Archive for March, 2010

My Favorite $2 Purchase

I picked up a hair turban similar to the one pictured above from Marshall’s on clearance for $2. The version I bought is made from microfiber and has a button on the bottom that holds the towel perfectly in place on my head. It’s perfect for wrapping up my hair when I get out of the shower. This morning I applied leave in conditioner and left it on my head while I did chores around the house. Twenty minutes later I pulled off the towel and my hair was extra soft and curly.

March 31, 2010 at 3:37 AM 1 comment

The Real Cost of Owning a Vacation Rental Home

So you read yesterday‘s post and still think you want to own a vacation rental home. Now you just need to figure out whether or not you can afford it. How much money does it take to own a second home and how much money will you earn from it? I’ll walk you through the details of our second property to uncover the real cost of home ownership.

As I mentioned yesterday we purchased our rental home near the height of the housing market. We secured a 30 year fixed rate mortgage at 6% through a credit union that required 20% down. These days I highly doubt you could attain a mortgage on a second home without putting down at least 20%. The down payment came from a bunch of stocks and mutual funds that my husband and I had been holding onto for years. A large chunk came from company stock that would now be worthless.

Most people think that you can earn enough money in rental income to cover the cost of the mortgage. While this might be the case in warmer vacation spots where you can rent year round, it is certainly not the norm in a place like the Outer Banks of North Carolina. In North Carolina the typical rental season is between ten and sixteen weeks, depending on how close to the ocean your home is located. The majority of rentals occur in June, July, August and September. Real estate agents may quote you all sorts of year round rental numbers, but most homes rent primarily during that time frame. Due to the short rental season most people cannot make enough money off of their home to cover the mortgage.

If you are interested in purchasing a vacation rental home definitely ask for the latest rental rates and history. This is the best indication of the how much rental income you might be able to earn. Rates on vacation homes vary widely. The homes in our area, of comparable size and age, rent between $2,000 and $3,500 per week during the peak season. The peak season in North Carolina is roughly eight weeks long, so we charge less before and after that time period.

A home that rents for $2,500 during the peak of the season may rent for as little as $800 during the off-season. While $800 a week sounds like a decent number, you must keep in mind that you will rarely rent your home during these non-summer months. If we incurred no other expenses and rented our property twelve peak and shoulder weeks our rental income would cover roughly six months of our mortgage. Of course, there are many expenses that further reduce our income.

For example, if you do not live in the vacation area you will probably need the services of a rental agency, which will help you find renters, clean the home weekly and be available to listen to all customer calls and complaints. The commission rate is typically in the range of 16-30% in North Carolina. At other vacation spots it can vary widely. At 30% the rental company is taking almost a third of your income.

In my opinion the commission is a huge rip-off. The rental agency is relatively good at getting renters into your home, but they aren’t much good for anything other than that. The agencies almost never hold tenants responsible for broken items, so if something is destroyed or stolen the owner almost always ends up paying for it. As an owner you may expect to pay between $50 – $150 a year to replace small appliances like toasters, coffee makers and blenders.

If you own a pool and/or hot tub you will need to pay for a weekly pool cleaning service. We typically pay between $100 and $150 per week just for those services. Unless you do the work yourself you’ll also need to pay additional fees to open and close the pools. That can cost between $300 – $500 total. Of course, you can charge renters more for the use of your pool and hot tub, which does boost overall revenue.

As an owner you will also be responsible for paying any laundry related fees. For example, if a renter spills chocolate sauce all over the rugs in your home, the rental agency will send the carpets out for cleaning and then mail you bill. The same occurs for bedspreads, curtains and any other item that might need laundering.

If you want to keep renters happy you will also need to replace bedding, curtains and even art work every few years. No one wants to sleep on an ancient bedspread or look at stained and tattered drapes. We typically spend between $100 – $200 on items like this each year. I search Burlington Coat Factory and Marshall’s for inexpensive designer items and replace at least one bedspread and a handful of blankets each year.

You will also want to set aside a budget and/or time to clean your windows, repaint your home and perform other home maintenance projects. While you might allow paint chips or outdated bathrooms in your home, you should be aware that renters will not be fond of it. The costs for home maintenance can range from a couple of dollars for a can of paint to a few hundred dollars for bathroom remodeling.

Lastly, if the money you get from renting your home does not cover the cost of renting it, you may be able to post a taxable loss on Schedule E. The tax laws for rental properties are extremely complex and since I’m not an accountant I’d highly suggest you speak with a CPA. There are also lots of good articles on the Internet that can explain the differences between passive and active income and between rental properties and personal residences. In each of these situations different tax laws will apply.

At the end of the day our rental income doesn’t come close to covering our mortgage and expenses. If we purchased our property at a different point in time we might be closer to hitting the mark, but as it stands now we have a long way to go before our property becomes profitable.

March 27, 2010 at 10:45 PM 27 comments

Decisions to Consider Before Buying a Vacation Rental Home

If you’re a regular reader you know my husband and I purchased a vacation, rental property in North Carolina a few years ago. While I’ve written a lot about various decisions we’ve made over the years I’ve never written in depth about how we bought our home or the financial aspects of owning it. In this two part series I’ll give you the scoop on both.

At the time we bought our second home my husband and I were 28 and 27 respectively. We had no debt other than a mortgage on our primary residence. That mortgage was a 15 year, fixed rate with only 13 years remaining until payoff. We owned our cars outright, paid off our credit card every month and saved regularly to our brokerage account and 401k(s).

We knew the area of North Carolina where we wanted to purchase a property and spent a number of years eyeing sale signs and searching local listings. In 2004 we placed our first bid. We really low-balled the price and the owner came back and said, “no way” to our offer. My husband really wanted the house and immediately decided we should pay the full asking price. I was in complete disagreement, because there was absolutely no way we could afford it. We fought for days about that house and at one point were barely speaking to one another.

You see, I need a fair amount of financial cushioning in my life in order to feel safe. I want to know that we have enough money to pay our bills and continue to save each month. I want an emergency fund and I never want to fear foreclosure. My aversion to monetary risk helps us avoid debt, which is a key factor in helping me feel secure.

My husband is by nature much less risk averse. He’s also very compassionate and has a hard time giving on something that he really wants. But at the end of the day I just couldn’t figure out how we would pay such a large amount for a second property. A week after making the offer we retracted.

We continued to look casually for property throughout the end of that year and into the following one. It seemed we just weren’t meant to buy, because the homes in our initial price range required a lot of work and the homes that didn’t require work were well out of our reach.

The following year, while I was out taking a walk on an absolutely beautiful May day I found the perfect beach house. The house looked small from the outside, but the exterior was in amazing shape. The paint, siding, decks and pool were recently renovated. I called a buyer’s real estate agent and asked for a tour. When I walked inside I knew I wanted to place a bid.

My husband and I knew the real estate market was unbelievably high and although we didn’t predict the bubble bursting we had a feeling that prices wouldn’t continue to rise. Having said that, we also knew that this was the house we wanted. The price was $130,000 less than the first house we bid on.

We talked at length about the impacts of this decision before making an offer. For example, we both agreed that neither one of us could quit our jobs or even find lesser paying ones, because both of our incomes were necessary to pay the mortgages. We talked about our long term plans to have a family and decided neither one of us would be able to stay home with a child. We also talked a lot about general ways that we could cut back on daily expenses. We agreed to postpone renovating our primary house and decided not purchase any new vehicles.

We also reviewed all of our monthly expenses. We looked over every bill and stepped line by line through our credit card purchases. We agreed to cut back on buying new clothes and new computers. We decided to focus on cooking at home and cutting entertainment expenses. In essence, we decided to cut back on all discretionary purchases until at least six months after purchasing the property. If we found room in the budget after that point in time we’d consider expanding the budget every so slightly.

In the end we decided to forgo other aspects of our life in order to buy our beach home. My husband and I didn’t take a major vacation to anywhere other than North Carolina for over five years. We rarely ate out, we rarely bought new items like clothes, electronics or furniture and we decided not to renovate our primary home, which is in need of upgrades.

A lot of people wouldn’t trade travel, expensive dinners and other aspects of entertainment for a beach house. If you want to own a beach house you might want to ask yourself what else in life you might need to give up.

Having said all that I wouldn’t trade that decision for anything in the world. In fact, it is the best decision, (other than marrying my husband), that I’ve ever made in my life.

Tomorrow I’ll detail how much it actually cost to purchase our home and how much it costs each year to maintain it.

March 27, 2010 at 2:05 AM 7 comments

A Great List of Freebies

All You
magazine posted an article today listing 33 of the Internet’s best online freebies. If you have a second you should definitely check out the list. My favorites included free language courses, free online education courses courtesy of MIT, free long distance calls (my husband uses Skype almost every night), free movies (I’m a HUGE hulu fan), free games, free music, free medical help, free planners and free legal advice!

March 25, 2010 at 2:50 AM Leave a comment

Who Pays When You Go Out to Dinner with Your Parents?

Every few weeks or so my husband and I meet my parents for dinner at a restaurant half-way between their house and ours. We typically eat at low-to-mid range restaurants, like Red Robin or Macaroni Grill and the typical meal ranges in the $10 – $15 range. Most of the time we split the bill in half. While my parents don’t always allow us to pay, we do offer money every time we go out.

While we pay our fair share when my husband and I are out together, it’s a totally different story when I go out with my parents alone. If my parents take me out to lunch or dinner without my husband I almost never pay. This is in part because I don’t always offer and also because when I do offer I’m usually refused.

My dad is retired and my mom works a part-time, relatively low paying job, so I’d definitely like to contribute more when we go out together. After all my husband and I are actively employed and combined we make more than a decent living.

So every time I go out with my parents I’m torn. On one hand I know that they love to take care of me and provide for me. On the other hand I know that I can afford the meal much better than they can.

So what do you think? Do you think I should take control of the bill and pay more often or continue to allow my parents to pay for me? It’s not a lot of money and we don’t go out together often, but I don’t want to impose on my parents and at the same time I don’t want to pay if that makes them feel uncomfortable.

Every time I offer they say, “we’re so happy to be with you. we love you. we want to pay for you.” I guess the question is whether or not I should let them.

March 23, 2010 at 3:05 AM 13 comments

Saturday Night Link Love

Here are just a few of the posts I enjoyed this week:

March 21, 2010 at 3:00 AM 8 comments

My Love and His New Toy

So much pleasure from something that cost less than $12.

March 19, 2010 at 1:35 AM 3 comments

Do You Try to Save Money or Try to Earn More?

Last night I searched out the shortest line in the grocery store and found the kindest cashier behind the counter. I handed her a bunch of reusable bags and apologized in advance for the number of coupons I planned to use. I used a total of 20 coupons for 35 items.

She told me all about her coupon clipping strategies and said she probably had twice as many store reward cards hanging from her key chain. She also said her husband refuses to shop with her if she plans on using coupons.

I told her my husband is pretty similar. He comes to the grocery store with me every so often, but he usually tells me not to stand around in the isles matching coupons with sales. I know when I shop with him that I have to come fully prepared.

My husband’s philosophy is simple. Rather than clipping coupons and saving money, he typically finds ways to earn more. He’d rather work an extra hour, than stand in the grocery store sorting through a wad of clipped paper. He doesn’t mind if I want to save this way and is more than happy to pour me a glass of cold water while I clip and sort on Sunday mornings.

I’m a salaried employee, so I can’t work extra hours to make more money like he can. Similarly he would rather do a million things than compare prices and clip coupons. Although our techniques to save money are different our ultimate goals in life are the same. As long as we stay on the same page the details that help us reach those goals don’t really matter.

March 18, 2010 at 3:00 AM 9 comments

Are You a Vocal Consumer?

When you receive good service at a restaurant or store do you let the manager know? When you buy something that doesn’t meet your expectations do you inform the manufacturer? Do you know which items in your home have warranties and do you request replacements when the items fail to meet their expectations?

I do. I’m a vocal consumer and over the years I’ve been well rewarded for speaking up. I’ve received coupons for products, free meals and cash back.

Here’s a perfect example, a couple of weeks ago my family and I went out to dinner at a favorite local establishment. Our waitress was absolutely outstanding. She was friendly, courteous and attentive. When my 80+ year old grandmother asked her question after question about the menu she responded kindly and gently and offered great suggestions.

I appreciated her service so much that I sent an email to the restaurant manager to let him know the waitress was outstanding. One week later I received a phone call from the manager thanking me for my comments. Two days after that I received a letter in the mail with dollar off coupons to use on our next visit. I felt great providing feedback for our waitress, the coupons were just a perk for speaking up.

While I prefer to contact companies for good service, I’ve certainly been known to contact them when products don’t meet my expectations. When the $100 knife set I purchased began to rust after only one month of use, I emailed the company to find out if anything could be done.

I provided order details like dates and numbers, a detailed explanation of how I cared for the knives and also mentioned that I purchased similar knives three years earlier from that were still in perfect shape. A company representative contacted me within 48 hours with a couple of follow-up questions. I also offered to mail the defective knives back. Three days later I received a brand new box of knives, not just replacements for the defective ones, but the entire $100 box set.

I don’t let the price of an item deter me from contacting manufacturers. I’ll contact a company just as quickly for a $100 item as I will for one that cost 5 bucks. When the brand new bag of candy I opened contained discolored, distasteful chocolate I emailed the UPC and expiration date to the company and asked for assistance. I received multiple coupons to purchase a replacement product within a week.

Most of comments and inquiries take less than five minutes to document and submit. Through the power of the Internet I’m able to locate contact information, trace order numbers, document dates and provide necessary details. 80% of the time I’m rewarded for my efforts. More often than not the manufacturer’s make good on their products and mail me out replacement items or coupons for a product of comparable value.

In those rare instances when I don’t hear back from a company I typically return to the store with receipt in hand and ask for cash back. Just to be safe I keep receipts for all items, including groceries, for up to a month.

March 15, 2010 at 1:00 AM 4 comments

This Year’s Square Foot Garden

Last year my husband and I planted our first garden. We put together a simple four-by-four foot garden box, (without a bottom), hooked up a small irrigation system and planted four different types of seeds. The crop consisted of beets, cantaloupe, carrots and jalapeno peppers. All together we spent less than $25. Of course, 90% of the money was spent on the box and irrigation, with just a couple of dollars spent on seeds.

While the garden grew quite quickly, (we placed it in a super sunny spot in our front lawn), the harvest wasn’t quite as spectacular as I’d hoped.

The cantaloupe grew large enough to harvest, but they weren’t particularly sweet. I later learned that cantaloupe take on the flavor of the soil in which they are grown. I guess our soil wasn’t quite right because they tasted quite bland. I popped them all in the blender and added them in place of juice to my daily smoothies.

The beets grew quickly, but I planted them too close together and I don’t think they had enough room to fully expand. I think they would have been edible, but they were so tiny that I decided not to bother trying to prepare them.

The carrots were the worst of all. After digging a couple of carrots up too early I waited a really long time before harvesting the rest. Unfortunately none of them ever grew hardy and strong enough to eat, so they all went directly into the compost pile.

The biggest success was the row of jalapenos that grew in the middle of our box. I grew so many peppers that I couldn’t possibly eat all of them. They grew longer and hardier than anything else I planted.

This year I’m taking a new approach to the square foot garden. My husband built two additional boxes for me and I plan to grow a larger variety of fruits and vegetables. The focus is on strawberries, cucumbers, zucchini, red peppers, broccoli, chives, peas, shallots, pablano peppers and flowers.

I splurged on two organic 36 pellet seed starter kits that look a lot like the picture below. I purchased both kits for around $4 each, (after a 20% off deal), from Ace Hardware. I planted the first set of seeds in sunny, cat-proof area of my house last weekend. I hope that I’ll grow a hardier garden by starting the seeds indoors.

I also plan to follow the spacing and planting rules for a square foot garden much more closely this time around. Last year I think I crammed too many seeds together. In the end the plants were all vying for the same piece of property, which hampered their overall growth and made most of them inedible.

Last year we were fortunate enough to have an organic, bug-free, rodent free garden. We grew an awful lot of jalapeno peppers, which had sharp, sticky stems. I’m not sure if this plant kept the pests out of the rest of the garden but I intend to plant a few jalapeno and habanero peppers again this season just in case it did.

March 13, 2010 at 9:25 PM Leave a comment

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