2million - My Journey to Financial Freedom

A Personal Finance Blog      ANNOUNCEMENT:2million has moved to www.2millionblog.com.     

Friday, June 30, 2006

Finally Closed on My House

I can now say I own more than one property! I'm almost a land barron :) Closing was uneventful. Luckily the closing was only delayed a total of 6 days as a result of the last minute issue uncovered at the initial scheduled closing.

Its pretty exciting; I am looking forward to turning this home into a positive cash flow property in a few years. Until then I have lots of projects including relandscaping the property and adding a new bathroom which will both help increase the value of the place as well as its rentability.

I was originally concerned that I was buying right on the edge of a housing market collapse. However, the market is still growing at a healthy pace in Raleigh, NC. We haven't experienced much of any real estate boom and I think that this area is just starting to catch up with most of the country. I see little downside risk at least for the time being as I don't ever plan to sell this property.

Wednesday, June 28, 2006

Closing on My Next Property, Back on Track

As I previously mentioned, I walked away from closing because the appraisal on the property was not complete as I had been led to believe.

A lot has happened since then:

Lender: After being handed off many times, I finally was connected with someone who took ownership of the issue. Recognizing there was a miscommunication on the lender's part, we were able to discuss how we could get this rectified asap. The lender offered to pay for an appraisal (no cost to me), extend the rate lock (which I don't need), and not charge any redraw fees for the loan. I believe I could press for additional concessions because I know the seller is surely going to ask for something, but as long as I get some indication the seller is not asking for anything unreasonable I think I will just go ahead with this so we can close asap.

The lender also reordered the appraisal and the property appraisal for more than the purchase price - sweet! Everything is ready to go as long as the seller is on board.

Seller: After being unresponsive to several emails and voice messages, the seller finally responded and still would like to close (ofcourse) and has asked me to pay for his carrying costs for the period (in the neighborhood of $100). Now that I have an idea about what my costs could be as a result of the delay, I will accept the lender's offer and get this wrapped up asap.

In the end it looks like I will be able to close and may come out ahead by a few dollars although the money wasn't worth the hassle of dealing with this issue. Definitely a couple lessons learned from this experience. I am really grateful everything appears to be falling into place.

Monday, June 26, 2006

Walked Away From Closing On My New Property

I and the seller met at the attorney's office for our scheduled closing. We sat down with the attorney to review the settlement statement. The attorney went line by line through the statement identifying each line item. Everything looked good until we got to the appraisal line item.

The appraisal line was marked for $50. I stopped the attorney and said I don't think that is correct, I know the appraisal was suppose to cost between $300-$350. Didn't seem like a big deal, appeared to me to be a typo. The attorney recommended I call the lender to verify the fee before we proceeded.

I called the lender. I can't get an explanation. I am told the appraisal was ordered, and 6 days ago the lender called the appraisal regarding the status of the appraisal. The appraiser knew nothing about the appraisal order and the lender reordered the appraisal. Then apparently the lender canceled the appraisal and decided they didn't need it to approve the loan (the details at this point are fuzzy). None of this was communicated to me until I called the lender at closing.

I had been concerned with the appraisal throughout the entire mortgage process since I was purchasing this home FSBO. The lender had offered me a $50 waiver option to forgo the appraisal but I insisted that the lender get the appraisal done. I had followed up with my mortgage consultant via email asking about the status of the appraisal and received vague responses that indicated the appraisal was complete and I would get the details at closing. I never followed up to get confirmation the appraisal was indeed complete.

After getting a vague explanation from the lender that was initially very deflecting of blame or ownership of the issue I recognized I couldn't proceed with closing since this wasn't going to be resolved quickly. Employees of the lender was urging me to proceed with closing and the issue could be resolved afterwards, but I felt like they were trying to cover up a problem on the lender's end. My biggest concern was whether I was in some way breaking the contract and potentially exposing the earnest money I put up as part of the contract.

When I came back to the table and notified the seller I couldn't proceed with closing, the seller was understandingly irate. He tore up a document he was holding and stormed out of the attorney's office without any discussion about if/how we could proceed with closing. At this point I was very concerned about what the legal implications were on my part and what obligations if any the seller had to continue the sale of the property.

After talking with the attorney it seemed the best course of action is to focus on resolving the appraisal issue and then try to proceed again with closing. I hopefully can get a hold of the seller once they have calmed down to discuss trying to reschedule.

Thursday, June 22, 2006

Tax Question - Converting Rental Property to Primary Residence?

I have been trying to understand the implications of renting all or part of my new property while I am on my temporary assignment. I will be away for the rest of the year and hope to rent out some portion of my house while I am gone to help offset some of my living expenses while on my temporary assignment.

I have some experience converting a previous primary residence to a rental property so I feel comfortable with the tax implications from converting all or a portion of the property to a rental property and handling maintenance, repairs, etc. However, I know nothing of the implication of turning a rental property back to a primary residence after my temporary assignment is over.

I have found no examples that give me any idea of the implication of converting a rental property to a primary residence. For example lets say I rent out 1/2 the house for 6 months and the deprecation for the entire property is $5,000 for this rental period. I should be able to write off $2,500 for deprecation from the rental income (1/2 of the $5,000). After the rental period I convert the entire house back to my primary residence.

-> What is the adjusted cost basis for the property? Is it [original cost basis] - $2,500 (the amount of deprecation I would claim on my taxes from the rental period)? Or is it [original cost basis] - $5,000 (the deprecation amount for the full property although only 1/2 was claimed on taxes because only 1/2 was rented)?

-> If at a later date I decide to convert the property [again] to a rental property, what are the implications? I assume the cost basis is adjusted downward by the amount I deprecated the property during the first rental period? Would deprecation continue while its my primary residence from when I first claimed it on my taxes during for the rental period?

-> When I sell the property is some deprecation that I must reclaim that I wasn't able to use to offset income on my income taxes?

Anyone with insight please advise - thanks!

Monday, June 19, 2006

Inside FSBO Offer Negotiations

When I and the seller negotiated for the home I am purchasing we did the contract negotiations entirely over email. This gave me a written record of everything that happened and presents a great opportunity to do a post mortem to see what worked and what I can do differently to get a better deal when I purchase my next property.

Background information:
  • The house was listed initially at $139,900 FSBO, buyers agents welcome.

  • I challenged the seller to show me some comps that justified the price and the seller ultimately lowered the asking price to $134,900 after being challenged.

  • I had decided I was willing to pay up to $130,000 before I made an offer and I was willing to walk away at $130,001.00 if I needed to. I think it was very important to set this up front so that in the process of the negotiation, despite what I am feeling at the moment I have a firm number I am working with

  • I was the first person to see the property, so I was taking me sweet time getting ready to make an offer. I knew after seeing the property the 1st time that I was going to make an offer, but I didn't want to seem too eager so I waited a week to asked for a 2nd showing.

  • The seller played this beautifully by calling me after the 2nd showing to let me know that a couple told the seller they were going to make an offer in the next 24 hours. This ultimately led me to push up my initial offer by $2k to make sure the seller would get a better feeling what I was willing to pay for the property instead of immediately accepting an offer from another person. I am kicking myself now over this move.

My Initial Offer:
Thank you again for letting us take another look at your home this past weekend. After a quite a bit of thought, I have decided I would like to make you an offer.

From what I can tell your home seems to be in very good condition. I am VERY concerned about the size of the house from a resale perspective, I think the lack of multiple bathrooms will limit potential buyers if I sell it. I am also concerned that the HVAC system and roof has already reached their half-life and realize the
HVAC could need to be replaced at any point in the future.

Looking at the comps that both you and I found, I think an offer of $128,000 is very reasonable. With no real estate agents involved this would be equivalent to over $136,000 offer (before 6% agent commissions).

In addition, I think you'll find I am a very attractive buyer for you. I was prequalified a couple months ago and I am very flexible with a closing timeline since I do not have any home to sell and can close very quickly if needed.

I figured I would go ahead and email this to you to let you know what I'm offering. I'll be happy to write this in an offer contract and fax it to you. Do you have a fax number I could fax it to? Also as far as earnest money, do you have any preferences on an escrow agent? I was thinking if we came to an agreement on the rest of the terms, I would see if the closing real estate attorney could serve as the
escrow agent.


My Commentary:
-I was planning to initially offer $126,000, but ended up offering $128,000 when the seller executed beautifully by notifying me that someone else was making an offer. Whether or not it was true is irrelevant. The seller put the idea in my head and the result was I raised the initial offer. If I ever sell a property I have to remember this.
-I think I gave a good justification as to why this offer was very reasonable - I pointed out my concerns with the property; I used the real estate commissions to show the seller my offer was just as good as the asking price by adding real estate commissions (even though that is not really true, by making that connection I think it helps build my case); and I tried to sell myself as a buyer - I knew I was the target buyer he was looking for.
-I tried to distract the seller from the negotiation by asking about an escrow agent, this didn't work, but I suspect a potential seller could get distracted and not come back with an aggressive counter.

Seller's Counter Offer:
Hi [2million],

Good evening! Thanks for the pre-qual letter. I'm excited to work with you and your contract was very straight-forward, just as you said. The only issue I had was with the price. Obviously, we would like to get a bit more than $128,000. The excellent location and condition of the property should aid in any resale... not to mention the renovated kitchen, bath and laundry, too. Having said this, why don't we compromise at $132,500. Please give it some thought and let me know. Thanks so much and have a good night.

Kind regards,

My Counter Offer:
Hi [Seller],

Thank you so much for getting back to me. I have given your proposal some thought, but unfortunately based on my research I feel the amount I have already offered you is at a premium to the market. In the spirit of trying to reach an agreement I would be willing to offer you $129,000, but I will be unable to go any higher. I feel this offer is very generous and since I have no buyer's agent I think it is very
close to the net proceeds you would expect at your original asking price ($134,900) if I had a buyer's agent representing me. I hope you will find this to be an acceptable compromise.

Please give it some thought and let me know if this is something you would accept.


My Commentary:
->I made a tactical error by offering an extra $1,000 to the seller at this point. In retrospect given the seller's counter was pretty weak and I should have been more aggressive. I just offered the seller an extra $1,000 for nothing. I should have asked for some added provisions to the contract such as:
  • professional housecleaning
  • chimney sweep
  • a piece of furniture I liked
  • lawnmower
  • etc.

-On the plus side I drew my line in the sand and told him I wasn't willing to go any higher - this I hope signaled to the seller that we are very close to how high I am willing to go so that the deal doesn't fall apart if he makes a counter offer.

Seller's Next Counter:
Hi [2million],

Good evening. Sorry it's always so late at night when I reply to your emails - we've been busy these last few days! I've taken some time to think about your offer, and though I see where you are coming from, I also know that this property is a terrific buy, even at our original asking price. All square footage in a given neighborhood is not the same and the condition of this house is far superior to that of the only two comps that you've had to compare it to. Neither had nearly the upgrades, nor the overall good condition that we have here. I do want to work with you on this deal as I feel that you are a strong and confident buyer, and will be able to close on the property with no problems. Also, you were the first to show interest and I could tell you like the place, too. But I also don't feel that I can take less than 130K for it. I hope that you can see your way to inching up just that much, in which case we'll have a deal. Think it over and share your thoughts.


My Commentary:
-The seller picked up I wasn't going any higher on my offer and is trying to get me to some up just a little more (wise move on his part). We are only $1,000 apart so both of us see this deal as probably happening at this point.
-The seller also states he can't go any lower so we have finally see the "best offers" from both of us.

My Final Counter:

Thanks for getting back to me. I agree I think your house is in very good condition and suspect it is in much better shape than the comps in the area. I think we are very close. I would be willing to offer you your price of $130k if we included the washer/dryer with the house as I would be in desperate need of these appliances when I move in.

I hope you will find this satisfactory. If so I am available most of Saturday if you would like to try and get together to finalize the contract. Please call me anytime to discuss. I look forward to hearing from you soon.


My Commentary:
-Since the seller said he was unwilling to go lower and we were only $1,000 apart I knew this deal was just about agreed too and didn't want to rock the boat too much. I decided to come up to his price if he was willing to throw in the washer & dryer (which I valued at $500). I think it was a good move on my part - it is near impossible for a seller to walk away when a buyer is offering you the money you are asking for the property.
-I also presumed he would take the deal and raised questions about how we could get together to sign the contract - I thought this would increase the resistance of him trying to counter again.

Seller's Acceptance:
Hi [2million],

Good morning. You drive a hard bargain alright, ha! But OK, I'll accept that
offer. And I agree, I'm ready to get this taken-care-of. However, this
weekend we are moving and have a lot of things already planed for today.
Would it be OK to do it tomorrow? I'm sure I'll have more opportunities to
meet on Sunday. Your thoughts? Feel free to call if you wish and have a
great day.

Thanks again,

In the end I think I negotiated adequately. I only came up $2,000 in negotiations and that was partially offset by a washer/dryer. More importantly I was able to get the contract in place for the price I was willing to pay for the property. I think my biggest mistake was making the initial offer too high. I may have achieved better results if I had offered $125,000, but I'll never know.

Anyone have any additional suggestions/tips that might be useful in future negotiations?

Friday, June 16, 2006

Finalized Temporary Assignment Living Arrangements

Whew! After getting over the sticker shock of rental prices in NY, I have reached an agreement to rent a room for $800/month. This is above the most likely estimate I was shooting for paying in rent, but I think I did better than it initially appears.

Rent includes all utilities - I am not even sure what this would have cost me, but with internet and cable this would have cost me at least $100/mo.

Rent also includes basic furnishings - This is the best part, I was able to convince my employer to give me a $300/mo subsidy in lieu of moving my household goods so the net is $500/mo for rent and utilities. This will be a big help for the budget.

On the downside, it will feel more like living in a hotel room than my home, but I will be saving money and could return home more often on the weekends so I think I have made the right tradeoff without busting my budget.

Wednesday, June 14, 2006

401(k) Match Maximizer is Here!

I have previously wrote about a little gotcha with my 401(k) plan that causes me to miss a portion of my employer's 401(k) unless I time my contributions perfectly.

I got word this morning that my employer is announcing a 401(k) Match Maximizer that will provide the full employer match regardless of when you hit the IRS contribution limit that is retroactive to January 1, 2006.

This feature helps in a couple of ways:
1) No need to worry about timing contributions just right to make sure you get the full employer match
2) While I don't necessarily subscribe to this - you can now pick another investing style (instead of dollar cost averaging) with your 401(k) contributions (without forgoing some of the employer match). For instance if the market had a sharp correction in the beginning of the year, in theory you could try to make the bulk of your 401(k) contributions (if not all) in the early part of the year, hit your IRS limit before June, and still receive the entire employer match. This is great for people that want to try and time the market.

Its all about flexibility - I like it and I am excited I no longer have to worry about trying to get every penny of my employer's contributions.

Monday, June 12, 2006

Mortgage Appraisal Not Required?

I got a call from the mortgage lender to let me know that my loan didn't need an appraisal for approval.

Huh? I never heard of this. Apparently Fannie Mae has this option to waive an appraisal when you get a loan. They have a computer system that they run your purchase price, the property being purchased and supposedly your creditworthiness to determine what the risk is of the property not being worth what your buying it for.

The idea is they are cutting out more costs from the loan process. Instead of a $250-$350 appraisal it could now only cost $50 for an appraisal waiver.

I like the idea. Any options to drive down costs is a good thing by giving more flexibility to borrowers.

However, I am still going to get an appraisal. The appraisal will cost $300 so it will be a $250 opportunity cost ($300 [appraisal] - $50 [waiver] = $250 net cost) to get assurance that the property is really worth what I'm paying. Ofcourse I'm still leary because appraisals seem to always magically meet the agreed to price.

The lender instructed me to pick out my own appraiser if I decide to get an appraisal. I have always felt that appraisers picked by lenders often rubber stamp appraisals and I'll use this as an opportunity to try to find someone who I hope would be a more unbiased appraiser. I am going to use this petition signed by appraisers concerning pressure from lenders to conform to predetermined values as a starting point.

If I ever refinance I think I would always take the waiver since I already own the property.

Friday, June 09, 2006

Cheap Low Hassle Checks

I hate checks. Checks are expensive, I usually have to use a stamp to give someone a check, and they are a hassle to use. If I need to pay someone I always try to pay with a credit card (when no extra fees), make an electronic transfer (for bills), or use my bank's free online billpay service. If all else falls I then have to break out the checkbook.

Unfortunately I have finally come down to the last check in my checkbook. Since I will be renting a place on my temporary assignment I know I will need to be able to write checks for security deposit and/or rent each month. I need to order at least a small quantity of checks to hold me over.

My bank charges for checks and I am not going to pay the bank's prices. The checkbook has a reorder form (I believe I ordered the last batch from a 3rd party) in which the cheapest option is for 1 box of 200 checks for $8.90 + $1.60 = $10.50 for 200 checks.

I then scoured the internet and was surprised to find walmartchecks.com. I was able to order 1 box for $5.96 + $1.90 (shipping) + $0.55 (tax) = $8.41 for 240 checks. By far the cheapest/with least hassle option I found. Who knew Wal*mart sells checks?

Based on my previous consumption rates, these checks should last me for at least 5 years.

Wednesday, June 07, 2006

Averting My Liquidity Crisis

I ended up pulling $5,500 from the HELOC on my 1st house to avoid any liquidity issues with paying off both 0% balance transfers and trying to stretch and put 20% down on the house I am trying to purchase. This should give me about $1,000 more cash than I will need to accomplish all these things.

The current interest rate on the HELOC is 7.75% and its variable so I will immediately begin to pay it down significantly as soon as I close on the house. I hope it will all be paid off within 1-2 months so the net cost of this should be less than $100 (not including the small tax deduction).

Monday, June 05, 2006

May 2006 Net Worth Update (+$3,249)

Here's my net worth update for May as of 5/31/2006. All things considered I am happy with my overall performance given the stock market declines, recognizing some early temporary assignment expenses, and realizing some of the transaction costs from the house I am in the process of trying to purchase.







$ 6,888.35

$ 32,287.90

$ 25,399.55



$ 43,797.06

$ 3.00




$ 42,650.68

$ 41,848.04

$ (802.64)


Roth IRA

$ 24,799.76

$ 24,374.99

$ (424.77)



$ 81,246.68

$ 82,136.49

$ 889.81


Stock Option

$ -

$ -

$ -



$ 35,289.95

$ 35,311.38

$ 21.43


Rental Equity

$ 41,584.91

$ 36,272.76

$ (5,312.15)


Other Assets

$ -

$ -

$ -



$ -

$ 1.00

$ 1.00


Reserve Funds

$ -

$ -

$ -



$ (30,819.75)

$ (3,549.06)

$ 27,270.69


Tax Liability

$ -

$ -

$ -



$ 245,437.64

$ 248,687.50

$ 3,249.86


Highlights for May
-All credit card debt (except current month's purchases) is in the form of 0% APR balance transfers earning interest in my savings accounts. As part of my preparations for purchasing my new home, I paid off both 0% balance transfers that are expiring in the next month.
-I am in the process of going to NY for a temporary assignment and started planning for what my monthly expenses might be and have already recognized some assignment expenses this month (such as plane tickets).
-I put a house under contract and am in the process of trying to purchase it.
-I am in the process of shifting my savings and cash around to use when I close on the house. In the process I realized I may have a small liquidity crisis and have pulled $5,500 till I can get a new 0% balance transfer offer.
-I finished consolidating my Etrade account to my Sharebuilder account for a total transfer expense of $25.

Additional Stock Investments for April (Outside of 401k & ESPP):
$100 in Roth IRA
$500 in Medtronic DRIP

Friday, June 02, 2006

Buying New Shoes

Maybe Im getting old, but I have one pair of good shoes that I wear day in and day out. After a year, they are pretty much worn out and I need to replace them.

Since I buy the same shoes everytime (getting old and boring I guess), I have been a big fan of Shoebuy.com the last few years. I have been holding off on buying a new pair for awhile because every once and awhile Shoebuy.com comes out with a pretty decent coupon. The coupon, plus no sales tax or shipping costs makes the shoes a steal compared to the same shoes at any local store.

I stumbled across a Memorial Day Coupon good through June 5th, 2006:

I ordered my new Rockport Margins on Saturday May 27th, and arrived on June 1st. I'm all set till next year now ;-).