\n<\/p>\n
Margin loans<\/strong>, medium-term rentals<\/strong>, and potential mortgage rate<\/strong><\/a> mistakes summarize what Carl and Mindy have been up to over the past couple of months. It\u2019s been a minute since we\u2019ve checked in on the ever-frugal Jensen family. But they\u2019ve been gone for a good reason. Back at the start of the summer, Carl and Mindy decided that they were finished with rehabbing<\/strong> and big fixer-upper projects. Then they found the perfect opportunity<\/strong>, waiting just a few doors down from them. So, they jumped at the chance to make another deal work.<\/p>\n But Carl and Mindy did this type of deal in a peculiar way. Not only did they find it off-market<\/strong>, but they also funded it without a mortgage<\/strong>. Don\u2019t get too excited\u2014Carl and Mindy didn\u2019t drop hundreds of thousands in cash just to buy one house. But, they did use another form of financing that most real estate investors aren\u2019t aware of\u2014margin loans<\/strong>. These types of stock portfolio-leveraged loans <\/strong>can come with unbelievably low <\/strong>interest rates<\/strong><\/a>. But, when equity values start to drop, so too can your safety when you use this type of financing.<\/p>\n But it\u2019s not all about property purchasing on this episode of Mindy & Carl\u2019s Budget Review<\/strong>. The duo also talks about why their expense tracking has fallen off<\/strong> and how not knowing your expenses can cause far bigger problems than you\u2019d think. They also touch on the medium-term rental strategy<\/strong> and how you can use it to get far higher rents with very little turnover in almost any of your rental properties! If this strategy interests you, we highly recommend grabbing the new book, 30-Day Stay<\/em><\/strong><\/a>.<\/p>\n Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: Carl: Mindy: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes<\/a>\u00a0by leaving us a rating and review! It takes just 30 seconds.\u00a0Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/i>sponsor page<\/a><\/i>!<\/i><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Welcome to The BiggerPockets Money podcast, where Carl and I give an update on our finances and what we\u2019ve been doing lately. How we funded this deal was super fun. We decided not to get a mortgage on this property, because investor mortgages were 5% in June and I am not paying five whole percent. That\u2019s crazy. Which sitting here at the end of October now looks really, really sweet.
Hello. Hello, Hello. My name is Mindy Jensen. And with me today is Carl Jensen, host of The Mile High FI podcast, editor in chief of 1500days.com and Mr. Mindy Jensen for the last 20 years.<\/p>\n
Wait, when did I become Mr. Mindy Jensen?<\/p>\n
January 19th, 2002. Weren\u2019t you there? You were there.<\/p>\n
Oh yeah, that was when we got married, right?<\/p>\n
Yeah.<\/p>\n
Okay. I will take that. I am wifi now, which means you are the main income earner. And I look at pictures of dinosaurs online and work on houses. And yeah. So Mr. Mindy Jensen, I\u2019m good with it.<\/p>\n
Yeah, good. You should be because you are. Carl and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.<\/p>\n
Whether you want to retire early and travel the world, go on to make big time investments in assets, like real estate or dinosaurs, or even start your own business, we\u2019ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams. Launch yourself, I think of a guy in a cannon ball thing at a circus. Is that what that means? It sounds a little violent. I don\u2019t want to launch myself that hard.<\/p>\n
You don\u2019t have to launch yourself that hard. It\u2019s your journey. You can launch yourself at your pace. Also, you slipped in invest in dinosaurs. Do you think that\u2019s a good investment, investing in dinosaur skeletons?<\/p>\n
We have a triceratops\u2019 skull. That was your idea, not mine.<\/p>\n
Well, okay. I would like to make that note that it\u2019s not a real triceratops\u2019 skull.<\/p>\n
True. Those are like $80,000, I did look. Our fake one was like 2000 or 1000.<\/p>\n
It hangs over the fireplace, because why would you put a moose skeleton when you could have a triceratops instead?
Carl, what have we been up to? Certainly not tracking our spending.<\/p>\n
Yeah. We fell off that bandwagon and we fell off really, really hard. What happened? Why did we stop tracking it? What did we buy that kind of made us stop tracking it?<\/p>\n
We bought a small thing called a house.<\/p>\n
Kind of spontaneously. We were walking down the street, we found the people wanted to sell and we made them an offer. It\u2019s a little bit longer than that, but that\u2019s almost how it went down.<\/p>\n
We made them an offer they couldn\u2019t refuse.<\/p>\n
Yeah. So we\u2019ve been super busy, which I think we\u2019re going to talk about a little bit later in this episode. Super busy. And when we get busy, sometimes things drop off and our tracking, our spending, our general spending dropped off. We did track our spending for this DIY remodel, which we\u2019ll talk about later.<\/p>\n
I would like to address the tracking your spending thing. I\u2019m going to throw you under the bus and say it\u2019s all your fault.<\/p>\n
I\u2019ll take it. I\u2019m Mr. Mindy Jensen. I\u2019ll take whatever abuse you throw at me.<\/p>\n
But we believe in, well we believe, we don\u2019t believe in it because we\u2019re not actually doing it, but I believe in tracking your individual expenses in real time. I think it\u2019s very, very helpful for a lot of reasons. Stupid purchases make you think, like a Kirkland tee shirt.<\/p>\n
It was only $6.<\/p>\n
Only $6. We could have put that $6 into VTSAX and in 100 years that would be $60.<\/p>\n
You\u2019re right. Stupid purchase.<\/p>\n
But stupid purchases make you think when you have to enter that into your spending tracker. And when you are sharing that with somebody else, they will potentially call you out. Why did you spend $76 at Bob\u2019s House of Stupid Stuff? And you\u2019ll have to say, well, I really found this amazing tee shirt and I wanted seven of them. And you can also spot trends in real time and make changes in real time, as opposed to at the end of the month when you go into one of the spending trackers that is more of a overview of what you did the past month. Well, it doesn\u2019t give you real time information. It\u2019s like, hey, this is what happened 30 days ago.
And so I like the tracking that we\u2019re doing with the Waffles on Wednesday spending tracker. However, it can be a bit much when you have to remember that every single time you make a purchase. And we were spending a lot, a lot, a lot of money at places like Lowe\u2019s and Home Depot. When we bought this house, we then had to buy a lot of supplies to remodel it because it was ugly. Our specialty.<\/p>\n
Yeah. I still would have bought this Costco or Kirkland shirt even if we still did the spinning tracker.<\/p>\n
Oh, stop. This isn\u2019t about your shirt.<\/p>\n
Maybe not the triceratops\u2019 skull. That was a big one.<\/p>\n
Well, we bought that last year. And I still would\u2019ve let you buy that for me for Christmas. That was my Christmas present. I love it. So another reason that we stopped tracking our spending is that we are in a very fortunate financial position where this spending tracking didn\u2019t change our financial position. If we went over budget, if we went under budget, we are still in a really good financial position. And a few years ago, maybe this would\u2019ve been more important to us. A few decades ago, this definitely would\u2019ve been more important to us. But the exercise doesn\u2019t change our financial position and we are juggling so many balls right now, something has to give. It was really easy to let this one go. My biggest takeaway from this is to not make sweeping public announcements about things like, I\u2019m going to track my spending for a whole year, because circumstances change and then you kind of look like an idiot.<\/p>\n
I think I would like to do this spending tracker in the future. And I\u2019m curious to hear your thoughts on this, because for me at least it gamifies it. I love looking at numbers. So logging into the spending tracker maybe three or four times a day, yes, I\u2019m obsessive, makes me want to spend less and makes me want to gamify my life. My tendency isn\u2019t to spend willy nilly on something if I know I need to look at those numbers, and that those numbers being smaller excites me. What do you think, would you do this in the future? Next year would be the obvious time to start it back up again.<\/p>\n
Oh, I was going to introduce it in November.<\/p>\n
Okay, cool.<\/p>\n
Yeah. Let\u2019s do it in November. November is typically our very most expensive month because I love Thanksgiving. I host Thanksgiving every year. And it\u2019s very, very big. Plus Christmas gifts you start buying in November or December 23rd.<\/p>\n
Do I get the Tesla? When will that be, a November or December expense? That\u2019s going to blow the spending tracker out of the water. Maybe we should start next year. And we\u2019re actually not buying a Tesla, I don\u2019t think. That was a joke.<\/p>\n
Yeah, no we\u2019re not. You ruined it. I was going to say, do I get the Tesla? No.
Okay, so let\u2019s look at this house that threw our whole spending tracking publicly out of the water. What did we purchase this house for?<\/p>\n
Yeah. Do we have way back machine noises? We need to zoom back to May. So three houses ago I think we looked at each other and said we\u2019re never going to do another rehab. We\u2019re going to buy a nice house and sell sail off into the sunset, raise our children. And that did not happen. We bought another one to fix up. And then that neighborhood ended up not agreeing with us eventually. All our friends and neighbors moved away that we enjoyed, so we moved to another one, which also needed a lot of work, which we\u2019re sitting in right now, which isn\u2019t quite finished. And we said this is going to be our last one.
But before this one was even finished, we went and bought another one. And this all happened in May. We were taking a walk around the neighborhood and I saw what looked like someone moving out of their house. So I chatted up the person, he\u2019s like, \u201cYeah, the owner is moving out. She\u2019s old. She\u2019s going to go to an assisted living facility. They\u2019re going to put this on the market in June.\u201d We gave them our business card, and sure enough they called us. And I didn\u2019t really expect that, because whenever we\u2019ve done something in the past, it\u2019s kind of like a yellow letter, maybe. What\u2019s that called? Is that the right word?<\/p>\n
The yellow letter.<\/p>\n
Yeah. I should know this, BiggerPockets and all that. But we did that. And they called us back and said, \u201cYeah, how much?\u201d We said, \u201cHow much do you want for the house?\u201d And we got to a number. And boom, we closed in June, right?<\/p>\n
We closed in June. What was that number that we got to eventually?<\/p>\n
And this was interesting. So they said, \u201cWhat\u2019s the first rule of negotiation? It\u2019s that you never throw out a number.\u201d So we said, \u201cHow much do you want for it?\u201d And they\u2019re like, \u201c550.\u201d So I had the number 500 in my head. So we threw that back at them and we came to an agreement on 510. One interesting thing about this number, which we\u2019ll talk about a little bit later, is we agreed on this number and we made this purchase right before everything turned and went south. So it was a completely different time than it is right now. Cue the scary sounds, like the violins. It\u2019s Halloween.<\/p>\n
This isn\u2019t coming out on Halloween.<\/p>\n
When you\u2019re about to get stabbed. Okay, sorry.<\/p>\n
But yeah, we purchased it for 510. And we were a little hard ballish on the negotiations because the timing was not right for us at all. And we wanted the house, but we didn\u2019t desperately want the house. And I think that is a really good negotiation tactic is always be willing to walk away. There is, I don\u2019t know, 86 batrillion houses in America or something. So that may not be an accurate statistic, but there\u2019s a lot more houses than just the one that you\u2019re looking at. So if you find a house, and you really like it and you think it\u2019s worth x, offer X. And if they come back and say, oh, we want x plus 20%, just tell them, it\u2019s not worth that to me. So good luck in your search for a buyer and we\u2019ll be here if you want to sell it to us for X. And sometimes they come back at that and sometimes they don\u2019t.
With this particular one, we were able to, we said 500, they said, \u201cWould you go to 510?\u201d And we looked at each other, we said we could do it for 510. We would be fine with that. How we funded this deal was super fun. We decided not to get a mortgage on this property, because investor mortgages were 5% in June and I am not paying five whole percent. That\u2019s crazy. Which sitting here at the end of October now looks really, really sweet. But at the time our margin loan, we have a loan against our stocks, our after tax stock portfolio, kind of like a HELOC for your stocks. And we took a loan out. That rate was what? 1% at the time.<\/p>\n
It was a little bit more than that. It was 1.2, 1.3%.<\/p>\n
Which is much lower than five, so we went that route. Apparently oblivious to the fact that the Fed was going to raise rates significantly in June and our margin loan went up. But even when it went up, it didn\u2019t go up that much in June?<\/p>\n
No. This was kind of before the whole world went crazy. I don\u2019t remember having these thoughts or worrying about inflation when we did this. So yeah, I thought, ah, it\u2019s 1.2, 1.3%. This is great. 500,000. What is that? 6,000 a year for interest. That\u2019s great. That\u2019s fantastic.<\/p>\n
Yeah. So since then, the rates have gone up three times. And that 5% mortgage is looking pretty sweet, which it\u2019s unavailable to us. And what is our margin rate now?<\/p>\n
It is about 4.5%, but it changes every day. This is a variable rate that depends on a lot of different things, including what a Fed is doing. I know we\u2019re recording this in October, but there are more interest rate raises promised. I think a 0.75 rate. So this is going to continue to go up. So it\u2019s roughly tripled since June. How many months is that? In four months it has tripled. Yeah, the dangers of margin borrowing.<\/p>\n
And it goes up every day?<\/p>\n
Yeah. Yeah, it can change every day.<\/p>\n
Oh, wow. I don\u2019t think you told me that when we\u2019ve borrowed this money. We need to have a conversation after we stop recording.<\/p>\n
Uh oh. I might not be Mr. Mindy Jensen after this.<\/p>\n
Nah, you\u2019ll probably still be Mr. Mindy Jensen. I mean, I don\u2019t guarantee it. So we still have margin available. But what about this weird situation with the \u2026 Let\u2019s talk about the margin loan and what does that mean?<\/p>\n
Yeah. And our rate is still great. But yeah, a margin loan means we are borrowing money against our post tax stock portfolio. So the amount we can borrow depends on the value of our stock portfolio. So an interesting thing has been happening, as the rates have been going up, stocks have been going down. I think as of this recording, the S&P 500 is down, it\u2019s over 20%. What is that? Official bear market territory or correction territory? I don\u2019t know those terms. So that has done a couple different things. That has reduced the amount we can borrow and it\u2019s also reduced our options maybe depending on how you look at it. So the first one is reduced what we can borrow, because E*Trade wants to get their money back. They want to make sure that I\u2019m going to be able to pay, that we are going to be able to pay this money back.
So the lower our stocks go, the less money they give us. And if it got too low, they would demand that we start paying it back. So if you do this, stay very, very, very far away from the edges. You don\u2019t want to get called out on margin. Then at the same time, this particular moment in time is kind of difficult for us, because we don\u2019t want to sell stocks because they\u2019re down 25%. So these are the dangers of borrowing on margin. I\u2019m still not worried, because one of the things we\u2019ve always done is we stay very, very far away from that edge. Now it\u2019s gotten a lot closer. I think originally when we took out this loan we had a buffer of about a million, and now it\u2019s down to somewhere like 200,000. So it has decreased a lot and we could get margin called. I don\u2019t think we will. But if you\u2019re going to do this, the lesson to learn from us is to stay very, very, very far away from the edge of that cliff.<\/p>\n
Yeah. We had a huge buffer before and it has gone down through no fault of our own, although, well I guess it\u2019s partially our fault. What is our stock mix? It is very tech heavy, isn\u2019t it?<\/p>\n
Yeah. So we got pretty fortunate, I\u2019m a tech and car nerd. We bought Tesla stock in 2012. And that\u2019s been great. I think our cost is a dollar or something like that and now it\u2019s like 200 bucks. But it\u2019s also very volatile. It\u2019s also been cut in half from its all-time high, which makes the margin loan a little bit riskier. And they\u2019re going to give you less money and give you less margin if you\u2019re in a risky or a more volatile stock like that versus VTSAX, the total market fund.<\/p>\n
So that\u2019s a problem. And something we did to try to hedge our bets a little bit is we went out and opened up a HELOC against our primary residence. The problem is we had just refinanced our mortgage on that property and taken out as much as we could. And on that one, right?<\/p>\n
Yes.<\/p>\n
Didn\u2019t we cash out that money on that? So there\u2019s not a lot of opportunity to borrow. I think they gave us 108, $120,000 on the HELOC.<\/p>\n
Yes.<\/p>\n
Which is great if stocks only dip a little bit. But if stocks go into a bit of a free fall, we would most likely just get completely called out. And when they sell, I don\u2019t believe they give us the option of what we want to sell. I believe they sell our stocks for us, which is not ideal. So yeah, like you said before, I want the people listening to take a lesson from us. And I don\u2019t regret at all borrowing against our stock portfolio. I do think that this is going to be a really great property for us when we get it up and running. We are going to take every bit of the cash flow from it and put it into paying off that margin loan as soon as possible. I would do it again, even with the rates.
And while I am lamenting the fact that we didn\u2019t lock in a 30 year fixed rate loan at 5%, we still haven\u2019t paid 5% yet on our margin loans. And the Fed is now indicating that perhaps the rate increases are going to slow down. Remember that article from the other day?<\/p>\n
Yes.<\/p>\n
So that\u2019s exciting. Maybe we will get stopped at 5% or 6% for a little while, which will make this gamble worth it. And I think this was a gamble. I mean, we\u2019re still in a really great position to, if we get called out, we get called out, that\u2019ll stink, but we\u2019ll deal with it at the time.<\/p>\n
Yeah. I\u2019m not worried at all. I don\u2019t lose sleep over any of this because we still have plenty of margin. Yeah. And soon this is going to start making money instead of consuming our money.<\/p>\n
Yes. And we\u2019ll be able to pay it off. Let\u2019s talk about why we bought this house.<\/p>\n
Yeah. Whenever we\u2019ve bought a property, we\u2019ve always had multiple exit strategies. So we could either flip this house when we\u2019re done with it or we could turn it into some form of a rental. We\u2019re not going to flip it because of what\u2019s happening. Yeah, real estate prices are kind of down a little bit now. It\u2019s not an easy time. So we are going to turn it into a rental, and the form of that rental will be a medium term rental where we\u2019ll do 30 days plus.<\/p>\n
But we didn\u2019t purchase it as a flip.<\/p>\n
No. We thought it would\u2019ve been one of the potential exit, but we had never planned on doing that.<\/p>\n
Yeah. It\u2019s an option, but it\u2019s not our primary option. One reason we bought this house is it is right next door to a friend. And it is a ranch style house and we are both getting a little bit older. Sorry, spoiler alert. The current house we live in has stairs everywhere. It\u2019s a split level and there are four different levels in this house. So if you\u2019re 85 years old, this isn\u2019t really the best house for you. That house has a basement, but the only thing in the basement is the furnace and the washer and dryer. We\u2019re making plans to move the washer and dryer upstairs so that there\u2019s never really going to be a reason to have to go downstairs. If there was anything, it would be to change out the furnace filter, which you should do every month. And that\u2019s something that\u2019s easily hired out to a handyman as opposed to making somebody do all of your laundry.<\/p>\n
Yeah. Should we talk about what we\u2019re going to do with it and more on the month to month rental?<\/p>\n
Yeah, we should absolutely talk about what we\u2019re going to do about it. That\u2019s what we\u2019re talking about right now, why did we buy this house and what are we going to do with it? It\u2019s a weird house. It is one giant room with three bedrooms right off of the giant room. The giant room has 16 foot ceilings, and wood floors and drywall everywhere. And you walk in and it is just an echoy sound bouncy mess. So it\u2019s terrible for recording podcasts. It\u2019s also just terrible for children who have to go to sleep when you, the adult, don\u2019t have to go to sleep. And we have two kids who are still in school. So for right now it doesn\u2019t fit our family\u2019s needs, but down the line it will fit our needs when the kids are out of the house. And we wanted to buy it now when prices are low. We wanted to rehab it now while we are still spry and can do it. And we will hold onto it as a medium term rental.And this is different than short term rental. This property actually doesn\u2019t qualify for short-term rental because the HOA that we\u2019re in doesn\u2019t allow for short-term rentals. This is something that you need to know if you\u2019re buying a property and you\u2019re considering short-term rental as an exit strategy or as a investment strategy. If your HOA doesn\u2019t allow it, you can be sure your nosy neighbors will tattle on you to the HOA and you will get shut down. So even though our neighbor lives next door, we are not going to chance it. We are going to follow all the rules and turn it into a medium term rental, which is a minimum of 30 days. BiggerPockets has a brand new book out called 30 Day Stay, which is written by Zeona McIntyre and Sarah Weaver. And it is a great step by step on how to set up a medium term rental.
It has a lot of the benefits of a short term rental with the higher per stay rent, and a lot of the benefits of a long term rental in that you\u2019re not cleaning it all the time and you\u2019re not responsible for all the supplies. And this really worked out for us in the long term, because our area had a fire at the end of last year and 1100 houses burned to the ground. An additional 2 or 300 were severely damaged. So there\u2019s a lot of people in our area who were displaced. And when I was at the BiggerPockets Conference, I spoke with Elizabeth Colgrove, hi, Elizabeth, and she told me about a company called ALE Solutions that connects homeowners like me who have furnished or unfurnished rentals with insurance companies who have displaced tenants and allows them to connect and rent out their properties to these people at a higher rate than I would normally get on a long term rental.
And I think the trade off is that when the tenant\u2019s house is ready, they can just leave. They don\u2019t really give notice, which is fine because I\u2019m making a lot more money on the per month rent. So, oh, you\u2019re done and you\u2019re leaving at the end of the week. Great, see ya. Thanks so much for taking care of my property. So I\u2019m excited about that prospect. It was really, really sad to watch the people who were displaced try to find housing. It\u2019s one thing when one house burns down, but it\u2019s quite another when an entire community burns down. And being able to be part of that solution is going to be really great.<\/p>\n
Yeah. Should we talk about the rehab a little bit?<\/p>\n
Yeah, we absolutely should. What did this rehab look like? What did the house look like before we bought it?<\/p>\n
It was pretty ugly. This house was built around 1980 and it looked like it was built around 1980. At least the kitchen was all the same. The bathrooms had been redone but not nicely. They looked like 90s bathrooms. Yeah. So far we\u2019ve spent $30,000 on it. And I want to emphasize it that it\u2019s only $30,000 because we\u2019ve done most of the work ourselves. I think it would\u2019ve been at least triple that if we would\u2019ve outsourced the entire thing. Labor is very difficult here. Well, it\u2019s always been difficult, but those fires exacerbated the situation. If you\u2019ve got 1100 homes that need to be rebuilt or built, everyone who knows what they\u2019re doing, everyone who knows how to even hold a hammer is going to be employed for a lot of money. I wouldn\u2019t recommend this strategy if you don\u2019t actually enjoy doing the work. I enjoy the design in doing the work, so it\u2019s okay. And it\u2019s, oh, a temporary part of my life. When did we start on this, in September?<\/p>\n
We started this in September.<\/p>\n
September. Now we\u2019re only in October and we\u2019re almost done, which is pretty, it\u2019s breathtaking actually. We\u2019ve put a lot of work into it and hired a couple friends. But what have we done so far? We\u2019ve gutted a kitchen. This house had carpet in the bedrooms, I don\u2019t like carpet. One of the bedrooms had old icky looking pergo, like the old fake floor, not the nice LVP. So we took all that out. We put in new floors. We completely got to the kitchen. There were a lot of repairs that needed to be done as well. Leaks in the roof. And we\u2019ve gone through and fixed all this.<\/p>\n
You say we gutted the kitchen. I don\u2019t think that\u2019s an adequate representation of what we did. I would like to pause here and invite everybody to go over to the YouTube channel and watch right now, just take a peek at the before and after pictures of this kitchen, because holy cow, was it ugly? My friend Ray announced that the kitchen was a one butt kitchen, meaning only one butt could fit into it at a time. And I\u2019m not a very tall person, but I can touch the ceiling in the kitchen before. And now we ripped out that whole soffit and the ceiling goes all the way up to 16 feet. We spread out the kitchen a little bit. So you see the before picture, you see the after picture and they\u2019re just so much different. The home is such a different feeling now because we changed out the kitchen. And this was $11,000 in IKEA cabinets and countertops and $3,600 in appliances.
And we\u2019ve done $4,000 in flooring around the house. That is the wood floor. We wanted to match the oak floor that\u2019s already in the house with the oak floor that we were replacing that gross carpet with. You say you don\u2019t like carpet, this was also industrial grade carpet. It was old and just absolutely filthy. I could not in good conscience keep this carpet in there. And then it would\u2019ve been cheaper to install carpet rather than the hardwood floors, but we went with hardwood floors because we like it better and we wanted to match what was already there. It was about $4,000 because we had to build up the floors. I\u2019m not sure what\u2019s going on. The whole house is just a big, weird house. The floors had to be built up, what? An inch and a half or an inch and three quarter?<\/p>\n
Yeah. And there was a cement slab underneath. You can\u2019t install hardwood on cement slab. So we had to put a vapor barrier down and then build up plywood to do with the nail down three-quarter inch red oak installation.<\/p>\n
Yeah. But we also had to build it up because the other floor was already built up significantly higher. There was a step down into every bedroom. It was just very strange. Every bedroom door, instead of having an actual door on it, it had a sliding glass door, like an outside patio door, but inside the house. And it\u2019s even dumber than it sounds. It was really, really strange to walk in there and you\u2019re like, why are there sliding glass doors all over this whole house?<\/p>\n
Yeah. Frank Lloyd Wrong designed this house.<\/p>\n
So, so far we\u2019ve put in about $30,000. We paid approximately $3,000 to our friends to help us with some of the labor, some of the tearing out of the kitchen, and the installing of the plywood, building up of the floors and things like that. Drywall, installing the doors. I actually installed all of the hardwood floors myself because I am a rockstar hardwood floor installer. Also, it\u2019s not that hard. And I put together all the IKEA cabinets myself because I am a rockstar IKEA cabinet installer. And also, it\u2019s not that hard. Oh, I put them together. They hung them. They\u2019re very heavy and they\u2019re big. So I can\u2019t do that. The guys did that. So, yeah. How much more do you think we\u2019re going to spend on this property?<\/p>\n
The other thing that we are going to pay for someone to do is to refinish the floors. We\u2019ll probably pay someone to do that and that\u2019ll probably-<\/p>\n
There\u2019s no probably about that. We will.<\/p>\n
Yeah. I\u2019m not sure how much it\u2019ll cost. Probably $3,000, 3 4,000. I\u2019m not sure what the cost per square foot is. But that\u2019ll be the last big expense. Then we just have a lot of finishing stuff, like doorknobs, maybe a little bit more paint. And that\u2019s going to be it. Most of our spending is done, so we\u2019re going to get out of this under $40,000, which is great. And that includes the furnishings as well. Since this is a month to month rental and it\u2019s going to be furnished, and we have bought most of that. It took us a while to do that, but yeah, most of that\u2019s done. And we\u2019ve been able to do it on the cheap, which is good. Cheap, but it looks great.<\/p>\n
So we were able to do it on the cheap because we had time. We bought it in June and we knew that we were not going to be turning it right away. But we knew we were going to be turning it into a medium term rental. So we reached out to Zeona McIntyre, the author of 30 Day Stay, a new book from BiggerPockets Publishing, available wherever you buy books. And we asked her to come over. Don\u2019t laugh at me. It\u2019s a good book. We reached out to her and we asked her to come over because she just lives right down the street from us. And she came over and she looked. And she said, \u201cYou could furnish this on Craigslist, and Facebook Marketplace and places like that and buy used furniture, but it might take you a while to find everything. So if you\u2019re looking to furnish it quickly, you should buy new things and I can help you with that if you would like.\u201d
And we looked at each other and we thought about it for a bit. And if we needed to do it right away, we would\u2019ve taken her up on the offer. But because we had time, we thought, let\u2019s try this Facebook Marketplace and Craigslist. And were able to find an item here, a bed there. We bought new mattresses, but we bought bed frames on Craigslist and Facebook Marketplace. And I think it turned out really, really well.<\/p>\n
Yeah. The key to this whole strategy is, and I had to reset a little bit because I had some furniture that we got from neighbors. And Zeona came in and said, \u201cNo, you can\u2019t have that. That looks like it should be in a fraternity house or something like that.\u201d<\/p>\n
She wasn\u2019t wrong.<\/p>\n
Yeah. She wasn\u2019t wrong. And I\u2019m like, \u201cOkay, you\u2019re right. I have no style.\u201d Hence my Costco tee shirt. Anyway, so we picked out some furniture we liked. We knew what lines we wanted to buy. And then we just set up an alert on Craigslist and Facebook Marketplace, so as soon as any of these things were listed, we would get an alert and we could jump on it. And some of the items took a month or two to find, but that was okay because we had the time. But that\u2019s a great strategy. Find furniture that you want and then set up an alert that way you\u2019re not scouring the internet, you just check Facebook or your email a couple times a day. And when something shows up, jump on it.<\/p>\n
Yeah. And I thought that was a really good strategy. And if by the end of the rehab we didn\u2019t find everything we needed, of course we would\u2019ve gone out and bought new items. We do have one more bed that we\u2019re looking for, but we have all of the drawers, and dressers and the furniture for the living room. The kitchen still needs to be outfitted a little bit. But again, that\u2019s actually probably going to come from just go on target.com and have it all shipped to the house because I don\u2019t need to touch that stuff when we go there. That\u2019s another really great tip is you don\u2019t need to be in the store to buy it. If you know that you need place settings for eight, you can go to target.com or walmart.com and buy place settings for eight.
I don\u2019t really like IKEA dishes. Can I say that? Should I not say that? They always seem to chip, so I would not recommend those. But the furniture is awesome if you like setting up furniture forever. And if you don\u2019t, you can hire somebody on Task Rabbit to set it up for you. One final note that I want to just remind people of, I know I have said this before, if you feel like I\u2019m harping on this point, it\u2019s for a good reason. We didn\u2019t use an owner-occupied mortgage on this property, which would\u2019ve come with a much lower rate, because that is mortgage fraud, which is a felony. And I don\u2019t want to be a felon. And I know that there is a lot of chatter all across online saying, \u201cwell, how are they really going to know? How are they going to know if you didn\u2019t move into this property?\u201d And I have not personally known somebody to get caught for mortgage fraud, but that doesn\u2019t mean it doesn\u2019t happen.
And back on episode 303 where we interviewed John Leland, who was my go-to lender until he moved to a new company, he said that he has known many people who have gotten caught for mortgage fraud. And it\u2019s a felony. I\u2019m a real estate agent. If I become a convicted felon, I lose my license. I mean, I don\u2019t want to be a felon for a lot of reasons, but I also don\u2019t want to be a felon because I would lose my real estate license. I don\u2019t want to go to prison. There are a lot of reasons to not commit mortgage fraud. And we had no plans to move into this property, so that\u2019s why we didn\u2019t get an owner-occupied mortgage. You can gamble at your own risk, but I recommend not.<\/p>\n
Yeah. Financial freedom is pretty great, but just freedom in general is pretty good too.<\/p>\n
Yeah. Physical freedom\u2019s even better. Okay. Well that is our update. If you are still wanting to be a real estate investor, I\u2019m still bullish on real estate investing. I think there are still deals to be found out there. Even in this crazy interest rate market that we find ourselves in, I still believe that you can find a great deal, and get a higher interest rate mortgage now and refinance when rates come back down. I do have a lot of confidence that rates are going to come back down. I don\u2019t think you should be investing with the idea that rates are guaranteed to come back down. But my professional opinion, my personal opinion is that rates will come back down.
And talk to your lender about your options before you get a loan. But talk to your lender about recasting your mortgage or a rate and term refinance. Ask them what other options are available. Right now your lender has an awful lot of time to talk to you, so ask them all the questions you can possibly ask about potential refinances, potentially changing the interest rate on your loan. And what are some lower cost options? The rate and term refinance is going to be different than a full refinance. Recasting your mortgage is going to be a different lower charge than a complete refinance. So talk to your lender about your options and see what they have to say.<\/p>\n
Yeah. We talked a little bit about our margin situation, but this is just a short term crazy world. But you have to be careful too, what\u2019s the Charlie Munger quote? The market could stay irrational longer than you can stay solvent, so you have to be careful. But as long as you\u2019re in it for the long term, just like stocks, everything is going to be okay. We\u2019re in this crazy situation now, but it\u2019ll revert and we\u2019ll be back to normal.
And the other thing I think about situations like this is every time there\u2019s some kind of strife or insanity going on in the world, that\u2019s always an opportunity for someone. It might not be the same opportunity that there was for people six months ago when rates were low. But for example, right now off the top of my head, if you have cash and can come in and buy a house, you\u2019re probably going to be able to find some deals. Yeah. But if I could say anything, it\u2019s just be in it for the long term. And that goes to all kinds of in investing. If you\u2019re in it for the short term, you\u2019re probably not doing something right and you\u2019re more likely to find yourself in a bad situation, because short term trends are very hard to predict, where in the long term, everything\u2019s going to be okay.<\/p>\n
Yep. Now is the time to be conservative when you\u2019re running your numbers, but you could find a really great deal just because somebody else needs to get out.<\/p>\n
Yeah.<\/p>\n
Okay. Carl, where can people find you?<\/p>\n
I\u2019m at 1500days.com, and also the Mile High FI podcast, milehighfi.com.<\/p>\n
Thanks. From this episode of the BiggerPockets Money podcast, he is Carl Jensen and I am Mindy Jensen, saying don\u2019t scowl little owl.<\/p>\n
See you later, dinosaur-ater. That didn\u2019t make any sense.<\/p>\n
That didn\u2019t.<\/p>\n
That was horrible.<\/p>\n
Wow. You\u2019re taking the role of suck.<\/p>\n