Like many single parents, Kenneth O’Mard, 28, is trying to make ends meet. The Maryland police investigator is raising his two children–Rayshawn, 8, and Rayvin, 4–with a $43,000 salary. His children’s mother, whom O’Mard never married, lives in New York and doesn’t provide him with any financial support. In fact, until recently, O’Mard was sending money to assist her as she looked for a job after having been a stay-at-home mother for two years.
O’Mard’s situation is tricky because, as a man, he doesn’t feel comfortable asking his children’s mother to help with the bills. “It’s kind of a macho thing, I guess,” he explains. “If push comes to shove, I’ll work overtime before asking her for money.”
Rayshawn and Rayvin lived in New York with their mother until a year ago. O’Mard would send about $400 to New York each month and traveled back and forth from Maryland to visit them. He had initially moved from New York to Virginia in search of a better career, and he’d hoped his children and their mother would follow. But the couple split and they both decided that the children should live with O’Mard in Washington, D.C., where he had settled, as he could provide a more stable environment for them with help from his parents, who also live in the Washington, D.C., area.
O’Mard has two investment properties in Richmond, Virginia, that should be making him money. Instead they’re depleting his cash due to high interest mortgages and his lack of knowledge about, and inexperience at, being a landlord. The first house, worth $109,000, has an outstanding loan balance of $30,000 at an 11% interest rate. The second house is valued at $130,000, with $58,000 left to pay on it at a 10.5% interest rate. He bought the first property in 1997 and lived there for a year before he refinanced and used the $60,000 proceeds to buy the second property. He also refinanced the second home and intended to use $15,000 of that money to buy a house in Maryland. However, he gave the money to his children’s mother for safekeeping and has yet to get it back.
Although he should be earning extra money because he rents out both properties, one of his tenants is $3,700 in arrears. He has taken the tenant to court and is in the process of collecting the money.
O’Mard typically has little money left after covering his monthly expenses, but he has still managed to put several things in place to ensure a comfortable financial future. He has $2,000 in his checking account and $1,000 in a
savings account. He places $75 per month into a growth mutual fund–he’s already accumulated $3,000–and 8% of his paycheck goes into his 401(k). O’Mard also puts $100 each month ($50 for each child) into a 4% interest-bearing savings account through his credit union.Other than the mortgages on his investment properties, a $7,500 car note, and a $3,000 personal loan through his credit union, O’Mard carries little debt. He would like to eliminate what debt he has and save $25,000 to put toward a real home for his family. His ultimate professional goal is to start his own property management or security company.
Though having custody of his children means additional expenses, O’Mard believes that they have actually helped keep him focused on his aspirations. “I’m not thinking of just myself,” he says. “I’m thinking of what’s best for us.”
THE ADVICE
BLACK ENTERPRISE consulted Fitzgerald Miller, a financial consultant at AXA Advisors L.L.C., to review O’Mard’s finances. He offered the following advice:
REFINANCE OR SELL PROPERTY
Compared to recent market rates, O’Mard has high interest mortgages, and they’re consuming about $1,200 of his money each month. Miller says O’Mard should be able to refinance both houses and lower their interest rates to about 7%, taking advantage of the current trend in real estate. Refinancing would allow him to tap into the equity built up in his properties and eliminate debt.
Miller suggests that O’Mard review the rents he charges his tenants. He should charge rent comparable to current market rental rates and make every effort to have his delinquent tenant removed. Paying a mortgage that should be covered by rental income is putting a strain on his finances.
He might also consider simply selling one or both of his properties so he can concentrate on managing his personal finances rather than dealing with the hassles of being a landlord. The funds from the sale would allow him to eliminate his debts, invest for retirement, and put a $25,000 down payment on a new home.
START AN EMERGENCY FUND
Once O’Mard has increased his cash flow, he should build an emergency fund to cover three to six months of living expenses in case he loses his job.
SAVE FOR COLLEGE
O’Mard should put $100 per month, along with his $2,000 in contest winnings, into his growth mutual fund. Although there is added risk, this would give him a higher rate of return than the 4% he is currently getting from his savings account. He could also invest the money in Maryland’s 529 plan, which offers a $2,500 tax deduction on contributions.
Miller says O’Mard’s goal
should be to set aside $200 per month for each child as he will need at least $200,000 to send each of them to college. Although he doesn’t want to ask the children’s mother for support, as the custodial parent, O’Mard should make an effort to receive some funds from her to contribute to the children’s college accounts.BUY MORE INSURANCE
Given his profession, it is important that O’Mard have adequate life and disability insurance to pay off his debts and provide for his children in case anything happens to him. He also needs a will, which should clearly stipulate who would care for his children if he was unable to. O’Mard has sufficient disability insurance, which covers 80% of his income if he is unable to work. He also has $250,000 of life insurance through his job, but Miller thinks it’s a good idea for O’Mard to at least double that amount.
CREATE A BUSINESS PLAN
Since O’Mard wants to start his own property management company, he should develop a business plan and look into funding sources such as federal government loan programs and grants. He might also want to consider taking a property management course to help him prepare for his venture. BE
Winner No. 44 Kenneth O’Mard
Financial Snapshot:
| HOUSEHOLD INCOME | |
| Gross Income | $43,000 |
| ASSETS | |
| Home 1 | $109,000 |
| Home 2 | 130,000 |
| 1993 Mercedes-Benz | 7,000 |
| Mutual Funds | 3,000 |
| Checking Account | 2,000 |
| Savings Account | 1,000 |
| 401(k) | 8,000 |
| Total | $260,000 |
| LIABILITIES | |
| Mortgage 1 | $58,000 |
| Mortgage 2 | 30,000 |
| Car Note | 7,500 |
| Personal Loan | 3,000 |
| Total | $98,500 |
| Net Worth | $161,500 |