Should you buy rental property near your home?

I didn't set out to own real estate in two states, but life takes funny turns.
bought a condominium in central New Jersey when I was single. When I got married five years later, we moved to Minneapolis, but I kept the New Jersey place as a rental.
We bought a house here, and two years ago wepurchased another rental property: a condominium in St. Paul, about a 20-minute drive from our home.
That's given us the experience of managing rentals from both up close and far away. I don't know that one is definitely better than another, but they do have different pluses and minuses.
Let's take a look at three major differences.
Difference 1. Cost.
It costs more, in both management expenses and other outlays, to own real estate that's in another state.
Our biggest expense is management. We have a professional manager for the New Jersey property.
He takes 15% of the monthly rent, which seems to be pretty standard. Fifteen percent of zero is zero, of course, so he has a financial motivation to keep the place rented.
If he finds tenants who follow the Rules for Renters that I learned at my mother's knee — pay the rent on time, don't wreck the place, don't irritate the neighbors and speak up when something breaks so we can fix it — then his job is simple. He accepts a monthly rent check, takes his 15% and forwards me the balance.
If he finds problematic tenants, that means more work and less income for both him and me.
The manager also arranges repairs and replacements when things go wrong. He doesn't charge me for his time — it's included in the 15% — but he typically doesn’t fix things himself, either.
He hires professionals and I pay them. This, of course, costs more than going over and unclogging the garbage disposal myself.
Although I trust our manager, I like to walk through the condominium myself annually, to make sure things are shipshape and to arrange for any maintenance the tenants haven't mentioned. The IRS lets me deduct the cost of a trip once a year.
We have to pay taxes on whatever profit we make in the state where each condo is located, so we file a federal tax return and state returns in both New Jersey and Minnesota. It's a hassle, but not an enormous one.
In addition to paying our manager, we also pay the condo association a monthly fee, which covers such things as trash removal, snow shoveling, landscaping, and the care and upkeep of common elements, which include the roof, outer walls and balconies. There are 440 properties in the association.
Otherwise, we have little to do with the condo association for our New Jersey property, which is a sharp contrast to our St. Paul condo.
Difference 2. Involvement.
Our St. Paul condo is one of 11 units — so everybody has to get involved.
We go to association meetings, and my husband is association secretary.
We also pay a monthly fee, on par with what we pay in New Jersey. Here, however, we put in a great deal more time.
That time is often spent either fixing things or arranging for them to be fixed. My husband's hard work has saved us money, but it's also meant some time spent researching repairs, actually fixing things, calling contractors, letting contractors in and so forth. In New Jersey, we toss money at maintenance issues, and the problems get solved.
Because the St. Paul association is so small, we know the other owners decently well. Most of them live in the units, and I think they would say so if they were having a problem with one of our tenants.
I also suspect they would resent us if we were absentee landlords, because the association relies on owners to run the place. The New Jersey association is much bigger and spends money to pay professional staff, so no one notices or cares that we're not active.
Difference 3. Choosing tenants.
In New Jersey, I've never met our tenants. Our manager selected them from the folks who answered an ad, and they spend every day alone with my $200,000 investment. Sometimes that feels a little weird.
On the other hand, there's no danger that I'll let whether I like or dislike the tenants affect decisions about rent or maintenance. Anonymity helps preserve a business relationship.
In St. Paul, I've met the tenant. He came with the place when we bought it. I like him but don't want to be his close friend, which is perfect.
Eventually, he will move, and then we'll have to pick a new tenant. This will give us more control over who lives in our investment.
However, it also means that someone less experienced than our New Jersey property manager — me and/or my husband — will choose the next tenant.

The 7 biggest mortgage mistakes to avoid

A mortgage is the biggest debt most of us will ever carry, and a home is the most expensive purchase we will ever make.
That's why it's so important to avoid mistakes that cause you to pay more than you should.
Don't let the unfamiliarity and enormity of taking out a home loan scare you.
People make smart choices every day. They make a budget to see what they can afford, then get home loans with great interest rates, low fees and predictable, fixed monthly payments.
Avoiding these mortgage mistakes will be a big step toward making home ownership a joy, not a burden, and put you on the path to long-term financial security.

Mistake 1. Making yourself house poor.

Committing too much of your monthly income to housing-related costs means that you have little or no money left over for anything else.
Replacing a worn-out car. Saving for retirement. Building a college fund for the kids. Even buying furniture for your home is beyond your means.
All in all, it's a pretty crummy way to live that turns home-buying into a mistake you regret almost every day.
Spending less than 28% of your pretax income on housing is the first, most fundamental, rule for determining how much you can truly afford to spend.
If you earn $75,000 a year, that means you shouldn't devote more than $1,750 a month to mortgage payments, insurance premiums and association fees.
Where you live, how much you make and other unique circumstances can make a big difference in how much of your income you can — and must — commit to housing.
This story on how much house you can afford provides a more detailed look at how much you should spend.

Mistake 2. Ignoring the true cost of home ownership.

Owning your own home comes with new expenses that surprise many first-time buyers.

Each year, budget 1% to 2% of your home's purchase price for routine maintenance. If your home costs $250,000, expect to spend $2,500 to $5,000 annually on unglamorous purchases like a new water heater or having your furnace serviced.
Some years you'll spend less. When that happens, set the money aside for pricier items like a new roof.
The older your home and the larger it is, the more you'll spend.
Property taxes also add to the cost of home ownership each year. Learn about the property tax system in your community to see what current rates are, when taxes can increase and by how much.
If your home is in a special flood hazard area, your lender will require flood insurance. Prices vary by location.

Mistake 3. Not shopping around for the best loan.

Do you check prices with several airlines before buying a plane ticket? Read the grocery store circulars to see who has the lowest prices?

Devoting a little time to finding the best possible mortgage can save tens of thousands of dollars in fees and interest over the life of the loan.
Yet a recent report from the Consumer Financial Protection Bureau says nearly half of Americans seriously consider only one lender or broker before applying for a mortgage. And about 75% fill out an application with only one lender.
Why are so many of us failing to comparison shop?
"It is a surprising finding, and it suggests that they're still fairly intimidated by the mortgage transaction," Richard Cordray, head of the government bureau, told NPR. "Or they're a little distracted because, at the same time, they're picking out a house."
Our extensive database of current mortgage rates is a good place to start your search. It lets you quickly compare the lowest available rates and fees from dozens of lenders.

Mistake 4. Ignoring APR.

Some lenders advertise low interest rates but make up for them with high fees.

You need to compare annual percentage rates from lenders' Truth-in-Lending disclosure forms to see which mortgage really costs the least.
APR includes lender fees and shows the loan's true cost.
A $100,000 30-year fixed-rate loan with an interest rate of 3.85%, where the lender charges two points, a 1% origination fee and $1,500 in other closing costs, has a 4.215% APR.
The same loan at 4.05%, with no points, a 1% origination fee and $800 in other closing costs, has a 4.199% APR.
The first loan looks cheaper because of its lower interest rate, but it costs more in the long run and requires you to bring more cash to closing.

Mistake 5. Putting little to nothing down.

Most lenders require 20% down to get their best rates and avoid paying mortgage insurance — an extra cost that typically adds $100 or more to your monthly payments.

Although borrowers must pay the premiums, mortgage insurance protects the lender, not you. If you fail to make the payments and must be foreclosed on, the mortgage insurer will cover a percentage of the lender's loss.
Private mortgage insurance on conventional financing costs 0.20% to 1.50% of the outstanding loan balance each year.
FHA mortgage insurance charges an up-front premium of 1.75% that can be rolled into the amount being borrowed and an annual premium of 0.85% of the loan balance.
Once you agree to a loan with mortgage insurance, you're stuck with paying the premiums for years to come.
It typically takes two to seven years to build enough equity, or sufficiently lower the outstanding balance, to cancel private mortgage insurance.
FHA loans require mortgage insurance until the loan is paid in full.

Mistake 6. Not checking and fixing your credit reports.

Checking your credit report with all three major credit bureaus — Equifax, Experian and TransUnion — is free through

Free credit-monitoring services like those offered by Credit Karma and Quizzle also give customers access to one bureau's report.
It's important to examine your credit reports carefully, because any mistakes — and they are depressingly common — could lead to a higher mortgage rate or even loan rejection.
If possible, check your credit six months to a year before you apply for a mortgage to give yourself plenty of time to fix errors and make changes that will improve your score.
Using less than 20% of your available credit card limit each billing cycle (yes, even if you pay your balances in full and on time), paying down loans with large balances and making all your loan payments on time are easy ways to improve your credit score.
With below-average credit, the only loan you might qualify for is an FHA loan, which has expensive mortgage insurance premiums for the life of the loan.

Mistake 7. Not going with a VA loan if you qualify.

We think VA loans are the best mortgages for pretty much anyone who can qualify for one.

Millions of veterans, along with those on active duty, including the National Guard and reserve units, are eligible.
Among the advantages:
  • The VA makes sure buyers don't overpay for a home and that it's move-in ready, without any costly, unexpected problems.
  • It requires no down payment on purchases up to $417,000 in most areas and yet charges no mortgage insurance.
  • The VA tightly restricts the type and amount of closing costs.
  • Interest rates are very competitive, even if you have relatively poor credit and lots of debt.
How competitive? In most cases, you'll pay the same interest rate as borrowers with a 760 credit score and a 20% down payment.
The only financial drawback to a VA loan is what's called the funding fee, which can range from 1.5% to 3.3% of the amount you're borrowing.
The fee can be added to the loan so you won't have to pay for it up front. If you have a service-connected disability, the funding fee is waived.

How I remodeled my bathroom for just $2,400

The average cost of a midrange bathroom remodel is $15,782, according to Remodeling Magazine's most recent cost vs. value remodeling report.
While the conventional wisdom says that bathrooms and kitchens sell homes, such projects typically only recoup 65.2% of their cost in the home's resale value in today’s market, the report shows. Even so, that return makes bathroom remodeling one of the most valuable home improvements on our list.
Of course, averages can be misleading. People who do expensive projects push the averages far beyond what the typical homeowner spends.
Despite the high cost and negative return on investment, Consumer Reports says bathrooms are second to kitchens on homeowners' lists of rooms they want to remodel.
The guest bathroom was high on my list of things to remodel in the fixer-upper home my husband and I bought in 2008.
How we budgeted
We weren’t about to spend $16,000 to remodel the bathroom. We were thinking more like $1,500 to $3,000.
Amy Fontinelle's bathroom before remodeling it.
We faced a much lower potential expense because our bathroom is only 5 feet by 7 feet. That’s about the smallest space into which anyone outside of New York City can squeeze a bathtub, toilet and sink.
We decided not to touch the bathtub, the surrounding tile or the shower doors. We don’t love them, but we also don’t use them, and they can be hidden nicely behind a shower curtain.
We also wanted to reduce our risk of experiencing a bad remodel with an expensive leaky shower problem.
To avoid laying out a ton of cash at once to pay for the remodel, we bought things gradually over five months and stored them in our garage.
This strategy also let us take advantage of sales and coupons as they came up, which saved us $150.
Time and money trade-offs
Our plan was to hire a professional contractor to do everything. We had waited so long to remodel that we didn’t want to mess it up with an overzealous attempt at doing it ourselves.
After some difficulty in finding a reliable professional, we learned that an acquaintance worked for a general contractor.
The catch? We would have to take a chance on someone less experienced.
But then, we only had to pay $600 for labor, or 25% of our total cost.
What we didn’t foresee was that our contractor would need a lot of help from my husband. He didn’t have a crew.
Amy Fontinelle's bathroom after remodeling
We ended up with a combination of professional help and DIY.
The project was supposed to take three days.
It took much longer, but we were happy with the finished product.
Here’s what threw off our schedule:
  • The bathroom vanity we so meticulously picked out didn’t match up with the sink plumbing. We had to shorten one of the drawers and cut out an extra notch in the back of the cabinet to make it fit — a multiple-day project.
  • We had to replace the piece of wood flooring that transitions from the hallway to the bathroom. That meant two trips to the store to find a matching piece and a lot of woodworking to make it fit.
  • After the first intense week of renovation, we dragged our heels finishing up out of sheer exhaustion.
All in all, we didn’t have full use of our bathroom for three weeks instead of three days.
Total cost
Fortunately, we didn’t have any significant unforeseen expenses.
What really added to the total bill were all the little things we didn’t think about budgeting for: tile spacers, caulk, a mixing bucket, assorted plumbing parts.
All told, the remodeled bathroom cost just under $2,400, including tax and labor.
Here’s how we spent our money:

Bathroom Budget Breakdown

Professional labor$600
Floor cabinet$318
Granite counter top with built-in sink and granite backsplash$240
Wall cabinet$173
Ceramic floor tiles$130
Light fixture$113
Grout, tile spacers, floor base, thin-set mortar, trowel, bucket and sponge$90
Sink faucet$85
Paint, primer, sandpaper, paint samples and paint tray liners$59
Plumbing supplies$55
Toilet seat$32
Wood floor trim$29
Trash can$27
Shower curtain$27
Granite samples$26
Towel ring$20
Shower curtain rod$19
Caulk and liquid nails to seal toilet and counter$17
Light switch and electrical outlet covers$15
Toilet flush handle$12
Pull chain for bathroom vent fan$4
If we hadn’t already owned tools like a screwdriver, level, drill and wrench, we would have spent a little more.
Where we didn’t skimp
We could have saved money by purchasing floor tiles that were sold by the tile instead of by the box. We weren’t able to return six unused tiles worth about $20.
We also could have purchased less expensive tiles, but since we had such a small space to cover, we didn’t mind splurging on a pricier choice.
We could have spent $100 less on a toilet, but we hated our current toilet and didn’t want to repeat the experience. We went with a highly ranked, best-selling model.
The plastic seat that came with our toilet looked and felt cheap, so we shelled out another $30 for a nice enameled one. Same goes for the toilet flush handle.
We didn’t buy apartment-grade fixtures. We knew from experience that they aren’t a good value in the long run.
Had we been on a tighter budget, we could have cut our expenses.
But it was worth saving for longer to get what we really wanted.
How to make your own remodel affordable
If you’re planning your own remodel, here are some tips for cutting your costs without sacrificing quality.
  • Don’t borrow money. Paying interest adds to your cost. Save up and pay cash.
  • Do anything yourself that you can. Most people can at least paint.
  • Design your project yourself, if you have a decent eye.
  • Buy nicer stuff from the big-box stores instead of high-end stuff from a specialty store.
  • Pick out what you want, then wait to see if it goes on sale or you find a coupon.
  • Don’t rent a trash container. Instead, gradually throw out the waste with your regular trash.
Whether your goal is to remodel a bathroom for resale or for your own enjoyment, doing it the way we did makes a lot of financial sense because you may never see a financial return on your investment.