Observations from Re-Renting Rental #1

I just went through the most stressful and time consuming rental turnover I have had since I began renting out Rental #1 5 years ago. Rental markets as with real estate are very localized, but I figured I would share some observations from trying to find a new tenant this year.

It was a far cry from the experience I had with Rental #2 back in May where I didn't even have to listed it to get it rented - the current tenant had a friend that wanted to rent the place.

Previously when I needed to find a tenant for either rental I found between a "For Rent" sign in the front yard and an ad on craigslist was all I need to get many potential renters to inquire. In today's environment I found craigslist to be a lot less effective than it use to be. I believe the sheer volume of ads on craigslist limited my ad's exposure.
This time around I expanded my advertising to include Facebook Marketplace, Postlets, and hometownrent.com.
I found my pricing was less competitive this year in my comparison research. It appeared that there were many houses that were priced for rent below market - they appeared to be houses people couldn't sell for the right price and were trying rent out. I assume may take a year or two for these folks to sell there house or realize they pricing there rental too low.
I ended up reducing the asking rent to the lowest amount ever to ensure I didn't have a prolonged vacancy. Once I reduced the rent interest in the house picked up and I was able to get it rented successfully. The house ended up vacant for 11 days, the longest vacancy I've ever had. I tried to take advantage of the vacancy by getting some improvements done in the property - new kitchen countertop, new bathroom flooring, touch up painting, replacing rotted trim.

Investment Performance July 2010 (+6.17%)

This is an ongoing monthly update on how our equity investments are performing. Please see this background on the investment tool I developed and how I am using it to track our performance against a benchmark to measure our progress or lack thereof.

July Highlights:

Our monthly performance was a disappointment compared to our benchmark (6.17% vs 7.02%).
This marks 6 months in a row that our benchmark, the Vanguard Total Stock Market Index (VTI) has beat our portfolio. Not a good recent track record.
We made some purchases at the beginning of the month as stock prices were still reeling from June. We purchased some additional shares of Genworth and Bank of America and we believe both of these companies are trading very cheap compared with their historic earnings rate.
Our recent monthly returns were: Jan 09 -4.98%, Feb -9.94%, Mar +8.45%, Apr +10.88%, May +4.65%, Jun +0.89%, Jul +9.94%, Aug +4.36%, Sept 3.15%, Oct -2.34%, Nov +5.83%, Dec +1.85%, Jan '10 -2.34%, Feb +2.25%, Mar +5.88%, Apr +2.54%, May -8.13%, June -5.64%, July 6.17%.....

July 2010 Investment Report:

$4 Movie Ticket via Fandango

Groupon is offering a movie ticket ( up to $12 off) via Fandango for $4. Limit 1 per person but each person in your party could buy the Groupon. Offer to purchase Groupon expires 8/30 and must redeem on Fandango by 2/28/2011. My wife and I each picked up one for a future date night.

Everbank Refinance Closing Costs

We closed last week on the refinancing of our primary mortgage. We ended up getting a 30yr fixed mortgage @ 4.375% for $256,000 through Everbank. We decided to maximize what we borrowed at this low rate and will use the additional ~$20k borrowed to pay off part of a higher rate mortgage on a rental property.

I thought it might be useful to some to see how our closing costs ended up evolving over the course of the refinancing process. Here is the initial unofficial GFE numbers I viewed on Everbank's website before applying:

Unofficial GFE From Web Site	Estimate	My Estimate*
Everbank Origination Fee	$ 541.95	$ 541.95
Closing credit for IR 4.375%	$ (913.92)	$ (913.92)
Appraisal	$ 390.00	$ 390.00
Credit Report	$ 15.50	$ 15.50
Tax service fee	$ 74.00	$ 74.00
Title services and lender's title insurance	$ 1,280.00	$ 800.00
Flood certification fee	$ 15.50	$ 15.50
Gov recording charges	$ 84.00	$ 84.00
Costs	$ 1,487.03	$ 1,007.03

*My Estimate is lower because I was assuming that the title insurance would be significantly lower by taking advantage of title insurance re-issuance.

If you assume a $47/mo initial net monthly savings from refinancing I would roughly cover my costs @ $1,007.03 in about about 2 years. After I started to apply and talked to my loan officer and hymning and hawing about the closing fees, the loan officer agreed to through in a credit at closing for the appraisal fee if a went ahead and applied.

Once I applied the official GFE looked like this:

Official GFE with Application	GFE Estimate	My Estimate
Everbank Origination Fee	$ 541.95	$ 541.95
Closing Credit for IR 4.375%	$ (913.92)	$ (913.92)
Appraisal	$ 390.00	$ 390.00
Appraisal Credit	$ (390.00)	$ (390.00)
Credit Report	$ 15.50	$ 15.50
tax service fee	$ 74.00	$ 74.00
Title services and lender's title insurance	$ 1,280.00	$ 800.00
flood certification fee	$ 15.50	$ 15.50
Gov recording charges	$ 84.00	$ 84.00
Out of Pocket (Excluding Pre-paid)	$ 1,097.03	$ 617.03

*My Estimate is lower because I was assuming that the title insurance would be significantly lower by taking advantage of title insurance re-issuance.

The good news is that my expected closing costs were headed in the right direction. With net closing costs @ $617.03 it would take me just over 12 months to cover my closing costs assuming a $47/mo initial net monthly savings.

Here's what the HUD statement ended up looking like:

From HUD-1 @ Closing	Estimate
Everbank Origination Fee	$ 541.95
Closing Credit for IR 4.375%	$ (913.92)
Appraisal Fee to First American	$ 390.00
Appraisal Credit from Lender	$ (390.00)
Credit Report to CREDCO ($15.50 + $4.50)	$ 20.00
Tax Service Fee to Lereta	$ 74.00
Settlement of Closing Fee to ServiceLink	$ 700.00
Closing Fee Credit from Lender	$ (300.00)
Title Insurance to ServiceLink	$ 227.50
Mortgage Processing Fee to ServiceLink	$ 10.00
Tax Research Fee to ServiceLink	$ 35.00
Flood Certification Fee to Elite Lender Srvcs	$ 15.50
Gov Recording Charges	$ 72.00
Out of Pocket (Excluding Pre-paid)	$ 482.03

Once I got the HUD statement before closing I realized that the settlement fee was way higher than I expected - I had been assuming a fee in the neighborhood of $400-$500 in line with previous mortgage closings. This is where I felt Everbank was being intentionally vague on its GFE not spelling out what was covered by the title services estimate. In retrospect I should have drilled into that line item more on the estimate instead of just assuming it was primarily title insurance.

I immediately contacted my loan officer and asked for an additional credit to offset some of the settlement fee or I was not going to proceed with the closing. He quickly offered a $300 credit to prevent any issues with closing. As a result my final costs were slightly better than expected and assuming a $47/mo initial net monthly savings we will be able to cover our closing costs in just over 10 months. In the end I am pretty happy with what I received and my experience with Everbank.

Wells Fargo Three Step Refinance With No Cost

While in the middle of our refinance, I received a letter from Wells Fargo (who currently owns our primary mortgage) giving me an opportunity to refinance with them through a simplified process that would cost us nothing to reduce our interest rate or even change the term of our loan.

The program was called the Wells Fargo Three-Step Refinance System program that would basically allow me to reduce my interest rate by .25% and reset my loan term to 20 or 30 years. It pitched a simple refinance process that had no costs to the customer and closing paperwork that Wells Fargo would mail to you, you sign, get notarized, and mail back.

While the rate offered to me wasn't very competitive with the rate I am refinancing with (4.625% vs 4.375%), it does offer a key benefit. Its a no closing cost mortgage - if you can reduce your interest rate and not incur any costs to do so, its a no brainer, refinance. If Wells Fargo is offering this type of program that means most lenders are as well.

Since I am already pursing a refinance Im going to pass on this opportunity, but if I wasn't considering refinancing, I would jump all over this. For anyone with a 30yr mortgage at 4.75% or more, this type of program might be helpful even if you haven't considered refinancing.

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