expenses. His management fees are costly. He should consider working with management companies that offer lowers rates. Raising rents 2% to 2.5% per year would help increase net operating income and cash flow.
THE FOLLOW-THROUGH: Springs is no longer dealing with five different mortgage companies and property management firms. He has narrowed them down to two so that now he is working with one person per state. He also renegotiated property management fees and raised the rents in a couple of units by more than 2.5%.
THE ADVICE: Explore interest-only mortgages.
THE FOLLOW-THROUGH: “I spoke to mortgage brokers about getting interest-only loans for the seven properties. But it would have been more costly to refinance,” Springs says. “I decided it made more sense to pay down more on the principal by making either biweekly or bimonthly mortgage payments.” Springs used the $2,000 winnings toward the loan he borrowed from his 401(k) plan. He also took out a $50,000 home equity line of credit, per Williams’ advice, to pay off his credit cards, car note, and a personal loan. Springs is still paying off student loans, roughly $80,000 in total. He refinanced the loans, consolidating to get a better rate of 5.25%.
THE ADVICE: Hold off buying more property. Before he purchases another piece of property, he should save four to six months worth of mortgage payments ($14,000 to $16,000) as an emergency cushion
THE FOLLOW-THROUGH: With the salary increase, he was able to save more money. Springs anticipates buying rental property in Baltimore in the future. However, since he believes home prices are currently overvalued, he’s in no rush.
THE ADVICE: Adopt new strategies. Since cash flow is an issue, Springs should purchase $500,000 in term life insurance to replace the $150,000 fixed universal life insurance policy. At his age, he can also temporarily cut back on contributing to his 401(k).
THE FOLLOW-THROUGH: Springs became a convert. “Getting term insurance was cheap,” he says. He was originally contributing 25% of his salary to his 401(k) at work but has since decreased that to 10% given Baltimore’s high cost of living.