Monthly Archives: January 2012
All of my tax information arrived today, including my 1098-E form for my student loan. You can deduct student loan interest on your tax return! But there are a few qualifiers:
1) Your MAGI (modified adjusted gross income) cannot exceed $75,000 as a single person or $150,000 as a married couple filing jointly.
2) You’re not eligible if you are married filing separately.
3) The maximum benefit is $2,500.
4) The loan must have been used for educational expenses at an eligible education institution. This includes the regular colleges and universities, but also trade schools, for-profit colleges and residencies at hospitals and healthcare facilities.
This is an important credit that everyone should take advantage of, but it does seem like a lot of people are probably paying more than $2,500 per year in interest. In 2011, I paid $534 in interest on a federal subsidized loan (6.25% interest) with a balance of $8,500, even with paying off $2,000 over the year. So students with five-figure or six-figure debts are most likely paying a lot more interest, and anything over $2,500 isn’t deductible (or none of it is if you make more than $75,000). That’s too bad for those who finally got that high-paying job after so many years of grad school and are ready to start paying student loans. It seems a little unfair to not give the high-income earners a chance to get a deduction on their interest. Yes, they’re making good money, but they are still incurring interest on their loans. But in any case, I don’t have that problem this year so I will be deducting the full $534!
Here’s the complete IRS Publication (970 for tax nerds) on Tax Benefits for Education.
When I started this blog, I had a pretty comical breakdown of the activities I was doing that I considered to be “blogging”. Now that I feel a little more knowledgeable about what it takes to build and grow a blog, I’d like to take a trip down memory lane with this breakdown of activities of beginning bloggers by amount of time spent on each category:
Some people will idle in this beginner stage for months (hint: me!) and others may move on quickly as eager learners who want to maximize their time spent blogging. I can’t say I’m an advanced blogger yet. I’ve been trying to be a more efficient blogger (not happening, I’m writing this at 3:34 am) as well as take on some of the other activities that come with blogging which aren’t writing posts, but are just as essential. It’s not an exhaustive list, but if you want to follow in the footsteps of some of the personal finance blogging greats, take a look at the activities of the advanced personal finance blogger here:
Some of these ideas can have huge returns for a blog, like joining a network. You get access to a wide variety of bloggers who want to help each other out and you get access to a lot of information you may otherwise never heard of. The advanced blogs are all about providing value to readers and being available (to readers, advertisers, etc). Bloggers are a relatively new breed in our world and that’s exciting! We get to set the rules, we get to decide what’s important and we can recognize that done right, blogs, new media and online properties have the ability to provide exponential income growth. So if you are a new blogger like me, don’t worry. Don’t play yourself down too much. Everyone started exactly where you did. I bet even J.D. Roth when he started his blog at one point was like, “Wait, how do I make an RSS Feed?”
Just keep writing. Take a look at the advanced activities above and start doing a few of them every day. Crystal has some good posts on her blogging business as well, here and here (she and her husband both quit their day jobs to blog full-time, and this post was partly inspired by these insightful posts). And remember:
“Ask for help. Not because you’re weak. But because you want to stay strong.” -Les Brown
Here’s where American Debt Project is on all this:
- I just hit the under 200,000 Alexa ranking mark with the Yakezie challenge!
- More importantly, you guys are leaving me some awesome comments which lets me know I’m doing something right.
- Discovering other great blogs that I like to comment on like Minting Nickels, Your Finances Simplified, Punch Debt in the Face and Add Vodka.
- American Debt Project was also featured on another Yakezie Carnival, this time at Little House in the Valley.
- Bought my ticket and flight for FinCon12 and plan to work on my blog a lot before September so that it moves from the Beginner to Advanced category. Yeah!
I gotta know: Did you like my pretty infographics? Are you a beginning blogger, advanced blogger or somewhere in between? And if you don’t blog, was this interesting at all?
Welcome to the brand-new I Want to Invest in Real Estate series! I have always wanted to invest in real estate and own mutliple properties. I’ve always been interested in building, design and land development, but I never knew how to take the next step and my financial missteps also stood in my way. So this series will cover all of my baby steps towards buying my first place. I have no idea how this will turn out. It may develop slowly or gain steam quickly. I may be approved for a loan on the first application or the 10th application (or 100th?). I really don’t know! I hope you will take the time to comment on this series as your insight will be extremely valuable to me.
Before we get into the serious part, let me tell you that growing up in Southern California is hazardous to your health. I have an unnatural love of pre-packaged plastic experiences, women whose body parts and bleached hair look ridiculously fake and model homes. Most of all the model homes! I grew up in San Diego in the 1990s, which means that there was a new subdevelopment popping up every three months and you can bet that me and my mom were there to check it out. Later this pattern would be repeated with friends (my last visit to a model home was in March). Model homes are the best aspirational marketing tool ever, because you can pretend you live a perfect life in this perfect little house with the plastic fruit and the Homefill computer and flat-screen TV. The bedding in each room is elaborate and immense, only in model homes and movies have I ever seen beds with 14 different pillows. Which is all to say that I grew up wanting to live in a model home. Eventually, I started looking beyond the interior furnishings and began to appreciate homes for what they are: an intrinsic value. No matter what the housing market or the economy says, homes, land and all real estate have an intrinsic value that will never be zero. People need housing. People are interested in land based on its location and may repurpose it from its original use as a single family home into multifamily housing, office space or retail space. Owning real estate is an important way to build wealth and a monthly cash flow.
I want to buy real estate and rent these properties out to create a monthly cash flow. Based on my brief introduction to this topic, I believe that smart decisions made in choosing and acquiring properties can set you up to have a positive monthly cash flow on investment properties. It is not an easy game, nor do all of the pieces take care of themselves (property inspections, sale terms and conditions, financing). I believe if you can be patient and play it right, real estate can be a tool to build wealth even in the labyrinth of Southern California. It can also be as passive or as active as you make it to be, as an absentee landlord with a property management team, or as a landlord/property manager in one.
Why do I want to buy a place now? Well, that’s pretty easy. There are properties in Southern California that are in decent, respectable neighborhoods (all condominiums, single family homes are still mostly at $300,000 and up) that are at prices which I believe could translate into cash flow properties. I rent now, so I could buy my first property and start living in it while we do minor renovations (my boyfriend, along with many other close friends and associates have general contracting and construction backgrounds) and save money to buy our second property. The first property then becomes a rental unit, which, because we bought it at a good value, is able to provide a very small positive cash flow. The tenants continue to pay the mortgage down on the first unit, we live in and pay for the second unit. Then this plan can be repeated. If there is an opportunity to sell the first unit at a profit, I would try that as well. But the overall plan is to start buying units to hold as rentals.
I’ve been reading about real estate investing for the past few months, but not nearly as much as I could be. I admit I’ve only dipped my toe in the water, but here are the books I’ve read so far on the subject:
1) The Weekend Millionaire’s Secrets to Investing in Real Estate by Mike Sumney and Roger Dawson
2) Investing in Real Estate by Gary W. Eldred
3) The 106 Common Mistakes Homebuyers Make (and How to Avoid Them) by Gary W. Eldred
They were all very insightful. No one promised me I would get rich quick. All have warned me of the dangers of over-leveraging (that’s being in debt over your head with not enough cash coming in, or completely screwed, for laymen). But it can be done. If you can be patient and thorough, you can find values and good deals in any market. I have learned that price and terms are the most important when it comes to completing a real estate purchase, but many, many other factors need to be taken into account. I will do separate posts on financing a real estate purchase, choosing a location (neighborhood analysis), and different ways to profit from real estate.
I’ll be continuing my reading on the topic daily (let me know if you have any must read blogs or books), but more importantly I want to start speaking with people who know their stuff in the local real estate market, which includes real estate agents, property managers and local real estate investors.
A Reasonable Amount of (Zero) Experience
Who the heck do I know who knows anything about real estate investing? Real estate is a favorite topic of practically everyone I know in real life, and yet I was not able to think of anyone who owns more than their own home and one investment property. But then my friend told me her mom has a few rental properties and is an active real estate investor, so I plan to talk to her once this gets more serious. My favorite blogger, GeniusTypes, also has a wealth of real estate information, so I will start there. The authors of Weekend Millionaire are also available by email. I have another friend of a friend who owns over 20 properties and has made money in real estate by fixing/flipping, renting, as well as buying and selling commercial real estate. I am trying to get a chance to sit down and talk with him. He’s been doing this for over 30 years and now is able to make all of his purchases with cash. But at some point, he started with his very first purchase, which was an apartment unit in Los Angeles, so I know that you can start, even if it seems daunting (very! incredibly!) at first.
I am going to reach out to all of these people and more. Let me know if you want to lend your wealth of real estate knowledge over here so I can feature you in the next post.
The Matter of Money
We all know that I have some debt. I also lost a chunk of my retirement savings. So where is this 20% down payment coming from? Well, I can come up with a 10% down payment if I pull every penny out of my savings and retirement accounts. However, having spoken with a few friends who have purchased their homes and having read the 30/30/3 rule, I think that is not going to cut it. The wise ones all put down 20% or more. And there are closing costs to consider, which can be up to 11% in California. I want to buy something under $200,000. To come up with $40,000, it’s time to start getting serious about building up savings. More side work. More projects. More advertisements? There is potential in all of these. But I have to be serious. I want to buy a place in 2012. No more coming home to watch 5 episodes of Breaking Bad in a row. MUST FOCUS.
On the plus side, I have been at my job for two years and my salary is decent. We have been able to handle rent of $1,230/month for the past year, and before that our rent was actually more expensive at $1,445/month. My boyfriend would also be able to help with the down payment and monthly mortgage. Our credit scores are decent. Actually I don’t know what his is, I’ll have to find out. Mine was at 719, but has dropped because of my high debt utilization. That’s going down monthly though and I signed up for CreditKarma and told my boyfriend to sign up today as well. I will be watching it to see if it improves. Our credit scores and employment record are going to decide what interest rate we get, so I am working to make us look as awesome as possible. In each I Want to Invest in Real Estate post, I’ll do an update of money matters so you guys know I am ready to do this and not just dreaming while I read the Sunday real estate listings!
Next Post: Choosing an Area to Invest In
The next post should be really interesting. Every city, country or neighborhood I’ve so much as passed by I have considered buying real estate in. Not that I was ready or able to buy real estate, but because I can’t stop thinking about it. When I had a stopover in Riga, Latvia, I was asking around about housing prices. I’m that obsessed. So the next post is going to look at three potential real estate markets I’ve considered and the one I am now considering for this first real purchase (since I’ve bought thousands of homes mentally).
What do you guys think? Am I taking the right steps or am I completely naive? Do you think anyone can invest in real estate? Well, maybe not anyone, but anyone who is willing to work really hard, give up all forms of Cheetos snacks and run the numbers and calculations herself and understand the deal, market, and financing inside and out? Let me know! I can’t wait to get your input.
(Continuing the series of the top five books in personal finance, I am reviewing my #1 pick. For the complete list, please check here.)
The Richest Man in Babylon should be required reading for everyone. If you’re going to handle money for yourself or your family at any point in your life, you need to read this book. Some people get great money lessons from their parents or family members. Others are lucky to learn from a mentor or teacher about the basic principles. Still others are sharp enough to pick up these basic ideas on their own, and have made long-range thinking and action part of their daily lives. But the majority of people will spend the majority of their lives quite clueless about money. They may be distinguished and accomplished in their careers. They may have sat through plenty of 401(k) presentations and understand the math behind compound interest perfectly. But their financial decisions will not reflect this knowledge. That’s where the Richest Man in Babylon comes in.
The Richest Man in Babylon (1926) was originally written as a series of pamphlets that were handed out in banks and insurance companies and later put together and completed as a book. This fact alone is enlightening about the role and message of banks in previous generations. When I walk into a Bank of America or any other big bank, all I see is marketing for a lot of “financial products” like home equity lines of credit, credit cards, or auto loans. The home equity line of credit advertisements invariably mention home repairs or a much-deserved vacation, as if home equity is some sort of free money you need to throw at something right away. It wasn’t always like this, and banks once advocated for controlled spending and budgeting and not borrowing for basic living expenses. Come back, Bailey Building and Loan Association!
Since we’re on our own these days to figure out how we should handle our money, start with this book. The full version is here (with a few typos). I like anything written as a parable. The main lessons of the book are repeated throughout and you will soon have ingrained your mind the ideas of 1) keeping a part of what you earn, 2) controlling expenditures and 3) allowing your money to work for you. Keep at least 10% of what you earn, use 20% to pay your debts (if any) and live on the other 70%.
The Richest Man in Babylon is my number one pick for personal finance because it explains all of the basic principles of money so well. If you can get these basics down, a few calculations on your next investment won’t seem nearly so complicated.