Hey readers! I’ve taken the last month away from writing for my own personal reasons. Normally I wish I could say I spent the last month making moves and cashing in big checks but…it’s was really just me slowing down from the fast paced life I live. I’ve spent the past month really focusing more on my mental health and trying to live a better lifestyle. It’s going to be a long journey for that, but I’m positive that I’ll keep myself on the right track going forward! It feels great to reflect and enjoy what I’ve worked for and I’ll be honest, I don’t do that much. I often crave more after I accomplish something and always get back on the grind. It’s good, but not all the time. It’s easy for us to burnout and it’s important to step back sometimes and enjoy life. Now, I didn’t spend the whole last month away from anything real estate or personal finance related. I still updated my finances using the Spendee App & I have been in contact with my real estate agent and mortgage consultant this past month.
It’s November now which means it’s practically been one year since I closed on my first property! Woohoo!!! It’s hard to believe that one year ago, I was anxiously awaiting on closing on my first property. I definitely will be giving a more in depth post on what I’ve learned the last year, professionally and personally. November also marks the start of the holiday season which can be….financially horrific. Holiday spending can get away from me sometimes, but I definitely will be sharing my own tips on not how to kill yourself during the last two months of the year! Now, I want to share a couple of personal finance next moves and real estate investing news that will outline the path for the rest of the year and 2021 for me.
In September, we had a major-ish(?) issue with my tenants AC unit breaking, which in my opinion, had to be fixed ASAP because it affected the whole system and the connection from the thermostat to the unit was destroyed, which meant they couldn’t get heat or AC! So, that repair put a dent on my cash reserve for real estate, which I prepared for! In addition to that, my personal emergency fund is little to none and I’m okay with that for now! Mainly because my real estate cash reserve handles the house and I am fortunate to be able to still work during the global pandemic. The reason my personal cash reserve right is so little is because I funded my Roth IRA for 2020 and the remaining $1,500 I did not contribute in 2019. So a total of $7,500.00 went into retirement, not bad right? The rest of the funds went into my real estate emergency fund.
So my plan for the next couple of months for my two emergency funds (personal & real estate):
- Save 6 months worth of spending/expenses for both personal and real estate funds (Currently have 4.5 months saved for my real estate fund)
- Try my best not to get tempted and throw in a good portion of my emergency fund into my Roth IRA
Due to the global pandemic, I got tempted into taking my extra cash and throwing it into the market for my retirement. Since I had the privilege to do so, I maximized my opportunities. So for 2021, I definitely (more like hopefully) want both my funds fully funded and THEN fund my Roth IRA. Can’t make any promises though!
Holding Off On Buying Another Property
I’ve teased on twitter previously that I am beginning the search for a 2nd househack for the bear and me to live in.
I reached out to my agent and had him set me up with prospective properties just to get my feet a little more wet than what I was doing (browsing Zillow & NJMLS). I reached out to my mortgage consultant to run some analysis on what it would look like if I were to take out a second mortgage. I also began applying for a HELOC on my investment property, which would potentially help fund the down payment on the next property.
However…there were some shortcomings to this idea. The biggest issue debt to income ratio (DTI). When applying for a mortgage loan, the lender looks at a couple of key figures that will determine whether you, the borrower, are capable of paying back the money you are loaned. The DTI is one of those figures. DTI is calculated as such:
Monthly Debt divided by Monthly Gross Income
Which means, the lender will take monthly payment of your debts such as mortgage, student loans and credit card bills and divide it with your monthly gross income such as your W-2 income and 75% of rental income. The percentage must not exceed 43% or your loan will not be approved. Why 43%? I’m not sure but it may be because that would make you a risky borrower if you try to borrow too much from a bank/lender. In my case, my DTI ratio was slightly high, even with all the rental income I would be receiving. There are still ways for me to purchase another property such as investment loans and private lending, but I am not fully comfortable at this time to go that route because I don’t have an influx of cash at the moment (thanks to the new driveway and fully funded Roth IRA!) in the event something goes wrong. I don’t like over leveraging myself and I would prefer not to put myself in a position where I cannot make any monthly payments. Personally it is a bummer to not go out and look for another property, but hey, it’s a win-win situation for the bear and me. We’re paying minimal rent and are saving a lot of money! We’re still working out the whole lack of space in the apartment thing and still need to get the dishwasher working properly, but other than that, everything is good…if there wasn’t a pandemic. So for the meantime, looks like we’re staying put in terms of our living situation!
Trying Out New Savings Challenges
My dad and me area always in constant communication about our investments, personal finance and futures. One thing we always love to dip in to is finding different ways to save money. So for the next couple of months, we’re going to be trying out a savings challenge he calls $1,000 in 100 days. Sounds easy right? But there’s a catch! The $1,000 that you save in that 100 days must not be from your W-2 income! So that means, you must make the money some other legal way! It can be selling some old stuff on eBay (make sure you get the net sale), do an odd job, whatever! As long as it’s legal and it’s not from your W-2 income!
Do you have a good savings challenge that we can try out?
Send us a savings challenge via twitter or firstname.lastname@example.org!
Hoping for a great end of the year for us all! Stay safe and healthy during these times.