3 Easy Ways To Save For Your First House Down Payment

FirstHouseDownPayment Follow Me on Pinterest The typical American Dream includes buying a home with a white picket fence instead of renting a home for life. Now, I’m not saying your dreams should line up with the American Dream. However, if buying a home, with or without the picket fence, is part of your American Dream then you’ll need to be able to save up for a down payment for your first home.

Saving For Your First House Down Payment Won’t Be Easy

Saving up tens of thousands of dollars is no easy task, but if you want to buy a home that’s exactly what you’ll need to do. I personally recommend putting at least 20% down on any home you buy. That means a $100,000 house would require at least $20,000 down and a $200,000 house would require a $40,000 down payment.

Both amounts are daunting to a new saver, but it is very possible to accumulate enough money for your first home’s down payment. I know from experience as I have saved up two 20% down payments, the first for our townhouse we bought on a whim and the second for our long-term home.

Save Extra “Housing” Money

I actually started saving for my first house as soon as I got my first paycheck from my first post-college job. I remembered reading somewhere that I should budget 33% of my income for housing and housing related costs (insurance, taxes, etc). However, I was only spending 20% of my income on rent and renter’s insurance.

So what did I do? Instead of spending the money somewhere else, I took that extra 13% I wasn’t spending on my rent and put it into a targeted savings account called First Down Payment. This method can eventually reward you a proper sized down payment for your first home but it might take a while.

If you’re planning on buying a house in the next few years, your current housing cost must be much lower than the recommended 33% or else it would take decades rather than just years to do accumulate a 20% down payment. There are other methods you can and should supplement this method with.

Put All Extra And Unexpected Income Toward Your Down Payment

Since you’re likely trying to save up for a down payment as fast as you can you might want to take some extraordinary measures you wouldn’t normally consider. You know how sometimes you run into some extra money throughout the year? Bonus checks, gifts, tax refunds or other random sources of income that you don’t normally rely on or live off of all fit this example.

Pretend these extra sources of income don’t exist and never spend a penny of them. Instead, throw every single penny of them into your First Down Payment account. You might be tempted to use your bonus on a sweet vacation for your family, but keep in mind you bigger goal is owning a home!

Increase Your Income And Don’t Spend A Dime Of It

The last easy way to save for your first house down payment isn’t necessarily fun, but it will get the job done. You can only cut your expenses and save unexpected income to a certain point. However, you can increase your income in many ways and the quickest way is to work more.

If you really want to get your first house sooner rather than later, you can put in extra hours at your job if you’re paid hourly. Overtime pays even better than straight pay which should amp up your savings efforts quite nicely. Alternatively, if you can’t get paid for extra hours at your current job, you can get a part time job or create a small business on the side that generates some extra income.

Saving up for a your first house and your first down payment isn’t easy. It can be done in just a couple of years rather than a decade if you put your mind to it and use the easy tricks I mentioned above. They’re all pretty easy to institute but they do require a bit of work and self-restraint. Just remember, it’ll all be worth it when you get the keys to your first home!

How did you save for your first down payment on your first home? I want to hear your stories in the comments below. Of course, if you don’t feel comfortable sharing in public, you can always use my contact form or email me to let me know.

Photo courtesy of Jim Larrison.

Flood Insurance Rental Property Surprise – What New Landlords Need To Know

I know many people don’t have rental properties, but the lesson in today’s post can be applied to everyone that has insurance of any type, even basic insurances like car, renter’s or homeowner’s insurance.

CFD Flood Response 8.5.2011 Follow Me on Pinterest We knew we were going to become landlords and turn our old home into a rental property when we signed our death pledge for our new homeWe did a lot of research before we made the decision and thought we understood most of the changes that would be involved when we converted our townhouse that we bought on a whim to our first rental property.

However, just recently we learned about something we hadn’t found in our research and it had to do with our flood insurance. When we were doing research we asked our insurance company if we had to make any changes to our flood policy now that our townhome would now be a rental property and they said we didn’t. They were right, but they didn’t advise me of the changes that would occur once the property was no longer our primary residence.

Your Flood Policy Changes When The Home Isn’t Your Primary Residence

If you have a flood insurance policy, there is a 99% chance this applies to you. From what I’ve been told, the National Flood Insurance Program (NFIP) is the only flood insurer in the United States and is actually backed by FEMA and the federal government.

When I called to renew my flood policy I asked my agent a few questions about policy limits now that we were insuring a rental property rather than our primary residence. I was trying to drop contents coverage, since I no longer had any personal property stored there. They informed me that I couldn’t drop the coverage and then I asked if I could at least change the personal property from replacement cost to actual cash value to save some money.

That’s when the insurance agent did some digging and informed me that my whole entire policy was now based on actual cash value rather than replacement cost because it was no longer my primary residence. This made a huge difference to me and I asked why no one told me this before. My agent explained that the type of policy doesn’t change, but some of the wording in the policy says this would happen.

Darn it! I Didn’t Read My Flood Policy Recently!

I firmly believe in reading everything you sign, especially important documents like insurance, loans and contracts. If I did read my flood policy when I initially bought it two years ago (which I’m pretty sure I did), I certainly didn’t remember this particular clause. Sure enough, though, it was there.

So what’s the big deal? Now that we have an actual cash value policy, the flood insurance won’t pay me the cost it would take to rebuild my townhouse if it were completely destroyed in a flood. Instead, they’ll look at the value of the components of my house based on how old they are and how worn out they are. Basically, if I had a 20 year shingle roof and it was 10 years old, they’d likely only pay for 50% of the cost of the roof.

I had bought my policy based on replacement cost and made sure I had limits that would cover rebuilding my home. Instead, now I’ll only get actual cash value so I had to adjust my insurance limits down accordingly so I wouldn’t be over insured and throw money away for no reason.

Lesson Learned – Read and Review Your Insurance Policies

I was listening to the Stacking Benjamins podcast and in this episode, they briefly talk about doing a yearly insurance policy review to ensure that you’re covered for what you think you are. If I had done this, I would have known about the change when the house went from our primary residence to a rental property. If I had known that I could have saved a bit of money by proactively changing my policy in advance.

Instead, I lost a bit of money by being over insured. Read your insurance policies to make sure you know what you’re paying for and it is what you think it is. When I read my car insurance policy, I learned I wouldn’t be covered if my car was destroyed in an act of war or if it was incapacitated by a nuclear weapon. You learn something new every day!

Do you read your insurance policies? What is the weirdest thing you’ve ever seen in one? Were you surprised by the amount of exclusions that you weren’t aware of?

photo by: charlottefire

Selling Your Home? How about for $190 MILLION?

Vimanmek Mansion Follow Me on Pinterest

Not the Actual Property

Today we welcome back our regular Thursday contributor, Jen from The Happy Homeowner!

13,519 square feet. 50 acres of pristine, waterfront property. 12 bedrooms, 9 bathrooms, tennis courts, an apple orchard, and an 1,800-foot-long driveway to welcome you home each day. No, this property isn’t a figment of your real estate imagination. It exists in Connecticut, and it can be yours….

…for the bargain price of 190 MILLION of your hard-earned dollars!

Even if you don’t have $190M lying around at your disposal, it’s hard to argue that with properties such as this, the most expensive private estate to ever come onto the market in the United Sates, that there is finally a glimpse of real recovery in our housing market. Of course, this could all go out the window if this veritable Taj Mahal doesn’t sell but I’m willing to bet that somewhere along the line, even if the price drops, there will be new owners ushering in their own version of luxury soon enough.

But what about us common folk who want to sell our own homes?

If you’re thinking about putting your home on the market, it’s a great time to do so–especially if you live in an urban area like I do. In fact, according to the National Association of Home Builders, over 70% of urban markets have earned the coveted “improving” rating for the past 6 consecutive months. I learned first-hand of this booming recovery last month when I listed my condo for sale and accepted an offer that was $30,000 over asking within 4 days.

Before you venture into the world of real estate sales, take into consideration the following tips that helped me score such a great offer:

Set an Aggressive Price

The longer your home sits on the market, the less money you’ll make from the sale. Sounds simple enough, right? Well, if you’re not careful to price your home to sell from day one, you could be facing an uphill battle wrought with frustration and failed negotiations.

Before you agree on a price with your agent (if you’re using one), make sure to do a thorough competitive analysis of what’s happening in your neighborhood and surrounding areas. What’s been selling? At what prices? What’s been sitting idle? How does the size, condition, and amenities of your home stack up to the others that are on the market or have recently been sold?

If the market in your area isn’t going gangbusters like here in Boston, you might need to bite the proverbial bullet and price your property a bit lower. Before you scoff at this, consider the research that indicates this type of strategy usually pays for itself tenfold as it can entice a bidding war that will ultimately work to your advantage in terms of getting the most money during a time of limited demand.

Make Your Home Shine

When it comes to home sales and the process for today’s buyers, time and efficiency are of the essence. Over 60% of buyers would pay more for a home that is move-in ready than spend their time rehabbing a dilapidated property. Use this knowledge to your advantage and put in extra time and elbow grease to literally make your home shine.

Above all, clean your house top to bottom! Other options that will help you sell faster and at a higher price are to stage your place (staged homes can spend 70+% less time on the market than their non-staged competitors), replacing knobs and fixtures, and even doing a partial renovation of a bathroom.

Reap the Rewards

At the end of the day, any effort you put into fixing up your home and/or marketing its sale is time well spent. Not only will it give you an opportunity to sell faster, but it will also open the door for you to make an even greater profit. I can say this from personal experience as I stand to make a $90,000 profit on my condo if everything goes according to plan with the buyers’ financing!

What advice do you have for those who want to sell their home?

photo by: Honou

I’m a Landlord! The Townhouse Is Now Rented!

Unfurnished Apt for Rent Follow Me on Pinterest Finally, three months after moving out, our townhouse is rented! It has taken quite taken a lot of work, research and time to get to this point! We’ve had a lot going on beside the townhouse in our lives so it is nice that the stress will let up a little bit now. We don’t have to worry about getting it rented or spending our weekends performing various tasks to upgrade or clean up the townhouse. We can finally get back to the normal weekend routine.

So, what did it take to get to this point and would we do it again? I’m glad you’re wondering, because I’m about to share! Hopefully I can give you some insight into the work required to turn a home into a rental property.

Moving Out and Moving On

We moved out of our townhouse a little over three months ago, which was the first step to turn our townhouse into a rental property. We made a big mistake by letting a lot of things go before we moved out, saying it’d be easier to get them done with an empty house. It may have been true, but it took us a lot longer to get down to the townhouse and get things done than we had anticipated. This is a problem, because a vacant house doesn’t provide any income!

Renovating the Townhouse

Our Townhouse Wasn't This Bad... Follow Me on Pinterest

Our Townhouse Wasn’t This Bad…

When we finally unpacked our new house, it was time to head back to the townhouse and renovate it. Tori, my fiance, wrote on her blog (Adventuring Dollars) about some of the things we’ve learned while renovating the townhouse

Our renovations included finishing our closet door replacement, painting both bathrooms, replacing bathroom hardware, putting in all new carpet, buying a new refrigerator and getting rid of the old one, cleaning up the yard and re-mulching the flower beds. We had a few other small tasks we had to take care of, but I won’t bore you with the details.

Once we had finished all of the major tasks up it was time for…

Cleaning and Last Minute Touches

Ugh… I had no clue how dirty our townhouse had become while we were renovating it. We were at least smart enough to wait until we were done making a mess to clean it up! It took a couple days of work, but we cleaned all of the floors, cabinets, bathrooms, closets and the kitchen just as we would want them if we were going to move in. It took a while, but was well worth it!

Once the townhouse was clean we took lots of pictures and got ready for the next steps in our adventure of becoming landlords!

Advertising The Townhouse and Finding a Tenant

panama city beach florida sept 2011 Follow Me on Pinterest Once we had the pictures ready we listed our townhouse on craigslist! We made sure to give a very through description with all of the updates and features of the house. We made sure to list the awesome location (just a couple blocks from the beach) as well as the fact that this townhouse had access to the backyard from the side of the house since we had an end unit. We put up the maximum number of pictures and had more we could send prospective tenants if they wanted to see more.

We decided to list the townhouse a little higher than we thought we’d eventually end up accepting because we figured we could always lower our price but we wouldn’t be able to raise it. We weeded through the phone calls by pre-screening tenants to make sure we didn’t waste our time showing the townhouse to tenants that wouldn’t qualify.

We showed the townhouse, took applications and got a potential tenant pretty quickly! We made sure to check out everything on their application and everything checked out. Their credit and background checks passed our criteria and we now had to figure out what type of lease to use so we could get our new tenants moved in.

We ended up getting the higher price, which worked out awesome! Glad we listed it higher than we thought!

Researching a Lease

Being a first time landlord, we didn’t have a lease template that we were using yet. After much internet searching and researching our old leases we had signed, we finally came up with a lease we wanted to use. The lease wasn’t perfect though, so we had to add a few addenda that would make everything just the way we wanted. This took a lot of time because we wanted to make sure we were using sound legal documents.

On top of the lease, we had to find a unit inspection form, a tenant handbook and maintenance request forms. Luckily they were all pretty easy to find and edit to our particular situation.

Signing the Lease and Taking Checks to the Bank!

01 (218) Follow Me on Pinterest This was the last step of pre-occupancy. We met the tenants to sign all of the paperwork, give them the keys and show them the ins and outs of the townhouse. They handed over their security deposit and first month’s rent and I headed to the bank! Yippee! Finally getting some rental income. Then I took the check… well, money order, to the bank!

Note I said this was the last step of pre-occupancy. I’m not naive enough to think that it ends now. I’m sure we’ll have maintenance calls and other things pop up and I’ll be sure to keep you in the loop as I learn more!

So, what do you think about our first time experience as a landlord? What would you have done differently? Are you a landlord? What tips do you have for us going forward?

P.S. Are you interested in the financial details? Let me know and I’ll see if I can convince Tori to let me show you the financials behind our townhouse rental!

Turning Our Townhouse Into a Rental Property

Renting Out a Townhouse Follow Me on Pinterest Whew! Who knew that owning rental properties, often spoken of as the holy grail of passive income, could be so much work? OK… so I did know it’d be a lot of work up front, but it is taking a bit longer than I had initially expected. Why? I wanted to do everything myself in the beginning to learn the ropes.

Admittedly, doing everything myself the first time around is going to cost me some time (and therefore money) but it will also save me a little bit of money in hiring labor, paying a rental management company and other random expenses I could incur. Unfortunately, the time factor means I have to make the mortgage payments every time the first of the month rolls around.

Things to Keep In Mind When Converting Your Home to a Rental Property

With all of the items below, we made sure to keep a very important factor in mind. Our home will no longer be our home, but a property that someone else is renting for us. Things don’t have to be perfect and all items that aren’t safety related should be approached from a cost/benefit perspective.

If changing a light fixture in a bathroom would make it look awesome, but wouldn’t be a major upgrade from your current one, what’s the point? If it won’t generate additional revenue or help you rent out your place faster, you might be better off leaving it alone!

With that in mind, here is a list of what we’re doing to prepare our townhouse to rent out. Some items were necessary due to the current condition of the item (our yard was a train wreck), while other were just plain ugly and would scare any normal person away (seafoam green bathrooms). Other items were deferred maintenance items that should had been done long ago, but we never got around to them.

How We’re Preparing Our Townhouse

When we moved out of the townhouse we had already lined up a tenant and life was good. Then things fell through. Now we’re realizing we should have started moving a bit faster after we moved out because we had a long list of things we wanted to do before we rented out the property. So what was on that list?

The Laundry List of Tasks

We’re replacing the carpet in the townhouse because when we initially bought it and lived in it we knew it needed to be done. There were big stains in a bunch of places and the carpet was well past its useful life. We’re paying someone to install the carpet and we’re hoping that it can be done next weekend. We didn’t want to use carpet, but due to the close location to the beach, we didn’t have many other options for the second floor bedrooms.

We’re fixing a small roof leak that was caused by rotted vent pipe flashing. Turns out the Florida sun isn’t all fun after all. We’ve got a patch kit and will be installing it next weekend as well. After the roof is repaired, we have to get a roof condition form to satisfy our wonderful state run insurance agency.

We’re repainting the horrid sea foam green bathrooms. What makes the color even worse is our tub/shower is a mauve color and they just plain don’t mix! While we’re talking about painting, we’ve touched up all of the random scuffs and scratches with touch up paint as well.

The Yard Needed a Major Makeover!

We made sure to spray for weeds, re-mulch all of the flower beds and pressure wash some really nasty areas of our fence. We pressure washed our sidewalk and driveway too, because I don’t think anyone had every done it before and it was horrid.

We had to fix a portion of previous owners’ self-made fence and patio deck… they had no clue what they were doing when they built either one!

Oh, we’ll also have to clean everything up and get the townhouse in tip top condition to show to potential renters. We’ll have to prepare an application that is compliant with all laws, run credit and background checks, and choose our very first tenant! We’ll also have to come up with a legal lease that will protect us should things go wrong.

If you can’t tell, we have a lot on our plates! Luckily about half of the above is done already, and the rest shouldn’t be as time intensive as the items we’ve already knocked out of the way. Hopefully the townhouse will be rented out by the beginning of July, or the beginning of August at the latest.

So, does owning a rental property sound like passive income to you? Have you ever rented out a property yourself? Any tips or tricks for us before we get a tenant selected? We’re all ears as new landlords!

photo by: pnwra