November Payoff Update! And Downsizing?

We made pretty good progress this month. We were able to add an additional $5k to the HELOC payoff. It’s been fixed with a payoff schedule of 5 years at $938/month so it moves down pretty quickly on it’s own. In less than a year, we will have it paid off and an extra $938/month going into the next mortgage. So satisfying.

I don’t expect to have an extra $5k every month to throw at it, though. This month included a real estate commission (Don’t worry. I first put 20% of it into my SEP and then put 50% of the remaining 80% in savings for my quarterlies.) and money earned from my salon. But most excitingly (is that a word?),  our new duplexes first month of full rents came in! Woot! The money machine is working! But considering that we also had to pay almost $4k in property taxes on ONE of our rental houses this month (the rest get paid out of escrow), I think we did pretty well.

Because we’ve owned that house in Portland longer than any other property in our portfolio, it’s balance can actually be seen to move down a bit in the chart just by paying the monthly minimum. It’ll lose it’s place in the debt snowball in only a couple months. But I’m not bothering to change my chart yet because our plan is to sell it soon. The tenant’s lease is up in August so we’ll let them switch to month to month until January. Then we’ll kick them out, fix it up and sell it just in time for the peak selling months. We have a ton of equity in it and it’s in a very desirable part of town but it’s a 4 bedroom, which is not ideal for a rental. Then we will 1031 exchange that into something that makes a bit more sense for our goals, like a multi family. I’ve participated as a realtor in 1031 exchanges but never as the seller and buyer so I’m excited to get that experience under my belt. It’ll probably be a blog post. Or two.

New Topic.

I made a terrible mistake. I took Mr. Bona FIde Money to The Tiny House Expo in Portland last weekend. He’s already been very frustrated at the maintenance expenses we’ve had to dump into our larger than necessary home this year. The list includes major foundation repair, rebuild of rotting front porch/deck, painting exterior, bathroom remodel (necessary because we had to tear out a wall to access non functioning shower hardware), and two large trees removed. That all adds up to about $18k. Ugh. Luckily, because of our financial savvy, we were able to pay all this in cash as issues arose but, dude. I can think of WAY more fun ways to spend $18k. My house exterior looks pretty kick ass though. We went with a super dark navy body and shiny black for trim and garage doors with a bright, mustard yellow for house numbers and front door. We went from “ew, gross” to  “OOooo, bold.”

Before
After
After Again

But I’m getting distracted. My mistake was taking my home-disgruntled husband to see how beautiful and affordable tiny homes can be. His mind was blown. He’s a man obsessed. He is now an expert on local tiny home zoning laws and building codes and the various tax hacks for RV registration vs. ADU status. He also has memorized the entire local inventory of real estate for homes under 1500 sq ft. If he finds something agreeable in our school district, he’s gonna push hard for the big downsize. We wouldn’t actually go TINY with two kids, that would be MAYBE when we are empty nesters. But he’s very inspired to downsize and enjoy all the expense minimizing, lifestyle streamlining, lack of home-maintenance-time-sucking that a much smaller home would bring. Our current home is only 2200 sq ft but it’s by far, the largest home either of us have ever lived in (without a million roommates). I grew up in 900 sq ft with a family of 4 so I know it’s totally doable. But-but- I almost finally have my house the way I want it! Waaaa!

He’s not wrong, though. Sigh. We’ve decided we’re just going to keep our eyes peeled for potential smaller homes that would work for our needs and see what happens. No promises.

The tiny homes that impressed us the most were built by local companies. One was Tru Form Tiny and the other was Covo. Really pretty and clever and the style was beautiful. Check them out and see if you find inspiration!

F.I. Everyday

Sweet little in home salon.

There are so very many reasons to want to be financially independent. Without a daily grind you have more time to spend with family, to pursue hobbies and interests, take afternoon, weekday naps… the list goes on and on. But it’s not just the destination of being FI that has so many benefits. Along the way, we have discovered that just learning the principals and optimization strategies to attain FI has completely changed our perspectives on life and how we make decisions for ourselves and our family. Confidently managing our finances creates decision making power for now and for the future.

A few years ago, (before we were exposed to the FI concept) I worked full time as a hairstylist in a busy salon in Downtown Portland. I had built a very successful career and was making lots of money. But after 16+ years of 12 hour days without breaks, on my feet with my arms up (and no naps), I had some significant chronic pain issues that I just could not get on top of. I was also burnt out. I had fantastic clients and felt proud of what I’d built but I it was just becoming drudgery. I felt guilty for wanting to quit something I worked so hard to build and was SO scared of not making enough money if I did something else that I put it off for a couple more years of pain-filled boredom. Mr. Bona Fide Money was also concerned about a significant income loss but was very aware of my discomfort so he finally convinced me to quit. Or he was tired of my whining. Either way works.

A couple months before I made my announcement to leave, I built a little salon in the spare bedroom in my home. My plan was to bring my client base from around 200 people down to around 40, only working a day or two a week. I had also gotten my real estate license since we had been buying, selling and managing our own rentals. I had helped a couple hair clients with their real estate issues so I felt I could transition my existing hair client base into a boutique real estate business. I didn’t know if people would actually be willing to give up the urban salon experience to come to my spare bedroom in the suburbs and there was no way to know how many houses I could expect to sell. It was terrifying.

It was also the best decision we ever made. Being home and able to manage more of what the kids and home needed gave Mr. Bona Fide Money some much needed support, I was able to focus on the physical therapy, exercise and rest that I needed to heal and manage my pain.

And guess what? I’m making more money than I ever have! My long term clients are like family and they love coming to my home (free parking doesn’t hurt). My real estate business is thriving with zero marketing effort on my part. In fact, it’s thriving a little too well. I’m now looking for ways to pull back a bit to preserve more of that hard won free time that is so important. I actually just TURNED DOWN a 1.2 million dollar listing! I had already helped the client purchase a condo and I was honored that she trusted me to help her sell her very expensive home. However, they were in the middle of a divorce and homes at that price range really need a team of people to manage the transaction and marketing and I don’t have a team. It just sounded like way more stress than I wanted to deal with, even after I calculated my commission (ouch). The old me would have made a decision based on fear of missing out on money and disappointing a client. The new me said “No thank you” and felt nothing but relief.

In hindsight, I had the tools and a good plan to pivot my career but fear kept me from doing it for years. All that miserable stress was not necessary.

Being able to turn down thousands (and thousands) of dollars in exchange for peace of mind and free time IS what financial independence is all about. Eliminating fear from our decision making process is key. I may not be ready to quit my day job entirely, but with the financial skills we learn through this community, we can confidently create the lives we want to live now and in the future. Now if you’ll excuse me, it’s 2:30 on Wednesday so it’s time for my nap. 

Travel Hacking Is Good For Bad Attitudes

We live in Portland, Oregon. You may have heard it’s awesome here. There’s a show about how weird we are (Annoyingly fairly accurate, although any Portlander will tell you they just watched the first season “out of curiosity” then quit watching because, whatever). Our food scene is internationally recognized as badass. And, in spite of our Cost of Living exploding in recent years, it’s still way cheaper than any other major West Coast city. You may also have heard that it rains a lot here. This is true. There are many grey, drizzly days. I know winters are way harsher in other areas. My brother and his family live in Fairbanks, Alaska. It gets stupid cold up there. But in a place with true “winter”, you have gear and a lifestyle to go with it. Here, it is just a dark, damp, 43 degrees with a dash of freezing rain for a HUNDRED EIGHTY DAYS IN A ROW. The weather and lack of light sucks the joy and warmth from your very soul. Essentially, Portland winters are a six month long Dementor’s Kiss. Yes, I am being a dramatic baby. No, I will not work on my attitude. What I will do is support Mr. Bona Fide Money’s enthusiasm for travel hacking so we can get the hell out of dodge 2-3 times a year without derailing our financial goals.

Just this week we got back from a 5 day trip to Maui. We were so excited for this trip. The weather had already turned crummy here (I had to start wearing socks!) and the kids hadn’t been since they were really little so it was going to be new to them. Wouldn’t you know it, Just as we left, Portland weather turned 70 degrees, clear and crisp and Maui decided to be stormy and grey. In fact, on our first full day there, it stormed so hard that the entire island lost power. Largest power outage in the island’s history. There was also extensive flooding. The resort’s pool flooded with something dark and ominous. I’ll not speculate as to what was in there. Suffice it to say- we were not.

So- we couldn’t use the pool, the ocean was dangerous and muddy, the roads were flooded and every indoor activity was closed due to electrical issues. That day my children got a lot of screen time. (Resort restored power after only a few hours) The pool was up and running the next day (really strong chlorine, I noticed) and even though it was still raining super hard, our cabin fever pushed us out to play. The temperature was in the 60’s so as long as we kept hopping in the hot tub, it was plenty warm for being outside. Plus, the novelty of playing in the water in torrential downpours was also pretty fun.

We met two other couples in the hot tub that were visiting Maui for the first time. They were not quite as upbeat about the experience we were all sharing as we were. It’s an expensive island to get to and stay at and through talking to them, it was clear they were paying full retail price for their flights and one of their rooms. I realized that the fact that Mr. Bona Fide Money got our family of 4 plane tickets for almost free and a screaming deal on our room probably made it a lot easier keep a positive attitude about the unfortunate weather. Knowing how many miles we had racked up getting there to be used towards our next vacation didn’t hurt, either. If this had blown our travel budget for the year, I’d have been a little pissy, too.

Yeah, we were disappointed that we couldn’t snorkel or hike to waterfalls but we got to get out of school and work for a week, spend a bunch of time together as a family and be part of Maui’s weather history (yay?). Everyone still got new stickers for their hydroflask water bottles (souvenir tradition) and Boss Baby was playing InFlight so my son (Finally!) got to watch it. Still a pretty good trip.

Got to see a gecko.
“Walking path”
Resort lobby
Playing with the emergency flashlight and pool toys in our bathtub. Super fun.
Sunshine came out on the last day! Just finished our shave ice.
On our way to the airport to go home. Weather has been amazing ever since.

Suck it, Dealership

We bought a minivan! Yay! … (crickets chirping…)

I don’t get why minivans have such bad PR. I drove one for years and loved it. Then I sold it because I thought I needed something fancier for my real estate business. This was a few months before we found Mr. Money Mustache. Dammit. Coulda saved us a lot of money if we read that just a little bit sooner. Oh well. We then promptly sold that fancy car to get out from under such a silly car payment and have been driving our paid off 2010 Prius and a rotating assortment of whatever P.O.S car my husband has most recently “scored” from some “sucker” that was about to trade it in for “like nothing”. I tease, but really, he gets some excellent deals and we definitely come out ahead on them.

I missed having a minivan because they are just such practical tools. I’m always doing home improvement projects on our own house or one of the rentals and I need to transport drywall or lawnmowers or a tree. I haul furniture and stuff for open houses. I have kids that have friends. We go on vacation with friends and like to share parking-at-the-airport expenses. We go camping in terrain that isn’t always ideal for tents. (Also, we don’t have a tent). We go to Sunriver with extra kids and need to bring lots of stuff and bikes… You get the idea.

Well, I bought an old Town and Country off Craigslist and it’s dead sexy. It has super rugged, all terrain tires and a rack with a storage box on top that already has snowboard brand stickers all over it so I can look way cooler than I am. It’s not so much a van as a “rig”. (shut up) BUT- it only came with one key. So every single time I walk through a parking lot near a sewer grate, I feel my fingers spontaneously start to twitch like they can’t be trusted to keep a secure grip on my ONE key. I wouldn’t have that problem if I had two, of course.  Needing a new key totally sucks because it’s approximately $1,000,000.00 to order a new one with the special chip and all the remote buttons from the dealership. Actually, it was going to cost $267.00. Still ridiculous.

Before we got into the F.I. thing, we had just sucked it up and paid the dealership because, that’s just what you had to do. But now we question everything. So I called my mechanic for suggestions. He said to call a locksmith. So I did. They can totally do it but but they still supply a retail priced key before programming. This got my cost down to $190.00. Much better. I posted my finding on one of our F.I. Facebook groups and someone suggested buying the blank keys on Ebay or Amazon. Bam! I got two brand new, well reviewed, identical to factory keys from Ebay for $25.00! Locksmith says he’ll cut and program one of them for me for $75.00 for a grand total of $100.00! Now we have a savings of $167.00 and we are supporting a small local business instead of the big, evil dealership. Winning!

One note of caution- The locksmith says that he can’t give me a warranty on his work because he didn’t order the key himself. The risk being that there are lots of shady sellers online and it might be a faulty unit. I did see plenty of reviews that supported this concern while shopping. I did purchase the keys from a top rated seller on ebay with great, current reviews and very few negative reviews. To save $90.00, I decided it was a reasonable risk for a back up key. I will be using the new key exclusively now so that I can report back on whether or not I made the right call. The seller I used was remotesupermarket.

Now, I’m told that if we had two factory keys, we could program it ourselves and only have to pay for the cutting. But we only have one so that’s no help to us. So for those of you that still have two and you wanna be extra prepared, go ahead and make a back up for extra cheap.

Yeah right. You’ll wait until you need one. But now you know. 🙂

Monthly Progress Report

We now have 4 investment properties, 2 single family homes and 2 duplexes. On these properties we have 6 loans- 4 conventional, 30 year mortgages and two HELOCS that we used as down payments for purchasing them. Now all we have to do is pay them off. Easy Peasy.

Here is a chart to show our balances immediately after last month’s final purchase.

And here is one to show where we are after some big payments today! Our goal is to use the standard “Snowball Method” to change all the red to blue in the next 10 years.

Mr. Bona Fide Money just received his annual employee stock benefit and we sold our Prius. This allowed us to contribute over $14,000 towards the HELOCS. We won’t be able to make big payments like this every month but taking one entire loan off the chart feels pretty great.

All income from rental properties goes directly back at the loans. As each one gets paid off, the increased cash flow quickly compounds the progress. I haven’t actually calculated our savings rate but the general budget is to live off of Mr.BFM’s consistent income (“after pre tax retirement contributions”) and to use mine (“”), which is strong but very variable, for travel and loan pay down.

I know there is a lot of back and forth about whether or not it is better to pay off mortgages or to buy index funds. We do both. We have the HSA, IRAs, Roths, 401ks… We have done a TON of reading on it and concluded that we are diversified enough to focus the extra on these mortgages. They are each a notch below or above 5% interest rates. But for us, the real motivation to pay them off is the low balances. Because HELOC 1 is amortized at a fixed 5 year term, the minimum payment is $937.00 a month. That’s a pretty big change in cash flow after only putting in $51,000. If we could find another type of investment that would pay us $937/month after depositing $51,000, we would totally do that instead. Yes, we understand the tax implications as well but find that there’s always plenty to write off with rentals. Ultimately, it’s so easy for those of us prone to optimizing everything to feel “analysis paralysis” and not actually make any satisfying progress anywhere. This is a really actionable plan that is fun to put in a chart. And I think we can all agree that fun charts are the real reason we all do any of this. Am I right?

We are not, however, pre paying on our home mortgage. That balance is quite a bit bigger than the rentals and at 3.2% interest… it just doesn’t compute. We do have a ton of equity in it and will most likely sell and downsize when the kids move out. We’re in no rush to get rid of them, though. They can stay while they’re in college if they want. They’re cool people and it’s nice to have them around. We don’t really know what we’ll do after the kids are gone but it’ll probably be whatever the hell we want. And that’ll be nice too.

 

Chattanooga!! (?)

We just closed on our second duplex in Chattanooga, Tennessee. We closed on the first one last month. Aren’t they cute?!

How did a couple from Portland, Oregon end up buying a couple duplexes in Chattanooga, Tennessee?  We had successfully consolidated all our local holdings into two great properties in Portland but we wanted to add a couple more to our portfolio to increase our future cash flow.

The Portland real estate market has gone completely bonkers in the last couple years. Home values more than doubled in many areas. Great for my equity position but not so great for acquisition costs on new properties. We grew up here and know all of the surrounding areas very well but just couldn’t find anything that even came close to the 1% Rule.  So we started looking outside of the metro area, then at neighboring states, then at the states neighboring them… Nothing fit the ROI we were looking for.

Then an article about great cities that are up an coming popped up in my Facebook feed. Chattanooga was on the list with a photo of the downtown and it was just beautiful! The more I read about it, the more it seemed like a stable, growing economy with a relatively low cost of living and great quality of life.

I spent months lurking on Zillow while interviewing realtors, lenders and property managers. Once I felt like I might have a good team put together, we got pre approved and booked a trip!

We stayed at a fantastic Airbnb on the North Shore, walking distance to downtown, grocery stores, restaurants and nature trails. During the day we toured a bunch of pre selected homes and multifamily properties and at night we ate and drank and chatted up the locals. We had a really fantastic time and found two properties that totally fit our criteria!

It may seem crazy to buy so far away from home, but I know from experience that my physical presence is rarely required at my local properties that I manage myself. So with a property manager handling things in Chattanooga, I don’t really need to be there at all.

At this point, we feel that our acquisition phase is complete (for now). Our 10 year plan is to pay off all the rental property mortgages for maximum cash flow. We now have four properties (2 single family homes and two duplexes) on four mortgages plus two HELOCS that we used for the down payments on the Chattanooga Duplexes. In my next post I’ll share our balances and payoff strategy.

 

Real Estate Start

Probably one of the luckiest, stupid things I’ve ever done was to buy a house at 21 years old. I had no idea what I was doing nor do I remember the details of the terms. I was already married (NOT to Mr. Bona Fide Money) and heard that a friend of my husband’s who was our same age just bought a house. I was like, “I wanna buy a house too!” and my husband said “Well I want this new guitar I just saw at the music store.” So we bought a house and a guitar. To me, it just sounded like a fun, grown up thing to do. I had zero understanding of how mortgages worked, appreciation, equity, maintenance costs…But I did it. I got into the Portland real estate market in 1999 for a home price of $132,000. Fast forward a couple years to 2005- lost the husband, kept the house,  gained a daughter, and Mr Bona Fide Money, and was able to sell it for $237,000. $105,000 of equity in 6 years!!!  It was probably right around then I started paying attention to the potential value of real estate.

We were able to use that equity to get into a wonderful little ranch house in a fantastic neighborhood for $250,000. Fast forward to 2012, We sold that wonderful little ranch for…. $250,000. That’s ZERO equity in 7 years. Huh. No matter. We had a 15 year mortgage at 2.something percent on the ranch so we still had plenty of equity from my first house to keep our next mortgage low. The home we purchased next was $320,000 but was twice the size and on a lovely cul-de-sac. It was a pretty moderate jump in price for much more house. And that’s where we are now.

Now, does everyone remember 2006? (one year after I made fantastic profit on my first house) How fast property values were going up and how very easy it was to get money to buy houses? Well, we were also drunk at that party and bought 5 rental properties around the same time. Some with partners (family and friends!!), some on our own…all with minimal down payments (80/20’s!!!). Now, does everyone remember 2007-2009? Yeah. That party came to an end and the hangover was awful. We were stuck in a bunch of houses that we owed the same or less than what they were worth and we shared this burden with family members and friends that had very different financial resources and very different risk thresholds.

Damn.

Luckily, they were all easily rented so that they almost covered the expenses required to hold them so that’s what we did. Just held on. For years. Eventually, the market went back up and we were able to sell all the houses we shared with partners for profit and one that we owned on our own so that we could consolidate our rental real estate portfolio into two single family homes with smallish mortgages that we share with no one but the bank.

It was not the most linear path to real estate wealth but we prefer to consider the money we spent holding those properties in the years after the crash as tuition to the university of real estate investing.

Now to put all that hard won knowledge to good use…

 

3, 2, 1…Go!

Hello! Welcome to our blog, Bona FIde Money. The name is inspired by Holly Hunter’s character in “Oh Brother, Where Art Thou?”. She tells Ulysses that she won’t be with him because she’s got a new suitor and he’s “bona fide”. (Financially responsible) Then my husband noticed that there is an F.I. in bona fide so there you go. Also, it’s fun to say.

We are a married couple living in Portland, Oregon. Mr. Bona fide Money just turned 4o years old last month and I will do the same this month. We are planning to both quit working full time and be established as “Financially Independent” at 50 years old. That’s a nice even 10 year count down. This blog is our accountability journal as we work towards this goal, as well as a way to share helpful life hacks and connect with this super resourceful, fun community.

We have 2 children- a 15 year old girl and a 10 year old boy. Retiring in 10 years means the boy child will be well on his way to adulthood and our lifestyle options will likely be very open. Of course, we are well aware that you never really know what to expect from the future, but that is part of the point of F.I. right? Financial agility!

We first heard about the concept 6 or 7 years ago after reading “The 4 Hour Work Week” by Tim Ferriss. The time management and passive income concepts were very exciting to us but we never really figured out the “muse” necessary for that all important income stream. Fast forward a couple years to 2015. We were on vacation in Mexico and I came across the New Yorker article about Mr. Money Mustache.

I was instantly hooked. So was my husband. We read every one of those posts from start to finish. Full immersion. It was helpful that we were on a leisure vacation and had lots of time to kill.

Full disclosure- We are not hardcore Mustachians. I am not riding my bike everywhere. Or anywhere. I totally get why he advocates it, but I just don’t wanna. I do, however, drive a 2010 base model Prius. And I work from home. So there.

What we loved so much about MMM it is the clearly outlined goal. What is possible and a way to accomplish it. We have always been frugal and ambitious by nature but without clear direction. This completely validated our natural tendencies and inspired us to really take a hard look at our spending and to define our lifestyle goals. It’s way too late for us to retire at 30, and 50 isn’t super early, but we have spent the last couple years getting the hang of how we want to spend and enjoy our time in the present and how to also plan for the future. We’ve designed a pretty sweet life for right now but we definitely work a lot. Too much. We want to make more things and learn another language and learn to play a musical instrument and to experience slow travel and… and… and.

Mr. Bona fide Money is a software engineer with a BIG company. Data architect, I think. I honestly have no idea what he does. But he does a lot of it. Whew! First requirement for F.I. is “be a software engineer”, right? Good thing we’ve got that going for us. Otherwise, I’d be screwed. Just kidding! It’s totally not necessary. It’s just common and compatible with the types of peoples that pursue this sort of thing. I am not a software engineer. I am a hairstylist, a realtor and a real estate investor. 3 side hustles that equal full time employment and income.

We hope to achieve our financial goals primarily through buy and hold rental properties. We do all the other stuff we are supposed to-contribute heavily to our tax deferred retirement accounts, spend very intentionally, live in a house with a reasonable mortgage, and drive paid off, basic cars. In the next couple posts, I will share our real estate history, portfolio and strategy.