, the student loan would be paid in January 2020. We automated 2 different withdraws to be transferred to our loan holding bank. From there, we would manually make the transfer at the most convenient time for our finances. We kind of made that account work as an emergency fund as well. We would pool some money there and then make the principal payment.

I Failed!

Image result for gif crying

You can’t imagine my disappointment when I was about to make what was supposed to be my last transfer! My wife reminded me that we had put our Christmas expenses on the card! At some point, between driving the kids here and there, lessons and just the demands of tending to a family with 4 kids our communication failed; my fault.
I had calculated and planned this moment for almost two years and it was not happening. My wife felt guilty. I probably overreacted with my frustration, although I reassured her it was not her fault but mine. But I just had a terrible feeling of failure! I felt defeated.

I went to work that day, tried to forget about it and then resumed to strategize how to pay the $1000 extra I didn’t account for. I started thinking about all the interviews in podcasts where people talk about the importance of being flexible in the pursuit of FIRE and how important it is to keep enjoying life, as well as the importance of not damaging relationships on the way.

With all those thoughts in mind, I reassessed the situation and realized that I was still in a terrific situation. I could not pay the whole loan off when I expected it but I am still very close. I took a couple of extra responsibilities at work to make extra money and I am still able to reach my goal next month! No big deal.

Wait! I failed but I am actually winning

In my moment of doom and gloom, feeling like a total failure I logged into my Personal Capital account looking for answers. I was looking at all the reports and started reflecting on it.
Our net worth is about $210K at the moment!
Hold on a second!- I thought.  I may not have paid the student loan…BUT we have increased our net worth from -31K to 210K in a matter of 4 quick years! What? That is super fantastic! I still can’t believe it. 210K! Yes, it is mainly equity. But remember, I was going to move out of my first home and walk away with 5-6K. Nothing!
No debt. Other than our mortgage and YES! The pesky student loan that will be obliterated and announced on Twitter for sure very soon. So help me celebrate that one!

How we did it?

First and foremost, you need a budget. Everybody needs a budget regardless of how much money you make.
Distribute your money according to your needs. Define what is a want and what is really a need. Cable is not a need! Lattes and eating out are not needs. They are privileges- expensive ones. You can still have them, but understand that they are impacting your investing capability. Are they worth it you working more hours of your life so that you can afford them? Only you can decide that, but be mindful of the trade-off.
Once you have your budget, determine your purpose. What are you trying to accomplish? Maybe retirement or FIRE is your ultimate goal? What other goals or milestones do you need to reach for that final goal to happen?
I like to call this my financial GPS. I need to know where I am financially and where I want to go. Without one or the other, I am lost and likely to get lost in debtland.
Check the course often, reassess and keep on going. You won’t reach these goals from one day to another, but every day you will be in a slightly better financial situation. More importantly, as you plow through and you implement some of these strategies you will continue optimizing your system and pave your way to reach your goals and beyond.
Be flexible and forgiving with yourself. Don’t get fixated on the goal. Focus on your strategies and system you have created to reach your goals. The rest will fall in place.
Automate as much as you can. Schedule those monthly withdrawals to pay off debt or invest. Remember, “out of sight, out of mind.” Don’t wait for the month’s left-over to allocate it or find a purpose for it. Pay yourself first, and pay everybody else with the rest.
Do not wait to determine your financial goals. It is never too late to plan your financial goals, but it is also never too early to plan and define your journey toward financial independence.
I truly hope these words get to someone looking for a change in their finances like I once was. I would love to hear your story or struggle.
On my end, I am already planning my next financial milestone but that will be coming soon in another post.

Image result for sailing off into the sunset gif

The biggest financial mistake that can get your marriage and life derailed from the start

Wedding cake
Spending thousands of dollars on your wedding day does not necessarily guarantee a great event nor a successful marriage.

One of my side hustle ideas that has helped me along the way of FI with some extra cash is wedding-photography. I have been doing it as a side business that fits perfectly my full-time teaching job. 

In the beginning, I started with acquaintances and family members getting married. Then with a bit of word of mouth I got myself to some nicer places, and I can proudly say that I have even been flown to Hawaii to photograph a wedding.

In the Chicago Land area, I can’t say that I have been to every single hotel, but I have been to quite a few; several on the so called Magnificent Mile of Michigan Avenue in Chicago. Likewise, I have been also to lots of backyard & tent events, where people use their creativity to come up with their own decorations and maybe even cater from their favorite local restaurants.

The verdict?

Weddings are very expensive events and there are a lot of social pressures that push people to spend way beyond their means. In the same way that we feel that we have to buy the biggest house, go to the “look-at-me-college,” buy X,Y,Z brand clothing we are pushed into the idea of affording a big party that many times results in family tensions and stress, hurt feelings and even worse: Debt! The start of married life with the burden of unnecessary debt. 

Breaking it down

When you think of the basics of a wedding, the first things that come in mind are the venue, food, DJ, photographer, dress, cake, flowers, centerpieces, decoration and a plethora of miscellaneous items.

I’ll base my budget here according to my area, which is Chicago and the burbs. According to The Chicago Tribune, Chicago ranks as the fifth most expensive place for weddings averaging 50K. Sadly, paying 50K for a wedding does not guarantee that your day will be unforgettable; maybe only because it was an unforgettable mistake! Especially when 50K may be half the amount you need to fund your retirement 35 years down the road.

100K invested in the market at a 7% average return will likely yield 40K a year using the 4% rule for the rest of your life


Meanwhile, your money savvy friend who got married in a forgotten barn of a rural area may have had the most beautiful wedding on a low budget, and still enjoy some awesome food, gorgeous photography and best yet: Debt free! Now if money is not an issue, by all means, please! Blow the money away like there is not tomorrow!
On the other hand, if money, your future and retirement are indeed aspects of your life that concern you, then this piece of advice is for you.

Why would it matter what I have to say? Well, because as a photographer I have been to many fancy weddings and I can’t recall them neither being the most fun nor the most memorable, when compared with some “low-budget” events.

If you do a quick search for venues you will quickly see that in the Chicago area most venues start around 8-11K; that is just starting prices, that will cover around 100 guests. I would love to be more specific about different venues but my intention is not to attack any particular business.
As you spread your search towards the suburbs prices improve, but like in any business there is the hidden potential of lots and lots of up-sales.
Some of these places can be beautiful but not a requirement to make your day better.

I have been hired to photograph weddings in many fancy venues as well as barns, clubhouses, VFWs, and party halls. I can tell you that I have never been to a fancy hotel where I walk out saying “wow, the food was absolutely amazing.” Most of the times I make it home with some sort of stomach issue or wishing I had a burger instead of the whatever fancy-nicknamed chicken the venue served.  Whereas it is at those” low-budget events where people are not obligated to cater from the venue where I am always amazed with the menu. Where people can cater from whatever place they want and are not obligated to buy the overpriced menu ($150+ per guest).
I am now to the point where I am very particular about what I eat at these fancy venues. The food is far from impressive, and understandably so. The hotel can’t have a Chef in the back carefully concocting a master dish for each of the 200 guests awaiting; yet the venues charge as if that was the case. 
To add insult to injury, most guests also complain left and right about everything, as huge piles of food, and of course money, are scorted to the garbage cans behind closed doors. Why would you agree to pay thousands of dollars on food that you know will be wasted? Why do we have these social norms and pressures of what is considered a reasonable  wedding celebration?

Where should you not be a cheapskate on your wedding day?

This is what kills me, and you may say I am biased, but hear me out. People spend a fortune on the venue and its food service, but they want a deal with the photographer and the DJ. They want these services for as cheap as possible. When in reality these are the things that will probably make the greatest impact on the wedding day. 

If you have a bad DJ I can guarantee you that once your guests finish dinner they will start trickling out the door, regardless of how impressive and expensive the venue was. I don’t care if Michelangelo decorated the walls and ceilings. If your guests can’t have fun, after they eat they’ll be gone. A DJ that doesn’t know how to read the crowd or can’t deliver the right music for the moment will kill your party without a doubt. 

Also, let the DJ do his(her) thing. You can, and should request some of your favorite songs, but remember that your musical taste might not be what gets everybody down on the dance floor. Let the DJ do her/his thing.

The next area where many people try to snatch the $500 deal is with photography. Seriously? You’re willing to spend 10-15K on a venue and feeding people that will complain about the food, but you won’t spend 2-3K in the images that your family heirs will look at? Or, you don’t want an album because you’re a scrapbooker and you are going to take care of the album? Really? These are the images that may get displayed at your funeral to remember some of your better times. Yet, you don’t want to spend money on them? After you spent all that money feeding a bunch of people that you probably won’t ever see again(insert here: a deep sigh!).
Hey, to each their own. Whatever floats your boat, but just keep in mind that after the party is done, all the plates are picked up and the leftover food (your $$$) is in the garbage and the lights are off, all you will have the next day of that special moment is your pictures of that day, which will be forever to remember. If you are going to spend money, spend it on yourself first. Do not cheap out on your wedding photography!

The best wedding I have been to was actually a wedding in a barn. The food was catered from Famous Dave’s; ribs, pulled pork, potatoes, few salads and corn. A truck pulled  by the barn and roasted a whole pig in front of the crowd against a fading sky at the end of a cornfield. 

The DJ was amazing, he was animating and leading the crowd on the dance floor, with a great selection of music. The DJ really knew how to get people dancing. I would estimate the whole event was probably 8-10K for close to 200 guests. It was a great time, even for me, who was there only as the photographer. 

Expectations and social pressures

We are really good at pinpointing how kids put down others who don’t comply with the norms and expectations of peers. However, adults are not too far from that. We like to believe that we don’t judge others, but we do it so often that we are oblivious to the fact that we do.

Weddings, among other things, are one of those social expectations that people tend to judge others on. They are extremely expensive. Many times people make the critical mistake of even going in debt to pay for them. The guests criticize and complain about everything regardless of how much money is thrown at these events trying to make them unique. At the end, all of them end up following the same pattern of bridal party introduction, tosses, speeches, dances, etc; not very unique.

Not only do people spend a fortune in these socially-expected events, but many times the stresses and the emotional baggage of a wedding create a lot of animosities among family members and friends. I am sure I don’t have to tell you about the good friend who was not chosen as Maid of Honor, or the parents who didn’t feel as included as the “other parents”, or got to share a speech, picked the flowers or decoration, or any other diatribe that in the real sense of life are plain and simply irrelevant. Not to mention that sometimes after all these issues flare up, relationships become damaged beyond repair, leaving a trail of resentments. Which doesn’t help the fact that marriages have almost 50%( slightly less than 50%) chance of succeeding, and even fewer chances for subsequent marriages.

If none of these things sound familiar to you, consider yourself lucky!

Bottom line

You don’t need to spend a fortune to have an awesome wedding. Know that there are alternatives to the big shebang.

Care less about the venue with the awe factor and worry more about your music, food and please, please…please! Your photography! That is what you will look at 50 years down the road when your memory starts failing and you barely remember your name. Isn’t that a song?

Sometimes less is more. It is perfectly fine to choose to get married on a beach, or cruise and skipping all the other expenses.

Break any rule you want. It’s your day. You don’t have to comply with anything you don’t want to. Feel free to skip any protocol. Even if your  groomsmen can do a full-out Haka, or lip-sync any Britney Spears’ song along with the biggest show on Earth. It’s OK. You don’t have to. 

I am not sure you, but I am at the point in m life where I really care less about what wine I drink. If it’s a $4 bottle or a $200 one, I absolutely care less. What I care about is who I am spending my time with, and how much I enjoy being with that person.
In these days it seems like more effort and passion is put into the celebration of the wedding day than even staying married or together with the person we once chose. Spending boat loads of money will not guarantee a successful marriage if you are not willing to do what really matters in your relationship. And of course, never spend the money that you don’t have.

If you liked what you read, agree or disagree, I would love to hear your point of view and experiences.

 

 

 

 

Surviving my first 42 months as an accidental landlord

600 Sq Ft of laminated floor for the weekend of hell!

The moment I dreaded for years came like a freight train this past summer.

For someone who became an accidental landlord the idea of switching tenants, renovating a property to turn it around ASAP, finding a new tenant and covering expenses without rent coming in can be simply terrifying and overwhelming.
This past summer as the kids were playing outside silhouetted by beautiful sunset I received the dreaded call. It wasn’t a leaky faucet or AC this time. My tenant was calling me to tell me that she couldn’t afford the rent anymore.
This was quite a surprise because I had not raised the rent for 46 months, but according to her she couldn’t afford my rent and she was moving. She didn’t want to sign any termination letter until she secured something and I agreed to give her a week. After all, she had been a great tenant, I thought. 
One week turned into two, and at the end of that second week, I had to tell her she would have to be responsible for another month of rent because I also needed some time to find a new tenant.
One day later, she changes her mind and decides she wants to stay with me until the spring of 2020. Apparently she was unable to find anything because her newly-wed husband has an eviction on his record. According to her, the eviction was not really his. He was living with his wife and 4+ kids, they got in a fight and he left. His wife found a different man but they didn’t continue paying rent and got evicted.
At this time I am thinking to myself  that the eviction is the least of my concerns, but rather, this guy walked out of his kids’ lives like nothing. Meanwhile, my tenant must think that she is a great catch taht would make the guy stick around to help her raise her own 4 kids. Crazy!!!

Through all these years, well 3 1/2, we have been up and down with our rental bank account. Before starting looking into the idea of financial independence and exploiting the concept of frugality we were at the mercy of different storms of expenses. However, once that we started setting up certain financial goals and educating ourselves about our finances, we realized that $500 in monthly cashflow was not bad for our rental but a hefty emergency fund was necessary to survive a vacancy, tenant damages and renovations.

So, we set off to build a decent fund. By the time that my tenant called me with her plan our account was not quite there( close to 6k) but we had about just enough to withstand switching tenants and a vacant month. Hence, when changed her mind and wanted to backpedal to stay with me I took it as an opportunity; sometimes you need that push to jump off the cliff. It wasn’t just because I wanted them out, but she had already said they couldn’t afford rent. Besides, I was noticing that the property was starting to deteriorate as a result of negligence. Lots of carpet stains from coffee spills and another beverages. The negligence kills me though! One time I asked her about a stain and she candidly responded: “we just didn’t get around to clean it.” WTF!!!!!
Besides from the damages, the new guy she married and not being able to afford rent there was also the fact that I was charging the same rent from three years back. Market value comps in my area suggested an increase of about 26%. I needed that! Taxes had crept in and the $500 cashflow was reduced to only $300.

Being a landlord for the Section 8 program

In case you don’t know, Section 8 is the government program that helps families in need with housing. In a nutshell, the way it works is by giving participants subsidy, many times referred to as a voucher, based on their income. The more you make the more you pay and the less you earn the more subsidy you receive. It also depends on the number of dependents you may have.

Why do I rent t section 8?

Plain and simple because I don’t get one phone call that is not Section 8. When we first started renting our property I refused to accept any Section 8 participants afraid of all the horror stories ( In my county you can decline Section 8). Although, it is easy for participants to not qualify as renters because usually their financial situation sends a quick alert to any background or credit check service.
On the other hand, when we started it was our way out of the neighborhood that had rapidly declined after the financial cataclysm of 2008.
We started being picky about who to rent to but once we found the house and neighborhood we wanted we had to move quick. We had to get someone in there and without knowing much about the numbers to operate a rental, $500 in cash-flow monthly seemed manageable.
I was able to pull a contract from the internet and before I knew it I was tumbling down the pipe to become a Section 8 landlord.
The first 6 months were nerve-wrecking but the rent was always there on time, so I couldn’t complain; until the end.

What I wish I knew about Section 8

First of all, I have to say that it is not as bad as people make it seem. It really depends on the tenant you are working with. I have heard worse stories about non-section 8 -renters. You have to screen your tenant and get a feel for what kind of people you are dealing with. Poor or rich, I am sure you agree that you can find people are pieces of s*** in both groups. I have heard many stories of people not renting through Section 8 and destroying properties terribly. They get pissed and feel they are being taken advantage of and, of course, the only way to get back to the landlord is by trashing the place.
On the financial aspect, Section 8 can be terrific. The money will always be there with the exception of the tenant’s portion that you’ll have to collect. Getting that portion of the money will depend directly on the quality of the tenant you have chosen.
The one thing that sucked for me but I blame it on my ignorance and lack of understanding the navigation of the program, is that I was stuck with the same rent for years.

Why?
Well, not even a year after Trump got into office they started cutting funds for the Section 8 program. With that came a moratorium for landlords that prohibited the rent of current tenants to be increased. I thought that I was stuck with the same rent regardless if the tenant was the same or not. I thought I could not raise the rent. Period! I didn’t quite understand that my contract was a year contract though and after that, it turns into a month to month contract. The only requirement was a 30-day notice to the tenant.

When my tenant called me saying she was moving, she mentioned that she was able to get out of the contract as long as she gave me a 30-day notice. That prompted me to ask a lot of questions to my tenant’s section 8 case manager and was able to clarify a lot of things that I didn’t quite understand before.
For example, I didn’t know that if I really wanted to increase my rent all I had to do was wait out the firs year, get the tenant out and get a different one. You may be asking why to get rid of the tenant if it’s a good tenant? Well, because they would not give more money or a larger voucher to a tenant to stay with the same landlord. However, if the tenant goes  somewhere else the voucher amount is adjusted to market value; usually Section 8 follows the criteria of the Small Area Fair Market Rents to adjust the money amount given to their participants. Fair or not, that is the way it works.

Sometimes, of course, it is worth it sacrificing a little bit of money for the comfort of knowing that your rent will be there and that your tenant won’t let you down. That was a bit of my situation too. I didn’t care so much about making a killing in rent as I just wanted to make sure I didn’t have the property vacant. I was afraid of not being able to have the funds to go through the process of switching tenants.

A nice tenant turned into a dragon

Well, needless to say, trust nobody! I think I did fairly a good job screening my first tenant. But I did a terrible job allowing someone else moving in with her and being added to the lease. I can’t be sure( I am speculating) about this and I really give a crap… but I am convinced that the man my tenant married wrecked her finances. I should have screened the guy with a background check and credit report. You can’t expect a credit score of 700+ but a credit report it’s really a window to look into the character and level of responsibility an individual has. Do they have debt? Most likely. Are they making payments? Maybe. Do they have a victim story for everything in their report? Possibly. I personally feel that when there is a story for every blemish in the credit report, most likely than not they will include me in their story once we are done doing business. I do believe that we can all be down on our luck at some point, but when it’s all about “it’s not my fault, they are blaming me for something I didn’t do, etc” I move on and far away as soon as possible.

My tenant went from being reasonable and understanding to “you had a plan to get me and my family out.” The scary part of dealing with people who are under desperation and financial pressure that jeopardizes their family stability is that they are capable of anything, and the only thing they have to get back you as a landlord is by trashing the property.
My property wasn’t purposefully trashed; I don’t think. But my tenant was simply negligent in many regards that took a huge toll on her security deposit. I think that I did a pretty good job negotiating her situation, making her understand that all the shit happening in her life was not my fault and that I was nothing but flexible and accommodating to her needs. I never lost my cool, and she really pressed my buttons. 
There is always that feeling and animosity towards landlords of  “you are putting me and my family on the street, you a jerk. You have so much money and you are hurting us.” You know, the victim story. As if I had chosen to take my family to Disney for a week and honeymoon in the Bahamas even when I don’t have money for rent! So freaking crazy! That’s what my tenant did.
**If you are receiving the benefit of Section 8 and you find yourself reading this post, please take advantage of the benefit to secure your tomorrow. Don’t blow the fucking money on crap and expensive trips; don’t be an idiot**

Slay the fucking dragon!!

So I quickly realized that my tenant was trying to use some intimidation by telling me that I should be aware of how some people simply destroys properties when they are not pleased or when landlords get them out.
I could not just park it outside of the house to watch what they were up to, but what I was able to do was to bring a “potential tenant” every week on their last 30 days. That’s right. I would show the property to friends, and potential tenants so that I would keep popping in at least weekly.
At first, she objected making it difficult and going as far as to tell me she didnt’ feel comfortable letting me in her home. What that fuck!!! Until finally I had to tell her that my only obligation with her was a 24 hour notice. That was my gently way of telling her “go screw yourself!” She was rather unpleasant the few times I visited but I was able to assess damages and more importantly check if they were moving out or not.
Going into the last month she wanted to play the “I don’t have the rent for next month” card. She wanted to use the security deposit as the last month rent, which I said absolutely not. You never do that. My response to her was very clear, “if you don’t have the money on the first of the month this all out of my hands and my lawyer will handle it; he is ready to file for eviction, but I really don’t want to do that to you and your family. You know how hard it is to find a place with an eviction in your record. Please don’t do this to your kids. Make sure you have the money on the first.” She had it.
In regard to possible damages to the property, my response was also straight forward “my insurance will cover anything exceeding the security deposit. However, if I notice any damage caused on purpose I will file a police report and I can assure you that nobody will ever rent to you, not to mention that you will lose your Section 8 benefit.”

I don’t like be a dick but it does bother me when people think that they can use their street smart shit to push you around.

Where am I at now?

Well, the property was completely renovated. Was it a pain in the ass? Yes.
I spent about 40 hours of work and roundabout $2,600 replacing all the trashed carpet, retouching paint, trim, replacing a vanity and blinds, plus doing some major cleaning.

I thought they had scraped the tile pattern off. But no, it was still there just submerged in filth.


The worst was a tile floor that was so bad that we had to buffer it with a Dremel tool. It had some sort of wax or hair product mixed with filth sedimented to the tile. Disgusting! Needless to say, I kept her security deposit. I am debating if I should contact her to try to arrange payment, which I am sure won’t happen, and then proceed with a collection agency; just to make sure it goes on her record. She really pissed me off towards the end!
I can’t stand the victim attitude she was trying to use to manipulate me.
The property was up and running in two weeks and I just got a new tenant. The cash flow went from $366 to $766. We needed this increase badly!

New Procedures

I made my contract tighter. More specific language about my right to get into the property with just a 24-hour notice. I am including a check-out list of procedures at the moment of signing the lease. Tenant has to read it and sign it, so it’s clear what my expectations are at the moment of moving out. I adjusted my late fees, and more importantly, I front-loaded my tenant with “this deal is not forever. At some point, you will move on, or I might need you out of the property. I am nice and I will be there when you need me but this is a business not a charity organization. I need my money on time.”
If there is anybody new joining the family on the lease they need to pay for a criminal background check and credit report, and there is not guaranteed that I will continue renting to them upon receiving the report.

Tools every landlord and techniques must use!

The place looks awesome! What you all think?!!

You need the right tool for the job, they say. Well, the one tool that saved me tons of time and it is well worth the $18 it cost me, is… drum roll!!
The Ridgid Miter Trim Cutter. This tool is like a set of pliers with different angles to snap the quarter round trim that goes along the perimeter of every room where you might install new flooring. Using this tool that I first hesitated to buy allowed me to cut the trim for three rooms, a hallway and a living room in almost two hours. It is absolutely a must!

An air compressor comes also handy to attach the trim to the baseboard. I have been using the Home Depot Porter Cable combo that comes with three guns and a stapler and no disappointment yet.

Last but not least, in the paint department, it is worth mentioning that the fewer colors you have around your rental house the better. Since our rental was initially our home we had quite a few color combinations. It could be simpler, but it is not a problem thanks to a little bit of planning. Every time I used a different color I took a picture of the barcode with the color formula on top of the can or container. Thanks to that, every time I want to retouch the walls I just get myself a $2.99 sample. I bring a picture of the color label, which now I have saved in my Google drive, and the Home Depot associate makes it right there for me. Rather than painting the whole house I just go around retouching the walls with some Dollar Tree brushes and I get the job done for easily under $50.

This has been a long post, but I don’t get to write that often because I am so extremely busy with the kids. Nonetheless, I wanted to share my landlord experience with others. Hopefully, you pick up a couple of ideas here that may serve you on your journey of real estate investing.
I am not a super experienced investor or claim to be one. I am just a regular Joe who is trying t make those dollars go the farthest so that I can reach my financial independence relatively early.
If you have any tip or comment I would love to hear it. All points are always well taken.

Net worth Update

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We absolutely love the Great Lakes!

Well, I have been away for quite some time but the family keeps me busy. Having 4 kids at home in the summer is not an easy task and my wife couldn’t do it all by herself, as well as it wouldn’t be fair.
My family and the summer have kept me away from the keyboard but I am still chugging along on the FI road; I can’t believe the year is already over the June hump. Many times I find myself wishing time to pass by quick just because I am thinking of all our financial milestones I will hit on the way but I am trying to correct that mindset; time is our most valuable asset after all.

Anyway, I will give you my net worth update and then add few more personal things in a separate section so you don’t have to read it if you don’t want to.

A Picture is worth more than a thousand words?

Well, not many thousands here but at least some. Here is where we are at and significantly better than a few years back:

:Untitled

It may seem like not much for many people but this really blows my mind. All the way unitl 2017 we were living from paycheck to paycheck, paying down credit cards and bills, gasping for the next tax return to pour it into our credit card balance and pretend to be out of debt for few months or weeks…
Now we have managed to be credit card debt-free through the whole 2018 year and 2019. No debt other than our mortgages and the pesky student loan we are battling.

Still from paycheck to paycheck

We are still from paycheck to paycheck with the exception that now our money doesn’t go to somebody else’s pocket as soon as I get paid but rather to ourselves. We are trying to always pay ourselves first. What do I mean by that? Well, we are easily having extra $800 each month after paying all our bills, but instead of using that extra money to eat out more or buy more things we are taking it straight to the most pesky debt we have, which is our 22K student loan. We have managed to pay almost have of it between last year and this year and hope to be done by 2021. Each month, religiously we take $300 out of my first paycheck and $416 from my second paycheck. Usually we save them up for a couple of months and then dump all that money on the student loan balance. That way the money saved up can be partially emergency fund.

The current balance of the student loan is 11K. By continuing making the same payment the balance should come down to about 8K. I am not that concerned about the interest we are paying; it used to be 6.5% but we lowered it to 4.75% by taking a home equity loan against our rental property.
In the worst case scenario our tax returns are usually around 10K, which should be more than enough to completely pay off this loan and remove those $716 from the debt ledger and potentially go back to fund my 403B.

Maximizing earnings

One of the key factors to position yourself in a good financial situation is to minimize your spending and maximize your earnings as much as possible. Widening the gap between income and expenses will pave your way to FI.
If you make a lot of money but you spend just as much as you earn, your net worth will go nowhere.

In the case of teachers the opportunities to maximize earnings are not quite as easy and usually require extra credit hours at an approved college or institution.
In my case, this year I was able to max out my salary after taking 8 credit hours of coursework. The investment was $900, but this small investment will bump up my salary for almost 6K, leaving me a couple of thousands short of the magic 100K! Woot -woot!

New savings

We will be enjoying some new savings once I start my school year. We finally decided to switch from PPO health insurance to HMO. The difference is about half price. I used to pay $220 bi-weekly(went up to $280) and now I’ll be paying only $122 per paycheck to cover my whole family of six people.
My car insurance used to be $100 and I was able to slash it down to $48 eliminating things I really didn’t need such as coverage for my car in case of collision with an under insured motorist a fault. I did this because I really don’t care about fixing my car in case of collision. It would be cheaper to buy another used car.
I also had some supplement health insurance in case of a collision with an under insured motorist at fault, which supposedly would cover medical expenses. My regular health insurance would be enough to cover hospitalization expenses, so I got rid of that.

I am estimating about $4K savings in health insurance and about $624 in car insurance, which I will most likely allocate to pay off our student loan.

The biggest optimization

Almost 4 years ago my wife and I took the biggest leap of faith trying to get out of the neighborhood we were in. If you have read some of my other posts you may know the story. We had to make a choice between selling our house and pocket maybe 5K after owning this house for about 12 years or rent it out for at least a year and make more than that with a positive cashflow of $500 per month.

So we moved out to an awesome area and became landlords. We have rented our first home to the same tenant for 42 months. We were scared to death at first because the only calls we could get were Section 8 recipients and we have heard horrible stories about Section 8 tenants. We had no option. We screened our tenant the best we possibly could and it was overall a pretty good run. The only hic-cup was a rent increase moratorium imposed by Section 8 to landlords due to funds cuts.

We weren’t able to increase our rent for almost 4 years and we were opting for the security of having a tenant that was always on time with the rent at the expense of some more income. However, nothing is forever and this summer I received the infamous call from my tenant explaining that after getting married she would no longer qualify to receive assistance. According to the tenant they couldn’t afford rent even when I didn’t increase it for almost 4 years.

Luckily I put a lot of effort on building an emergency fund that would cover a potential vacancy and repairs. As they started looking for a new place I also started to look for a new tenant. In the process I realized that rent has simply skyrocketed in the area. According to my area rental market I should be able to collect about $500 extra a month, which would leave me with a positive cash-flow of about $850 monthly. From 3.7K annually we were getting, now we will go to 9.9K!
Unfortunately, my tenant changed her mind and decided they wanted to stay with me after realizing they couldn’t find anything cheaper. Sadly, I had to say no. That sent things in a down spiral of nastiness and rudeness but at the end things worked out and she is willingly moving out after a few threats of evicting her. I felt sorry for the family but I can’t subsidize housing for someone who thinks that honeymooning in the Bahamas and going to Disney is more important than affording housing for her family.

This is a huge move for our family! We plan to use all those savings to continue investing and paying off the mortgage of this rental before we invest in another property.

Summer 2019

This summer was outstanding. We took a a trip to northern Michigan to bask in the sun and enjoy the unsalted, free-shark waters. We took our camper (used) up there and spent about ten days enjoying each other’s company. I have not calculated the total cost of the trip but I am estimating close to $1000 including gas, food, ice cream and a few eating outs with the fam. We did lots of biking, kayaking, hiking, paddle boarding, fishing, etc. Most of the things for free except for our ice cream nights which ran for about $24 for a family of six people; totally worth it!
In the next two weeks the whole situation with our rental should unfold. Old tenant moving out, new one moving in, Section 8 inspection, and sometime in between I will need to lay down 600 Sq Ft of laminated flooring to replace the rental’s beaten up carpet.
Wish me luck!

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Found this awesome Traffic Master floor for $0.49 at Home Depot

In the meantime, I just sewed a couple of holes in my old work shoes and I am just ready to start a brand new school year. I would love to squeeze another year out of my old Sketchers 🙂 My older kids don’t stop saying “why don’t you just buy yourself some brand-new shoes?” They don’t get it yet.

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Saving my shoes for another year of rumbling at school

I would love to hear about your summer. How are your financial goals for the year panning out? Are you hitting your financial milestones?

 

 

Why you should take long road trips with your spouse or significant other

If you have at least one kid, you know that your time is limited. Your day is full of requests from sippy cups to “take me to the park” or “can you drive me to my friend’s house” if your kids are older; we are actually just breaking through that one.

Now, with four kids life can really feel upside down at times. Very quickly you learn that even using the bathroom for a few minutes is a privilege. A moment that allows you to think and straighten your thoughts quickly fades into breaking up the next fight or accommodate everybody’s requests.

In the midst of all the commotion you might find yourself isolated from your spouse even when she or he is just a couple of feet away. Sometimes it’s hard to find the time to talk and when you do you may be so freaking tired that it might simply not happen.

But how about if when your conversation finally happens you realize that your spouse is living the FIRE dream? Quite settled in FIRE-ville trying to find purpose in life, pondering what is important for her and talking about causes that are meaningful to her?

Here is the best: She doesn’t even blog or reads about finances. She has never visited the Mr. Money Mustache corner or listened to any podcast! Your money or Your Life means nothing to her!

It seems like my wife is living the FIREd life

It’s summer 2019 and this is our third summer sending our oldest kids off to camp. Actually we drive to drop them off. This year trying to be economical and sticking to the budget we decided we could keep two kids with the grandparents as we took the trip 5.5 hours away, drop them off, turn around and get back for a total of eleven hours in the car. We thought it would be a good time for us to talk and catch up with no kids in the mix.

We started the trip talking about random things, such as, of course, the kids, but quickly the conversation turned into our retirement plans.

If you have read some of my other posts you know that I am planning on retiring in 2029. You can read My Blueprint and find out the details.

On my end, I really don’t want to stop working but I do want to work for myself. I want to free myself from the shackles of working for money. I want to not have to worry about pissing off my boss because the scores are X and not Z. Or because Jimmy is reading 105 words per minute instead of 106; therefore, he is not college and career ready.

My wife though, is a different story. She gave up her dreams of teaching as soon as we had or first child. She had just completed her master’s program through UIC (University of Illinois at Chicago), had a full-time teaching position and after a month of dealing with daycare issues we decided we couldn’t do it anymore. Leaving our baby in the hands of someone who was doing what we were meant to do as parents in exchange of money didn’t make sense anymore. And so we went from having two professional salaries of about 36K each, to just that; thirty six thousand dollars. We were barely having enough to cover our mortgage and basic expenses. No more money to eat out and frivolous spending. We were getting clothes donations for our baby through a nonprofit organization. We were tight.

My wife didn’t work anymore out of the house. Our second kid was born and it wasn’t even a question. She wanted to have that special time of being there for them and we simply made it work. We went from two cars to one, to cut expenses in transportation, made our own bread, granola, did some canning, lots of DIYs were on me, and the bottom line was: it worked out! We even survived 2008.

Now our kids are older, but we also have two more, with the youngest being almost KG age. This may be a turning point for my wife to decide if she wants to go back to work or continue staying home. We both agree that just because the kids are all in school doesn’t mean that there is no need for anybody being home and regroup or plan the logistics of the day.

Regardless, our current situation and opportunity to talk during our trip opened up a window to think about possibilities. My first thought was, would she want to go back to the school system and be a teacher? She immediately confirmed what I thought with a quick “NO.” What came after that was what really surprised me. In her first few sentences she made clear that she wanted to work on something where she could help others and didn’t have to have a boss breathing down her neck. She said she wanted to work for a cause that she really believed in.

I found all the things she said fascinating because after doing so much reading and pondering about FIRE, these are very valid points that are important to find purpose and consequently bring happiness in life. She wasn’t even considering a job per se where she could earn an income. She was even thinking about some volunteering time working with kids at a hospital in our area.

My big Aha! Moment

As the conversation continued, I let her know how cool it was that she had the freedom to think about work in those terms. Money in the form of salary was not a concern, she wanted to do something she believed in, something she found purposeful, with flexibility, and she wants to help others.

I told her immediately “you are making me feel what it must be like to be FIREd. That is the FIRE mentality!”

After our conversation there was a pause in me to digest all this, and almost to rejoice the moment.

Granted, financially speaking we are not there yet. We still need my paycheck. BUT we are making all the needed changes and putting in all the work to make things happen in 2029.

In retrospect, as I read other people’s stories and learn more about finances, I can see how trying to FIRE may be frustrating. We want things to happen quick. Sometimes we make changes and they don’t seem to make any difference or may not be as significant as we wish. But changes in our behavior as consumers and in our relationship with money do make a difference.

In our case, thanks to small changes we have gone from receiving clothes donations for our first child to being potentially 10 years away from retirement.

Which also brings me back to one of my favorite quotes:

“journey of a thousand miles starts with one step”

Lao Tzu

Practicing gratitude

Along with all this reflection is the mindful practice of being grateful for what we (You and I) have.
I could find things I can complain about and feel sorry for my self because I am not FIREd yet, or I am not traveling the world like many people in the FIRE community. However, I choose to see my glass half full.
When I think about work, sure I would love to live an endless summer adventure and be fully retired. But when I think about our current situation I couldn’t think of a better scenario. My wife has never had to work and she has been able to spend one of the most precious times of her life with our kids. She is under no stress of putting up with a prick as a boss threatening to fire her and jeopardize her family financial stability. She is happy. And our kids love having mom home.
On my end, I am the bread winner but I get to spend the summers with my kids and all other holidays. When they are in school , I am in school too. I work until 3:30 PM; sometimes 4:00. My commute is ten minutes.
Out of the 52 weeks of the year, I work about 39 of them. 185 days a year. In other words, I can kind of consider myself part-time retired. I work half of the year.
I could certainly leverage my way into more real estate to make things happen quicker by investing more but this may also open the flood-gates to a world of stress. I really do not think the trade off is worth it.

I am saying all this not with the intention of bragging or setting up my life as a reference to others. I try not to compare my life to others. That’s the worst we can do.
Rather I invite you to reflect and always search for the silver lining in your life.
I would love to hear what’s your ideal work situation once you reach financial independence? How long will your path be to reach your number? And please share some of those silver linings in your life as you pursue FIRE.

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