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Realistic Goals
- My retirement goal at the moment is $30,000 ($20,000 to put down on a $100,000 or less house that I can rent out with a $10,000 buffer for fixing it up). H and I don't quite agree on how to fund retirement. I want to have rental homes/apartments as well as 401k (I know rentals aren't going to be making money 100% of the time). H really only wants to do the rental homes and while he wouldn't mind funding a 401k, he wants to wait until we have a higher income (after I graduate or we meet other goals) because he doesn't feel we have enough for it to be funded decently.
- Baby fund I am thinking of at least $5,000. We won't be doing any of the IUI's or anything like that, it would be adoption through foster care (almost free, just a couple $200-300 items. Should this be higher?
- Emergency fund- I am thinking $10,000 would be way more than plenty. H wants $20,000 liquid plus enough after that to replace every major item in our home and vehicles (I think this is unnecessarily too high and we could never possibly reach that kind of figure. I haven't even done the math to see how much that would be, it's too scary.)
- Japan- traveling is something that we both enjoy so much and helps our relationship like nothing else. Most couples get stressed and fight more, we are the opposite. So, travel is something we really want to fund heavily. We really want to do several international and national trips. H really wants to go to Japan in 3 years (or less would be great lol), I frankly want to go everywhere possible. So, I am thinking Japan will be our first international trip and I would like to do a few smaller ones before then. The problem is how should we fund this? Or do we even have enough funds? From the looks of the tours (like $3,500 a person) and then you include airfare, would $15,000 be too low? $20,000? That just seems like a ton of money.
I should get a raise in June or September (depends on how they are counting time) and H should get a raise in November. I'm hoping to graduate at the latest in 4 years, but I'm afraid that may take a little longer depending on how much homework I can actually handle since I don't have the option of dropping to part time at work. I'm hoping, of course, to have much higher income after graduating.
Current Budget:
Take home joint pay: $2,300- we have both been contributing a lot more.
Expenses:
Car Insurance: $175
Trash: $66
Phones, satellite, internet, rent, etc.: $220
Identity Guard (super helpful right now while trying to raise our credit): $20
Truck: $392 ($9,500 left)
Water: $45 (usually winter) - $75 (when we fill up the pool-once a year)
Electric: $220 (I budget this, but this winter its been hovering around $180 because we only use a fireplace (wood) and a couple space heaters. In summer this will go up some because of our window units)
This leaves $1,162 to allocate to places. We only have $2,854 left to pay off on bad debt (then I want to pay off truck early). We have just under $3,000 in total (altogether) savings at the moment.
Any suggestions on how we should allocate our money? Are our savings goals too high? Too low?
Re: Realistic Goals
I think $5,000 for a baby fund is enough and $10,000 is fine for an e-fund. You have homeowners insurance with a reasonable deductible right? If so, I don't see a reason to have to cover the cost of 'every item in your house.' Stuff happens but not everything is going to break at once. But if there's a fire or tornado, insurance should cover it.
If you're mindful, you could probably get away with $10-$15K for your trip to Japan.
And I'd personally make some budget cuts. Get rid of the paid credit protection service. Credit Karma is free and offers decent monitoring. Also, trim your phones and Internet plan and CUT the satellite TV!!! You should be able to stream using Amazon, Netflix or Hulu for less than $10 a month plus a one time charge of $50 for a Roku box or something similar (Kindle Fire TV stick is $40).
I'm confused as well. There is also nothing in the budget for food, entertainment, or anything like that. If you have bad debt, I'd vote to pay that off ASAP before allocating funds to your savings goals.
I also think it sounds like a scary idea to be putting all of your retirement eggs in one basket, so to speak. I think you should be saving for retirement outside of saving for rental property. I want to have rental properties as well some day, but I still contribute to a 401K and Roth IRA. The rental property will be over and above those contributions.
Also, I don't think you should put off contributing to a 401K/IRA just because you don't have much to contribute. When I started my Roth a few years ago, I only put in $40/month. It grew to $5K without doing any more than that. Now I contribute more, but starting out with a little is better than not starting at all, IMO.
We take home more than that and have it in our own accounts. I transfer $550 every two weeks to our joint and H transfers $300 a week to our joint. Food, gas, extras, pets, all that comes out of our own accounts.
Housing expenses- we are at my mom's currently. The satellite/Internet/phones/ all that is bundled into one payment to her each month so manipulating those plans isn't an option since they aren't ours. Fixing up the house little by little is considered our rent and those costs come out of our own accounts along with her contributions. Moving out is not a feasible option at the moment due to our credit which I will explain next. We are getting the house in her will and our plans are to rent it out because we don't want to stay so close to our neighbors forever.
We have paid off several thousands in debt that we are just finishing up. We have just under $3k to go then we will be putting extra to the truck. I use Identity Gaurd for this because I have all three of each of our credit reports and scores updated monthly. Credit Karma only shows you one.
On the Homeowners Insurance, my mom says she has it. We don't really trust that considering her financial history so we do want to be prepared. We split whatever housing expenses come up with her, but again we don't trust that she will have an emergency fund herself.
All the other questions are what I'm asking y'all's opinions on.
I would never lie when it comes to insurance. It would give them easy cause to not have to pay out on a claim.
If your mom does have insurance and has a loss, provided you/H are not listed on the policy, and she claims your property as hers that would be considered fraud and she would have to pay it back if the insurance company found out.
Bolded. There isn't a such thing as "funding something decently." There's only 2 things to consider. #1. Starting STAT. #2. Waiting.
Please consider the concept of compounding interest. Basically, let's say you have $100 and you invest the $100 in an account earning a return of 1%. The $100 becomes $101. In retirement accounts, the interest compounds, or builds on itself over time. So, now your $101 at 1% then becomes $102.01. This is mathematically powerful over the long-term perspective of saving for retirement...30 or 40 years...between now and the time you retire. Pretty much all retirement accounts earn much more than 1%. While retirement accounts invested in the stock market, CAN lose money, the stock market has had a lifetime return of at least 8% (on the conservative side).
There is great, great benefit to begin saving for retirement as soon as possible even if it is only $5 a month. Your DH is just not basing his decision to not invest now on fact.
http://www.mycalculators.com/ca/savecalcm.html
See this calculator for what I mean. If you put in $1k now, earning a base of 8%, and contribute $1k more of your own money each year for 30 years, you will have $131,368 earned. That's more than 4x of your own money.
By the same calculator if you put in $1k at 8% but you only have 20 years to invest, $1k per year, you'll end up with $52,415.
It matters WHEN you start saving for retirement.
Just so y'all have a price point of the homes in our area, the $30,000 I mentioned earlier can get you a good distance around here. What are good companies to set a 401k up at? I don't get any benefits at work and H isn't eligible for this until after a year (November).
Check Liberty Mutual for renters'. When I used them it was a 10-min online sign up process. You really are renting, even if the rent is low, so I hope you'll be able to find coverage!
Re. The $30,000 for a house, could you buy a whole home with that? Or is it a 50% DP?
You can always write out a basic lease with your mom and have the rent be $1/month. That way you are a "renter" and you are not fibbing.
I respectfully disagree with some of the anti-rental property posts. I currently own one rental property, but am on a plan to purchase many more over the next few years and hopefully "retire" from my full-time job within the next 6-10 years.
In many markets, you can earn 10-15% annual return on your rental investment and that is after subtracting "hard" expenses like mortgage, taxes, insurance as well as "soft" expenses like vacancy, maintenance, future repairs.
But, like anything else, you need to be smart and educated in your property choices. A lot is on the line...because houses are a big chunk of change...especially for the first few properties you choose.
A fantastic resource for anyone interested in Real Estate Investing (REI) is Bigger Pockets. They are a free website with a huge forum on every topic you could possibly imagine for REI...from the more typical fixing/flipping or rentals to the lesser heard about wholesaling and notes.
Many REIs, myself included, started with purchasing a multi-family home. Live in one part and then rent out the other(s). It's a great way to get your feet wet with both the challenges of owning a home and being a landlord. Especially since, hey, you have to live somewhere anyway...why not start learning about REI with your own home.
Here are some more advice tidbits:
Learn all the ins and outs of a good rental property analysis. Your success with REI starts with finding a good opportunity to begin with.
I also cannot emphasize enough being in a comfortable financial position, with a healthy e-fund, before buying a rental property. That's true for anyone buying a home...but it is extra true for buying a rental. It's one thing to have the HVAC go out in your own house and, if you don't have the money to fix it, say, "Meh, we'll live with the heat or cold until the next paycheck." However, that is not an acceptable answer for a tenant who is paying you money to provide them with a comfortable and habitable living environment. Repairs, especially emergencies, always need to be made ASAP. And sometimes "ASAP" is more expensive.
My own experience. After owning and renting the other half of my duplex for over two years, it was time for the rental to be repainted and the kitchen updated. It was a double whammy because that meant I had to go two months without rent PLUS spend thousands on the updates. But it was okay, because it was something I planned for well in advance.
Other than that, I've never had my place vacant for more than two weeks. As long as you have a property in a decent neighborhood, with a robust rental market, and you have it priced right...vacancies will not be a problem. And that goes back to my advice of educating yourself and choosing the right property to begin with.
Find out if you live in a "landlord friendly" or "landlord unfriendly" state. For example, I'm in Louisiana. Very landlord friendly. Not that I've had it happen...but if a tenant doesn't pay their rent...eviction proceedings are very fast and easy and I can do them myself. A sheriff will be there locking them out within two weeks...four weeks tops.
But if you are a landlord in NY (especially NYC), NJ or CA. May God be with you...and a good real estate attorney. (Shudder) The horror stories I have heard.
Last, but not least. You mentioned a 20% down payment and 10% for repairs. For conventional financing (ie a bank), you will generally need a 25% down payment IF the house will be non-owner occupied. If buying a multi and you will live in one unit, than 20% down is fine. Also, depending on the repairs needed, you might need a construction loan...which is another ball of wax.
Generally a construction loan vs. conventional financing is needed if there is a major repair desperately needed...like a new roof or the current roof is made of asbestos. A gutted house. Or there are only "rough-ins" for the electrical and/or plumbing. Probably not the case if repairs are budgeted at $10K, but something else to keep in mind. Your banker should be able to tell you what repairs needed will knock the house into the "construction loan" category.
If you have any questions or concerns, feel free to PM me.
@formerlyGDaisy09, I agree, "anti-rental property" was a harsher term than what I meant. I just couldn't think of a quick, more accurate one. And I also agree they should have other retirement plans in place, ie 401K.
Probably more accurate would be to say I'm more gung-ho about investing in rental properties than others, because I do it and I've studied it. The right property will almost immediately bring in extra monthly income, even after expenses, that can then be used toward either saving for the next one or towards whatever other financial goals a family has.
The way I described it to my mom is, with each rental property I buy, I am literally "buying income". I love it and have become really passionate about it! It's like, with each positive cash flow property I buy for my portfolio, I am giving myself a big raise.
This is something I know nothing about. So I cannot comment on it. But, I think the way you have done it with research and planning ahead of time is really smart. It's one thing to say, "I'm gonna buy rental property" and pull the trigger and another thing entirely plotting it all out as part of a long-term investment strategy.
I think having multiple income streams in retirement is helpful. I read somewhere that 4 streams is a good idea.
My parents will have retirement accounts, pensions, and SS.
DH and I aren't counting on SS being around, but we'll have retirement accounts and also income from his family's farm. That's only 2 streams, but if the world doesn't end by the time we're 65, then we'll be making A LOT of money in farm income, which would make up for the absence of pensions and SS (if it goes away).
I think looking to alternative income for retirement is wise - just part of a wider picture, though.
From what I have heard, you really need roughly 10 rentals to have enough to cover for everything.
Part of that problem was the loosy-goosy bank attitudes. Back in the 90s, banks would do home loans for just about anyone. Barely looked at people's income. Hence what led to the housing crash...but investors who over leveraged were part of that also. Banks would even give Home Equity Loans or Lines of Credit for up to 120% of your home's equity. YES...they would loan you MORE than the equity in your home. So crazy!
But those are wise words, for any day and age. My "quit my F/T job" plan is to be earning at least $5,000/month after expenses and mortgages, with some of my homes (including my own) totally paid off.
Someday, I would also like to dabble in fixing and flipping, but that is later down the road. Certainly, fixing/flipping can be very profitable...but it can also go very wrong, very fast. I currently don't have the knowledge, skills, or connections to feel confident in this arena...at least not yet!