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The proactive homeowner: How to stay on top of home improvement

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Yesterday was an exciting day at the Rothwards household! After three weeks of demolition and construction, we installed our new hot tub.

It took six men an hour of maneuvering before we managed to set the spa into place…but we did it. And we didn’t break anything. Now it’s a matter of completing the decking and roofing, then Kim and I will be able to enjoy our remodeled outdoor oasis!

Installing our hot tub

We’re eager for construction to be over. Since buying our “English cottage” last summer, we’ve poured tons of money and time into a variety of renovations. It’s been a non-stop construction zone.

You see, during the seventeen years the previous owners lived here, they performed very little maintenance and upkeep on the home and property. When we had the place inspected before purchase, the inspector raised a lot of concerns:

Warning from inspection report

The inspection report was so dire that Kim and I almost passed on the purchase.

After we did decide to buy the place, I vowed that I’d be a proactive homeowner. Instead of allowing things to fall into a state of disrepair, I wanted to fix everything that was broken and then stay on top of home improvement in the years to come.

Today I want to share four specific actions I’ve taken to try to be a proactive homeowner.

Develop a Schedule for Regular Maintenance

A great place to start with home improvement is to find (or create) a regular maintenance schedule. While you’ll definitely have projects specific to your own house (about which more in a moment), there are certain chores that ought to be done on a routine basis.

Here in Oregon, for instance, gutters should be cleaned both at the start and the end of the rainy season (late October and late April). Spring is a good time to wash windows, inside and out. It’s also time to clean and set up outdoor furniture. During the summer, I like to trim trees and shrubs back from the side of the house. Fall is a good time to inspect the attic and crawlspace.

To create our maintenance schedule, I started with this home maintenance checklist [Google Doc] based on an article from The Art of Manliness. I tweaked the document to fit our needs, adding and removing things specific to our home.

I’ve also discovered that it’s useful to add certain recurring tasks to my digital calendar. (I’m never going to remember to change the furnace filter unless I make an appointment with myself to do so.)

Create a House-Specific To-Do List

House To-Do ListWhile it’s helpful to have a general maintenance schedule to remind you of regular tasks, it’s even more important to keep an up-to-date to-do list that’s specific to your home.

I keep our to-do list in Basecamp, a web-based project-management tool that I already use for other projects. (I’ve heard good things about Asana too, although I’ve never used it.) You might keep your to-do list in a spreadsheet or even a spiral notebook.

For each room in the house and area of the property, I keep a separate list of tasks that need to be completed. To start, I populated these lists in two ways:

  • I went through the pre-purchase inspection report and added every problem the inspector had flagged. Some of the stuff he noted was minor. In these cases, I made sure to mark the task as “low priority”.
  • Kim and I made a slow tour of our home and yard in order to catalog other projects we wanted to complete. For example, every room in the house needs new paint. Every corner of the yard needs to be weeded and re-landscaped.

We refer to our to-do list constantly. Whenever we have a free weekend for home maintenance (as we did last weekend…and this coming weekend), we check the list to see which tasks are most pressing and/or most appealing.

Finally — and this is important (if somewhat obvious) — whenever we find a new project that needs to be tackled, we add it to our list. By keeping our home projects to-do list up to date, needed maintenance should never be neglected.

Keep a Home Journal

Before we even moved in to our current home, I started keeping a “home journal” to log everything we learned about the place. Honestly, it’s one of the smartest things I’ve ever done.

I keep this home journal in a Microsoft Word document. (I’ve uploaded an edited version to Google Docs for you all to look at.) Every time we do major work on the house, I make an entry in the journal. Every time we discover something new about the property, I make a note in the journal.

Here’s a typical entry from my home journal:

Our Home Journal

Each note includes a date and the type of work done, then a narrative description giving more detail. In some cases, I document costs. Most of the time, however, we keep receipts and invoices and other documentation in a dedicated Dropbox folder, which is where the home journal lives too.

This journal is mostly meant for me. From past experience, I know that I’ll forget what work we did when, which usually leads to a frustrating search for documentation. With my home journal, I have all of the needed info in one place.

This home journal has a secondary purpose. I want to use it as documentation if/when Kim and I decide to sell this place. I want to be able to show prospective buyers all of the upgrades we made to the house. (Note that this benefit is purely theoretical. When we sold our motorhome recently, we learned that many buyers view work like this as evidence there’s something wrong with what you’re selling.)

On a similar note, it’s smart to perform periodic video tours of your home and property. These are useful not only for you but also in the event of an insured loss, such as robbery or house fire. When shopping for a house, I film every home I tour. After buying and moving into a new place, I do another pass through with the camera. Going forward, I try to do a video tour about once per year.

Build a List of Trusted Contractors

Over the past fifteen years, I’ve learned that contractors come in all kinds of flavors. Some are cheap. Some are fast. Some do quality work. I’ve also learned that it’s impossible to find a contractor that possesses all three traits. Two of them? Sure. But not all three. (In other words, if a contractor is fast and high-quality, she’s going to be expensive.)

When we started looking for homes last Spring, my friend Emma Pattee — who has experience buying and remodeling rental properties — suggested that I start a spreadsheet to list trusted contractors. “My husband and I have done this for a while now,” she told me, “and it really helps. When we find somebody we like to work with (or think we might want to work with in the future), we add them to the spreadsheet. I’ll send you our current list, if you’d like.”

Kim and I have referenced Emma’s spreadsheet to find plumbers and electricians. We’ve also started building our own list of contractors we trust. (For instance, we love the guy who did our carport. We hired him to do our back deck project too. He’s not cheap, but his quality is amazing!)

Even with a list of trusted contractors, it’s important to follow standard advice when hiring folks to work on your place:

  • Get price quotes from multiple sources. It’s smart to know what your options are even if you ultimately don’t go with the lowest bidder.
  • Seek referrals. When you’re ready to hire somebody for a project, ask your friends (Facebook is good for this) and contractors you’ve liked in the past. I’ve found that good contractors know who the other good contractors are, and they’re happy to recommend them.
  • Ask for references. If you haven’t worked with a contractor before, request contact info from past clients. These references will be cherry picked, of course, but they’ll still give you some idea of what the company is like.
  • Check reviews on Angie’s List (or similar sites). View these reviews through skeptical eyes, but check to see if there’s some sort of pattern. I’ve been able to rule out potential contractors, for instance, because of multiple reviews complaining about lack of communication.

Searching for new contractors can be a little scary. You don’t want to make a mistake by choosing somebody who’s too expensive or whose work is shoddy. (Or, worse, both at once!) By maintaining a list of trusted vendors, you can reduce some of the trepidation. Plus, the list is something useful you can share with friends and family!

There’s No Place Like Home

I also think it’s smart to set aside money for future repairs and improvements. One common financial rule of thumb is to contribute 1% of your home’s value to a dedicated “home maintenance” savings account each year. After Kim and I are done with this initial round of work, we’ll probably do so.

The deck and hot tub project should be our final large home-improvement expense for many, many years. During the past eleven months, we’ve repaired and/or replaced every major system in this house. Sure, there’s still some small stuff that needs done — we want to paint each room, for instance — but these jobs are minor. They’re things we can do ourselves for cheap.

Honestly, I’m looking forward to some peace and quiet. It’s been exhausting to live and work in a construction zone!

First, though, I’m going to have our house inspected again. After plowing so many resources into repairing and renovating this place, I want to have a neutral third party go back through to make sure we’ve addressed all of the important issues — and that these issues have been handled correctly.

As frustrating (and expensive) as the past year has been, we don’t regret buying this house. We love it here. We want to continue loving this place, which means we’re going to do our best to stay on top of maintenance and home improvements. We’re going to do our best to be proactive homeowners.

The post The proactive homeowner: How to stay on top of home improvement appeared first on Get Rich Slowly.

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amijangos
24 days ago
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This is something Ibwant to do.
Columbus, Indiana
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The Modern Wealth Index

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Charles Schwab has released its 2018 Modern Wealth Index, a survey of the saving and investing habits of 1000 Americans. Here’s how the company describes its methodology:

The Modern Wealth Index…is based on Schwab’s Investing Principles and composed of over 50 financial behaviors and attitudes. Each behavior or attitude is assigned a varying amount of points depending on its importance, out of a total of 100 possible points…Quotas were set so that the sample is as demographically representative as possible.

This survey divides respondents into two categories: those with a written financial plan and those without a written financial plan. About 25% of people are “Planners”; the rest are “Non-Planners”.

Unsurprisingly, the survey found that Planners are more likely to be in control of their finances. For instance, 75% of Planners pay their bill and still manage to save each month. Only 33% of Non-Planners are able to do this. Almost two-thirds of Planners have an emergency fund; less than one-quarter of Non-Planners have set money aside for a rainy day.

And the higher a person’s score in Schwab’s Modern Wealth Index, the more likely they are to have a written plan!

If having a written financial plan is so strongly correlated with desirable monetary outcomes, then why don’t more people do it? For most folks, it’s because they don’t think they have enough money to warrant one.

Roadblocks to financial planning

Personally, I’ve never had a written financial plan, although I do see their value. If I were to start again as an adult today, I’d probably create one.

I thought that the most interesting part of the Schwab survey was how participants viewed wealth. One question asked participants about their personal definition of wealth. What is wealth? Two of the top three answers weren’t about money at all:

What does wealth mean to you?

Related to yesterday’s article about the relationship between time, money, and happiness, Americans say the things that make them feel wealthiest in their day-to-day lives are having personal free time and spending time with family. (When asked to focus on the numbers, respondents said they needed $1.4 million on average to be “comfortable”, or $2.4 million to really be wealthy.)

Want to see where you fit on Schwab’s Modern Wealth Index? You can take a 16-question quiz at their website. But note that some questions aren’t really applicable to folks who have already retired or achieved Financial Independence. Also note that you’ll have to enter your contact info in order to actually see your results. (I took the quiz, but didn’t see my results because I hate giving out personal info.)

Update! I just received an email from the Schwab PR team. As Rita noted in the comments below, it is possible to see your score without supplying contact info. When the contact info form appears on the screen, just leave everything blank and click the button below to move on to the numbers. I scored an 83. I think that’s largely because I didn’t know how to answer the income questions since I don’t really have an income anymore.

Wealth Index Score

The post The Modern Wealth Index appeared first on Get Rich Slowly.

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amijangos
34 days ago
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My Score was 87!
Columbus, Indiana
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Managing Money With Your Partner When You Earn More

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amijangos
34 days ago
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Really interesting the concept of the three accounts.
Columbus, Indiana
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Is it better to rent or buy? How to know when renting a home makes sense

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I’ve been a homeowner for 24 of the last 25 years. Based on this, you might think I’m an advocate of homeownership over renting. That’s not the case. The older I get, the more I appreciate there’s no correct answer in the perennial “is it better to rent or buy?” debate. Sometimes buying a home makes the most sense. Sometimes renting is the smarter choice.

In an editorial in the June 2007 issue of Kiplinger’s Personal Finance, Knight Kiplinger wrote, “It often costs less to rent. The annual cost of owning a property, be it a house or a condo, is usually greater than the cost of renting, after taxes.” I agree.

Today, let’s look at a handful of ways to evaluate the rent versus buy decision from a financial perspective.

The Price-to-Rent Ratio

One way to tell whether it’s better to rent or buy is by calculating the price-to-rent ratio (or P/R ratio). This number gives you a rough idea whether homes in your area are fairly priced. Figuring a P/R ratio is simple. All you need to do is:

  1. Find two similar houses (or condos or apartments), one for sale and one for rent.
  2. Divide the sale price of the one place by the annual rent for the other. The resulting number is the P/R ratio.

For example, say you find a $200,000 house for sale in a nice neighborhood. You find a similar house on the next block for rent for $1,000 per month (which works out to $12,000 per year). Dividing $200,000 by $12,000, you get a P/R ratio of 16.7. But what does this number mean?

Writing in The New York Times, David Leonhardt says, “A rent ratio above 20 means that the monthly costs of ownership well exceed the cost of renting.” That’s a little opaque, I know. Leonhardt is saying that the higher the P/R ratio, the more it makes sense to rent — and the less it makes sense to buy.

The normal P/R ratio range nationwide is between 10 and 14 (meaning it would cost between $1200 and $1600 to rent a $200,000 house). During the 1990s, just before the housing bubble, the national P/R ratio was usually between 14 and 15 (about $1100 to $1200 to rent a $200,000 house). During last decade’s housing bubble, national price-to-rent ratios rose to 22.73 (in 2005) then to 24.50 (in 2007) before the market collapsed. As most folks were rushing to buy homes, the numbers said they ought to be renting.

Based on this info, I’d argue that:

  • When price-to-rent ratios are under 12, it’s generally better to buy than to rent.
  • When price-to-rent ratios are between 12 and 15, the financial decision is murky.
  • When price-to-rent ratios climb above 15, you’re probably better off renting.

Nationwide numbers don’t tell the full story, of course. While the national price-to-rent ratio might be around 20, the actual numbers in your city could be very different.

Price-to-Rent Ratios for U.S. Cities

In the past, I’ve struggled to find current price-to-rent ration figures. Recently, however, I learned that Zillow has a dedicated page for researching housing data. From here, you can download tons of different tables related to home sales and rental prices, including monthly price-to-rent info from October 2010 until today. If you’re looking to relocate, this is a fantastic resource for finding where your housing dollars will go farthest!

For kicks, I wasted ninety minutes playing with price-to-rent ratios using Zillow data. (What can I say? I’m a nerd!) I downloaded their list of median home prices and median monthly rents, then calculated the P/R ratio for 48 major metro areas. (For a variety of reasons, this is a somewhat arbitrary selection of cities.) Here’s my list of price-to-rent ratios in the United States as of January 2018.

Current Price-to-Rent Ratios

If you’re moving to Scranton for your new job at Dunder Mifflin Paper Company, it’s likely you’ll want to purchase a home. But if you’re headed to the Bay Area, your best bet is going to be to rent.

I’m somewhat skeptical that these numbers are accurate — they do come from a site eager to create homebuyers, after all — but it’s tough to find better info. As far as I’m aware, there’s no reliable source that generates these stats on a regular basis. (I personally believe numbers from articles like this are more accurate. However, that article is also eighteen months out of date and doesn’t explain its methodology.)

Please note that city-wide price-to-rent ratios only really matter if you’re moving from another town. Otherwise, what actually matters are price-to-rent ratios for the specific properties you’re thinking of buying or renting.

Home Price vs. Household Income

Another way to gauge the cost of housing is to compare it to your family’s income. From 1984 to 2000, median home prices were about 2.8 times the median yearly family income. (In other words, the typical house cost about three times what a family earned in a year.) During the early 1970s, home prices were about 2.3 times median family income. During the housing bubble, this ratio jumped to 4.2.

These numbers may not mean a whole lot on their own, but they can give you some sort of idea whether housing is overpriced in your area. Plus, it seems safe to assume based on past figures that most families can comfortably afford a home that costs about 2.5x their annual income. (So, if your family makes $80,000 a year, you can afford a $200,000 house.)

According to the most recent numbers from the U.S. Census Bureau, the median household income in the United States was $57,617 at the end of 2016. (Average household income is greater — $73,207 — but that number is skewed by high earners, which is why I prefer to use the median.)

Median Household Income

Using the current U.S. median home price of $232,700, we can see that home prices are currently running at about 4.04 times the typical household income. This ratio isn’t quite as high as it was during the housing bubble, but it’s still pretty steep.

My Favorite “Rent or Buy?” Calculator

Finally, I want to share what might be my favorite way to compare the costs of renting against the costs of buying.

The New York Times has a great rent vs. buy calculator that can help you decide which is best for you. Just plug in the numbers for your situation, and the calculator tells you how long it would take you to break even if you bought a house. This calculator is an amazing tool. Although it lives behind a soft paywall (which can be circumvented using incognito mode in your browser), it’s well worth using if you’re trying to make a decision about whether to rent or buy.

For fun, I ran the numbers for my own situation. Last summer, Kim and I purchased our current home for $442,000. When you figure all of the remodeling we’ve done, our actual cost will be closer to $600,000. (Holy cats!) Based on our situation, the NY Times calculator says that we’d be better off renting if we could find a similar property for less than $2767 per month.

Better to Rent or Buy?

Scanning current listings, there are three nearby rental homes similar to ours (more than 1200 square feet, more than an acre of land). They’re fetching $2900 to $3000 per month. So, it sounds like buying or renting a property like ours in Portland is a toss-up at the moment. (If I run the numbers using our home’s actual purchase price — $442,000 — I’d have to be able to rent for less than $2100 for that to be the smarter option.)

The Bottom Line

Deciding whether to rent or to buy is a complicated financial and emotional decision. I believe it’s a shame when folks who are unprepared get driven into the housing market due to misplaced notions of imagined benefits. Homeownership is not a panacea. Renting is not universal folly.

Part of the problem is the vast Real-Estate Industrial Complex, each piece of which has a vested interest in convincing consumers that bigger is better. (As I mentioned in my recent article on the history of homeownership in the U.S., the real estate industry is a relatively recent invention, barely 100 years old. But in that hundred years, it’s grown into a powerful force in our economy.)

The housing industry does its best to propagate certain myths about homeownership, myths like:

  • If you rent, you’re throwing your money away. (This is false. As with all financial choices, there are opportunity costs whether you choose to rent or choose to buy.)
  • Owning a home is a forced savings plan. (Also false. Yes, it’s possible to build equity in a home if you buy it in the right place at the right time and/or you stay put for a while. Most folks don’t stay put, however, so they end up paying a whole lot toward interest and very little toward building equity before buying a bigger, “better” place.)
  • You should buy as much home as you can afford. (Complete and utter bullshit. You should spend as little as you possibly can. Instead of pushing the upper bounds of your housing budget, as happens in most cases, you should instead be aiming as low as you can go.)

Now, let me be clear. There’s no question that buying a house makes sense for some folks, but mainly for non-financial reasons. Owning a home gives you stability (you’re not at the mercy of a landlord) and freedom (you can do what you want with the place). Heck, last year I chose to buy an eighty-year-old “country cottage” on the outskirts of Portland, so I completely understand the non-monetary reasons for wanting to own.

But there are also advantages to renting.

For one, you have flexibility; you can move at a moment’s notice. For another, you’re not responsible when things go wrong. If the shower starts leaking before you leave for your vacation in Duluth, you don’t have to worry about it — you call in the landlord.

If you decide to buy a home, do it for the right reasons: because it fits your goals and will make you happy. Don’t do it because you think it’s a good investment. A mortgage is not a retirement plan — it won’t make you rich. Instead, think of it as purchasing a way of life.

If homeownership is a lifestyle you want and can afford, then buy. If not, rent.

The post Is it better to rent or buy? How to know when renting a home makes sense appeared first on Get Rich Slowly.

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amijangos
39 days ago
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These numbers may not mean a whole lot on their own, but they can give you some sort of idea whether housing is overpriced in your area. Plus, it seems safe to assume based on past figures that most families can comfortably afford a home that costs about 2.5x their annual income. (So, if your family makes $80,000 a year, you can afford a $200,000 house.)
Columbus, Indiana
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20 Quick & Easy Dinner Recipes For People Who Hate Cooking

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My mom used to tell me never to use the word “hate.” “You don’t hate it, Sarah, you just dislike it.” Thanks for the advice mom, but no. I’m allowed to hate things. And anyone who reads my blog knows that I hate cooking. I’m terrible at it, and the only part I enjoy is the […]

The post 20 Quick & Easy Dinner Recipes For People Who Hate Cooking appeared first on The Financial Diet.

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amijangos
43 days ago
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I need to do this next year.
Columbus, Indiana
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What It’s Like To Have Your Parents Go Bankrupt To Give You The Life You Want

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“I’m sorry we can’t come down and visit you like we planned,” she said. “Things have been harder than usual around here, and the 300-mile journey is just gonna cost too much…And you know, since your dad and I filed for bankruptcy in September, we have a lot on our plate.” Bankruptcy? I thought this […]

The post What It’s Like To Have Your Parents Go Bankrupt To Give You The Life You Want appeared first on The Financial Diet.

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amijangos
43 days ago
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Columbus, Indiana
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