Listen to the Roto-Rooter Man

In my mail today, this timely reminder from Roto-Rooter:

Pumpkin Carvers Beware!

Never put pumpkin pulp into drains, toilets or garbage disposals.  The stringy and sticky gunk is ideal for clotting drains and doesn't grind thoroughly.  Wrap the waste in newspaper and discard in a trash can or compost pile.

I know from experience that having the Roto-Rooter man visit is an expensive adventure.  In this case, prevention is worth the effort.

Should You Refinance?

When I see the amazingly low interest rates, I often wonder: Should we think about refinancing? There are so many variables to consider. If you are just beginning to think about refinancing, this segment by June Walbert of USAA will help you decide whether refinancing is the right choice for you.

Thanks, June, for providing us with this useful information.  Now I have a little better idea where to begin thinking about refinancing.

10 Signs You Need Help

How do you know if you could benefit from professional financial help?  Here are 10 signs that things might be headed out of control:

1. You are late paying your bills each month.
2. You use credit for things you used to pay for with cash.  (groceries, utilities)
3. You fight with family members about money.
4. You make debt payments with rent money.
5. Creditors are calling or writing.
6. You use payday loans.
7. You aren't saving.
8. You are the subject of repossession, eviction, or legal action.
9. You are counting on a tax refund to solve your money problems.
10. You transfer balances from one card to another without making any positive progress.

If any of these sound familiar, then you would certainly benefit from some professional advice.  Fortunately, the military offers a variety of great ways to get help.  MilitaryOneSource offers confidential counseling services both in person and via the telephone.  Each branch of the service offers a personal financial management program (Army:  ACS Financial Readiness Program, other services:  Personal Financial Management Program) that can be accessed directly through your command or through your family support center.  If you've checked yes to any of these items, make a plan to reach out and get some help to make a positive change.

Calculating the Energy Efficiency Tax Credit

I've been planning on replacing some of our windows before the end of the tax year, because they are 45 years old and also because of the tax credit for energy efficiency.  This tax credit provides a 30% tax credit, up to $1500, for the replacement of windows, doors, insulation, roofs, HVAC systems, hot water heaters, and biomass heaters.  I did the math and figured that the tax credit maxes out $5000 worth of windows.  (I'm smart, huh?)

We replaced a few windows before and so I knew approximately how much it was going to cost.  I figured out which windows are most important (we have a ton of windows in this house) so that I would spend just over $5000.  The tax credit is good for the 2010 tax year, too, and by saving a chunk of the windows for next year, we'll maximize the tax benefit and we'll have time to save more money to pay for the improvements.

I called Rudy, my window guy, and asked him to come by so we could organize the project.  He mentioned the tax benefit and then said that I would need to spend around $7200 to maximize the tax benefit.  Huh?  That doesn't sound right.  It turns out, the credit is only available on the materials, not the shipping or the installation.I hoped for a minute that Rudy was wrong so I looked it up.  He was right (after all, he is the window guy.)  The credit is good on the price of the windows only.  And around $5000 worth of product ends up with a total bill of about $7200 if you are having them installed by someone else.  When Rudy did the actual calculations, he provided me with the portion of the bill that was tax deductible along with some information that will be required to prove that they are eligible windows.

(And yes, I know that I could install them myself and save a bundle.  Honestly, though, there are days I can't even get a shower.  I want these windows in before the cold comes.  This year.)

If you've been thinking of making improvements, be sure that you understand how the tax credit is calculated.  For more information, you can look at the Energy Star website.  There are other credits available for other types of energy efficient improvements and more details can be found at the same website.

The Paycheck Chronicles Main Page

Energy Efficient for the Apartment Crowd

Sometimes it seems that energy efficient advice is all directed to homeowners:  get new windows, buy a more efficient hot water heater, you know the advice.  Fortunately, there are lots of things that an apartment dweller or renter can do to keep their utility costs low.

Amanda at My Dollar Plan has put together a short and easy list in How to Make Your Apartment More Energy Efficient.  Even if you only take one or two suggestions, you'll certainly decrease your consumption.  If you do them all, you are sure to make a big difference.

To Buy, Or Not To Buy

Recent headlines about Cash for Clunkers and the upcoming Cash for Refrigerators programs have me rethinking some of my spending plans.  Here is the situation:  my deployed husband is coming home in 2010 and we anticipate moving sometime thereafter.  Possibly outside the country.  As a result, I've got some household items that could use replacement but I'm waiting to see where we're headed:  a new car, a new refrigerator, a new vacuum, a new clothes dryer.  I've been nursing these things along because it makes no sense to buy something new just to put it in storage or try and resell it (at a loss) a few months later.  I restrained myself from using the Cash for Clunkers program to replace a car, because a car is such a large purchase, I wasn't necessarily interested in buying a brand-new car anyway, and I still need a large car and I wasn't really happy with the models that would qualify.  However, this Cash for Refrigerators program is really tempting me.

Basically, this is a federal program that uses some of the economic stimulus money to encourage purchases of Energy Star appliances.  Buyers will not need to "trade in" their old appliances to be eligible for the rebates, and the federal program can be added to state programs already in existance.  (Find a list of current state programs here.)  Individual states can decide which items will be eligible for rebates in their state.

This brings me to a dilemma...shall I go ahead and purchase new products during the rebate period?  If we stay in the states, I will be needing them.  Some of the items, such as heating and air conditioning systems, will help my house sell or make it easier to be a landlord.

It looks as if the program will become available in November and it is expected that the money will run out pretty quickly.  If you think that you might want to participate, you should start planning and contacting contractors now so that you don't miss the winodw of opportunity.  I'm at least going to talk with my husband and call around to see what might benefit my family.  I'm curious to see if you decide to make any purchases based on the incentive program.

New Landlord-Tenant Laws in Virginia

The Virginia State Legislature has made a few changes to the Landlord-Tenant laws in Virginia and those new changes are effective as of July 1st.  The most important change is a requirement that landlords notify their tenants, in writing, if the mortgage on the rented property has gone into default or if a pending foreclosure notice has been received.

In the past, renters have been surprised to discover that their rented home has been subject to foreclosure proceedings.  If properly applied, this change will benefit renters greatly.  The potential problem is that most landlords aren't familiar with the landlord tenant laws, and it seems likely that some landlords won't adhere to this new law.  When facing a foreclosure, the landlord is probably dealing with multiple problems at one time and talking to the tenants might be the last thing on their mind, or that they want to do.

You can read the complete changes to the law at HB 2080.

Regardless of what state you live in, there are some common thoughts on foreclosure and tenancy:

How can a renter protect themselves from a surprise eviction due to a landlord's mismanagement?  First, keep an eye on the mail and the local papers.  Foreclosure proceedings are published in the newspapers, and foreclosure notices may be sent to the property address.  If you have reason to suspect that your landlord might be facing foreclosure on your home, call your local courthouse and ask them how to check.

What if you discover that your landlord is facing legal action?  Check with an attorney who works in your area.  One possible choice is to make your rent payments into an escrow account held with a third-party (someone other than you or your landlord.)  This way, the payments are still being made, but you aren't just handing the money over to a landlord who isn't paying the bills.

For links to state specific information, see What If Your Landlord is Foreclosed Upon?

Also, be aware that the military does pay for moves due to landlord foreclosure.  See Some Relief for Military Renters for more information.

From the Military Report

Lots of good financial information from this week's Military Report:

Housing Assistance Program

Tuition Top-Up Program 05-25-09

Value-Added Whole Life Insurance for the Entire Family

Exchanges Cancel Money Order Program

ThanksUSA Scholarships for Military Families

Military OneSource Expands Counseling

AF Clubs Offer Free Membership

Military 'Portable Lifestyle' Website

There is so much to learn and read - thank goodness Military.com puts it all together in such a neat little package.

Hoses...

I was over at USAA's new online community, What's On Your Mind, and I noticed an excellent reminder about washing machine hoses.  You know, the plastic or metal hoses that get the water to and from your washing machine?  Did you know that they don't last forever?  My godfather learned the hard way when his 2nd story laundry room flooded due to a broken hose.  In the 10 or so hours before he got home, the water soaked pretty much his entire house, and he had to move out for months while they rebuilt everything.  Shazaam!  Fortunately, most broken water hose stories aren't quite that exciting, but the average damage from a broken hose is around $6,000.  Ouch!

New hoses cost less than $10 for plastic and a little more for metal.  I try to replace them every PCS - it's just easy for me to remember that way.  When was the last time you replaced yours?

NMFA E-News

From the May 19th NMFA E-News bulletin, the following issues of financial interest:

• DoD Releases Fiscal Year 2010 Budget Proposal

• More Guidance for DoD HAP Provided

• DDESS Enrollment Policy for Fallen Warrior Dependents Changed

• Work-at-Home Career Opportunities

The National Military Family Association does a remarkable job of keeping up-to-date on all the many facets of military life, and they advocate for military families in an amazing way.  Thank you, NMFA!

From USAA: The End of Easy Money

This article was written by Kerry Hannon and furnished by USAA.

Shakespeare's famed line from Hamlet, "Neither a borrow nor a lender be," never seemed more fitting.

As the worst financial crisis in decades has taken hold, banks have put the squeeze on all sorts of consumer loans.  They're taking steps to ease their risk, as unemployment rates climb and the number of delinquent borrowers swells.

If you want a new home or a new set of wheels and have less-than-stellar credit, you might have a hard time finding a lender and a decent rate.  "The bar has been raised on who gets the very best rates," says Greg McBridge, senior financial analyst at Bankrate.com.

Lenders are ratcheting up minimum credit scores, requiring heftier down payments and upping interest rates for borrowers with less-than-pristine credit histories.  The end of easy money has arrived, and lenders nationwide are ready to help you learn how to live within your means the hard way, by not lending you any more dough until you prove you can pay it back in a timely fashion.

As the ever-wise Shakespeare penned, "Put money in thy purse."

BEING A GOOD BORROWER

For most, an unblemished credit score and a steady pay-check will make landing a loan no more difficult than in years gone by.  "You need to be financially fit and have the documents to prove it," McBride says.

"Yes, the credit environment has changed, " acknowledges USAA Federal Savings Bank President David Bohne, "but our bank is strong and we continue to help members meet their credit needs.  If you have a good credit history, we'll offer you the best terms we possibly can."

By far, the biggest change in the credit environment is what lenders consider a good FICO credit score.  That's the three-digit number, generally ranging from 300 to 850 and devised by the Minneapolis-based Fair Isaac Corp., that often determines whether you'll get credit and what interest rate.

THE NEW IDEAL

The credit-worthiest borrower a year ago was someone with a 680 to 700 FICO score.  Now it's someone with mid-700s and up, McBride says.

It's not that Fair Isaac has changed how it calculates the score, it's that lenders are looking for higher numbers than they did even six months ago.  "Essentially, your credit report had better be as good as it possibly can."  says Carol Kaplan, a spokeswoman for the American Bankers Association.  That said, every lender has "its own standards, so there is no one specific credit score that means you're scot-free."

But in general, scores need to be at least 50 and often 100 points higher than they needed to be a year ago to get the best rates, Kaplan advises.  If you're shopping for a loan, here's what to expect.

MORTGAGES:  The basics are back.

Gone are the days when breathing was enough to qualify to get a mortgage loan," says Keith Gumbinger of the financial publisher HSH Associates, which tracks rates on mortgages and consumer loans.  "We're back to a more normal credit environment for mortgages."

Loans may still be available for those with scores as low as 620 and perhaps lower, but you'll pay for it with a much higher rate, say, more than 10 percent versus around 5 percent for a 30-year, fixed-rate, $300,000 loan.

In addition, to show you have the whetwithal to pay, lenders are eyeing an overall debt-to-gross income ratio that falls below 40%.  That's down fromt he 55 or 60 percent that some lenders approved before the mortgage meltdown, Gumbinger says.  The maximum ratio to qualify for a VA loan is 41 percent.  Even if a lender does not hold you to this, you would be smart to do so yourself.

And you'll need cash for a down payment.  "Lenders want you to have skin in the game," he observes.  The amount is creeping back to 20 percent for the best rates, but plan on putting down at least 10 percent.  Lower amounts are still available on Federal Housing Administration loans, if you qualify.  Moreover, you will need the paperwork to prove your income, assets and overall balance sheet.

Borrowers looking to refinance with reasonably good credit and a home that hasn't lost too much value will find ample mortgage money.  But to qualify for the premier rates, those refinancing need to have pristine credit and at least 10 to 20 percent equity in their homes.

AUTO FINANCING

Expect tougher financing and say goodbye to no-cash-down deals.  "The credit market is definitely tighter now than it was a few months ago, but credit is still available for car shoppers," says Jesse Toprak, an industry analyst with automotive information website Edmunds.com.  "The key is, if you qualify.  Those with good credit histories can still get the car and the deal they want and terms just as favorable as ever."

Interest rates currently range from 0 percent financing for borrowers with excellent credit up to more than 16 percent for a borrower with a score in the 500s.  The national average rate for a borrower iwth a 720 score is now 6.68 percent on a $25,000 loan amount.

And down payments are back.  You'll probably need a score of 700 or above to finance a car without a down payment, up from 650.  Borrowers below that score might be asked to pony up as much as 20 percent in cash.  But lenders are even requiring consumers with average credit to throw in at least 5 percent, and more frequently 10 or 20 percent.

And lenders are restricting the length of loans.  So for many consumers, signing up for a loan that's longer than five years, a common practice the past few years, might not be a choice.

CREDIT CARDS

For credit card holders, there are fewer offers for 0 percent balance transfers or low-interest cards landing in mailboxes.

Card companies have been reducing credit limits, raising interest rates and fees and closing idle accounts in response to rising business costs and charge-offs, which occur when banks treat delinquent accounts as a loss.  "Days of a $25,000 credit card limit with a credit score in the 600s are gone," says John Ulzheimer of Credit.com, a consumer credit information and application site.  "Getting approved for a new credit card is definitely more difficult, but it's not Armageddon, as some people say,"  he adds.  "As with other consumer loans, it's all about your credit score.  Try to get it well above 700 for the best deals."

The big danger from a credit picture perspective is having a credit card's limit reduced or closed for non-use, Ulzheimer.  Reducing credit lines has hurt some consumers by affecting their debt-utilization ratio, which is the percentage of available revolving credit they're using on credit cards.  A high debt utilization can lower a credit score, which then makes it toughter to get credit or at least get credit under favorable terms.  Make a habit of using each card once every six months at least, and they pay the bill before the grace period expires and you start to owe interest.

Answers About the Making Home Affordable Program

The hot topic of conversation lately has been the federal government's Making Home Affordable program:  who qualifies, what it does, and how it works.  In doing my research, I found this fantastic article called Government Making Home Affordable and Loan Modification Program:  Do I Qualify?  Written by Pete from Bible Money Matters, it includes the most comprehensive explanations and links that exist anywhere else on the web.

If you have been wondering if the Making Home Affordable program can help you, this article probably has the answer.  This program may provide a solution for the many homeowners who are in unaffordable mortgage and can't refinance due to low home values, or who need to have their loans modified due to changes in their financial situation.

photo by:  striatic

Laundry on the Cheap

There are tons of tips for saving money on laundry (even without counting making your own detergent, which seems like a lot of work to me.)  Some are great for homeowners or renters with their own machines, and other save money for people going to the laundromat or doing their wash in the barracks.  Check it out:

Laundromat or Barracks, plus everyone else:

1. Don't overwash.  It takes up time and it wears out your clothes.  Hang up your clothes when you take them off and let them air out.  If it isn't dirty, and it isn't underwear or socks, wear it again.

2. Don't buy dry clean only clothes.  This is one of the simplest and easiest pieces of laundry advice anywhere.  Dry cleaning is expensive and often inconvenient.  If you don't own any dry clean only clothes (or only certain uniform pieces), you'll save money and time.
3. Hydrogen peroxide makes a great replacement for bleach, is often less expensive, and comes in smaller bottles (great if you have to drag it to the laundry.)
4. Don't use dryer sheets.  There isn't any particular benefit to the sheets and they can leave a film on your clothes (or so I hear.)
5. Make sure that you clean out the lint filter before you dry your clothes.  A dirty lint filter might make your clothes need a second time in the dryer before they are dry.
6. Use the half recommended laundry soap, unless your clothes are really dirty.

Washing at home:

1. Use cold water for most things.  Water heating costs are one of the top three utility expenses in most houses.

2. Sometimes a second spin in the washer is better than a longer run in the dryer.  It uses a lot less electricity.
3. Hang your clothes to dry.  Outside is lovely, but inside works, too, especially in the winter when your house is likely to be dry.
4. If you use the dryer, don't over-dry your clothes.  Use the moisture sensor or check them regularly.
5. Check your vent to make sure it is clean and not blocked

Don't let laundry be an expensive job!  With a little planning and creativity, you can have clean clothes, spare time and a little extra cash as well.

Fix a Leak Week

You know there are weeks and days devoted to nearly every imaginable thing or cause?  Well, the Environmental Protection Agency has designated this week (March 16-20, 2009) as "Fix a Leak Week."  According to the website, the average American home has dripping faucets and leaking toilets that waste 11,000 gallons of water each year.  That's a lot of water!  By fixing small leaks and water runs, you will help the environment and save money as well.

In my area, water costs $4.08 for every 1,000 gallons, plus various taxes and surcharges.  That would be almost $50 per year, plus the general wastefulness of it.  Plus, if 11,000 is the average, I'm sure that some homes are wasting way more water than that.

Take a few minutes this week to check your plumbing and make any repairs.  It's worth the time!

Photo by:  hnnhlh14

$300? I can save $300?

I'm sure you remember that fridge I've been planning to get rid of.   Well, my local radio station might have just convinced me.  WTOP is Washington, DC's "news, weather and traffic" station and they just did a segment saying that refrigerator could be costing me $300 a year in electricity.  And I'm guessing that they're not including the fact that the seal doesn't seal properly.  Wow, that should be good incentive.  Maybe I need to make a sign that says "Save $300 - empty the freezer!" and place it somewhere obvious.  Signs seem to work for me.

The WTOP article also links to the Energy Star website.  Specific pages address issues such as sealing your home, Heat & Cool Efficiently and Home Improvement FAQs.  I learned several interesting things here, like that I probably shouldn't have wasted money getting my air ducts cleaned and that I'm not likely to seal my older home too tightly.

There's a world of energy efficiency information out there - have a look.

Photo by:  Runder

Energy Vampires?

SpouseBUZZ's resident financial guru, Love My Tanker, sent me a great link about Energy Vampires:  Fact versus Fiction.  I love how this article gets specific about which things in your house are gobbling up energy, and how you can work to lessen the problem.  This is one area that I really need to work on, and maybe now I know the best way to do it.

Thanks, LMT!

photo by: 

Stephen Cummings'

Gas & Electric Bill Update X2

You might remember that I have had two unpleasant utility bills already this year.  In order to get this big cost under control, I decided to made four changes:  limit shower lengths, seal windows & use curtains, stop using the space heater under my desk, and deal with the failing fridge in my basement.

Here's how it has gone:

1. Shower length:  I haven't yet designated a timer for showering, but I have been more diligent about reminding my kids that it is time to get out of the shower.  And reminding them again.  And again, until they get out.  There is still room for improvement but I think we've gotten better.

2. Sealing windows and using curtains:  I checked to make sure that all our storm windows were properly closed.  I didn't caulk or weather strip as planned.  I did put a throw rug up against the bottom of the laundry room door as it tends to leak a bit.  I also closed nearly all the curtains and blinds in the house, and I've been trying to open them when it is sunny outside.

3. Stop using the space heaters:  I stopped using the one under my desk everyday, and I don't think I've used it all month.  We had a small one in the family room for cold nights.  I think we've only used it one or two evenings.
   

4. Doing something about my downstairs fridge:  I tried to level the refrigerator so that the door would seal properly but I couldn't get it to work.  Instead, I removed all the food from the refrigerator section and turned it to the hottest setting.  I've been working on using up the stock-piled food in the freezer section.  Once the freezer is also empty, I'll unplug the whole thing.

One other thing that I have done is to set my programmable thermostat to a chilly 62 degrees for all times except for the morning wake-up time.  If we're home and I'm cold, I'll manually over-ride the thermostat to make it warmer and it will automatically reset at the end of that phase.

Even though I've only made small improvements, my gas and electric bill has dropped near $80 this month.  They haven't yet posted the breakdown of gas and electric usage, which also includes historical data and the average temperatures from each month.  From the weather information I have gathered, it seems as if it was slightly warmer this month than last, though it is possible that the amazing wind has offset the benefits of the higher temperatures.

I'll post an update once I'm able to see the actual figures, but I'm encouraged that my small steps have helped.  Yeah!

Updated update:  I've gotten the breakdown part of the bill today.  Yes, it was an average of 6 degrees warmer this month.  I'm sure that is a part of the 20% decrease in gas usage.  (We use gas for heat, hot water and cooking.)  The electric portion went down about 25%, which can probably be attributed to turning off the space heater and using electricity on the inefficient refrigerator.

So, what should be my action plan for this NEXT month?  Hopefully the temperature is going to go up, but I guess I can't include that in my plan.  I guess I should focus on getting the refrigerator completely emptied so that it can be unplugged, replacing incandescent bulbs with compact florescents where appropriate, and working on even heavier drapes for windows that currently have lighter curtains or blinds.

Let's hope next month is even better!

Lessons from a Non-Paying Tenant

Most people agree that a non-paying tenant is a bad thing.  It is, but I've learned a lot from my current experience with a non-paying tenant and I think you will find these lessons valuable as well.

My family owns a rental property in the Hampton Roads area.  We chose to rent it instead of selling because it is in a big Navy area, it is in a great neighborhood, and the rent is high enough that we can pay the mortgage and all repairs with the money we receive in rent.  It helps that we bought it as newlyweds, so it is small, easy to rent, and the mortgage is small as well.

We've been renting out this house for 13 years, minus the three years that we were back in Norfolk and lived in our house.  We have been extremely fortunate that it has never been empty for more than two weeks, and it hasn't required a lot of repairs because it was new when we bought it.  The current tenant is lovely...she takes good care of our house and has renewed her lease several times because she likes it there.

So what's the problem?  Our tenant is a real estate agent, and business has been pretty bad for the last year or so.  While she had always paid her rent on time, payments have been getting later and later.  Sometimes she'll fall nearly a month behind, just to catch back up for a month or two.  However, she hasn't paid her rent on time since December, and though she has been bringing in small amounts regularly, she is currently more than two months behind on her rent, plus she has a large amount of late fees to pay as well.

photo by:  spyffe

My property manager and I have been in constant communication during this time, and I've given him permission to let it get to this point.  As long as she is talking to us and still paying something, I keep hoping that she'll miraculously have several good closings one month and suddenly all will be well.  Last week, however, my property manager and I decided that we didn't see this bad cycle coming to an end and that we were going to have to take action.

I did not want to start eviction proceedings because they cost everyone money and are very unpleasant.  In addition, I do not see this tenant as a deadbeat who is never going to pay what she owes.  Her security deposit would be able to make up a big chunk of her costs.  I feel confident that whatever happens, I will eventually be paid.  She is liable for rent until the end of the lease, or until she is evicted.  Eviction would make her eventual bill even higher, since she is liable for those costs, and leave me with an empty house, and leave her without a place to live.

Instead, I suggested that we talk to our tenant about putting the house on the market in hopes of finding a new tenant to take over the rest of her lease.  This is  a better option as it keeps the house occupied while it is being shown (meaning a nicer looking house) and allows her to continue living there until a new tenant moves in, which only seems fair since she is still liable for that rent.  Our tenant agreed to this plan and my property manager went out this week to inspect the property, put a sign in the yard and list the property in the Multiple Listing Service.  This isn't an ideal solution, but it seems the best plan possible under the circumstances.  I was glad that we were working towards some type of long term resolution.

This morning, my property manager called me and said that he had just talked to the tenant.  It seems that her teenage children didn't know about their mom's situation and were very upset when they saw the sign in the yard and realized what was happening.  They had a family pow-wow and were committed, as a family, to finding a way to stay in the house.  The tenant was wondering how much money she would need to produce before we took the house off of the market.

After some discussion, my property manager and I decided that we would take the house off the market if she could pay one and a half month's rent.  I don't know how this is going to work, but I feel good about our decision.

I have learned so many lessons from this experience.  Some lessons are about myself, and some I have learned from watching my tenant struggle through this real estate downturn and her own financial challenges.

First, I am thankful that my family has structured our budget so that we can still pay the mortgage without receiving our rent.  It has meant dipping into our emergency fund, but we can do it.  If our house were vacant for a long period of time, we would have to make some changes, but we could still get by.  One of the reasons is that our mortgage payment is only a small portion of our family's budget (less than 10%).  Like I said, it is a little house.  We would have had a lot of trouble if the mortgage payment were a quarter, a third, or even half of our monthly budget.  When we made the decision to rent and not sell this house, that was a big factor.

I guess this brings me to the second lesson, having an emergency fund.  Emergency funds are important for everyone, but doubly important for landlords.  Even with good tenant screening, you can't tell when unexpected things are going to happen in your tenant's life.  In a perfect world, I would have six months of mortgage payments in a separate account for just this reason.  In my imperfect world, I have tapped into our general emergency fund.  I don't really care that where the money comes from as long as I can still pay my bills.

The third lesson is the importance of requiring an appropriately sized security deposit.  I have often been tempted to lower my security deposit requirements because I know how hard it can be to come up with a security deposit and the first month's rent at the same time.  However, if our situation ends badly, that security deposit will make a significant difference in how much money I will lose.  I now have a much better understanding of why security deposits are required.

Fourth, one of the reasons my tenant is struggling is because of the nature of her work.  She works for commissions, and when houses aren't selling, she isn't making any money.  I've never been in a position where our family's entire budget is based upon inconsistant pay.  (That is a huge benefit of the military!)  I don't know all her financial details, if she had an emergency fund or how big it might have been, but I can see that having savings is very important if your income isn't guaranteed.  I wouldn't even know how much to save, but I'm thinking something like a year's worth of expenses.  That is a lot of money!  I don't know how I would save that, but I think it would be necessary.

Fifth, try not to put all your eggs in one basket.  By that I mean, figure out a way not to be completely dependent on one source of income without a plan B if that income disappears or decreases.  Admittedly, our family lived solely on my husband's military income for several years while our children were young and I was not working.  It wasn't perfect, but it was more secure than most, and I could always go get a job if needed.  As we get older, I see the value in having a variety of income streams and not raising our standard of living along with the income.  As we receive rent, and I have returned to work, we're trying to keep spending nearly the same amount as before and use the rest to pay off our debts and save more.  We're doing an OK job of it, but I can now more clearly see how important it is.

Sixth (and most importantly, I think), talk to your kids if your life is changing.  I understand why my tenant didn't want to talk to her kids.  I would want to shield my children from financial difficulties, too.  I bet it wasn't any easier once they saw the "for rent" sign in their front yard.  It honestly never occurred to me that her kids didn't know what was happening until I heard about their recent conversation.  It sounds like her teenage children are talking about getting jobs and finding other ways to pitch in during their family's challenging time.  I don't want to second guess, and I don't know their family, but maybe things wouldn't have gotten this bad if they'd been working as a team before now.  (Goodness knows, kids don't like to figure out stuff later.)

I wish this whole situation weren't happening, but it has been a good education for me.  I've learned six valuable lessons, some of which were new lessons and some of which were good reinforcement of stuff I already knew.  Maybe you'll learn a little bit, too.

Becoming A Landlord? 6 Ways to Prepare

There are lots of reasons that you might be considering renting out part or all of your home.  Maybe you are PCSing and your house won't sell, maybe you want to hold on to a starter home while you move up to a larger house, or maybe renting out a room will help you cover your bills each month.  Whatever the reason, becoming a landlord involves a lot of decisions and preparation.

Here are the top six things that you need to consider when you become a landlord:

photo by:  james.thompson

1. Learn everything you can about being a landlord, landlord-tenant law, and other associated information.  Become educated about every aspect of the process before you begin.
2. Budget realistically.  Expenses will probably be higher than you initially estimate.  This could be a huge problem if your tenants don't pay on time or the house requires repairs.  It can be hard when you are a new landlord, but try to put aside a few month's rent for expenses and repairs.  Eventually you will need it!
3. Talk to your insurance company.  Make sure that you have the right insurance coverage for your home - it is a "fire" policy versus a homeowners policy.  It is a good idea to require that your tenants to carry homeowners insurance.  Consider an umbrella liability policy in case your tenant or their guest were to be injured while on your property.
4. Think about whether you want to hire a property manager or manage the property yourself.  In my experience, hiring a property manager was nearly essential.  We were thousands of miles away from the property and did not want to rely on friends or family to help with emergencies.  My property manager has been wonderful, but it took me 5 property managers in two years to find the right fit.  (He's in the Hampton Roads area, if you need a referral.)  Keep in mind that some property management fees might be negotiable - it never hurts to ask.
5. Put everything in writing.  Have a solid lease reviewed by a lawyer.  If you are using a property manager, read through the agreement thoroughly before you sign, and make sure that you have factored all the costs into your budget.
6. Consider the tax implications.  You will need to report all income and expenses to the IRS on a Schedule E, Rental Real Estate.  You can claim an immediate tax benefit if you depreciate your house as an asset, but that will affect the taxes that you pay when you finally sell the house.  Also, the rules for excluding capital gains on home sales changed in 2008.  Previously, you had to live in the home for 2 out of the 5 years prior to selling in order to be able to use the $250,000 per person capital gains exemption.  Now, your exemption will be prorated based on the amount of time that you lived in the house during the five years prior to selling.  For many of us, the amounts are big enough that it doesn't matter (2 people times $250,000 equals $500,000 of exemption, times the percentage of time you lived in the house, still equals a lot of exempt capital gains.)  However, if you purchased your home before the real estate boom and it's value has increased a lot, you will need to consider this carefully.  (Note:  don't forget that military members can defer their sale by up to 10 years if they meet certain qualifications.)

This hits on most of the major topics that you need to consider if you are renting out your home, but there is so much more to it.  Talk to your insurance company, do your homework, and consider hiring a property manager.  Renting your home can be a good choice in many situations, but without all the information, it can easily turn into a big headache.

Here's a link to CNBC segment  in which Carmen Wong Ulrich discussed the issues surrounding renting out your real estate:  http://www.cnbc.com/id/15840232?video=1022101685

Time to Do Something Drastic

I've just gotten my second big gas and electric bill in a row.  After the first one, I made a few changes, but this second bill has caused me to consider bigger changes.  I've been doing some research and I think I have some ideas.   We use gas for heat, hot water and cooking, and electricity for everything else.  I'm going to look at them as two separate bills and figure out how to lower both.  Here's what I'm going to try:

Things I'm going to do to lower my gas bill:

1. Limit the length of our showers.  My daughters have just recently discovered the joys of a long, hot shower.  We're going to start using a timer to keep our showers down to a reasonable length.
2. Check to make sure that every storm window is tightly closed.  Caulk and weatherstrip as necessary.  Hang thick curtains, quilts or blinds over all the windows, but do a better job of opening them when the sun is shining.
3. Stop using the space heater and put on more clothes.  This one is going to be really hard for me as I really like the space heater under my desk.  I might even consider moving my computer upstairs where it is significantly warmer.
4. Do something with the old fridge in my basement.  It is about 13 years old, which is just on the borderline for being inefficient.  Also, the seal hasn't been exactly right since we last moved the fridge to paint.

One side of me think that I should make a more aggressive list, the other side thinks that this will be more than enough to keep me busy.  I wonder if it will help.  I guess we'll find out!

photo by:  Eddie~S