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What Is an Investment Property Loan? – SmartAsset

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Real estate can be a great addition to your portfolio if you’re hoping to diversify and create passive income. And investment property loans can make it easier to purchase property if you’re interested in owning real estate directly. However, qualifying for an investment property loan is a little different from getting a mortgage to buy a home that you plan to live in. It helps to know what to expect and what’s required before wading in. Here’s what you need to know.

You can also talk to a financial advisor about the pros and cons of borrowing to purchase an investment property.

Understanding Investment Property Loans

Investment property loans are loans that you can use to buy a property that you plan to generate income from. You would do that by leasing it to one or more tenants who pay rent back to you on a monthly basis.

Generally speaking, you can use an investment property loan to buy a property that has between one and four units. The types of properties you may be able to buy include:

  • Single-family homes
  • Multi-family homes, such as a duplex or triplex
  • Condominiums or townhomes
  • Manufactured homes

There are also investment property loans for investors interested in flipping real estate. Rather than generating a steady stream of passive income, flippers aim to purchase a property at a low price and renovate it, then resell it at a higher price to turn a profit.

Investment Property Loan Requirements

Is it easier to get an investment property loan versus a mortgage to buy a primary home? Not necessarily, as lenders typically impose more requirements for investment property loans.

Compared to a traditional purchase loan for a home, loans for investment properties may require you to have:

  • Higher credit scores
  • More cash in reserves
  • A larger down payment
  • Evidence of past experience with managing investment properties

You may also need to provide additional details about the property itself. This includes information about the neighborhood where it’s located, how much rental income it’s currently generating and estimates of how much income you expect it to produce once you own it.

Why is getting a loan for an investment property more challenging? One simple reason: These loans can pose a greater risk to lenders.

Let’s say that you have a main home that you live in, which has a mortgage. And you have a second home as an investment property. If your renters don’t pay up or you can’t keep the second home rented long-term, that could put you in the position of having to stop making the mortgage payment in order to keep up with the loan on your primary home.

Once the loan goes unpaid long enough, it goes into default which can lead to other consequences, including foreclosure. Lenders don’t want borrowers to default on investment property loans, which is why they can make it harder to qualify.

Types of Investment Property Loans

If you’re interested in getting a loan to buy an investment property, you have more than one option. Banks, credit unions and online lenders can offer investment property loans.

The range of loans you have to choose from can depend on the lender, while the loan terms that you’re able to qualify for can hinge largely on your credit score, income and the specifics of the property.

The main types of investment property loans include:

Conventional Loans

A conventional loan may be your first choice if you’re planning to buy a single-family home as an investment property. Conventional loans can offer fixed rates and longer loan terms, but you’ll likely need a higher credit score to get the lowest rates.

FHA Loans

The Federal Housing Administration (FHA) allows you to use FHA loans to buy investment properties with multi-family homes with up to four units. There is one requirement: You’ll need to live in one of the units for at least 12 months to qualify.

VA Loans

Veterans and military service members can use the VA loan program to purchase investment properties with as many as seven units, with no money down. Similar to FHA loans, borrowers must live in one of the units to qualify.

Owner Financing

A less traditional option for buying an investment property is owner financing. With this type of arrangement, you borrow from the seller and make payments back on a set schedule. This type of loan agreement may require you to make one large balloon payment at the end of the term.

Home Equity Loans

If you own a home and have a significant amount of equity, you could borrow against it to buy an investment property. A home equity loan provides you with a lump of money that you might use to buy a second home to rent out. Similar to first mortgage loans, home equity loans can offer fixed rates and lengthy terms.

Hard Money Loans

Hard money loans or bridge loans are more commonly used to purchase fix and flip properties. With these loans, you can get the money you need to buy the property and renovate it, but you typically have to pay it back within 12 to 18 months.

When searching for an investment property loan, it’s important to check the minimum qualification requirements first. That can help you weed out loan options that aren’t a good fit. Once you’ve narrowed down the list, you can take a second look to compare interest rates, down payment requirements, fees and loan terms.

How to Get an Investment Property Loan

Getting an investment property loan is something of a process and you may need a little patience to get through it. Here are the main steps involved in getting loans for investment property:

Find a Lender

The first thing you’ll need to do is find a lender that offers investment property loans. You can start with your bank. Then branch out to other banks, credit unions and online lenders to see what options are available.

Apply for a Loan

Next, you’ll need to apply for the type of loan you’re interested in getting to purchase an investment property. At a minimum, you’ll need to provide your personal information along with some details about the type of property you want to buy and the loan amount you’re seeking.

Provide Documentation

Any time you’re applying for a mortgage, the lender will ask for certain financial documents, including tax returns and bank statements. You’ll also need to share any information you have on the property, including its current rental income if available.

Get the Property Appraised

The appraisal determines how much an investment property is worth. A thorough appraisal should also provide you with details of comparable rental properties in the area and the income they generate.

Close on the Loan

Assuming that you’ve checked off all the lender’s boxes, the final step is closing on the loan. At this stage, you’ll need to review and sign the loan paperwork, transfer your down payment to the lender and pay any closing costs due.

Bottom Line

Investment property loans can help you get a step closer to your financial goals if they include owning real estate for passive income. Before applying for a loan, it’s important to understand what’s required to qualify, as well as what you might pay in interest and fees.

Investing Tips

  • Real estate can be a great investment though owning rental property isn’t necessarily right for everyone. Talking to your financial advisor can help you weigh the pros and cons if you’re unsure whether property ownership is a good move. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. You can get personalized advisor recommendations just by answering a few simple questions. Get started now.
  • While the upfront cost might be your main focus when getting an investment property loan, it’s important to consider the longer-term cost of owning rental property. In addition to mortgage payments, you’ll be responsible for maintenance and upkeep, repairs, property taxes and insurance. All of those things can affect your profits when renting property, so remember to look at the bigger financial picture before you buy.

Photo credit: ©iStock.com/xijian, ©iStock.com/venuestock, ©iStock.com/rkankaro

Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.

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Apache is functioning normally

What was your first reaction when you saw “salvage title” in the headline? Cringe and shudder? Outrage, that anybody could seriously suggest something so risky on a respectable site like this? In mixed company, no less? Step away from the ledge, slowly, exhale, and then hear me out.

I used to feel the same way … until my friend Peter showed me his “new” 4Runner. Peter is a super-frugalista, and he saw the surprise in my eyes. He laughed, “Hey, it’s a salvage title — I got it real cheap.”

He bought his son one of those, seven years back, and that car has run problem-free all that time. So he thought, “Why not get one for myself?”

Why not, indeed?

What is a Salvage Title?

It begins with what people sometimes refer to as a car being “totaled” or “written off.” “Total” is simply shorthand for “total loss,” meaning the amount an insurance company pays out for the car’s full insured value. Most often, it’s a collision that causes a car to be totaled; but they can also be totaled after a fire, flood, hail, or even theft. (If a car is stolen and not recovered for three to four weeks, depending on the jurisdiction, the insurance companies have to pay the insured, which, of course, turns the theft into a total loss.)

Insurance companies typically total a car damaged by accident, fire, hail or flood when that damage is greater than its value. They naturally want to pay the smallest amount possible and, if that’s the value of the car, then that’s what they pay. When they do that, they effectively buy the car and its title passes to them. If they subsequently sell it, they are required to sell it with what’s called a salvage title.

Why Even Consider a Salvage Title?

A car only gets a salvage title when something bad happened to it. Buying a used car is such a crap shoot to begin with, why compound that by even thinking about buying one with a salvage title?

One word, the word we associate most with Get Rich Slowly — “money.”

A fully repaired car with a salvage title typically sells for 30 to 40 percent less than one with a clean title. If you were eyeing that $15,000 used minivan, a comparable (i.e., fully repaired) one with a salvage title would typically go for $9,000. That’s a savings of $6,000.

That’s a pretty compelling number if you’re interested to save money.

I don’t know if you heard, but someone just paid more than $30 million for a used Ferrari at the Pebble Beach auctions last week. The car was in a major wreck, but it was restored. The point is: a wreck doesn’t necessarily mean the utter demise of a car. Any car can be repaired or restored to mint condition. The trick, of course, is not to overspend —and to know it was done right.

Does a Salvage Title Make Sense for You?

The first thing you need to do is find out if your state allows vehicles with a salvage title on the road. Colorado, where I live, does. (That’s how I found out about it.) So, if your state allows it, you could potentially save a lot of money on your next car if you are one of the following kinds of people:

1. You drive your cars for many years. A salvage title stays with the car for the rest of its life. If you bought it for 60 percent of its normal value, you will only be able to get 60 percent of its normal value when you sell it. The longer you drive the car, the smaller the penalty at the time of selling. The net result is that you save a lot when you keep it for a long time. However, if you sell your car every two or three years, your savings at the time of buying will be negated at the time of selling, when you’ll have a harder time trying to sell it and you’ll have to take less. (In most states, sellers have to disclose a salvage title at the time of sale.)

Also keep in mind that most dealers will not take a car with a salvage title as a trade-in.

None of those issues present a problem if you plan to drive the car into the ground and then give it to your son going off to college in thirty five years’ time. 🙂

2. You usually buy older cars to begin with. The cost to repair a new car is not much different than repairing an older car. That means it will take pretty extensive damage to a fairly new car to get it totaled, because it’s still quite valuable. On the other hand, an older car is worth much less, even if it’s in good condition, and it doesn’t take much in the way of damage to get the insurance company to total it. In fact, a fender bender will often do it.

What that means is you can save 30 to 40 percent on an older car with a salvage title that has suffered only minor damage. (It’s a good general rule to stay away from salvage-title cars less than three or four years old.)

3. You’re not afraid to do some repair work yourself. If you know your way around a junk yard and you’re not averse toscraping your knuckles a bit, you can save even more than the 30 to 40 percent by buying a salvage-title car that hasn’t been fully repaired yet. If you can figure the cost of the repairs still needed, you deduct that from the 60 to 70 percent before you make your offer. Then you add some weekend and evening sweat equity to add that value back to the car —and you know the quality of the work that’s been done.

Buying a car with a salvage title is obviously not appropriate for everyone, and this post doesn’t try to make that point. All I hope to do is spotlight an option you may not have considered before but which might work for you.

Tips for Buying a Salvage-Title Car

As the saying goes, there’s no free lunch. In order to capture the gain of having a serviceable car at a 30 to 40 percent discount, you have to put in some time you wouldn’t ordinarily spend. Remember your first reaction above when you first heard the term “salvage title”? Everyone you deal with will have the same reaction. And because they’re not getting a big discount on their purchase, they don’t have any incentive to stray outside the box to accommodate you. That means more work for you.

1. Negotiate. Sellers will try to slide by with a discount of, like, 15 to 20 percent on the normal price, hoping buyers won’t know the appropriate discount from normal. Salvage-title vehicles is a buyer’s market; be sure to pursue the maximum advantage.

2. Financing: You should be able to get financing for a car with a salvage title, but it won’t be nearly as easy as for one with a regular title. The bank’s problem is the resale value of the car, which is much less than that of a comparable car with no title problems. If you are paying a lot less for the car to begin with, this isn’t that much of a problem. Expect to do more shopping, though. Personally, I think cash is the best way to buy a salvage-titled car, especially because of the next point.

3. Insurance: Insurance companies, for the most part, won’t offer the comprehensive insurance lenders require. They will offer collision and liability coverage; but, again, expect some push-back and more time shopping around for insurance. If you buy an older car for cheap, your insurance requirements aren’t that much, and you can get what you need. Most insurance companies will insure salvage titles cars just fine. Just be mindful that for them there’s not much difference in repair costs; so don’t expect any price break, even though your car was a lot cheaper than a comparable “regular” car.

4. History: Before you even make an offer on a car with a salvage title, you would be well advised to spend the time necessary to track the entire history of the car’s title. In particular, it’s important to find out (not from the person trying to sell you the car) what happened: what type of crash and the extent of the damage. CARFAX is a good starting point, but expect to do more digging.

Also included in the history research is the seller. Some businesses who sell salvage-title cars are reputable; others are not. Be sure to check with the Better Business Bureau to see if this seller has had issues.

5. Inspection: It is good practice to have a professional inspect any used car you’re interested in buying. Although it may cost a hundred or two, I look at that as insurance: It’s much better to find out about any defects before you plonk down your money. If it’s a good idea for all used cars, it’s essential for a salvage titled car. In particular, you need to have someone check out the wheel alignment. In the old days, they used to talk about frame damage, but most of today’s cars don’t have frames any more — the entire body acts as the frame. If the axles get twisted out of alignment, the car is a pain to drive and it will double your tire wear. A body shop inspection will quickly reveal if that’s a problem or not.

6. Pre-registration: Some states require a police inspection and a certificate from the police before they will register a car with a salvage title. This is aimed at making it difficult for stolen cars to get back into circulation. You will need to do your homework on this issue before making your purchase as well.

In Conclusion

Good wisdom says even if you buy a clean-titled, used car you should do most of these things (e.g., have someone check out the car and research the title history) so the additional legwork might not be that much for you.

My wife and I tend to buy used cars and then keep them till they’re seriously long in the tooth, and then we give them away. Given the success my friend had with his salvage-title car, I’m seriously going to consider going that route next time we buy. The key, I believe, is to be very careful and to be prepared to kiss many frogs before finding the salvage-title prince.

Like many things in life, there’s a reward for risk and/or hard work. If you’re prepared to consider buying your next car with a salvage title, you may be able to pocket a significant savings. It’s not for everyone, obviously, but it’s nice to know an option like this exists.

Source: getrichslowly.org

Apache is functioning normally


What do you spend most of your money on? For most people, their two biggest expenses are their home and car(s). If you remember the post comparing expenses in 1913 to 2012, you might recall the three things that Mr. Average spent most of his “raise” on were:

  • Housing (36 percent of the raise)
  • Income taxes (28 percent), and
  • Transportation (24 percent)

A majority of the increase in transportation has, arguably, to do with that wonderful instrument of freedom — the automobile.

The choices we make

Our spectrum of choice in cars is, of course, wider than a mile. Egotistas spend big on the latest model of the coolest car. Hollywood celebrities once flaunted their beblinged Cadillac Escalades at the annual Oscar ceremony. That was before the 2002 recession. When that hit, it suddenly wasn’t cool any more to be seen piloting a behemoth slurping down rivers of Mother Earth’s precious resources. That’s when the curtain went up on the eco-friendly Toyota Prius, which Cameron Diaz and other stars rode to the 2003 big event in their sipply little Priuses. Overnight, saving the planet with the Prius became California Cool.

That was then.

The top 1 percent, as we saw a few weeks ago, figured out a way to ensure that a full 95 percent of the wealth increase from this economic recovery gets channeled into their pockets. With that, concern for saving the planet went the way of Uggs for boys, and now the wheels of choice for gliding down Rodeo Drive has become a Range Rover, starting at $85,000 (new, of course).

While an egotista’s main concern is how to bling up a new Range Rover, the other end of the spectrum is occupied by frugalistas sporting boring robust-o-cars destined for at least ten more faithful years of service. Those road warriors are inevitably at least 20 years old, scored on Craigslist for $500 from people with more money than savings concern.

Most of us find ourselves somewhere in the middle of the bulge of the ever-present bell curve, seeking to save while driving something a tad less extreme. That includes the mythical Mr. Average, the darling of all statisticians and bloggers.

So what does Mr. Average spend to keep his or her car on the road? The three biggest car expenses are depreciation, fuel, and car insurance. How does Mr. Average try to save on these items? Buy a cheaper car, is the usual answer.

Not for insurance. You would think you would save on auto insurance with an economical Toyota Corolla, which would be cheaper to insure than, say, a Chevy Tahoe, which is approximately twice the cost. You would be wrong. In an actual comparative pricing study I did for another blog post, I discovered that insuring the more expensive Tahoe is actually cheaper in total dollars than insuring the economical Corolla (new, as well as used).

Comparing gas mileage and depreciation is relatively easy. Getting a handle on car insurance costs for Mr. Average, however, is not.

You see, car insurance is greatly affected by “other” factors than by your choice of vehicle. According to Insurance.com, there are four basic factors insurance companies use to set your rates, and the actual vehicle is only third on that list.

The biggest factor setting your auto insurance rate is you — or, to be more specific, how insurance companies see you. You are bound to hate some and love some of these distinctions, but they’re driven by hard data, collected and analyzed by geeks at their computers.

Who you are

Age: If you’re under 25, your car insurance rates will be higher. Over 25, it depends. It drops until you become seriously interested in Depends, at which time your car insurance rates will start to climb again.

Along with age, insurance companies look at how many years you’ve been driving. Statistics prove that people who have driven longer file fewer claims. For that reason, it usually pays to keep your driver’s license current, even if you live somewhere like New York City or Chicago, where you many times don’t even need to own a car or drive. (Of course, you may need to have a driver’s license in America to write checks or buy stuff with plastic. Foreigners sometimes have a hard time figuring out how being able to pass a driving test qualifies you to write checks, but that’s a different story.)

Gender: Women pay less because:

  • They drive less
  • They get in fewer accidents
  • They get fewer speeding tickets
  • They get fewer DUI convictions
  • They buy safer cars

Please note: that’s not a personal judgment. Insurance companies agree that that’s what the numbers say.

Zip Code: Where you live affects your rates, because the frequency of “risk events” varies greatly from neighborhood to neighborhood. These risk events include vandalism, theft of cars and/or contents, and fraudulent claims. Again, these are not Mark Cuban types of assessments; they’re conclusions drawn from statistical data. For this reason, it’s not uncommon for two identical people living just a few miles apart to have a difference of as much as 50 percent in their auto insurance rates.

So, if you’re considering moving, it might be a good idea to find out what the difference will be in your car insurance. You can get quotes from esurance, Progressive, or other online insurance providers — or you can fill out a single form at Insurance.com and get free online quotes from a bunch of insurance companies any time you want to compare rates. (It’s pretty slick, but I digress.)

In general, it’s cheaper to insure cars in rural areas, because they have less crime, less traffic, and fewer accidents.

Credit History: You might not think paying your credit card bill late would increase your car insurance, but you would be mistaken. According to an insurance broker friend of mine, statistics show that people with bad credit file claims something like 40 percent more frequently than those with good credit. If you want to look into this, here’s an article about how and why your credit history affects your car insurance premiums.

Occupation: Again, statistics rule when it comes to insurance. Occupations like scientist, pilot, or actor/artist show lower claims and, therefore, have lower car insurance rates, generally speaking. Why? I want to say nobody really knows, but I’m sure somebody does. The most common explanation I’ve heard is that those occupations require attention to detail and being meticulous. In other words, those people are careful. That’s in contrast to occupations with high auto insurance rates, such as lawyers, business executives, judges and doctors. Apparently, the reason for that is the stress level that comes with jobs like those. (They say the rate for doctors isn’t much lower than for teens.) Real estate brokers also pay more because they have to drive more.

Marital Status: Did you know married people get into fewer accidents than their unmarried counterparts? Insurance companies do, and that’s why they offer married people lower rates. In addition, insuring two cars with the same company usually will get you an additional multi-policy discount, much like the next criterion.

Homeownership: Insurance companies generally charge less for homeowners because they’re regarded as more stable. By itself, that’s not a significant factor, but the discount you get from combining your home and car insurance is.

The rest

The other basic factors determining your auto insurance rates are:

  • Your driving record (accidents, tickets, etc.) and claims history
  • The coverage you’re looking for (pretty obvious)
  • Your vehicle

The impact of your vehicle selection is not obvious, so it’s not simply that a more expensive car will carry a higher insurance premium. In fact, as pointed out above, a Tahoe costs less to insure than a Corolla.

Chances are that if you’re concerned with getting rich slowly, you will have a good (or at least improving) credit record, and you’ll be on the positive side of many of the variables listed above. But now you know exactly how those factors can lead to savings on your auto insurance, the third largest expense of car ownership.

How have you gone about lowering your car insurance premiums?

Source: getrichslowly.org

Apache is functioning normally

Despite that I don’t own it, I like my apartment. It’s got a mountainous view, it’s comfortable, and my neighbors are few but friendly. Sure, I’d like to own a home someday. But, unless I move to another city, that probably isn’t going to happen in the next few years. I’m fine with that. Like my neighbor said, I’d rather live here than anywhere else, at least for now.

If you sense a wee bit of defensiveness in my tone, you’re not imagining it. Part of me is trying to justify something.

After my upstairs neighbor moved out a few months ago, our management company began gutting their apartment. We found out they were completely updating it and tearing down walls to put in central air, a dishwasher and an entirely different floor plan.

It didn’t take long for me to notice all the stuff I hate about our apartment: doing the dishes by hand — what are we, cavemen? — and no central air. Life shouldn’t be this hard.

In case there’s any doubt, I’m joking. My point is: I never really noticed these things until I learned about the amenities that will be enjoyed by the Future Joneses in Apartment 9.

“We should move into that apartment,” my boyfriend and I have been joking over the past few months. “Wouldn’t that be funny? To move up one flight of stairs?”

But at some point, we got kind of serious about it. “Well, the rent will only be $240 more per month,” he pointed out. In our area, that’s not a huge jump. Plus, we split rent, so we’d each only pay an extra $120 a month. “If we moved, we’d still be living below our means,” I conceded. “But I don’t know.”

It’s pure lifestyle inflation. And in recent weeks, I admit that I’ve started to mull over the question of whether lifestyle inflation is ever okay and, if so, how do you decide when it is okay? Here’s how I’m sorting out my thoughts on the matter.

(Warning: This is another one of those “First World problem” posts. I’m really grateful to be debating over something like this.)

How will this affect my budget?

It’s the first, and most important, question. Our spending will automatically change, monthly, with this expense. It’s not something we buy once and get to enjoy it. It will truly inflate our lifestyle and our budget. To be honest, I don’t really use a strict budget. I make savings goals each year, and simply aim to reach those goals.

I crunched the numbers to see what our spending looks like, using the 50/30/20 paradigm (50 percent bills/30 percent spending/20 percent savings goals) as reference. If we were still trying to get out of debt, it would change my perspective quite a bit, but here’s how my spending stacks up in any event, generally speaking.

I was surprised that spending was my highest percentage, because I consider myself a frugal person. But I guess it makes sense — my fixed expenses are pretty low, compared to the 50/30/20 method, and that’s because I am so frugal with those expenses. I cut back on the things I don’t care about so I can spend more money on the things I love, like travel and dining out.

If we moved to the new apartment, the bills and rent percentage would jump to almost 30 percent.

“That’s still great compared to most people’s budgets,” my boyfriend argued. Which is true, but I’d rather compare my spending to my own goals, not other people’s expenses.

So back to the question: How will this affect our budget? I’m not going to budge on my savings goals.

I guess I could always take on extra work to make up the difference. That would keep my spending and income gap in tact. But dammit, I don’t want to work more.

In that case, the extra money would have to come out of our spending. That means less dining out or less travel. I have to ask myself, Is the apartment worth giving up a bit on those things? And, in that case, is it truly lifestyle inflation, or just a trade-off?

(Note: My boyfriend and I haven’t fully merged our finances yet, so I’m only calculating my own budgetary changes.)

What is the opportunity cost?

The extra amount I’d pay each month, $120, equates to $1,440 a year. And I could be losing even more than that, if you consider the opportunity cost. What additional opportunities are we giving up by spending that money?

For example, let’s say we choose to invest that money instead. If I invest $140 a month, in a year, that’s almost $1,500 (assuming a return of 7 percent). And in three years, that would be $4,800. If we combined our savings, that amount will jump to about $9,500.

Suddenly, I wonder if I really hate doing the dishes that much. Is a more comfortable lifestyle worth the opportunity cost?

And what is that cost in terms of my goals?

Let’s say my goal is to save up for a down payment for a home in L.A. If I save that money instead, I could buy a home sooner. But how much sooner? Homes here are expensive, and, unfortunately, $9,500 would be about a tenth of what our down payment might cost. I might rather live it up in this apartment for the next three to five years at the risk of pushing back my homeownership goal a bit. In that time, maybe I’ll pick a cheaper place to live, anyhow.

What am I getting in return?

I showed my boyfriend that figure.

“But it’s not like we’re not getting anything in return for our money,” he said. “Plus, we’ll cut back on spending, not our savings.”

Even though I defended renting a while back, I couldn’t help but argue:

“But we’re spending more money on a place we don’t even own. It’s like throwing money away.”

“With that logic,” he said, “Why don’t we just move into the cheapest apartment we can find?”

He has a point. Renting is just our reality. I’d love to buy a home someday; but if I stay where I’m at, it’ll be a while before that happens. Isn’t it okay to enjoy my income a little in the meantime?

Still, there’s a part of me that feels we’re spending more money on something, and, when it’s all said and done, we have nothing to show for it, because we don’t own it.

“When we travel, we don’t own anything, either,” he said. “Except the memories. It’s more of an experience purchase. In this case, we’re paying for comfort.”

And here’s the comfort we’d be getting in return:

  • A bit more free time: We’d save time doing the dishes. Also, when both of us have a busy week, we sometimes order out too much and avoid cooking. Cooking equals dishes, and I know neither of us will have time to do those dishes the next day, so it’s just easier to order out. I’m not arguing that this dishwasher will save us money, but it might make it easier to avoid stress spending.

  • Brand new stuff: This is a rarity when you rent. It’d be really nice to use a tub and toilet that a hundred other people haven’t used on a regular basis.

  • More space: The apartment is slightly bigger, which is nice, though it’s not that big of a deal to me. I don’t mind small spaces. But it would be nice to have more room for my home office.

  • Better aesthetics: The layout, lighting and amenities are better, making our day-to-day environment more comfortable and pleasant.

How frequently will I enjoy this?

Another important consideration in mulling over my lifestyle upgrade: Is this upgrade something I will enjoy often? It makes sense to spend your money where you spend your time.

A couple of years ago, we splurged on an expensive mattress, part of the justification being that we spend 8 hours a day on the thing. My back and I have zero regrets about that decision.

On the other hand, I once bought an expensive pair of heels. I work from home and rarely go to fancy places, so these shoes mostly just collect dust in my closet. Every now and then, I look at them and wonder if I should just try to sell them.

The apartment splurge is something I would enjoy on a daily basis, especially since I work from home. Also, I’d have more room for my home office, which would be nice.

I like being frugal. But, as we’ve discussed before, frugality isn’t just about saving money. It mostly seems to be about optimizing value. I’m not saying that this move would be a frugal choice; I just wonder if it’s inherently un-frugal. I’ll admit, I’m leaning on the side of moving, because I have no real concrete goals, I’m just saving to save, and, hell, I want to live a little. I’m into personal finance for the financial freedom, flexibility and options. What’s the point of managing my money so well if, when I finally get to the third stage of finance, I hesitate to spend it on day-to-day comfort and convenience?

It all sounds very rational, but the cautious side of me worries that I’m only justifying things. After all, I didn’t get to the third stage by giving into lifestyle inflation.

Still, it sure would be nice to move into what now seems like the perfect apartment.

What do you think? Is moving into a better apartment a bad personal finance decision? How do you decide on lifestyle upgrades? Is there something else to consider?

Source: getrichslowly.org

Looking out for your finances as a renter

Landlords and property owners have their fair share of problems: They have to manage, accommodate, repair, etc., their property. It’s a lot of responsibility, and with great responsibility comes great headache.

But it ain’t all roses for renters, either. We’ve got rent increases, security deposits, and unannounced, inescapable construction. Last Saturday, I woke up to the sound of drilling on the wall next to which I sleep. It was 7:30 in the ever-loving morning!

As a renter, there are a handful of important laws and considerations that many of us overlook. At least, I know I’ve overlooked them. So I figured they were worth sharing. Here are some money-related things to keep in mind if you are a renter.

My experience with alternative health insurance to Obamacare

A few months ago, I shared about how to survive without health insurance. To recap, I belong to a healthcare sharing ministry (HSM) called Christian Healthcare Ministries (CHM), just one of several ministries that are ACA-approved alternatives to health insurance. But I also want to share about my experiences with alternative health insurance to Obamacare.

What we belong to is not healthcare insurance; therefore, we don’t pay a premium (although we pay a “gift” each month or what amounts to a deductible, except it’s called a “personal responsibilty”). We chose this option because neither my husband nor I have access to an employer-sponsored plan. The most important consideration for us was cost, followed by coverage options. We opted for the most expensive level, which means that we have a $500 personal responsibility for each medical event that each of our family members experience on an annual basis.

Family of Five Pays $450 per Month for Health Insurance

At the time of the previous article, I was the only member of my family to belong, and I paid $150 per month. Now our entire family of five belongs for $450 per month. Even if our family size were to double, that is the maximum monthly contribution we’d have to make.

Don’t let your emotions drive your car-buying decisions

I was in the 6th grade when I first laid eyes on her. She was a 1989 BMW 635i Coupe that did donuts in the school’s parking lot after class thanks to an obnoxious, rich 11th-grader who got the car as a birthday present. I was immediately smitten and promised myself one day I’d be able to buy such a car too.

The new 6 series BMW came out in 2005 and all the memories came rushing back. What cost only $35,000 then now cost $75,000 thanks to inflation and an infinite amount of new features. I don’t know about you, but $75,000 is a big chunk of change and is way beyond my 1/10th rule for car-buying I say everyone must follow.

I figured instead of spending $75,000, why not go back in time and actually buy that 1989 635i Coupe! My brilliant idea led me to Craigslist where I found my true dream car listed in “fantastic condition with only 160,000 miles”! That’s only 8,000 miles a year I rationalized, and off I went to see the seller 45 minutes away.

Dinner ideas — cooking “flexipe” style to save money

I’ve been cooking for years. Although, if you ask my husband, I’ve been screwing up fried eggs for just as long. (His secret: Fry them on low to avoid cooking the egg too quickly.) So I am no genius in the kitchen, but I am getting better.

Flexible Cooking

I used to follow recipes exactly, afraid to deviate at all. (Didn’t have all the ingredients? Find another recipe!) But then I discovered a recipe in a cookbook that had the same basic ingredients (meat, pasta, diced tomatoes), but the recipe authors gave suggestions on how to use different spices (chili powder or Italian seasoning) and cheeses (mozzarella vs. sharp cheddar) to totally change the taste of the dish.

Since then, I have been trying my hand at doing a little kitchen experimentation. And I came up with “Flexipes” or flexible recipes. (Uh, at least I thought I coined the phrase. I guess not.) Flexipes are recipes that allow you the flexibility to create delicious, delicious dishes while using up what you have in your pantry.

Challenging traditional measures of financial success: Homeownership

(This is Part II in a series about challenging traditional measures of financial success. Part I is The “Ivory Tower”: Reconsidering the college investment. Part III is The 9-to-5 job: Challenging how we earn a living.)

Last week, I was having dinner with my neighbor, a magnetic woman with a free spirit and a really youthful soul. She’s been renting the apartment above mine for something like 30 years.

“Do you ever think about buying a home?” I asked her.