My September 2015 Monthly Report

At least once a month I tried to write a post on what happened in the previous month. I want to share with you how I have progressed in my plan to quit my job in 2016. I decided to quit my job in one year in July 2015 in order to focus solely on building my passive income ideas.

Why do I post these updates ?

It’s because I want to be open and transparent with you and help you to see the ups and downs that come with passive income that I experience so you may be well prepared when you start walking down this path.

I am a big believer in setting goals for myself because it helps me envision where I want to be and helps me to develop a plan in order to get there. I have a number of different goals that I want to accomplish before I quit my job.

The deadline is to accomplish them in one year Lord willing. I will keep a running list of my goals and how I am faring with accomplishing them see you can hold me accountable to always working on my goals and do my best to achieve them.

Here is a list of the things that I plan to do in this next year so that I can quit my job:

1. Remodel my personal home DONE

2. Refinance my personal home to have cash to purchase more rental properties DONE (Cashed Out $47,000 Tax Free!)

3. Buy one single family home in Arizona as a rental property (an additional $250 per month of passive income) IN PROGRESS (Watching for Deals)

4. Buy a four-Plex as a rental property (an additional $700-$800 per month of passive income) IN PROGRESS (Watching for Deals)

5. Buy a 15-18 unit apartment complex with other investors (an additional $800-$1000 a month in passive income as my share of the profits) IN PROGRESS (Made offers but were to late. Still looking for deals)

6. Save up $30,000-$40,000 as an emergency fund IN PROGRESS ($10,000 saved)

7. Save up 600 hours of vacation/sick time to use when I quit.   375 HOURS SAVED (See how to effectively use your hours)

To save you guys from having to read too much, let me stick to the goals that I have completed this month.  I will discuss the other goals in future reports to help you understand the thought process of each one.

September Completed Goals

Goal 1. Remodel my personal home: DONE

I purchased my personal residence in 2010 for $210,000 with a 30 year mortgage at a 5.00% interest rate. I bought the property knowing that I would eventually turn into a rental unit and hopefully would be able to pull cash out of the equity to invest in more properties. In July of 2014 I refinanced my home to a 15 year mortgage at a 3.375% interest rate. I absolutely LOVE a 15 year mortgage over a 30 year.  From my personal experience, it is best to get a 15 year note.

In July 2014 my home appraised for $220,000, and my new mortgage balance was $180,000.  I did have to pay an extra $10,000 toward my principle to get my balance to be 80% of the appraised value. 80% of $225,000 is

The reason why did this was so I would not have to pay private mortgage insurance (PMI). PMI is basically insurance that a borrower must pay the bank as “Insurance” for mortgages that have less than 20% equity from the appraised value. This is to basically cover the bank if you are unable to pay your mortgage and they have to foreclose on you.

This money supposedly offsets the lost money from the auction of the property to the balance on the note.  I did not want to continue to pay $150 a month for nothing that would help me so I new I needed to bring the equity in the property up to 20%.  This is why I brought $10,000 to closing so that I would not be forced to pay the PMI.

The great thing is that my payment only went up by $90 each month for the new note.  This was because the PMI was now gone and that was $150 a month.  In reality, my loan was $240 a month more for a 15 year note but I only saw a $90 increase in my payment to the bank.

So after an entire year of paying my 15 year mortgage I paid down the principal by $10,000 to a total of $170,000 principle balance. In September of this year, I decided to refinance my property to take cash out in order to invest it into income producing properties to create more cash flow and passive income.

I went with my same mortgage broker who did a fantastic job the first time and had her give me an entirely new 15 year mortgage at whatever 80% of my new appraised value would be.

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Now it would not be smart to refinance one year after you just did a refinance because of all the fees that come with refinance unless there was something that changed about the property. After looking at the market, the condition of my home and the loan amount I had, I realized that I could remodel my kitchen and replace the flooring to get the value of my home up.

I knew I could increase the value of the property by remodeling the house myself and cash out hopefully $30,000 – $50,000.

The way the math works is basically I could pull out 80% of the total value of my house less the current principal balance on my mortgage that I already have. By remodeling the kitchen and floors, I can increase the appraised value of my property and refinance the house with cash out.

The appraised value would now be higher because the house is now worth more.  I can now cash out more money because the equity is higher but I’m still bound to that 80% equity ratio. So if the property value appraised for $250,000, 80% of that would be a total of $200,000. $250,000 / .80 = $200,000.

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The best thing about a cash out refinance: No Taxes!

One quick note about cash out refinancing your property.  Since this is a loan, the government does not look at it like it is income so I am not taxed on any of the money I pull out.  If I were to sell the property and make $50,000, I would pay taxes of up to half of the profits to the government because it is seen as income.

If I cash out $50,000 as a loan, (which the tenants will pay back) it is not taxed as income and it in my pocket to invest in more properties!  HIP, HIP, HOORAY FOR CASH OUT REFINANCE!  🙂

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Back to the remodel:

In February of this year I started the process of designing, getting quotes and bids, and planning the remodel of my house. To start the process off, I realized that the cabinets would be probably the most expensive thing I would pay for so I got many quotes. The first quote that we got was from Lowe’s for $17,000 just for the cabinets not including installation.

My heart sunk at that price because I knew that would eat into the amount of money I could cash out. So I decided maybe I could find ready to assemble cabinets that would be cheaper and I can do all the work myself and save thousands of dollars.

After a few days of searching the Internet I found a few cabinet companies and got quotes for the cabinets that I needed. I settled on a company who gave me a quote of $4200 including shipping to my door so I decided to go with them.

They were the best looking cabinets at the best price and my wife was happy with them. The cabinets I purchased were very good but the company was very shady. I tell all about my problems with online cabinet companies in my post “My Mistake Buying Kitchen Cabinets Online“.

So, from the end of June to the middle of September, I worked hard to remodel the kitchen and install 1500 ft of laminate flooring with the help of some of my good friends. I gutted the entire kitchen, moved the location of my oven and refrigerator, installed the cabinets, installed granite counter tops and backslashes, and lots of other items.

Kitchen Remodel Estimated Expenses

• Kitchen Cabinets (Bad Company): $4,200
• Kitchen Cabinets (Good Company): $850
• Granite Counter Tops: $2,300
• Back Splash: $400
• New Microwave: $450
• New Under-Mount Sink: $650
• Laminate Flooring: $1500
• Extras from Home Depot: $1500
  Total Remodel Cost: $11,850

Just about as I am getting to be about 90% done with the remodel I initiate the process of a refinance into another 15 year note in order to take out cash in order to invest.

After the remodel, and appraisal company came out and appraised my property so the bank would have a value of the property.

The appraisal came back with a value of $275,000. That is an appreciation of $50,000 because of the remodeling that I did to the house!

Because I paid down the debt over the course of a year, increase the value of my home, I am now pulling up $50,000 cash from this property.

With all the closing costs, the total cash out is $44,032.45 TAX FREE!

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Cool Mortgage Tip for More Cash In Your Pocket

Because my loan funded on October 14th to the previous mortgage company, I did not have to pay my October mortgage payment.  The interest and payment from September was added into the closing cost. That is $1500 in my pocket that would normally have been paid to the mortgage company.  From October 14th to October 31st, I prepaid the interest with the closing costs so I do not have to pay the rest of October either.

Since the loan is new and your payments are always for the previous month, the month of November is when I will start accruing interest.  I will not have to pay the interest to the new bank until the next month after it is accrued.  Another $1,500 in my pocket. That means my next mortgage payment will be due by December 15th (15 day grace period each month).

So, I basically have two months without having a mortgage payment.

This is because the refinance went through before the the 15th of the month when my payment was due.

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Now you may be wondering what will the added payment amount be for my mortgage. The old mortgage payment was $1500 a month. This new home mortgage payment is only $300 more for a total of $1800.  Even though it is $300 more in payment, I have almost $50,000 in my pocket to invest.

If I buy one single family home that brings me $300 a month, that takes care of the increase in the payment and I would have that extra mortgage payment paid for by the tenant.  The best thing is that even after the mortgage is paid off (by my tenants), I will still have the new investment properties bringing in passive income each month until I sell it.

So, how am I going to make up the $300 difference?

Easy!  I just got another property under contract for $9,000 cash! I specialize in buying extremely inexpensive homes that bring in good rents. Because I have my business processes all set up, I just got a property under contract and will close in a couple weeks after inspections, title checks, etc.

The sellers were originally asking $13,500 so I offered $6,300 cash.  I figure that I already have a no without asking so I might as well ask for a low price that I am almost ashamed of offering.  They countered back at $10,000.

I countered one more time at $8,300 and they countered again at $9,000.  I accepted that offer and am now going into escrow for the purchase.

This property will rent for $500 and after expenses, I'll have a monthly cash flow of $400 a month!  I have only spent $9,000 of the $47,500 ($44,500 cash out + $3,000 mortgage savings) so I still have $38,500 left to invest in another property.

After I purchase this one house for $9,000, which would cover the higher mortgage payment of $300, I still have almost $40,000 to invest in more rental properties to make me more money.

I could invest in more low valued homes and make money or I can use this money to buy in a different location, like Arizona, so I can spread out my business to multiple areas. They say to not keep all your eggs in one basket and I tend to agree with it.

With an entirely new market of rental properties and renters I am covered when one has a bad month of rents. If one area has issues with bringing in rents, I will have a whole separate part of the country to bring monthly cash flow in.

With this different location, there are different property managers, team members, and rents that keep money coming in monthly.

So two goals that I had for this year I already have checked off!

I am now working towards buy an apartment complex, a four Plex, a single family home, and other low valued homes that bring in positive cash flow and passive income monthly.

Let me know what you guys think about my plan and goals.  Leave a comment below!

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