If you’ve been renting out your own house or condo via Airbnb, or a similar service like HomeAway or FlipKey, you might have more difficulty securing a mortgage.
This is one of many unintended consequences related to the so-called “Sharing Economy,” whereby individuals turn their homes and cars (and whatever else) into profit drivers.
The same hoopla arose when Uber and Lyft first got started, with insurance companies often balking at drivers who used personal insurance policies to conduct what is seen by some as commercial driving.
With companies like Airbnb, “hosts” are able to rent out their properties whenever they like, whether it’s just when they’re out of town, seasonally, or full-time. It’s supposedly a great way to make some extra cash when you aren’t using your home.
However, the issue that seems to be befuddling mortgage lenders is the occupancy of such a property.
Is It Still Owner-Occupied If It’s Listed on Airbnb or Elsewhere?
You see, mortgage lenders ask how you’ll use your property when extending mortgage financing. After all, they’ve got a huge ownership interest in your home when you take out a massive loan on it.
If it’s simply your primary residence, you are entitled to the most flexible financing options and the lowest interest rates because defaults are lowest on owner-occupied properties.
However, if it’s a second home (which doesn’t allow rentals of any kind) or an investment property, the mortgage financing options become a lot more limited, and the interest rates significantly higher.
This is to account for risk, as history tells us default rates are higher on non-owner occupied properties.
Cumulative losses tied to certain loans issued before the most recent housing crisis were around 14% on owner-occupied homes, and closer to 20% on investment properties. This disparity allows lenders to charge a higher interest rate on the latter property type.
But are Airbnb rentals tied to owner-occupied homes actually investment properties, or something else entirely?
This is what mortgage lenders are reportedly grappling with, seeing that a short-term rental falls somewhere in the middle. Can you really call it an investment property if it’s only rented out two weeks of the year?
Apparently some mortgage lenders don’t have a problem with it, but other major banks do. And you can’t really blame them given the added risk associated with housing complete strangers.
I’ve actually heard of tenants (who don’t own the properties) renting out their rentals on Airbnb and similar websites, unbeknownst to their landlords.
Essentially, renters are making a buck by subleasing their properties on a short-term basis when they go out of town.
Using Airbnb to Pay the Mortgage Down
Ironically enough, I stumbled upon a page on the Airbnb website that was advertising a $200 cash bonus for certain hosts that could be used to “help pay down your mortgage.”
Most folks know you can use rental income to offset a monthly mortgage payment if it’s an investment property, and the same is true with short-term Airbnb rental proceeds.
If the property is a rental property and you treat it as such, renting it out via sites like Airbnb shouldn’t matter, though it may be difficult to establish a firm monthly rental income figure unless it’s very consistent.
But it seems lenders aren’t too keen on including this income when qualifying borrowers for a refinance on an owner-occupied property. That’s where it gets murky.
How often is the property in question being rented? Is it once in a blue moon, once a week, seasonally, etc.? Lenders need to know these details to adequately assess the risk of the underlying loan. Otherwise occupancy type wouldn’t matter.
But it does matter, a lot. In fact, it’s one of the biggest drivers of both LTV limits and interest rates, and occupancy type leads to a slew of other restrictions.
So you might want to think twice before showing your lender how much your primary residence is raking in thanks to a short-term rental.
It could actually end up costing you in the form of a higher interest rate or an outright loan denial.
Shopping can be a fun activity, no doubt. There’s so much to look at, so many items that promise to make life a little better…it can be hard to stay focused on what we need vs. what we want and on what we can afford.
But those impulse buys, even a new conditioner here and a spiffy new phone case there, have a way of adding up. That can leave you wondering why your credit card bill is so high and can derail your bigger-picture financial goals.
It’s OK to give in now and then and splurge on small treats, but it’s also wise to develop better buying habits so you don’t get in the groove of overspending.
Here, you’ll learn just how to do that. Read on for advice on fine-tuning your routine; you’ll see how to make smarter buying choices without feeling deprived.
9 Tips for Building Better Buying Habits
Here are nine tips for building better buying habits that can help those interested in becoming more mindful consumers.
1. Having a Financial Goal in Mind
Motivation is a wonderful tool. To kick off new buying habits people may want to think about what their financial aim is and what they want to save money for in the first place.
This could be as small as wanting to save money for a handbag they really want or to save up to go to a fancy restaurant instead of their usual haunt.
Or, it could be something much larger like saving for a vacation, a wedding, a home, or even for retirement somewhere down the line.
Having a financial goal might make it easier for consumers to prevent an impulse purchase or spend money on something they don’t actually need.
To double-down on this habit try writing down any and all financial goals in a notes app, diary, or even on a piece of paper. Then, stick it in a wallet so it’s with you wherever you go.
2. Giving Every Purchase — Big or Small — a Little Time
Sometimes all it takes to reverse a buying decision is to just sit and think about it for a second. Is this magazine really worth the read, or can the articles be found online? Is this new dress really all that great, and will it be worn more than once?
For larger purchases try to employ the “take a walk” method, which is to literally leave a store, go for a walk, and think about the item a bit more. This way, the initial adrenaline rush and excitement wear off just a bit so a consumer can clearly consider the purchase with fewer emotions attached.
Then, come back, look at the item again. If it still elicits butterflies then it could be worth the purchase. If not, that’s great. Confidently walk away.
If anyone is looking to take this habit to the next level, try employing the 30-day rule. Just as the name implies, those looking to purchase anything nonessential must put the product back on the shelf and step away for a full 30 days.
If at the end of that time he or she still wants the product badly enough they can then return and purchase knowing full well it will bring them a little more joy.
Here’s one more trick to try when using the 30-day rule. Over the 30 days, try saving little by little to purchase the item. At the end of the month, if you decide that product is no longer needed, that cash could be put right into savings.
Recommended: Different Types of Budgeting Methods
3. Coming Up With a Personal Spending Mantra
If taking a walk just isn’t an option, it may be time to come up with a personal spending mantra. Think things like “Keep the memory, get rid of the object,” or Marie Kondo’s, “Does this spark joy?”
Use Kondo’s phrases, or come up with a unique one to use before making any purchase. By repeating the phrase over and over again it will help determine if that object really deserves to take up space in your life and in your monthly budget.
4. Learning to be a Comparative Shopper
There’s so much information just a click away, you never have to settle for the first price tag you see. Finding a better deal could require just a quick online search.
To become a great comparative shopper, you can start small by investigating prices on everyday purchases like groceries. Try looking up a price comparison for milk between high-end grocery stores versus the neighborhood grocer. Then, think about monthly expenses like the internet, cable, telephone bills, and even things like gym memberships or subscriptions.
Can you find a better price for any of these items or negotiate the price down? Go for it and save along the way.
5. Falling in Love With Coupons and Discount Codes Again
Another better buying habit to adopt: Take a minute when shopping to find a few coupons to use in physical stores and discount codes to use online.
There are a number of coupon websites such as RetailMeNot and The Krazy Coupon Lady that can help shoppers hunt down a few discounts when they need them.
There are also services like Honey, which is a plugin you can add to your dashboard that will automatically scour the web for discount codes and plug them right in at checkout.
Long story short, don’t settle for the first price.
Recommended: Ways to Save Money on Clothes
6. Maintaining the Things You Already Have
A hole in a sweater, a scratched coffee table, and a tiny crack in a dish can be enough for some people to run out and purchase an entirely new item to replace the old.
However, rather than tossing something just because it’s a little faded it’s time to learn how to give things a new life. Or, find an expert who can.
For example, rather than buying all new shoes just because the tread is a little worn down, try bringing them to the local cobbler (aka shoe repair). They may be able to replace the thread for a fraction of the price of new shoes. This same idea goes for big-ticket items too.
Consider keeping a maintenance calendar for things like a car’s oil changes, a home’s roof inspections, and more. That way, things will always stay in tip-top shape for longer, and you may, say, save money on your car or home repair costs.
7. Understanding Shopping Triggers
To create better spending habits, it can be worthwhile to take a bit of time to self-reflect and discover why you like to spend money in the first place.
Do you suffer from FOMO (fear of missing out), spending and buying things because friends, family, or a favorite influencer is sporting it on social media?
Do you shop when bored, or are you triggered by something else? It can be important to delve into why you shop so you can avoid triggers that could lead to overspending.
Doing so could also help you reconcile any tendencies to be a compulsive or impulsive shopper.
8. Getting in on the Financial Buddy System
Everything’s better with friends — including creating better spending habits. Just look to working out for inspiration.
According to one landmark study by researchers at the University of Aberdeen, people who work out with a friend are more likely to hit the gym more often than those who choose to work out alone. That lesson can easily be applied to finances too.
Find a trusted friend or family member who can offer real advice when it comes to creating better buying habits.
Make a pact to call one another every time either of you needs a second opinion when it comes to making big purchases, or when you need someone to talk you out of making a silly purchase.
Don’t worry, odds are you’ll return the favor for your financial buddy in no time.
9. Knowing Where Money Is and Where It’s Going
A major part of creating better buying habits is understanding where your money is right now and where it’s going at all times. Don’t shy away from making a personal budget to see how much money is coming in and where it all goes. Budget tracking apps (perhaps provided by your financial institution) can help in this effort too.
Monitoring your checking account will also help you get in touch with your spending habits. Some people find checking in every couple of days a good move.
These moves can reveal patterns that you might be unaware of and also help you see where you might cut back on expenses. That, in turn, can free up some funds so you feel better about splurging when the opportunity arises.
The Takeaway
SoFi Checking and Savings, a high interest bank account, can help you manage your cash better.
With our app, you can transfer money to pay bills directly online and track weekly spending right on the integrated dashboard. You can work towards savings goals with Vaults and Roundups. Plus, you’ll pay no account fees and earn a competitive annual percentage yield, which can help grow your money faster.
Want to create better buying habits? SoFi Checking and Savings could be a first step to help you get there.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners. SOBK0423063
By Peter Anderson9 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited October 30, 2008.
Time to take the plunge and get a new car
The transmission on my old car decided that it no longer wants to continue shifting as it should. After getting several repair estimates, we found that to fix the car would cost us over $2500 in repairs, along with another $1000 or more in other needed repairs in the near future. We decided that we just didn’t want to pump that much money into a car that wasn’t worth much more than $2500.
So now we’re looking around to find a good, reliable used car that will last us another 5 years and around 100,000 miles. I haven’t bought a car in about 5 years, so I had forgotten what an ordeal it can be, and how many things you need to remember. Here’s a list of some things that are important to remember when looking for a used car.
credit: Ben Grogan
Things To Remember When Shopping For A Used Car
Use the power of the internet: With the advent of the internet the consumer has a whole new sense of empowerment when it comes to car shopping. Using the internet you can shop around for a good price and play dealers against each other. Doing this is a whole lot easier than it used to be. Use online automotive websites like carsoup.com, autotrader.com or cars.com to narrow the field of possible cars, and then get price quotes from dealers that you can compare. Let the dealers know when you’ve found a better deal, they may match it, or even beat it! (Dealers hate Internet customers because they usually are well informed, and end up getting a better deal). Also, use the internet to research your next vehicle through information sites like Edmunds.com where they have exhaustive reviews, customer feedback and true cost to own stats for all makes and models.
Used cars have a history: Make sure that you always check a vehicle’s history report before even doing a test drive. For a fee you can do unlimited vehicle history reports through services like Carfax.com or Autocheck.com. All used cars have a history, and for some cars their history is more colorful than others. For example, when I was searching for a car this time I found what I thought was an extraordinary deal on a used car with low miles and a great price. After doing a history report on the vehicle I discovered that the vehicle had a salvage title and had been in an accident. Big time red flags! Some of the things you can tell on a history report include accident history, odometer readings (to make sure there hasn’t been an odometer rollback), whether or not the vehicle has a clear title, ownership history (including whether it was a rental car or a taxi) and a variety of other things. Vehicle history reports are a must have for any used car shopper!
Check for signs of tell-tale vehicle damage: Even some vehicles that have a clean history report may have some hidden damage that was never reported, and thus doesn’t appear on the vehicle’s history. Because of that you will want to make sure that you inspect the car carefully to make sure it is sound. Carmax has an article about how to find some tell-tale signs that the car has been repaired. Signs include: vehicle has been repainted, clamp marks on the frame, welding marks and body filler, engine noise, misalignment of hood, doors or trunk, checking bolts to see if they’ve been removed. Check the article for more ways to determine if the car has been repaired.
Make sure to take a vehicle for a test drive: In the internet age, you’d be surprised at how many people are now buying vehicles before even taking them for a test drive. (Ebay anyone?) A test drive can be invaluable because it allows you to see the car in action, hear any noises the car may make, and feel how the car performs under normal road conditions.I just test-drove what I thought was a great steal of a car last night, and the brakes turned out to be bad, there were stains on the seats and the car’s shocks were shot. All of these things I found out on the test drive. Some things to check when you do a test drive include the interior of the car (check for excessive wear), the tires and brakes, the shocks (press down on the car and see if it bounces back quickly without too much bouncing), steering and acceleration without too much noise, and just listen for foreign sounds. If your gut tells you something isn’t right with a car, pass on it.
Pay for a vehicle inspection by your mechanic: If you really want to make sure that a car is mechanically sound before you buy, take it to a trusted local mechanic who can tell you if the car is in good working order or not. Our local mechanic does a thorough inspection for about $30, but it is well worth the cost. I would especially suggest doing this if you are buying a car from a private party or buying a car without any kind of warranty (which most used cars don’t have).
Don’t play the “monthly payment game”: When you’re at the dealer don’t fall prey to the “monthly payment game”. This happens when the dealer asks at what price range you’d like to keep your monthly payments. When you respond with “under $400” or the like, that gives the dealer free reign to put you in a more expensive car or give you a longer finance deal – all in the name of reaching that magical monthly payment number. Instead of playing that game, decide on how much you’re willing to pay, and stick to that number no matter what. Tell them something like: “I want to keep the purchase price under $9,000” and don’t respond to their talks of monthly payments. That way you can ensure you don’t end up paying more than you thought you would, just because you wanted a certain payment. Figure it out on your own beforehand – and stick to your guns.
Bring your own financing to the dealer: One of the biggest ways car dealerships can make a good deal turn sour is by padding the deal for your car with back-end fees in the finance office. All of that can be avoided if you just get your financing ahead of time through your local bank or credit union. Or even better, save up for your used car purchase as suggested by Dave Ramsey in Financial Peace University – and pay cash! That’s what we’ll be doing! Read my previous article about driving free cars and retiring rich – where I talk about just that – saving for your next used car.
Make sure the car is insured: Make sure to call your insurance company and check rates for the cars you’re looking at, and inform them once you do buy a new car. Don’t let the insurance lapse! Check insurance rates with other companies when you buy a new car, it may be as good a time as any to save some money on your insurance rates.
Other Used Car Shopping Resources
Here are a few other good articles with tips on buying a used car, in no particular order:
So what is your used car buying tip? Have a good or a bad experience buying a used car? Leave us a comment here and tell us about it!
By Peter Anderson2 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited February 11, 2017.
I‘ve been writing about peer to peer lending on this site for some time now, mainly in reference to the P2P lending company called Lending Club. I’ve been lending money with the site for around 2 years, and to date I’ve enjoyed some pretty amazing returns. Right now my net annualized return with Lending Club is sitting at about 11.13%, which would be tough to equal in the stock market right now.
My returns have only been increasing since I’ve started following advice from a variety of other sites like nickelsteamroller.com and SocialLending.net. I’ve increased my returns from about the 8.5-9% range to the 11.13% that I’m sitting at now. I’m starting to come around to the idea that diversifying some of your holdings and putting it into P2P lending may be a much more solid proposition than some had thought in the past. I think it can be an important component of a well diversified portfolio.
Because I’m becoming more interested in social lending through sites like Lending Club and Prosper I’ve also been looking into places where I can educate myself a bit more about how this whole peer to peer lending paradigm works, and how to maximize my earnings.
While doing some research on the topic I came across a variety of good educational resources that I thought I’d share today.
Peer To Peer Lending Educational Resources
First, there are a ton of great blogs out there that focus mainly on the social lending sphere. Many of these sites have been extremely helpful for me. Here are a few of my favorites:
As with any topic, it’s a good idea to read a variety of sources, and then bring together the best of what they’re all telling you and apply it to your situation.
Video Education On P2P Lending
While the blogs mentioned above are great resources, to some degree they only scratch the surface of what’s going on when you sign up to become a P2P lender. They also tend to jump from topic to topic without giving a comprehensive guide or tutorial on how social lending works. There really is so much more depth to the strategy of P2P lending.
This past week a blogging colleague of mine, Peter Renton over at Social Lending Network, launched a new educational resource for people wanting to take their social lending experience to the next level – and set themselves up to succeed.
He launched his new video course called P2P Lending Wealth System that is designed to help investors get the most out of their P2P lending investments. It goes over both the Lending Club and Prosper platforms, and looks at how to best use their tools, as well as outside tools to improve your returns.
From an email he sent out last week, Peter describes the course:
Next week I will be launching the world’s first ever video course dedicated to p2p lending. It will be called the P2P Lending Wealth System. It is a practical, hands-on course that provides investors with everything they need to be successful.
The P2P Lending Wealth System digs deeply into the investment platforms of Lending Club and Prosper. We talk a lot about loan filtering on both platforms and we also show investors how to leverage p2p lending statistics sites Lendstats.com and Nickelsteamroller.com.
The course will have some informational slides but I really wanted to leverage the power of screencasts where I take investors through the most important components on the various websites.
He goes on to talk about some of the topics that are covered in the video program. Among them:
An Introduction to Peer to Peer Lending: He gives a background and overview of the P2P lending space talking about it’s dramatic growth and why it’s done so well.
Risks of P2P lending: He discusses some of the risks involved in social lending and what to look out for. He also talks about some of the government regulations involved.
Investing with Lending Club: He goes over the Lending Club site in depth talking about their tools they have available to you, as well as some site specific things to be aware of.
Investing with Prosper: A tutorial of the Prosper site and tools, as well as strategies to make the best of Prosper.
Maximizing your ROI: To me this is the meat of the class as it talks about how to improve your returns when lending with Prosper and Lending Club. Important stuff!
Note Trading Platforms: He goes into how to use the note trading platforms at Lending Club and Prosper and how to use them to maximize returns.
Peter’s investment strategies: Peter goes into some of his own strategies for making the best of social lending, and gives some of the tools and spreadsheets he uses to maximize his returns.
As mentioned previously I’ve already been using some of the strategies espoused by Peter, and my returns thus far have been awesome. I’ve now been watching the videos in Peter’s course, and it really extremely helpful, even for someone who’s been using Lending Club for a while like myself.
If you’re seriously considering adding P2P lending to your investment portfolio (and you should!), I’d highly recommend checking out Peter’s video course and the hours of training contained therein. You’ll be setting yourself up to have the best chance at succeeding in this new and exciting investment arena. Want to hear more about the course first hand from Peter? Click on the banner or link below to check it out.
By Peter Anderson2 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited August 14, 2014.
I recently asked my twitter.com followers what they spend on groceries every month. I got answers ranging anywhere $250/month for a family of two to over $600/month for a family of 4. The largest family was a family of 6 who spends $450/month on food. Our food bill for a family of two is often larger than all of these other families.
Food Is Expensive Isn’t It?
For the past few years one of our biggest weaknesses in our budget has been our food spending. Neither my wife or I likes to cook, and as a result we end up eating out several times a week. The food we do buy are the pre-packaged dinners which always costs more than if you just buy the raw meats and vegetables yourself. We like the convenience.
Just a couple of months ago we had a month where we spent over $1000 on groceries and dining out. That’s a LOT of money to spend on food. I think that was a bit of a wakeup call for me. I realized that we needed to get our food spending under control.
20 Tips To Cut Your Food Bill
Here are 20 tips we’ll be using to curb our spending on food:
Eating out less: This may seem obvious, but it is our number one biggest reason we spend so much every month. We eat out several times a week, and on top of that we were eating out for lunch most days as well. When you add it up we’re wasting thousands of dollars every year! We’re not going to stop eating out all together, but we’ll have a “restaurants” budget that will limit this spending category.
Buying the ingredients and making it ourselves: Instead of buying all microwave dinners and pre-packaged meals, we’re going to try to make more of our meals from scratch. Buying from scratch and making your meals instead of just heating them up can mean big savings. Lynnae at Being Frugal does this especially well, check out her post on the subject here.
Not buying as much when we shop: One tendency that we’ve had in the past is to buy a ton of food when we go grocery shopping. If we think we’ll need it in the next couple weeks, we buy it. The result is that we end up having a fridge full of food that we don’t end up eating. We almost always end up throwing a bunch of old moldy food at the end of the month. It usually works better when we take several smaller trips to the store, only buying what we think we’ll need for that week.
Plan your trips to the grocery store: Make sure you’re planning your trips to the grocery store, because while making smaller trips to the store can save you money on buying un-needed groceries, it can also cost you money through gas prices. Make sure you’re planning your trips to the store so that you can make multiple stops in the same trip (if you need to) and make sure to keep a list during the week so you know what you’ll need and where you’ll stop. Aimlessly driving from store to store will NOT save you money. For tips on ways to save gas money while you’re driving around, see this post.
Look out for bargains: When you’re grocery shopping keep your eye out for bargains. If you find something that’s on sale, buy extra and stock up. This usually works best on canned items, pasta and things that won’t spoil. (See the tip above about buying less to save – Don’t buy 20 gallons of milk if it is on sale.)
Stop drinking soda pop: Stop or cut back on drinking soda. For my wife and I just stopping the pop intake was hard/impossible, so we’ve at least cut back. Start drinking more water or buy cheaper powdered flavored drinks. You’ll feel healthier and you’ll be better hydrated.
Cut back on junk food: Commercial snack foods are costly and usually unhealthy. Instead buy some veggies and dip, and eat some healthy food while you’re laying around.
Buy generic in-house brands when possible: When you’re buying foods try and find generic alternatives to the brand names you usually buy. Most stores will have an in-house generic that is often just as good as the brand name, while costing quite a bit less. In some cases I actually prefer the generic!
Don’t eat meat every night: Instead of making a meal with meat every night, try making some vegetarian dishes with other sources of protein like beans. It will probably be healthier, and you can save a lot of money on meat if you just make meat-free dishes a few times a week.
Avoid buying snacks in vending machines or convenience stores: This is one of my weaknesses – spending on snacks at work, when I fill up gas or when I’m stopping at starbucks. Instead of buying your snacks, buy some healthy snacks and bring them with you.
Use Coupons: Actually using some of the coupons we get every week in the mail is a great way to save money – we just have to remember to bring them with!
Plant a garden: Supplement your food by planting a garden in your backyard. It doesn’t cost much to get one of these going, and you’ll have some nice fresh veggies to eat! Check out FrugalDad’s square foot garden to get a nice start!
Make extra when you find good deals on meat – and eat the leftovers: When you’re making food, try to always cook extra, and freeze the leftovers into meal sized portions. Or if you’re really ambitious, use the “cook once, eat for a month” method that a lot of people are talking about. When you see good prices on meat, buy extra, take a day where you cook meals and then freeze meals and lunches for the next month. Saves money and time!
Participate in The Grocery Game: When you play the grocery game at The Grocery Game’s site, you’ll get a weekly list of the lowest-priced products at your supermarket matched with manufacturers’ coupons and weekly specials — advertised and unadvertised. The service does cost $10 every 8 weeks, but many have found that they save far more than that by using the service.
Use deals websites like MyGroceryDeals.com: MyGroceryDeals.com allows you to enter your zip code, and find deals at your local food stores, pharmacies and other retail outlets. For my zip code it comes up with about 16 different stores with 650+ deals available. Download their Grocery Savings Tips E-book here.
Never shop on an empty stomach: Try not to go shopping when you’re on an empty stomach. You’ll end up buying a bunch of stuff that looks good, that you don’t really need.
Shop using cash so you don’t overspend: Set up a budget and only go grocery shopping with cash. If you run out of money, put something back. When you use a credit card you’re that much more likely to spend more money on things you don’t need.
Eat smaller portions: Save money by eating smaller portions, and freezing any leftovers to eat later for lunch or dinner. Most of us in this country eat too much food anyway, eating until we feel sick. Control your portions and you’ll be healthier, and you’ll spend less on food!
Don’t think you have to buy two to get the discount: Often an item will be advertised for 2 for $5, or 2 for the price of 1. That makes you think you need to buy two items to get the discount. Often you can buy only one if that’s all you need. Buy just one item and save!
While you’re at the store, pick up your free Redbox rental: While you’re out saving on your groceries, you may as well save on your entertainment bill as well. Many grocery stores now have a Redbox.com movie rental machine where you can get your movie rentals for just $1 a night – or less! To find out how to find free rentals at the redbox and save on your Netflix or Blockbuster membership fees, read my post on getting free redbox rentals
So those are some of the ways I plan on saving on groceries (and entertainment) this month.
What are some of your money saving tips when you shop for groceries? Leave your tips in the comments below!
A couple years ago my wife and I set off on the journey of building our first home together. It was going to be our dream home.
To say that the process was a bit stressful is a slight understatement.
We both had an idea of what kind of house we wanted, but the location and the layout of our lot made it a bit more challenging.
We scoured through dozens of home books and on-line guides trying to find the perfect house plan.
We came very close, but never could find “the one”. That’s when we realized that we needed to hire an architect.
We were lucky that we knew a local architect Steve May of D.A.R.T Design so the decision process was very easy. If we hadn’t of known him, I could only imagine how difficult the hunt would be to find the perfect match for us.
To better assist you in selecting the right architect for your home building experience, I decided to interview him to find what things you need to know before you hire an architect. First, a little on his background (and a shameless plug):
Steve May has over 20 years of experience in the field of architecture, and has been a licensed architect for over 11 years. Steve began D.A.R.T. Design, Inc. in 2004. Prior to serving as the Owner and President of DART Design, Steve was a partner with Huff-May Architectural Group. Steve has extensive building code knowledge and is a member of the International Code Council.
1. What did you do to become an architect?
Once I received my degree in architecture I started my internship with an architectural firm. With my bachelors degree I was required to intern for 5 years prior to taking the Architectural Registration Exam (ARE). Degrees such as a masters only requires 3 years of internship but it takes and additional 2 years to get your degree.
So in essence it takes about 9 years of schooling and internship to apply for the ARE. The ARE, at the time I took the exam (there have since been changes) was 4 days long, had 9 parts and was given once a year in Chicago.
2. Are there any special credentials that one should look for in hiring an architect?
Some architects specialize in certain fields of design. If you are looking for an architect to design your hospital you would not want to hire one that specializes in airport design. Although this is not always the rule, there are exceptions where a particular firm may work in many areas from schools to sporting venues.
When looking for an architect for your particular project you want to look for someone who has experience with projects of the same scope, and possibly an architect that has the same vision or style of building that you desire.
Most architects can provide services for simple projects of any size.
When the project starts to become more complex, then the owner should start looking for an architect that has experience with projects of the same scope or similar in complexity.
3. What would one expect to pay when hiring an architect?
There are many variables that effect fees for projects. Some factors are, but not limited to, location, size, complexity, scope of services and bidding process.
Generally fees are based on a percentage of the construction costs and can vary from 3% up to 15%. A large project of simple complexity would be at the lower end and a small, complex project would be at the higher end. Once you have a scope of work you can negotiate fees with your architect and those can be in the form of a percentage of construction costs or a fixed fee can also be requested.
Residential architectural fees can be altogether different depending on the location. In some areas the law does not require an architect to provide drawings for residential construction. There are areas where the municipality requires that all buildings including residential are required to be designed by a licensed architect. Fees can increase when residential drawings are required to be stamped by a licensed architect.
4. What are some telling signs on when to avoid hiring the wrong architect?
When an architect is not willing to listen to the client and utilizing their ideas that would be a good time to back up and reevaluate your architect.
Your architect should know what questions to ask their clients to gather the information they need to put together a schematic design for the facility.
Our clients are the most important part of our company. We strive to provide a facility for our clients that will suit their needs for today and into the future. Whether it is a home or manufacturing facility the client and their ideas come first. We pride ourselves on retaining our clients and the only way to do that is to provide them with exemplary service.
5. With so many books and websites offering house plans, when would it be wise to hire an architect?
For residential your right, there are so many choices, and that can be confusing to lots of people. Most of my clients have come to me with a couple different floor plan ideas and some pictures of some houses they like and ask me to mold them together. They just cannot find one plan in a book that is what they really want. Taking these ideas and producing a home that meets their ideas and personal tastes is usually the hardest part of the process. A process that provides us with the most satisfaction.
When you hire an architect is really up to the individual and the type of project, although I would say the sooner the better. The architect can help from the very start, even when it comes to picking out the best site for your home.
The sooner you pick an architect, the better I think the project will go. The architect will not only help in the design and drawings of your facility but with the bidding process and selection of contractor. The architect can also be involved during the construction process to make sure that things are being built to the plans and specifications that were provided.
6. Is there anyway to do any background checks on architects before you hire them?
I am unaware of any “background” checks that you can do for architects. There are many associations out there such as the ALA and the AIA that a licensed architect can be a member of. This of course does not make them a good architect because all you have to do is be a licensed architect, in good standing, and pay your dues to join.
An individual can go to the licensing bureau of their state and check the license of the architect they wish to hire and make sure there are in good standing with the state.
The best way to choose your architect is to make sure they have done similar projects and check their previous work.
7. What should you do when you realize that you’ve hired a bad architect?
I would hope that this would not happen but there are architects that may not want to really listen and give the client what they want and instead push them towards what the architect wants. It is all about what makes the client happy and if they already have an idea of their needs than the architect should listen and design around those needs.
If you find yourself dealing with an architect that does not “get” what you are looking for than that is the time to cut the cord. Pay them for the time they have invested and move on.
Don’t hesitate and hope things get better, they most likely won’t. You want someone that will work with you and guide you in the design process and make good suggestions not push you in a direction that is not comfortable. This is a large expenditure for you and you want something that you will be happy with.
8. What sort of information should someone already have before working with an architect to make sure they get the house they really want?
I have seen all kinds of things come through my door, some better than others, but most have an idea of what they want. I would say that some of the main things to discuss with your architect would be; budget, site plan, list of wants/needs.
If you have these items than you have a good start. Most people come in with a floor plan that almost meets their needs but needs some modifications. This is helpful in some cases and a hindrance in others. I like to have a clean slate and mold the client ideas into the house that they really want.
Before going to talk with an architect do a little research to get an idea of what an architect can do for you. There are many blogs, including mine, that can give you many ideas of what can be expected. From just doing some floor plans and elevations, to helping pick out the site, to finding a contractor, to construction observation and everything in between, there are many services that we as architects can provide.
9. What do you charge to do house plans?
This is the biggest question people ask me. All that depends on the level of services that the client chooses. The more services that the architect provides the less headaches the client has.
—
Thank you Steve for the insightful interview! I hope that helps someone in their quest in building their first home and finding the right architect for the job.
If you rent an apartment in Los Angeles, you may think that your landlord’s insurance will cover you in the event of a fire, storm or another disaster. And you’d be partly right: it would cover the actual building, including your unit. But your landlord’s policy won’t cover your personal belongings or liability if someone is injured in your apartment. For that, you need renters insurance.
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The good news? Renters insurance is fairly cheap. In California, the average annual cost for a renters policy is only $182. We’ve taken a hard look at the companies offering renters insurance in Los Angeles and, using our evidence-based SimpleScore methodology, have selected the best renters insurance companies in Los Angeles.
The best renters insurance in Los Angeles
Best coverage options – Allstate
A major player on the national insurance stage, Allstate’s size benefits you through expanded coverage options and maximum financial stability.
J.D. Power Rating
2/5
AM Best Rating
A+
Standard & Poor’s
AA-
SimpleScore
4.2 / 5.0
SimpleScore Allstate 4.2
Discounts 5
Coverage Options 5
Customer Satisfaction 2
Customer Satisfaction 5
Allstate is the second-largest writer of homeowners and renters policies in the U.S. and has the chops to offer a variety of coverage options that allow you to customize your policy. Coverage such as scheduled personal property — which covers your high-priced belongings beyond the limits of your personal property coverage — make it a good choice if you have expensive electronics, art or other valuables. Allstate can also cover you with additional umbrella insurance or if your apartment is in a flood zone, supplemental flood insurance.
Best customer service – Lemonade
Although Lemonade is the new kids on the block, it has quickly earned a reputation for quality service and customer satisfaction.
J.D. Power Rating
5/5
AM Best Rating
N/A
Standard & Poor’s
N/A
SimpleScore
3.6 / 5.0
SimpleScore Lemonade 3.6
Discounts 1
Coverage Options 3
Customer Satisfaction 5
Accessibility 5
Lemonade has become popular very quickly, thanks to its low rates and easy-to-manage website. Getting a quote or filing a claim takes just seconds, and the company says you may have your check almost instantly if the claim is approved. All that user-friendly management has made Lemonade the top choice in J.D. Power’s 2020 Overall Customer Satisfaction Ranking for renters, rating it above perennial favorites such as Erie Insurance and Allstate.
Best for military families – USAA
Low prices, excellent customer service and rock-solid financial stability all make USAA a top choice for military families.
J.D. Power Rating
5/5
AM Best Rating
A++
Standard & Poor’s
N/A
SimpleScore
3.8 / 5.0
SimpleScore USAA 3.8
Discounts 2
Coverage Options 5
Customer Satisfaction 5
Accessibility 4
USAA may be the best insurance company you’ve never heard of — unless you’re in the military, in which case you know the company has a reputation for quality service and coverage. USAA’s rental insurance is only available to active and retired military members and their families, but if you fit that demographic, it should be your first stop when looking for the best renters insurance in Los Angeles.
Best claims management – Stillwater
Expect friendly service and quick claims management for renters insurance claims to Stillwater.
J.D. Power Rating
N/A
AM Best Rating
A-
Standard & Poor’s
N/A
SimpleScore
4 / 5.0
SimpleScore Stillwater 4
Disconts 3
Coverage Options 5
Customer Satisfaction N/A
Accessibility 4
Stillwater offers competitive rates for renters insurance in Los Angeles, which comes with a reputation for solid claims management. The Better Business Bureau gives the company an A+ rating, with customer reviews averaging 3.8 out of 5 — reviewers note the friendliness and professionalism of their agents and claim representatives. Stillwater offers a nice range of discounts for policyholders, including one for those aged 60 and over.
Best local insurer – Mercury
Like the Roman god the company is named for, Mercury provides fast and effective service for all your rental insurance needs.
J.D. Power Rating
N/A
AM Best Rating
A
Standard & Poor’s
AA-
SimpleScore
4.3 / 5.0
SimpleScore Mercury 4.3
Disconts 3
Coverage Options 4
Customer Satisfaction N/A
Accessibility 5
Mercury has been providing insurance for California residents since 1961. The company has an A rating with both Fitch and AM Best, indicating that it is financially stable and well-managed, and it was named one of America’s most trustworthy companies by Forbes magazine. You’ll find comprehensive coverage at Mercury, with a handful of discounts to lower your rate, and optional coverages that protect you from identity theft and more.
America’s top-rated renters insurance
Policies starting at just $5/month
Sign up in seconds, claims paid in minutes
Zero hassle, zero paperwork
Average annual premium, by company
Company
Average annual premium
Allstate
$162-210
Lemonade
$202-285
USAA
$168-204
Stillwater
$189-212
Mercury
$175-218
Choosing your provider
Whether you choose a large national insurer, like Allstate, or a smaller regional carrier, Like Mercury, you want the best possible insurance. How can you be sure to get it? A little research is all it takes to give you the info you need to choose wisely. You can start by asking your neighbors and friends who they like and visit the website for any company you’re interested in to see how easy they make it to do business with them.
[ Read: What Does Renters Insurance Cover? ]
Local carrier
Pros
They have the feet-on-the-ground knowledge of your local area.
They understand state insurance laws and regulations.
Generally, smaller companies offer high customer service from friendly, local employees.
Cons
May not be able to offer the discounts or coverage options that are standard with larger companies.
Not rated by consumer agencies such as J.D. Powers or Consumer Reports.
Websites are often bare-bones, without the ability to get an online quote or file a claim.
National carrier
Pros
Easy to evaluate them with national assessors like J.D. Powers and AM Best.
Tend to have good websites with tons of functionality and easy access.
Have the ability to offer extensive discounts as well as coverage extras that allow you to customize your policy.
Cons
With tens of thousands of policyholders, you may not get the personalized attention you would with a smaller company.
[ Read: Best Renters Insurance Companies]
Los Angeles minimum insurance requirements
Unlike car insurance, renters insurance isn’t a legal requirement in California. You may find, however, that your landlord requires it. And even if they don’t, it’s a good idea to consider it seriously. Depending on where you live in the city, you may be at risk of theft, vandalism, or damage from natural sources like storms or earthquakes. Consider carefully how much money you would need if you had to start over again from scratch. That’s a good starting point when considering the amount of Los Angeles renters insurance to purchase.
Flood
Coverage for flooding isn’t included in most renters insurance policies. To find out if you’re at risk of flooding, the FEMA Flood Map Service Center lets you input your address and see if you’re in a flood zone. If you have any reason to believe your apartment might flood, ask your insurance agent about supplemental flood insurance, which can be purchased through the government’s National Flood Insurance Program.
Hurricane
Hurricanes rarely hit California’s coastal regions. In fact, a “California hurricane” is the name of a tropical cyclone that travels up the coast — and that’s happened only twice since 1900. If the remnants of a tropical storm impact your apartment, you would be covered for any damage that was caused by wind. Damage caused by the flooding that often accompanies hurricanes would not be covered by a policy unless you had supplemental flood insurance.
Earthquake
Standard renters insurance policies do not cover earthquake damage. But that doesn’t mean you need to stay unprotected. Most insurers feature an endorsement, or add-on, that will cover earthquakes. The California Earthquake Authority offers insurance for renters, and it’s easy to get an online quote at its website. Plan on spending roughly $150-250 for an earthquake policy — money that’s well spent if it buys you peace of mind.
[ Read: Best Cities to Buy Rental Property ]
How much does renters insurance cost in Los Angeles?
The rate you pay for renters insurance will be determined by a number of variables, including the amount of rent you’re paying, your deductible and the value of your belongings. The average cost of Los Angeles renters insurance is roughly $195 a year, though your rate will probably differ. This is more than the California average of $182 and considers the fact that Los Angeles real estate is on the pricey side.
Keep in mind that there are things you can do to lower your insurance rate. One major factor, for example, is your deductible. The lower your deductible, the higher your premium rate will be. If you can handle a higher deductible — say, $1,000 or even more — you will get the best rates for renters insurance in Los Angeles.
Los Angeles renters insurance FAQs
Although you are not required to have insurance by law, your landlord may want you to have a policy. Even if they don’t, it’s a good idea to ensure that your personal possessions can be replaced in the event of a fire or other disaster by having a policy in place.
Expect to pay a little more than the state average of $182 annually. Your own rate will be determined by multiple factors, including your apartment’s location, deductible, and the amount of coverage you’d like.
There’s no one best company for everyone — the company that gave your neighbor the lowest quote may not offer you the same. That said, the insurers we’ve discussed above are a good place to start. Or, if you prefer, head on over to our listing of the Best Renters Insurance Companie.
Too long, didn’t read?
If you rent an apartment in Los Angeles, you’ll want to consider renters insurance to protect you and your belongings in the event of a disaster. There are a number of national insurers who sell policies in Los Angeles, including Allstate, Lemonade and USAA. There are also some smaller, regional companies like Mercury and Stillwater that offer competitive pricing along with top-notch customer service. Any of these companies will have comprehensive coverage available that is customizable for your own needs, at a good price point.
We welcome your feedback on this article and would love to hear about your experience with the insurers we recommend. Contact us at [email protected] with comments or questions.
Kanye West vs. Taylor Swift, Jimmy Kimmel, the CEO of Zappos and the entire world…
These are some of the best throwdowns in history! Well, at least to me. 🙂
Since I’m a financial planner and blogger, I don’t usually get many opportunities to throwdown.
That is until today….. Introducing The Grow Your Dough Showdown.
Boom!
Look how serious I am about this (Warning: the following picture may be scary to young children):
If you haven’t guessed it yet, investing is kinda my thing. I love investing and equally love encouraging others to invest for themselves.
The purpose for this throwdown is the following four reasons
Show you how easy it is to get started investing
Show you the plethora of online options available
Show you different strategies that you can try
Erase any doubts that you can’t do this on your own. Because you can.
Sound like fun?
The Players
There are a ton of online platforms that exist nowadays that you can invest with. In fact, a quick Google search for “online brokers” yielded over 62 million results.
Yowzers!
I don’t have time to use all of them (I wish!), so I had to weed it down to the 7 that I thought would be the most interesting and applicable to all of you.
Wanting a diverse selection I’m including a few traditional online brokers (like TD Ameritrade, Ally Invest), a few unique ones (Prosper).
Note: Motif announced it will be shutting down on May 2020 and transferring to Folio Investments. In turn, Folio announced it will be discountinuing their services on July 31, 2021. You can now sign up through Interactive Brokers as part of the final transition.
Related:
Here’s a brief rundown of each online platform:
TD Ameritrade
TD Ameritrade is another strong contender, and I’m excited to try out their platform myself. They’ve got 125 brick-and-mortar locations, but again the idea here is to be able to open and manage your account from the house. (In your pajamas. Eating cookies in bed. No excuses.)
They also brag about how you can open a Roth IRA in 15 minutes or less. And y’all know how I feel about Roth IRAs.
The company charges $0 per stock and ETF trade which is in line with where we want to be. (The $49.99 mutual fund trades are a no-no in my book, so I’ll stay away from these in this account.)
Even better? No minimum deposit is required to open an account and there are zero account maintenance fees.
TradeKing
If I had to pick two words to describe Ally Invest it would be… low… cost. Seriously low costs.
The company recently merged with Zecco, another online discount brokerage firm, in order to fight some of the bigger names listed here. Both companies made a name for themselves by driving costs down as low as possible. They actually kind of remind me of Southwest Airlines or JetBlue with their crazy low prices that undercut the competition.
In short, TradeKing offers stock and ETF trades for just $4.95. That’s 50% lower than TD Ameritrade. If I were going to trade a lot this is the brokerage I’d pick in order to keep my costs down.
Lending Club
This is where we start getting into some alternative investment ideas. We leave behind the relatively safe and understood realm of stocks, bonds, ETFs and mutual funds and enter the personal loan marketplace.
With Lending Club (and Prosper, below) you aren’t investing in ownership of a company. Instead you are buying ownership of a loan issued to a borrower through the website in what is called peer-to-peer lending.
Borrowers use the site to do one of my favorite things ever: pay off high interest debts like credit cards. They’ll get a loan for 11% and pay off debts at 22% which is what I call a major win.
Then those wonderful investors like you and me get to enjoy the interest from that loan.
Diversification is key here, but I’ll be sharing some strategies on how to minimize risk and maximize returns with Lending Club.
Prosper
Prosper was the first peer-to-peer lending website to really take off. Lending Club has given them a run for their money, and I kind of feel like Prosper has taken a bit of a reputation hit.
So I’ll open an account with both P2P websites with the exact same starting capital amount and the same investing principals, and we’ll see where everything turns out.
Motif
Motif Investing has a completely different take on investing. Instead of investing in mutual funds, ETFs, or individual stocks the company lets you invest in something called motifs.
Motif investing is a grouping of up to 30 stocks based around a macro economic idea. The company looks for macro trends like “people are fixing their homes” and then asks the question of which companies would benefit. The answer to that is home supply stores, home furniture stores, and the like.
They then seek out companies that fit that mold and weight them differently after doing an analysis on the firms. So you might end up with 25% with Home Depot, 1% with Pier One, and 7% in Bed Bath and Beyond.
That’s a motif.
A motif can be up to 30 stocks, and what’s even better is you can add and subtract from the motif to give you a completely customized investment. It’s like building your own personal ETF.
Once you have a motif or build one yourself you can trade in and out of that motif for a $9.95 trade cost. Instead of having to invest in each individual company and tailor your trades toward the allocation you want, you can instead just invest and trade in one motif.
The ability to create what is essentially my own ETF fascinates me, so I’m going to give this a try, too.
Note: On April 17, 2020, Motif announced the platform would be shutting down and passing over to Folio Investments on May 20th. In turn, Folio Investments announced in December of 2020 that it too, will be shutting its own doors around July 2021, after which it will transfer all accounts to Interactive Brokers.
Betterment
Betterment believes that investing is too complicated. Figuring out what asset allocation is, how and when to rebalance a portfolio, or just understanding which mutual fund to select can be overwhelming especially when you first start out.
Betterment Investing does away with that and instead offers you two investment buckets and a turn dial of risk. One bucket is index ETFs of stocks, the other is index ETFs of bonds. The risk dial let’s you determine what kind of a split you want between these two investments: 50/50, 75/25, or some other combination in between.
In short it is simple and really easy to get started with.
Tracking Progress
To make it easy to track the performance we’re using Personal Capital to track each outfit.
How It’s Going to Work
I’m funding each account with $1,000. Starting January 1st (or the 1st day the market opens), I’m going to invest the money using various strategies. We’ll then provide ongoing updates so you can see how I’m doing.
To make this more fun, I’ve solicited my wife to join me on this. Here’s how it’s going to breakdown:
TD Ameritrade: I’m going to pick some stock so you can see how awful awesome my stock picking isn’t is. Remember this is the same guy that lost $5,000 on a penny stock.
Ally Invest: Picking some blue chip dividend stocks and letting them ride
Motif: Selecting a “motiff” that I believe is a good one. I’m not even sure what Motiff means so this should be interesting.
Prosper: Going with the most aggressive portfolio with both. May the best P2P lender win!
Those are the online players that I’ll be utilizing for the year long experiment. We’ll be using the S&P500 as a relative benchmark. Timing wise this experiment might be the worse since we’re fluttering with all time highs in the market. To address that…..
A quick disclaimer: as a financial planner I need to say that investing should always be considered a long term strategy. This throwdown is meant to be both fun and education in nature. This throwdown is not and should not be treated as investment advice. Please see the bottom of the post for a more in depth disclaimer.
The Throwdown Just Got Serious
In true throwdown fashion, this wouldn’t be fun unless I had some other people throwdown with me, would it?
I’ve recruited some of my personal blogger friends to join in on the action with me. They have all agreed to open an account with a online broker of their choosing.
They will then begin investing the first day of the trading year and then write a post on why they invested the way they did.
They will also report back with performance results on how their $1,000 portfolio is doing.
The crew joining me for the ride:
We have some good diversity with the crew so I’m pumped to get this going.
Wanna Join?
If you’re interested in throwing down with you, you still have time. Here’s the rules that we have:
Open a new broker account of your choosing and deposit $1,000.
On January 1st (anytime around the 1st), you invest anyway you want (stocks, ETF’s, mutual funds, whatever). No margin allowed.
You can buy/sell as much as you want.
You cannot add any more than the original $1,000.
Write a blog post that publicly shares what you bought.
Track your return and report back to me so I can keep track of everyone that’s taking part.
Just contact me and I’ll get you added to the list.
Next Steps
At the beginning of the year, I’ll be publishing a mega post that outlines everything I’ve bought with each account. I’ll have screenshots showing you everything.
In fact, this will be probably be the most in depth post I’ve ever completed on the blog and I can’t wait!
Staty tuned…..
P.S.
In case I didn’t make this clear above: INVESTING SHOULD ALWAYS BE A LONG TERM STRATEGY.
Hope you caught that. 😉
****
Disclaimer:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Content posted by third parties on this site is screened in order to protect clients’ privacy and comply with regulatory requirements. Content containing sensitive personal information, inappropriate language, information about specific investments, misleading information, information about other companies or websites, or information related to litigation will be removed. Content posted by third-parties on this site remains the responsibility of the party posting the content and is not adopted or endorsed by GoodFinancialCents.com or Alliance Wealth Management, LLC. Any opinions or statements posted by third parties are their own and may not be representative of the experience of others and are not indicative of future performance or success. Third party content on this site does not reflect the views of GoodFinancialCents.com and have not been reviewed by the principal owner, Jeff Rose, as to accuracy or completeness.
Have you ever thought about doing a cash-out refinance on your home for investment?
A lot of people have.
I received exactly this question from a reader.
Reader Question
Hi Jeff,
Thanks for your videos and educational websites!
I know you are very busy and this may a simple answer so thank you if can take the time to answer!
Would you ever consider approving someone to taking a cash-out refi on the equity in their house to invest?
I have been approved for a VA 100% LTV cash-out refi at 4% and would give me 100k to play with.
With average ROI on peer to peer, Betterment, Fundrise, and S&P 500 index funds being 6-8%, it seems like this type of leveraging would work. However, this is my primary residence and there is an obvious risk. I could also use the 100k to help buy another property here in Las Vegas, using some of the 100k for a down and rent out the property.
BTW, I would be debt free other than the mortgage, have 50k available from a 401k loan if needed for an emergency, but with no savings. I have been told this is crazy, but some articles on leveraging seem otherwise as mortgages at low rates are good at fighting inflation, so I guess I am not sure how crazy this really is.
I would greatly appreciate a response and maybe an article or video covering this topic as I am sure there are others out there who may have the same questions.
My Thoughts
But rather than answering the question directly, I’m going to present the pros and cons of the strategy.
At the end, I’ll give my opinion.
The Pros of a Cash-Out Refinance on Your Home For Investment Purposes
The reader reports he’s been told the idea is crazy.
But it’s not without a few definite advantages.
Locking in a Very Low-Interest Rate
The 4% interest rate is certainly attractive.
It will be very difficult for the reader to borrow money at such a low rate from virtually any other source. And with rate inching up, he may be locking into the best rates for a very long time.
Even better, a home mortgage is very stable debt. He can lock in both the rate and the monthly payment for the length of the loan – presumably 30 years. A $100,000 loan at 4% would produce a payment of just $477 per month. That’s little more than a car payment. And it would give him access to $100,000 investment capital.
As long as he has both the income and job stability needed to carry the payment, the loan itself will be fairly low risk.
So far, so good!
The Leverage Factor
Let’s use an S&P 500 index fund as an example here.
The average annual rate of return on the index has been right around 10%.
Now that’s not the return year in, year out. But it is the average based on nearly 100 years.
If the reader can borrow $100,000 at 4%, and invest it and an average rate of return of 10%, he’ll have a net annual return of 6%.
(Actually, the spread is better than that, because as the loan amortizes, the interest being paid on it disappears.)
If the reader invests $100,000 in an S&P 500 index fund averaging 10% per year for the next 30 years, he’ll have $1,744,937.That gives the reader a better than 17 to 1 return on his borrowed investment.
If everything goes as planned, he’ll be a millionaire using the cash-out equity strategy.
That’s hard to argue against.
Rising Investment, Declining Debt
This adds an entire dimension to the strategy. Not only can the reader invest his way into millionaire status by doing a cash-out refinance for investment purposes, but at the end of 30 years, his mortgage is paid in full, and he’s once again in a debt-free home.
Not only does his investment grow to over $1 million, but over the 30 year term of the mortgage, the loan self-amortizes down to zero.
What could possibly go wrong?
That’s what we’re going to talk about next.
The Cons of a Cash-out Refinance on Your Home
This is where the prospect of doing a cash-out refinance on your home for investment purposes gets interesting.
Or more to the point, where it gets downright risky.
There are several risk factors the strategy creates.
Closing Costs and the VA Funding Fee
One of the major disadvantages with taking a new first mortgage are the closing costs involved.
Whenever you do a refinance, you’ll typically pay anywhere from 2% to 4% of the loan amount in closing costs.
This will include:
origination fees
application fee
attorney fee
appraisal
title search
title insurance
mortgage taxes
and about a dozen other expenses.
If the reader were to do a refinance for $100,000, he would only receive between $96,000 and $98,000 in cash.
Then there’s the VA Funding Fee.
This is a mortgage insurance premium charged on most VA loans at the time of closing. It’s usually added on top of the new loan amount.
The VA funding fee is between 2.15% to 3.30% of the new mortgage amount.
Were the reader to take a $100,000 mortgage, and the VA funding fee set at 2.5%, he’d owe $102,500.
Now… let’s combine the effects of both the closing costs in the VA funding fee. Let’s assume the closing costs are 3%.
The borrower will receive a net of $97,000 in cash. But he will owe $102,500. That is, he will pay $102,500 for the privilege of borrowing $97,000. That’s $5,500, which is nearly 5.7% of the cash proceeds!
Even if the reader gets a very low-interest rate on the new mortgage, he’s still paid a steep price for the loan.
From an investment standpoint, he’s starting out with a nearly 6% loss on his money!
I can’t recommend taking a guaranteed loss – upfront – for the purpose of pursuing uncertain returns.
It means you’re in a losing position from the very beginning.
The Interest on the Mortgage May No Longer be Tax Deductible
The Tax Cuts and Jobs Act was passed in December 2017, and applies to all activity from January 1, 2018, forward.
There are some changes in the tax law which were not favorable to real estate lending.
Under the previous tax law, a homeowner could deduct the interest paid on a mortgage of up to $1 million, if that money was used to build, acquire or renovate the home. They can also deduct interest on up to $100,000 of cash-out proceeds used for purposes unrelated to the home.
That could include paying off high interest credit card debts, paying for a child’s college education, investing, or even buying a new car.
But it looks like that’s changed under the new tax law.
Borrowing up $100,000 for purposes unrelated to your home, and deducting the interest looks to have been specifically eliminated by the new law.
It’s now widely assumed that cash-out equity on a new first mortgage is also no longer deductible.
Now the law is still brand-new and subject to both interpretation and even revision. But that’s where it stands right now.
There may be an even bigger obstacle that makes the cash-out interest deduction meaningless, anyway.
Under the new tax law, the standard deduction increases to $12,000 (from $6,350 under the previous law) for single taxpayers, and to $24,000 (up from $12,700 under the previous law) for married couples filing jointly. (Don’t get too excited – personal exemptions are eliminated, and combined with the standard deduction to create a higher limit.)
The long and short of it is with the higher standard deduction levels, it’s much less likely mortgage interest will be deductible anyway. Especially on the loan amount as low as $100,000, and no more than $4,000 in interest paid.
Using the Funds to Invest in Robo-advisors, the S&P 500 or Peer-to-Peer Investments (P2P)
The reader is correct that these investments have been providing steady returns, well in excess of the 4% he’ll be paying on a cash-out refinance.
In theory at least, if he can borrow at 4%, and invest at say, 10%, it’s a no-brainer. He’ll be getting a 6% annual return for doing virtually nothing. It sounds absolutely perfect.
But as the saying goes, if it looks too good to be true, it probably is.
I often recommend all of these investments, but not when debt is used to acquire them.
That changes the whole game.
Whenever you’re thinking about investing, you always must consider the risks involved.
The last nine years have somewhat distorted the traditional view of risk.
For example, the stock market has been up nine years in a row, without so much as a correction of greater than 10%. It’s easy to see why people might think the returns are automatic.
But they’re not.
Yes, it may have been, for the past nine years. But if you look back further, that certainly hasn’t been the case.
The market has gone up and down, and while it’s true that you come out ahead as long as you hold out for the long term, the debt situation changes the picture.
Matching a Certain Liability with Uncertain Investment Returns
Since he’ll be investing in the market with 100% borrowed funds, any losses will be magnified.
Something on the order of a 50% crash in stock prices, like what happened during the Dot.com Bust and the Financial Meltdown, could see the reader lose $50,000 in a similar crash.
But he’ll still owe $100,000 on his home.
This is where human emotion comes into the picture. Since he’s playing with borrowed money, there’s a good chance he’ll panic-sell his investments after taking that kind of loss.
If he does, his loss becomes permanent – and so does his debt.
The same will be true if he invests with a robo-advisor, or in P2P loans.
Robo-advisor returns are every bit as tied to the stock market as an S&P 500 index fund is. And P2P loan investments are not risk-free.
In fact, since most P2P investing and lending has taken place only since the Financial Meltdown, it’s not certain how they’ll perform should a similar crisis take place.
None of this is nearly as much a problem with straight-up investing based on saved capital.
But if your investment capital is coming from debt – especially 100% – it can’t be ignored.
It doesn’t make sense to match a certain liability with uncertain investment gains.
Using the Funds to Buy Investment Property in Las Vegas
In a lot of ways, this looks like the most risky investment play offered by the reader.
On the surface, it sounds almost logical – the reader will be borrowing against real estate, to buy more real estate. That seems to make a lot of sense.
But if we dig a little deeper, the Las Vegas market in particular was one of the worst hit in the last recession.
Peak-to-trough, property values fell on the order of 50%, between 2008 in 2012. Las Vegas was often referred to as the “foreclosure capital of America”.
I’m not implying the Las Vegas market is doomed to see this outcome again.
But the chart below from Zillow.com shows a potentially scary development:
The upside down U formation of the chart shows that current property values have once again reached peak levels.
That brings the question – which we cannot answer – what’s different this time? If prices collapsed after the last peak, there’s no guarantee it can’t happen again.
Once again, I’m not predicting that outcome.
But if you’re planning to invest in the Las Vegas market with 100% debt, it can’t be ignored either. In the last market crash, property values didn’t just decline – a lot of properties became downright unsalable at any price.
The nightmare scenario here would be a repeat of the 2009-2012 downturn, with the reader losing 100% of his investment. At the same time, he’ll still have the 100% loan on his home. Which at that point, might be more than the house is worth, creating a double jeopardy trap.
Once again, the idea sounds good in theory, and certainly makes sense against the recent run-up in prices.
But the “doomsday scenario” has to be considered, especially when you’re investing with that much leverage.
Putting Your Home at Risk
While I generally recommend against using debt for investment purposes, I have an even bigger problem when the source of the debt is the family homestead.
Borrowing money for investment purposes is always risky.
But when your home is the collateral for the loan, the risk is double. You not only have the risk that the investments you’re making may go sour, but also that you’ll put your home at risk in a losing venture.
Let’s say he invests the full $100,000. But due to leverage, the net value of that investment has declined to $25,000 in five years. That’s bad enough. But he’ll still owe $100,000 on his home.
And since it’s a 100% loan, his home is 100% at risk. The investment strategy didn’t pan out, but he’s still stuck with the liability.
It’ll be a double whammy if the money is used for the purchase of an investment property in your home market.
For example, should the Las Vegas market take a hit similar to what it did during the Financial Meltdown, he’ll not only lose equity in the investment property, but also in his home.
He could end up in a situation where he has negative equity in both the investment property and his home. That’s not just a bad investment – that’s a certified nightmare!
It could even lead him into bankruptcy court, or foreclosures on two properties – the primary residence and the investment property. The reader’s credit would pretty much be toast for the next 10 years.
Right now, he has zero risk on his home.
But if he does the 100% cash out, he’ll convert that zero risk to 100% risk. Given that the house is needed as a place to live, this is not a risk worth taking.
Final Thoughs
Can you tell that I don’t have a warm, fuzzy feeling about the strategy? I think you figure it out by the greater emphasis on Cons than on Pros where I come down on this question.
I think it’s an excellent idea in theory, but there’s just too much that can go wrong with it.
There are three other factors that lead me to believe this is probably not a good idea:
1. The Lack of Other Savings
The reader reports that he has “…50k available from a 401k loan if needed for emergency, but with no savings.”For me, that’s an instant red flag. Kudos to him for having no other debt, but the absence of savings – other than what he can borrow against his 401(k) plan – is setting off alarm bells.
To take on this kind of high risk investment scheme without a source of ready cash, exaggerates all of the risks.
Sure, he may be able to take a loan against his 401(k), but that creates yet another liability.
That that will need to be repaid, and it will become a lien against his only remaining unencumbered asset (the 401k).
If he has to borrow money to stay liquid during a crisis, it’s just a question of time before the strategy collapses.
2. The Reader’s Risk Tolerance
We have no idea what the reader’s risk tolerance is.
That’s important, especially when you’re constructing a complex investment strategy.
While it might seem the very fact he’s contemplating this is an indication he has a high risk tolerance, we can’t be certain. He’s basing his projections on optimistic outcomes – that the investments he makes with the borrowed money will produce positive returns.
What we don’t know, and what I ask the reader to consider, is how he would handle a big reversal.
For example, if he goes ahead with the loan, invests the money, and finds himself down 20% or 30% within the first couple of years, will he be able to sleep at night? Or will he instead contemplate an early exit strategy, that will leave him in a permanent weakened financial state?
These are real risks that investors face in the real world. At times, you will lose money. And how you react to that outcome can determine the success or failure of the strategy.
This is definitely a high risk/high reward plan. Unless he has the risk tolerance to handle it, it’s best not to even start.
On the flip side, just because you have the risk tolerance, doesn’t guarantee success.
3. Buying at a Market Peak
I don’t know who said it, but when asked where the market would go, his response was “The market will go up. And the market will go down”.
That’s a fact, and one that every investor has to accept.
This isn’t about market timing strategies, but about recognizing reality.
Here’s the problem: both the financial markets and real estate have been moving up steadily for the past nine years (but maybe a little bit less for real estate).
Sooner or later, all markets reverse. These markets will too.
I’m worried that the reader might be borrowing money to leverage investing at what could turn out to be the absolute worst time.
Ironically, a borrow-to-invest strategy is a lot less risky after market crashes.
But at that point, everyone’s too scared, and no one wants to do it. It’s only at market peaks, when people believe there’s no risk in the investment markets, that they think seriously about things like 100% home loans for investments.
In the end, the reader’s strategy could be a very good idea, but with very bad timing.
Worst Case Scenario: The Reader Loses His Home in Foreclosure
This is the one that seals the deal against for me. Doing a cash out refinance on your home for investment is definitely a high-risk strategy.
Heads you’re a millionaire, tails you’re homeless.
That’s not just risk, it’s serious risk. We don’t know if the reader also has a family.
I couldn’t recommend anyone with a family putting themselves in that position, even if the payoff were that high.
Based on the facts supplied by the reader, we’re looking at 100+% leverage – the 100% loan on his house, then additional (401k) debt if he runs into cash flow problems. That’s the kind of debt that will either make you rich, or lead you to the poor house.
Given that the reader has a debt-free home, no non-housing debt, and we can guess at least $100,000 in his 401(k), he’s in a pretty solid situation right now. Taking a 100% loan against his house, and relying on a 401(k) loan for emergencies, could change that situation in no more than a year or two.
By Peter Anderson21 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited January 21, 2019.
My wife and I have always enjoyed watching movies and TV shows at home. You could say we’re movie buffs.
We’ve got a nice finished basement in our home with a big sectional couch facing our home theater where we can lie in front of the TV and watch to our heart’s content. It’s one of our favorite places to be, especially on the weekends.
We love having movie marathons or as we’ve recently done – TV show marathons (We’re watching all 5 seasons of Lost in a row right now).
It’s safe to say that we spend a lot of time down there.
For quite some time I’ve wanted to upgrade our TV in our basement. The couch is quite a ways from the TV, and while we do have a nice 37″ TV down there, I’ve always wanted a big-screen TV to really make it a true home theater. My TV of choice for our basement has been a 50″ Plasma TV as it’s big enough to be of substantial viewing size, even if we’re 10 or more feet from the TV. It’s also small enough that it won’t be a problem getting it down the tight staircase to our basement.
The only reason I haven’t pulled the trigger on a big new TV up until now is that buying a new TV is extremely expensive. Even up until a year or so ago 50″ plasma TVs could run you anywhere from $1000-2000 or more. Being frugal in nature as I am I had no desire to spend that much money on a television. We set a price point we wanted to pay, and saved up that cash in our online savings account so we would be ready when we did find a deal.
Finding A Deal Isn’t As Hard As You Might Think
While I didn’t want to spend more than a thousand dollars on a TV, I didn’t give up on the dream of having a big screen TV in our basement. I just decided to get creative and see if we could find the TV we were looking for, at a discount. It isn’t as hard to do as you might think, and you can do it too if you’re looking to purchase a high ticket item. It can save you a lot of money. Here’s the process I usually follow to save my family hundreds of dollars on our big purchases.
Research the item that you’re looking for at many different stores: Look around at a ton of different local and online stores to find a good price on the item you’re looking for. Often different stores will have the same item for vastly different prices. The internet has made this process a whole lot easier, as well. You can search through sites like CamelCamelCamel, froogle.com, pricewatch.com, pricegrabber.com and a ton of other helpful sites. Keep searching until you find a good price. Sometime this may take a while, but be patient. (Don’t settle for just a good price. Check out reviews on the item you’re buying to make sure it is worth your money!)
Once you’ve found a good price, see if they offer additional discounts for buying the TV online: If you’ve found the item you’re looking for at a bricks and mortar store location, check out the company’s website or online store. Often you’ll find that the online price is a lot lower than the in-store price. Often buying from a website (like amazon.com) means you won’t have to pay taxes as well.
See if any manufacturers are offering mail in rebates or discounts: Even if you’ve found an item on sale sometimes the manufacturer or the store will have additional mail in rebates and discounts that you can take advantage of. Search the store’s “rebates” section, or do a google search to see if you’re missing anything.
Find store coupons by searching online: When buying online (and sometimes even in-store) you can find store coupons to save an additional percentage off of your purchase. Often times the discounts are stackable on top of sale prices. For example, when we recently bought a new home computer we saved 10% off the price by buying a coupon code off of Ebay for $5. Using the coupon saved us $50. Find coupon codes and physical coupons through Ebay, retailmenot.com and other coupon websites.
Find other cash back discounts online: A lot of online stores, and some physical stores have cash back programs to save you extra money on your purchases. Sites like Honey and Rakuten.com have cash back programs that will give you cash back on your purchase of anywhere from 1% up to 10% or more when you buy through them. Each store has specific savings that you can receive and they vary widely. My new favorite cash back site, however, is the bing.com cash back program. It seems that right now their cash back percentages are extremely high for some stores. For example shopping at sears.com you can save anywhere from 4%-32% off your purchase price in cash back savings. The one caveat with the cash back programs is that often you have to wait a while to cash out your savings, or reach a certain payout level to get cash back. On larger purchases this usually isn’t a problem, however.
Find other non-cash discounts or incentives: You can often find non cash rebates or incentives to buy certain items. Gas cards, gift certificates and other incentives are frequently given out by mail in rebate. Do some searches of the site’s rebate section or of online rebate sites to see if there is anything available.
Pick up your item to save on shipping: You an often pick up an item purchased online instead of having it shipped. Sometimes this can save you a good chunk of change if you bought a large or heavy item like a TV.
As you can see, if you spend a little bit of time researching the item you’re looking for, and finding miscellaneous discounts and rebates, you can find some great deals on a lot of things you buy.
Getting A Deal On Our New TV
It’s easy enough for me to say that you can easily find a deal, but it’s another thing to actually do it in practice. So I thought I would share our experience in buying our new 50″ plasma TV, and how we managed to get it for a lot less than other people were paying for it.
We were searching for a 50″ plasma television. We searched prices across a variety of stores and found that we would be able to get one that fit our needs for between $850 and $1000. Several stores were having sales reducing the prices of their TVs below $1000. After narrowing our options down to a few models we settled on one particular TV at Sears. The TV was normally $999, but was currently on sale through the weekend because of a sale on TVs 50″ and bigger. So right off the bat the sale slashed the price to $799.99. Already we’re saving $200 off the price.
Next we found that the TV was cut in price by an additional 10% because there was another special sale on LG brand TVs. The savings were stackable, so that means we saved another $80 off the price. Total price before taxes was $719.99, about $770 after taxes.
This is probably where most people stop the process and just buy the TV because $770 is a pretty good deal on a TV of this size. But not me. I want to find where else I can save. After doing a search online for further coupon or rebate savings I found that the Bing.com search engine now has a cash back shopping tool that allows you to save money when you shop at certain stores. I found that Sears was one of the stores and incredibly they currently had a deal where you could save an additional 16% in cash back when you shop at sears.com through their sponsored link. I jumped at that opportunity, which saved us an additional $115 in cash back rebates. That cuts the TV price to $655. That’s an amazing deal on this TV by any account. But i wasn’t done yet.
One last thing that i decided to try before jumping on this deal was to see if there were any special rebates being offered by LG or Sears for purchasing this TV. I found another rebate online that gave people who purchased a 50″ or 60″ LG plasma TV a pre-paid discover gas card. For my particular TV you could get a $75 gas card by mail in rebate from LG. We buy gas anyways, so getting a $75 gas card is just another $75 in savings! Cut that off our price and you have a final price on this TV of $580.
I found that I could also save another 5% off on this TV if I opened a Sears credit card, but I didn’t want to do that. (Left another $30-40 in savings on the table there)
So once again, here’s how it broke down:
$999.99 – Regular Price -$200 50″+ TV sale discount -$80 extra online discount for LG brand TVs $719.99 final price. (add tax and it was $770)
Other “found” discounts -$115 (16% discount for buying through bing.com search engine) -$75 Special LG TV buyer gas card rebate (it’s a discover gas card, but we buy gas anyway so we’ll still be saving this money)
Final price after all discounts, rebates, cash back and gas cards: $580 with tax included- $470 in discounts!
So we’re extremely happy with the deal we got on this TV. We ended up saving almost $500 off of the retail price just by doing a little bit extra leg work and internet searching. You can do the same thing next time you buy something expensive!
Have you recently made a good purchase where you saved some extra money by doing the extra legwork? Tell us your story and your own shopping savings tips in the comments!