One thing no one talks about to prepare for your newborn

As a first time parents to be, Mr. G and I were very nervous about pregnancy, the labor and delivery (this is probably more for me as obviously Mr. G can’t really feel the pain), and the actual responsibility of being parents (with a 10 months baby, we still can’t really grasp the scale and scope of the responsibility). Our focus was getting through the pregnancy without complication, carrying our baby to full term, me eating healthy foods to give baby nutrition, and of course acquiring baby items. We started family later than a lot of our friends and family. Therefore, we are very fortunate to get a lot of hand me downs as well as tips and advice. But we would like to share one very important tip to get ready for parenthood that we wish someone had reminded us earlier.

Simplify and Streamline your life. Build habits that help you tackle the nuts and bolts of daily life so you can focus on more important priorities.

This can mean different things to different couples. For some couples, it may mean freeing up time from their busy schedule or resolving existing relationship issues. In our case, building habits to take care of house chores systematically fit the bill. The fact that we did not have a good system and schedule to tackle house chores (not to mention the new chores related to baby Z) really made the first few months with baby Z not as enjoyable as it could have been. And that also builds up stress daily. Think about the piles of paper that need to be properly scanned and filed. While I hates the many useless items at home, I simply can’t find the time to go through them for donations or re-purposing the items.

The tips and advice we got from friends and families emphasizes getting ready to take care of baby physically: sleeps training, breastfeeding, bathing, preventing diaper rashes etc etc. Those are important! Don’t get me wrong. But for us, if we nailed down the house and managed our businesses well before baby Z, we would be able to spend more quality time and eliminate some unnecessary stress for our first few months with baby Z.

Nevertheless, it’s never too late to start tiding things up and building up good habits, and that’s what Mr. G and I are working really hard on now!!

Want to be a Landlord? Think Twice!

Yes, the rumor is spot-on. Being a landlord is no fun at all. There are endless sources of troubles, such as …

  • bad tenants: those who do not pay rent on time, or even worse, who trash your house.
  • contractors: think about finding the right contractors, and scheduling them with your tenants.
  • insurance companies: they are particularly picky on rentals.
  • city/county/state regulation on rentals and building code: these regulations can change at anytime, and you have only one choice which is to comply.
  • neighbors of your rentals: in general, people do not like rentals next to their homes.
  • taxes: even if you outsource your tax preparation, you should still know the tax code so that you can review your tax return.

Before committing to be a landlord, ask yourself the followings.

  1. Does your potential rental actually have a positive cash flow?

My accountant once said, “oh you are doing pretty well, as you are actually making money out of your house”. Surprisingly, a lot of landlords are putting money into their rentals every month to keep it going!! This is particularly true in the case of condos. Do not fool yourself that you’re having a sound investment if your rental does not produce a positive cash flow unless you have strong evidence that your rental will be appreciated at a very good pace in the next couple of years. Your house can have many things going wrong as you can’t possibly imagine. That involves not only financial resources, but also your time. So ask yourself, is your rental really worth your time and financial resources? Can you actually come out ahead compared to investing in an index fund?

  1. Will you self-manage the property or outsource that to the property management?

You can hire property management companies / real estate agents to manage the property. I did not because of the hefty 10% management fee. If you plan to purchase multiple properties, it’s best that you get your hands dirty to the nuts and bolts of managing tenants and building relationship with contractors to fix your house.

To ease the stress of self-management, there are things you can do before your tenants move in to avoid the potential endless phone calls from your tenants:

  • properly inspect your property and fix the issues
  • deal with all the county/city/state rental requirements, i.e. rental license, lead paint inspection if any
  • carefully screen your tenants. A good credit score can only tell so much. Meet your potential tenant and get a feel of how decent this person is. My agent somehow has a very good intuition on people, so I always ask him to screen tenants for me.
  • spell out tenant’s responsibilities clearly in the contract, i.e. lawn maintenance.

Rest assured. Most tenants are reasonable human beings. They usually do not call you in the middle of the nights. Think about it; they are also afraid running into a slumlord. So treat them nicely, and usually they will do the same to you and your property.

  1. Do you have an emergency fund for renovation and repairs in the house?

As a landlord, you will run into fixing houses a lot more than you may expect. Do not rely on the number of times you have to fix something at your home as the indicator on how often your tenant will call you. Fixing houses is not cheap. The rentals I have are built in the 1960s era. They are solidly built compared to a lot of new houses these days. However, since they are old, and the maintenance were somewhat neglected during the time the houses were foreclosed or under short sale, so in the past couple years, I did a lot of repairs and a big renovation.

Here is a brief summary of what I have done in the last couple years.

  • All my rentals have new water heater and HVAC system. The water heater runs about $750 each and the HVAC system is at $3,500.
  • One of my rental had sewage backup issue to the basement. I got plumber to snake it twice, and each snake costed $400. Eventually, I found out the sewage pipe somehow was broken up in the middle of the front yard, and hence the sewage backup. The pipe was buried 15 ft below. To replace it, I need a permit and inspection from the county. This whole project set me back another $5,500.
  • A total renovation of a basement was $20,000.
  • Cutting down dying trees was $1,500 each. P.S. Don’t forget ask your contractor to leave you some good firewood if you have a fireplace at home.
  • Other miscellaneous issues, i.e. replacing thermostat, carpets, appliances.

To summarize, BE PREPARED. Your total cash listed in the HUD may not be the only money you have to put into the rentals.

  1. How are you planning to spend your rental income?

Here are some of the possible ways:

  • pay off the rental mortgage, if any
  • save it as the emergency fund for the rentals
  • invest
  • spend

I can share my experience in the past few years. At the beginning of my landlord journey, I needed the income to pay for the repairs and maintenance, so I basically saved all the incomes. Couple months ago, it got to the point that the rental income was no longer being spent right away on repairs, so I started to ponder the best way to spend the income. Here is my current strategy. As long as my rental emergency fund is at the level I am comfortable with, I use 50% of the income to pay off the mortgage, and another 50% to invest in the 60% stock and 40% bond mutual fund. If my emergency fund got hit again with any big repairs, I will reduce amount going to the investment to replenish the emergency fund, but I’m not planning to slow down my mortgage paying off process.

Yes, I know I can potentially come out ahead if investing 100% and not paying off the mortgage. However, I do not feel comfortable keep taking leverage of debts to invest. I rather be conservative, but have my rentals all paid off. Having baby Z definitely change me. I now want to have the option of having a part time job or entering into semi-retirement. In order to do so, the Goldilocks household should have the debt level reduced.

 

Let’s get started

Hello everyone, I’m Mrs. Goldilocks, a suburban working mother living in the Washington DC metropolitan area. I have a loving and supportive husband, Mr. G and our 10 months old cutie pie, baby Z.

By trade, I’m a software engineer / project manager. If you know the industry, these two roles usually don’t fall on the same person. Come on, it’s an obvious conflict of interest! But I work in a small company, so that explains a lot. Besides work, I enjoy every moments with my family. After baby Z drifts into the dreamland every night, Mr. G and I can pretend for a few hours that we are still in the world of just two of us. I like to read, in particularly related to personal finances and behavioral economics. And of course, parenting is a big topic of interest at the Goldilocks’ household these days.

Why talking about money is such a taboo subject?

Can we talk about it more openly and help each other?

No, people don’t talk about it. We can even talk about politics!! All you hear is rumors oh … that kind of job pays well!! and how well? like $150K or $100K?? And financial advice are often not offered between peers. Why can’t we help each other more on financial topics? I strongly believe happiness and fulfillment do not always come along with money or financial freedom. Yes, we all need to have financial resources to live and maintain a certain lifestyle, but it should never be the most important things in anyone’s life. There is a saying, “The poorest guy is the one who only has money”. However, we all can’t deny how important it is to become financially savvy.

I grew up in a family without a lot of financial advantages. My father was a construction worker who did not have any job security, and my mother stayed home to raise me, my sister and my brother. If my dad got injured at the work site, there was no worker compensation, and the whole family would be on our saving. That was very difficult because we actually don’t have much saving. My mother recalled times that she only had less than ten dollar in her wallet, and she did not know what she could feed the family the next day.

With this background, other than clipping coupons and saving pennies, I did not get any a solid Money 101 course from my parents. When I landed my first software engineer job, I did not know how I should use the money. Investment? Never heard about it. Retirement preparation? It really seemed so so far away. Down payment? Wow, my parents never owned any property and that seemed to be a far reach for me. I wished I knew how important to educate myself on personal finances before I actually started having a steady income.

15 years later. Here I am. Mr. G and I have pretty good incomes. On top of that, we also are on track on our emergency and retirement funds, own investment properties and we just started college fund for baby Z. Both of us did not really think much about personal finances and made a lot of mistakes during our 20s. Like, I used those actively managed mutual funds with 2% management fee in my 401K because I didn’t know past performance is not a good indicator of future performance. Yes, it was in the fine print, but who actually read it?? Or, Mr. G bought the universal life insurance because he thought that’s a sound investment and good tax shelter. And, I put money into stock and mutual funds with the recommendation from friends, and I lost a lot of money. If we did think about financial freedom or early retirement, that may be our reality now.

If Mr. G and I who had made numerous missteps in the past and can still make it to where we are today, I believe other people can as well. Even though a few of my best friends encourage me to start a blog on personal finances, I still think I am not that good at money. At times, I randomly spend money on cheap fashion and then donate the items without even wearing them. Or, I am intrigued by marketing and buy something totally does not fit into my lifestyle. I hope my experience in personal finances, failure or triumphs, can inspire others to think about their own situation and get to where they want to be.

Let’s get started.