Tag Archives: real estate

Housing Dilemma

Gantry State Park

Last year, when our family went up to Buffalo to visit my brother-in-law, I saw a sign at the local supermarket. It was advertising some contest where you could win $250,000. It said, “Win $250,000 and buy your DREAM HOUSE!!” With $250,000 you can buy a beautiful house in a great neighborhood in Buffalo. With $250,000 in NYC where I live, you are most likely not buying a house…any house. Maybe a foreclosure or short sale in need of serious repairs in a bad part of town. With $250,000, you can put a 20% down payment on a dream house!

When I got back home, I told everybody how frustrating it was that $250,000 could buy a “dream home” upstate, but was not enough to buy anything down here. Most people said that they wouldn’t want to live in Buffalo anyway! Too cold and too much snow. That may be true, but there are many nice parts of the country where housing costs aren’t as high and the weather is a lot nicer. If I was single or if I was married but did not have children, there would definitely be more options. However, when children are added into the mix, most people who want a little more room as well as a neighborhood with good schools.

Reading various blogs, there are a few methods I see related to dealing with high housing costs. I think they are great methods, but they may not necessarily work in high cost of living areas. Here are a few suggestions I’ve heard to reduce housing costs and my explanation why it might not work in an expensive city:

House Hacking

House hacking is basically buying a multifamily house, living in one unit and renting out the other unit to cover all or most of your mortgage and expenses. Looking at multifamily houses in areas where I would consider living, which consists of a safe neighborhood, good school district, and decent transportation options, I’d be looking at around $1,000,000. With prices in that range, I’m not sure house hacking is a viable choice for most people in reducing their housing costs. The closest “hacking” I’ve seen in NYC is perhaps “rent hacking” when young and single New Yorkers share a 3 bedroom apartment which rents for $3000, paying $1000 each. This reduces their housing costs as it would cost about $1500 for a one bedroom in a similar location. Rent hacking is less ideal when you have a family.

Note: The numbers I’m using are rental and housing costs in and around my neighborhood. I live in Queens and not in Manhattan or a “hip” part of Brooklyn. It’s not a hip part of Queens either, but it has great schools, it’s very safe, and has great transportation options.


Buy a fixer-upper/Stay in your starter home

Another common suggestion to people who struggle with housing costs is to tell them to buy a fixer-upper. You can buy a house for cheap and slowly update the house as you live there. Some homeowners have the urge to upgrade to a bigger or nicer home when it makes more financial sense to just stay in their current starter home. I did a quick search in my neighborhood and surrounding neighborhoods where I’d consider buying. I saw a small 3 bedroom 1 bathroom starter house which is a short sale. Even being a distressed property, it is going for $649,000.

Move farther away from downtown

Those living in New York City have the longest commute compared to other big cities. Most people already live farther away from Manhattan where the majority of the them work. The data shows that NYC dwellers have the longest commute which is about 35 minutes, but many people I know have commutes of at least an hour or more. Some people move EVEN FARTHER away from their jobs to find a house they can afford by going to the suburbs of New Jersey, Westchester, and Long Island. Some even farther away! Three percent of the NYC workforce are “super-commuters” who travel at least 90 minutes or 90 miles each way to get to work. While living farther away might reduce your housing costs, you definitely wastes a large portion of your day commuting. Plus, you increase your transportation costs and many of the suburbs surrounding NYC have onerous property taxes which you better take into account when looking at the lower housing prices. In Long Island, many houses have annual property taxes of over $10,000.

Rent instead of Buy

Too expensive to buy? Just rent! Problem solved right? If the choice was to buy a $700,000 property versus rent for $1000 a month, the choice would be a no brainer. But what if the choice was between buying a $700,000 property or renting for $3000 a month? The decision becomes a little harder. In NYC and in a few other cities, there is a housing option known as a co-op. When you purchase a co-op, you do not technically own the apartment unit, but you own shares of a co-op corporation that owns the building. There is a monthly maintenance fees that covers expenses such as heat, hot water, property taxes and staff salaries. For many in NYC, co-ops are their best bet to own property (though technically they’re not property owners but shareholders). Co-ops are more attainable compared to a house, but they aren’t that affordable either. In my neighborhood, a three bedroom co-op would cost over $500,000 and have a monthly maintenance fee of at least $1100.

As I mentioned earlier, if I were single or married with kids, there would be many more options available. However, with two kids, I would love to find a place with a little more room in a neighborhood with good schools and decent transportation options. We live in a co-op that is about 800 square feet which is a converted 2 bedroom. The second room is very small but since my kids are small we can put them in bunk beds for a little while. So we have a few more years to figure it all out.

What do you do to reduce your housing costs?

Guest Post on The Frugal Farmer

credit: freedigitalphotos.net by Stuart Miles

credit: freedigitalphotos.net by Stuart Miles

I have a guest post featured on The Frugal Farmer today which talks about how to invest in real estate. Here is an excerpt of the post, please click on over to read the full post!

There is an allure to making it rich investing in real estate. There are late night infomercials telling you they can teach you to build a real estate empire. There are shows about making big bucks flipping houses. Real estate investing is NOT a get rich quick scheme, but it is a great way to build wealth. If done right, investing in real estate has many benefits including having monthly cash flow, tax benefits, having your tenants’ rent check pay the mortgage, leverage and appreciation. There are many ways to invest in real estate but for purposes of this post, I am going to focus on buy and hold real estate investing.

Click over to read the rest!

Not All Turnkey Rental Investments are Created Equal

Credit: freedigitalphotos.net

Credit: freedigitalphotos.net


I hesitate to use the word “turnkey” because there is no clear definition of what it means. Sometimes I refer to my real estate investment as a turnkey investment, but that isn’t exactly accurate. Generally, a turnkey property is defined as a house that has been fully renovated and is ready to be rented out. The company that sells this turnkey property usually also manages the property for the investor. The goal is for the management company to handle the day-to-day operations of the property, it takes a fee, and you, the investor gets to sit back and have the remainder of the rent sent to you. This is mostly true for my investment except the first part.

The Hybrid Turnkey Approach

The company I worked with first acted as my realtor in bidding on the foreclosure. Then it acted as a project manager in hiring and managing the contractors in making renovations to the property. The property I purchased ultimately appraised for about $10,000 above the purchase price plus the renovation costs. If you were to buy a pure turnkey investment property, the company would have purchased the property at a foreclosure or short sale, made the renovations, and then marketed the property to potential investors. The key difference is that I purchased the property at the distressed price, whereas an investor of a turnkey property will purchase at fair market value. The turnkey company is a business and needs to make a profit so that is understandable. And I am not saying that buying a rental property at fair market value is unwise, I would just prefer to have some more equity from the start.

I was talking to another newbie long distance rental property investor, just like I am, and he purchased a property for about $55,000, which rents for $850 a month. Sounds like a good deal, right? However, he mentioned that the property he eventually purchased did not appraise for the agreed upon purchase price. Apparently, this is not uncommon in some turnkey investment properties. Appraising a house is not an exact science. It can be pretty subjective. An appraiser will compare the property you are looking to get a loan for and compare it with similar houses that were sold near that property. Generally, a property’s condition is not taken into account so it can be unfair to compare a newly renovated turnkey investment property to a property which has not been renovated.

He said that he was able to negotiate the price lower which made it a “steal” of a deal in his eyes. (Sometimes the seller won’t budge and the investor will have to put a higher down payment to get the deal done) His opinion is that the bottom line is what the cash-on-cash returns are and what his net monthly cash flow each month will be. Granted, those are incredibly important factors but I think it is short-sighted to only look at the numbers and nothing else. And it is definitely what I looked at when I decided to make my investment. But one thing that is also important when making an investment is to have an exit strategy. What if you want to sell the property? Will there be demand by other investors or by those seeking to purchase it as their primary residence? Will you have to take a loss when you sell it? I don’t want to be overly critical of his investment because he might just be a steal of a deal. I just don’t want to take that risk.

Cash flow is #1 but appreciation potential also matters

When investing in rental real estate, cash flow is important. Living in NYC, I hear many people talk about investing in properties here, even though there will be negative cash flow each month. They assume that because of the high demand in NYC, there will be great appreciation and they can then sell it for a much higher price. I’m not going to lie, the appreciation that I’ve seen in some neighborhoods in NYC are pretty impressive. I’m not taking that risk though. What if there is another downturn in the housing market? Will you be able to sustain paying the mortgage, property tax, insurance and for the upkeep. Also, NYC is pretty tenant friendly, so what will happen if your tenant doesn’t pay rent and it takes a long time to evict them?

While I invest for cash flow because appreciation can sometimes be hard to predict, the appreciation potential of the property and the market is still important. The newbie investor I spoke to bought a property that doesn’t appear to be in the greatest of neighborhoods. The numbers will look great because the property is very cheap compared to the what it will rent for, but numbers aren’t everything. You might end up with a property that is hard to sell or that you’re forced to sell at a loss. You might be dealing with more headaches involving the tenants.

Generally, when investing, money is made on the purchase so I would prefer to buy a property at distressed sale prices and fix it up to “force” appreciation. Once again, I’m not saying not to pay market price for a turnkey property or that I wouldn’t do it. I just prefer this route if possible. If I feel a market has a lot of appreciation potential, I would be more likely to pay fair market value.

What do you look for when you’re investing in real estate?

Buying an Investment Property Sight Unseen

house
A little over a year ago, I purchased an investment property in Kansas City, Missouri. I have never been to Kansas City, Missouri. I bought the property sight unseen. I live in New York City and can’t afford rental property in this area so I decided to invest out-of-state where the numbers make more sense. I am a risk averse person and buying something sight unseen sounded crazy. I just didn’t have to time to fly out there to see the property personally. However, ultimately, I determined that me physically going to the location wouldn’t have made that much of a difference. Was it really necessary to drive around the neighborhoods, look at houses, and speak to the staff of company I was looking to purchase my investment from? With the power of the internet, I can research the neighborhoods, look at pictures and videos of the houses, and speak to the staff of the real estate investment company over the phone. I know very little about housing construction and the extent of my home improvement skills is changing a light bulb and hammering a nail into the wall. Yes, it is pretty pathetic. I am much better off in leaving this to the experts.

Here is what I did instead:

First, when choosing someone to work with, I went to the forums of Biggerpockets. There are many people asking for references and a few names consistently came up as being trustworthy. I contacted the people who gave the good reviews and asked them more specific questions about how their investment was going. I googled those companies and checked if there were complaints on BBB. The most important thing when investing (and especially when investing out-of-state) is to trust the person you are working with. And even if you do trust the person, you must always make sure to the best of your ability that what they are saying is true. Trust, but verify!

After narrowing down the companies that had great reviews, I contacted them and asked them more specific questions regarding the investment. If the person I spoke to take forever to reply to e-mails or phone calls or if they sound shady or overly optimistic about their investment, sounding like they were making a sales pitch, I’d be less inclined to work with them. Sure, an in-person meeting may be slightly better way to determine whether one can be trusted, but I don’t think it was absolutely necessary.

Researching the neighborhood and property:

Zillow: This is one of the best tools giving you a good amount of information about the property and neighborhood. It will provide you with a “Zestimate” which is their estimate as to the approximate value of the property. They seem to do a pretty good job estimating how much the property is worth. You can also look at the comparable sales in the neighborhood. There are also ratings for the schools in the neighborhood. Another great tool that Zillow has is their rent zestimate which estimates the amount of rent you can probably get from that property. It is a pretty good estimation but also check out Rentometer, which also gives a rent estimate. Another thing you can do is to call up local property managers and ask them how much rent they think you can charge for that property.

Trulia: It provides similar information to Zillow, but I like using Zillow better. I do like Trulia’s Crime Map which shows the amount of reported crimes in that neighborhood. It also has information about demographics as well as average commute time and businesses in the neighborhood. For more information about crime, SpotCrime is also a good resource. Another great resource with a wealth of information about various neighborhoods is neighborhood scout. (You will have to pay for more advanced data)

The Biggerpockets forum is not just a great place to get recommendations on companies to work with, but it is also a great place to find which neighborhoods you should invest in. There are plenty of helpful people who will tell you what areas to avoid and which areas are a good investment. Also, check out the City Data forum where there are many locals who will provide information about the neighborhood you are looking into. The Biggerpockets forum is geared towards investors whereas the City Data forum seems to be people talking about their neighborhoods generally and helping those who plan on moving there with information. Another way to look at the neighborhood and house without traveling there is to use Google Street View. Of course, these pictures may not be up-to-date but it still gives you a feel for the neighborhood.

Seeing the property- the turnkey company, realtor or whoever it is you are working with will send you pictures and/or videos of the property. If you want to make sure these pictures are accurate, you can hire an independent third-party to take pictures of the property and send it to you. For $69, WeGoLook will send an agent to the property to take some pictures and verify the condition of the property.

Finally, after all this research, I think that an inspection and appraisal of the property adds an extra layer of security. If you are taking a mortgage on the property, the bank won’t want to take the risk of giving you mortgage with a property that is in horrible condition and about to fall apart. The home inspector has no incentive to lie about the condition of the property. Consider using a different home inspector than the one recommended by the turnkey company or realtor you’re working with to ensure there is no conflict of interest.

I’m not saying you should purchase real estate out-of-state without seeing it. If you are able to fly out to see the properties offered, check out the neighborhoods, and talk to the people you will be investing with, it’s a great idea. I’m just saying that it is doable even if you cannot personally go there. Just make sure you do your due diligence. Investing in real estate has risks and investing in a property out-of-state has increased risks, but they can be reduced.

Would you consider buying a property without seeing it? If you’ve done this before, are there any other resources you would recommend using?

Mind-blowing Ideas Found Reading Blogs

credit: Freedigitalphotos.net

credit: Freedigitalphotos.net


Even before I started my own blog, I was a blog reading addict (mostly personal finance blogs). I’ve learned so many great things and gotten so many ideas from reading blogs, which include ideas that the main stream media often don’t talk about. I was tired of reading the recycled articles about making a budget and contributing to your 401K up to the employer match. I didn’t want to read any more stories about how early retirement was almost impossible (and by early they meant 50’s) and that even retiring at 65 might be a pipe dream. Here are some of the amazing things that I’ve learned thus far:

Retire in your 30’s

I always thought that, like most people, you get a job, work for 40 some odd years and retire in your 60s. I thought I was doing an awesome job saving for retirement when I opened an IRA account and increased my 401K contribution over the amount that my employer matched. Since I was working in government where I had a pension, I started thinking that retirement at 55 would be possible and thought that was incredibly awesome. Now when I stumbled upon the Early Retirement Extreme blog where the blogger, Jacob, said that he retired after working 5 years and was not yet 30, my mind was blown. He was a little extreme with his frugality, but then through Jacob’s blog, I found Mr. Money Mustache and his story really made me think that early retirement was possible. He went into detail about how he and his wife retired early, and argued that early retirement didn’t mean a life of deprivation, explaining often that he lives a very fulfilling life. I’m not going to be able to retire in my 30’s, but it’s possible I get there in my 40’s.

Simple, Stress-free Investing with Superior Results

I have talked about index investing many times on my blog. I believe in it and I am glad that I found this strategy. It wasn’t always this way though. Like many others, I used to chase returns by trying to a hit run by investing in the next hot stock and by investing in mutual funds which had the best returns. Now I realize that it is difficult if not impossible to consistently beat the market, so I just stick with low-cost index funds. Warren Buffet has encouraged most investors to just invest in low-cost index funds and I’m going to take his advice. This investment approach has also reduced my stress. The market drops a few hundred points! There’s a recession coming! Britain is exiting the EU! I’m investing for the long haul and I don’t really care about the stock market fluctuations. I continue to invest and stay the course. I’m not exactly sure when I first learned about index investing but it was likely on the Bogleheads’ forum.

Don’t Pay Taxes

You know how the saying goes that “there are only two guarantees in life: Death and Taxes.” Well, what if you could pay very little or no taxes? Wait wait wait, I’m not saying you should be like Wesley Snipes and get convicted of tax evasion. There are legitimate ways for regular working Joes to shelter our money from taxes. When I read the blog post title $150,000 Income, $150 Income Tax and Never Pay Taxes Again, I was very interested. We often hear about maximizing our returns when investing, but most times we ignored tax savings. Taxes are boring and complicated. Nobody really wants to deal with them. Heck, most people I know have no idea about their own taxes! They send their tax documents to the accountant who files the taxes for them. The tax policy in the US targets people with earned income so if you reduce your taxable income by “making your take home pay as small as possible,” you can avoid paying a good amount of taxes. Justin who blogs at Root of Good and wrote the post about paying only $150 in income tax with a $150,000 income, suggests that “you do everything you can to make your take home pay as small as possible” by maxing out tax advantaged plans like Retirement plan contributions (401k, 457 or 403b plans), flexible spending accounts, health savings accounts, and others. I’m pretty sure that after I read this post, I immediately logged onto my 457 plan online and maxed out my contributions.

The post about never paying taxes again was found on the Go Curry Cracker blog and it gave four simple rules to eliminate taxes:

◾Choose leisure over labor
◾Live well for less
◾Leverage ROTH IRA Conversions
◾Harvest Capital Losses AND Capital Gains

I’m especially a fan of choosing leisure over labor to eliminate taxes. That’s a win win! This advice is geared more towards those seeking or near early retirement, which is what I often dream about.

Out-of-State Real Estate Investing

I always wanted to invest in real estate but it didn’t seem possible because real estate was so expensive in the area where I lived. When I read that the blogger FI Fighter, who also lived in a high-cost-of-living-area, invested in real estate in states where the prices made more sense and where the properties would cash flow, I was very intrigued. I was somewhat skeptical at first but after some due diligence and research, I jumped in and also purchased a rental property out-of-state.

Travel for Free

I used to focus on earning cash back on my credit cards. When I read bloggers write about earning travel points on credit cards and going to exotic locations for nearly free with points, I didn’t really pay much attention because I always figured it was just too good to be true. There was a catch, right? However, after I read more and more stories of people were doing it, I was of course, interested to see if I could get in on it too. After learning some of the “tricks of the trade” with travel hacking, I’ve been able to score some free flights and have stayed at hotels (some pretty luxurious ones) for pretty much free. If you are someone who overspends with a credit card, travel hacking is not a good idea. If you are disciplined with your spending and are an organized person, you can definitely take advantage of travel hacking. I think I first started reading about travel hacking on the Flyertalk forums, but the information can get pretty technical and it might be intimidating to newbies. I think from that forum, I found the Million Mile Secrets blog which is a great resource for those interested in pursuing this. If you want to learn more about this area, there is even a free online course about the topic on Travel Miles 101. If you want even more hand holding, you can contact Holly from Club Thrifty with your ideal itinerary and she will help you create a “credit card rewards-fueled plan that can make your travel dreams come true”

You Can Really Make Money Online!

I always thought that there was an opportunity to make money online but I didn’t know how, plus I am not the least bit technically inclined. Reading articles where bloggers reveal how much money they earn online really opened my eyes to the opportunities out there. Check out the income reports on Club Thrifty and Making Sense of Cents and tell me you don’t want to learn more about this possibility. I definitely am and will need to learn more about how to earn some money online! The best thing about making money online is that you can be often work from anywhere and your schedule is a lot more flexible. Also, if you do it right, a lot of the income can be passive.

Drastically Reduce the Cost of Your Cellphone Service

I was in a family plan with AT&T and had an employer discount. I thought that was the best that I could do. There was no other way to reduce this expense unless I went with some unknown network which was probably unreliable. Then I read Is Your Cellphone Plan Ripping You Off? on the Saving the Crumbs blog and I knew that I could saved a lot of money by switching. Being that Cricket Wireless uses AT&T’s network, I figured there was no downside to the switch. With Cricket Wireless’ family plan, you can have 5 smartphones with unlimited talk and text and 2.5 gigs of data (after which your data speeds are reduced) for $100. That is less than half of what you would pay if you had a similar plan on AT&T. So why wouldn’t I switch? I’ve also heard great things about other plans like Republic Wireless and Ting which are a lot more affordable that the traditional plans, but I haven’t tried them. If you’re interested, you can check out the review on Republic Wireless here, and the review on Ting here.

Consider an Adjustable Rate Mortgage
When I was purchasing a co-op, I went to the bank and the loan consultant just assumed that I was looking for a 30 year fixed mortgage. I didn’t know any better and after the housing crash in 2007, there was such a stigma with adjustable rate mortgages that I just assumed that a fixed mortgage was superior. I truly regret not doing more research about this because I would have saved a lot of money if I didn’t go with conventional advice. When I read Financial Samurai’s post, 30-Year Fixed Mortgage Loan or an Adjustable Rate Mortgage (ARM)?, I knew I made a costly mistake. Here is an excerpt of what he had to say:

“First of all, the average duration one lives in and owns a home is 7 years. If that’s the case, what on earth are you doing borrowing a 30-year fixed rate mortgage for? A 23 year + overestimation of ownership is a serious miscalculation based on the statistics at hand. With a 5/1 ARM, your underestimation is only 2 years, but you already have baked that in”

We bought a co-op which is a junior 4 (small dining alcove converted into a small bedroom). Being that our family was growing, it was very likely that we’d outgrow the apartment in 5 to 7 years. I did run the “rent vs buy” calculator and given other factors, I think it made sense to buy a co-op even given this timeline. But it made no sense to get a 30-year fixed mortgage. If I had gotten a 5/1 ARM, I’d reduce my interest rate by 1% saving over a thousand dollars a year. *Face Palm*

Do you see anything here you might implement in your life? Have you read anything tips or ideas on other blogs that was really mind-blowing? If so, please share in the comments!