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Given the option, owning assets that produce income is a much better financial strategy than owning assets that generate expenses.

If you own a house or apartment for your own residence, for example, you have a lot of expenses. You will need to pay for maintenance, repairs, taxes, mortgage interest, landscaping, utilities, or a homeowner association fee that covers some of these expenses. If, however, you own a house or apartment that is available for rent or lease, you can generate income with the property. In some cases, you can even end up with positive cash flow after all those expenses are paid for.

Being a landlord is a viable vocation. After all, landlords exist for every rental tenant, and they often thrive financially. Sasha, a former writer for Consumerism Commentary, owns several properties. She shared tips for buying a rental property for prospective landlords based on her own experiences.

Succeeding in the business of rental properties requires a certain set of skills and desires, and making a living isn’t always as easy as others would lead you to believe. If you want to earn a living — for example, the equivalent of a $50,000 salary — you’ll need to profit more than $4,000 per month. That’s a lot of pressure. Consider these questions and tips before jumping into the rental property business. That way you can determine whether you have what it takes to be a landlord.

Do you like “doing it yourself?”

If you’re a handy person who likes doing your own work around the house — light plumbing, perhaps some construction, yard work, and so on — you might be a good candidate for becoming a landlord. If you’re just starting out, it may be too expensive to handle outside contractors if you expect to turn your rental income into profit. Doing the work yourself saves money.

Do you know the right people?

Do you plan to expand your property portfolio beyond one or two locations? (If you want to earn a living, you’ll likely need to expand quickly.) Well, you’ll soon reach a point where you can’t handle all the work yourself.

You’ll need to call in trusted contractors to handle repairs quickly and thoroughly. If you have personal relationships with contractors, you’re in a better position to negotiate discounts and enhance your overall profit. These relationships take time to build, and it takes time to find the best people to hire for the work. If you’re able to begin your adventure as a landlord with these relationships already formed, then you’ll be in a much better position.

The same is true about real estate agents. If you have connections in this business, you will have better access to potential tenants, reducing your advertising costs. You may hear of new deals coming to market, before the sign is even out in the yard. Word of mouth is incredibly important, and knowing agents can remove some obstacles before you even get started.

Can you handle the 24-hour responsibilities?

Hiring a company to manage your properties is an expense that cuts into your profit. Depending on the location, you may be able to afford this from just your rental income. If that’s the case, work with a property management company who will answer the phone at all hours to fix any household problems that arise.

Otherwise, if you’ll be DIY-ing the management, be prepared for calls in the middle of the night from tenants, for problems big and small. If you’re starting your adventure with rental properties while working at another job, you will find yourself with competing priorities often.

Do you like dealing with people?

Some tenants can be difficult, there’s no way around it. In most states, tenants also have legal rights that level the playing field in disputes. If you’re able to screen tenants well and have a choice of potential residents, you can carefully choose who will be living in your house or apartment. If, however, you need to fill a vacancy to prevent losing money every month and there aren’t enough tenants interested in the property, you may have to accept a tenant you might not like in order to prevent negative cash flow.

Even if you believe you’ve chosen well, dealing with strangers is not for everyone. Tenants will certainly not care for your property as well as you would. Even nice people can surprise you in a tenant/landlord relationship. To become a landlord with a successful business, you’ll need to be able to deal with people who might be different than you in terms of values and personality.

Do you have cash and savings to buy the properties?

The great thing about buying a house with cash, rather than seeking a mortgage, is that you can eliminate the expense of the mortgage payments. Every cent of rental income you receive (after maintenance expenses are paid) is profit. That can make the difference between a rental property business that succeeds and one that struggles.

Leveraging your property purchase by using other people’s money — a mortgage — can turn out to be profitable when property values increase, but that’s not guaranteed. Loans open up the possibility of becoming a landlord to more people, easing the affordability of properties. Having the cash to buy the property outright is not necessary. If you have the money and are willing to invest in your own business, though, it will be much easier to generate a positive cash flow.

Can you charge high enough rent to cover your expenses?

In some locations, monthly rental properties are very competitive. That can drive down prices, decreasing your profit. If you’re competing in an area where most investors own their properties outright without a mortgage while you do have mortgage expenses to contend with, you have less pricing flexibility than your competitors. You need to charge high enough rent to cover your expenses, while still hoping to take home a profit.

With mortgage payments to contend with and potential competition, you may only be able to profit $200 to $400 per month on a property. That’s $4,800 a year… a far cry from the $50,000 we’re talking about for earning a living. You’d need to own over 10 properties, each profiting $400 per month, in order to reach that target.

Related: Using the 1% Rule to Determine If a Rental Property Is a Good Investment

Sure, once you own multiple properties, you may also be able to increase that per-property profit due to economy of scale, buying materials in bulk, and receiving significant discounts from contractors. You might be able to reach the annual income target faster, but it will still take a long time to reach the number of units necessary. Use this mortgage calculator to assist in determining how much profit you might generate.

In other locations, though, you can charge much higher rent compared to the purchase price or mortgage payment. Property prices still tend to be high in New Jersey (where I live), so potential for profit isn’t as great. Head to other areas of the country, though, and you’ll see a different story. There, you can buy properties commanding rental fees of $1,000 or more, for purchase prices of just over six figures. Let’s say your monthly mortgage payment is $450 and you can successfully charge $1,100 in rent. Well, your path to earning a living just got much clearer and shorter.

How much work are you willing to do for an extra $400 a month?

The initial hard work may pay off when you add additional properties to your portfolio. However, the path to millionaire status through rental properties is not as simple as television shows on HGTV might lead you to believe.

You may profit in terms of your financial statements, but if you consider your time and your sweat equity worth something, the calculation gets a little trickier. This is particularly true when you’re doing more work to get started.

Learn More: Fixer Upper: What I Learned from Flipping My First House

Even in markets where home prices have remained relatively high, it’s still possible to earn a living with rental properties. The work isn’t for everyone, and that’s a good thing. Those who are willing to put the necessary labor into creating a successful business will be rewarded. While you can bring in extra cash from a sole property, earning a true living isn’t that easy. If you want to create a passive income that can support your family, you’ll need to expand and add some volume to your rental property portfolio.

Are you earning a living through rental properties? What lessons have you learned? If you’ve considered becoming a landlord but have decided against it, what held you back?

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The concept of the Latte Factor is one of the most divisive in personal finance. Money gurus get so worked up over whether the Latte Factor is a valuable lesson in money management, that one might think the issue were as important as the national debt. Most of the time, passionate responses pertaining to the Latte Factor are based more on book sales and page views than any rational consideration of the issue, though.

latte

The Latte Factor is a term coined and trademarked by financial author and guru David Bach. He posits that small, repeated savings — of which people can make into habits — can aid the growth of wealth over time. The math supports this as truth: Assume you spend five dollars every weekday on a fancy, coffee-related drink on the way to your office. Now, imagine you cut out the coffee, or replace it with a $1.50, less-fancy drink. You would save at least $20 a week, or about $1,000 a year.

Take it a step further and put that money in a bank or invest it. Then, assume that you can earn a return from interest, dividends, or investment gains on that cash. Over the next ten years, you’ll have somewhere in the neighborhood of $15,000 more to your name than you would have, had you continued buying your daily gourmet drink.

Take it a step furtherLatte Factor Coffee

This concept isn’t limited to expensive coffee-related drinks, though. Any habits that result in spending money that could be deemed unnecessary can qualify for elimination due to the Latte Factor. Cook your own food rather than dining out once a week, and you could save just as much money (or more) over the same period. Cut out your premium cable package in exchange for Netflix or Amazon Prime streaming, and tuck that cash away.

Most people, however, don’t bridge the gap between reducing spending in one area and increasing savings with the difference. Unless there’s a concerted, conscious effort to transfer money from a checking account to a savings account or an investment, the money formerly spent on lattes or other repeatable expense will often just be spent on something else.

Furthermore, families that have already reduced their spending due to personal or economic situations may not have much room left to scrape the barrel. Finding additional savings can be too much to ask.

Yet another criticism of the Latte Factor is that it minimizes the importance of reducing large expenses. If a family gets into the habit of saving money ordinarily spent on lattes and uses that attitude to justify buying a more expensive car, all the work will have been for naught.

Well, I take that back: the work would have been for a more expensive car. But, in my opinion, there are about 100 better uses for that extra, squirreled cash.

Do what works for you

All spending is a choice. It’s easy to remember this when a friend refuses to spend time with you, citing the expense of the activity, while they continue to purchase unnecessary electronics equipment, for example. You can identify someone’s priorities by looking at how they choose to spend the money they have and the time they have available. If you look at your own priorities, your budget should match.

Whether you realize it or not, you’re broadcasting your priorities to the world. Spending money and time in one area of your life, at the expense of another area, is really all the evidence you need. If there’s incongruence between the priorities you think you should have and how you spend your time and money, consider changing something. Or maybe, you need to accept the idea that your priorities may not be what you expect. Your real priorities are evidenced by how you spend your limited resources.

So, what if the pick-me-up you receive by drinking a fancy latte in the morning is important to you? As long as you realize that your habit results in a hypothetical “loss” of $10,000 or more over the course of ten years, spend the money. Sure, buying a practical car that requires little care, uses fuel efficiently, and will last a long time can save money over the course of several decades. But if buying a less practical car makes you feel happy and won’t be a financial hardship — even if it means leasing a new car every three years — then go ahead.

Just remember, though: Your spending reflects your priorities.

I see this in my own spending. For example, I still drive my old Honda Civic. In one respect, I haven’t purchased a new car because I see it as an unnecessary expense. I’m more than comfortable with keeping the money I would need to buy a new car in my savings account. Meanwhile, I spend money on things other people would see as frivolous, such as photography classes and equipment, hiring a maid service for my apartment on a bi-weekly basis, coin collecting (though not much recently), and travel.

Is the Latte Factor relevant to your personal finance experience? What does your spending say about your priorities? 

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Most taxpayers can choose between itemizing tax deductions to reduce taxable income, which requires accurate record-keeping and support and taking the standard deduction. The standard tax deduction is a fixed amount that reduces the amount of money on which year-end taxes are calculated. Generally, if you can show that you’ve had more deductible expenses than the amount of the default standard deduction, it’s better to itemize.

IRS publication 501 outlines each year’s deduction amounts. There are some cases where adjustments should be made to the standard deduction. For example, if you are 65 or older, or if you are blind, the standard deduction increases.

The standard exemption is another deduction to your income that you can take for yourself and for any dependents.

Tax Year 2017 2016 2015 2014 2013 2012 2011 2010 2009
Single $6,350 $6,300 $6,300 $6,200 $6,100 $5,950 $5,800 $5,700 $5,700
Married filing jointly $12,700 $12,600 $12,600 $12,400 $12,200 $11,900 $11,600 $11,400 $11,400
Married filing separately $6,350 $6,300 $6,300 $6,200 $6,100 $5,950 $5,800 $5,700 $5,700
Head of household $9,350 $9,300 $9,250 $9,100 $8,950 $8,700 $8,500 $8.400 $8,350
Personal exemption $4,050 $4,050 $4,000 $3,950 $3,900 $3,800 $3,750 $3,650 $3,650

Note: When you file taxes in April 2017, you’re actually filing for your 2016 earned income. Review the numbers in the 2016 column and understand the federal tax brackets.

A dependent child can increase the standard deduction by as much as $1,000, if certain requirements are met.

Do you itemize your tax deductions or take the standard deduction?

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The U.S. Postal Service could offer basic banking services to customers, many of whom do not have reliable and affordable access to mainstream banking products like savings accounts and forms of credit.

From the moment I heard this, it sounded like a bad idea. Not long ago, discussions about the U.S. Postal Service focused on the question of ending delivery on Saturdays, the closing of 700 retail locations, and the elimination of the U.S. Postal service entirely. And now, there’s a proposal with studies claiming legitimate benefits across the board for expanding the services offered by this semi-private, semi-government entity.

The U.S. Postal Service has a weird existence. It is an independent government agency that operates like an independent corporation, but it is subject to congressional interference, oversight, and direction. USPS is not funded by tax revenue, yet the government still directs how the organization’s revenue is spent.

Providing the U.S. Postal Service with another profit center, like the ability to profit from basic banking services, might help the organization grow in strength.

The domestic precedent for banking at the post office.

In 1907, the United States suffered an economic recession, and this crisis was followed by a “panic” in 1910. The American public reacted by losing trust and faith in the banking industry, and in a bid to get money moving through the economy again, the Post Office began offering savings accounts in 1911. This made basic banking services available to working class people, who felt either abused or ignored by the financial industry. The savings account earned depositors 2% interest, while the post office earned 2.5% interest on the deposits by investing them with the mainstream financial industry.

The Postal Service continued offering deposit accounts through 1967, but still continues offering money orders, which allow customers to send money in cash form relatively securely from one location to another.

The social environment that spurred to government to allow the USPS to start offering banking services exists today. According to Elizabeth Warren, a senator who is in favor of expanding the Postal Service’s relationship with retail money-handling, “… [T]he average underserved household spends roughly 10 percent of its annual income on interest and fees — about the same amount they spend on food.”

The poor is spending too much money on non-bank financial services like check-cashing and payday loans. Poor communities turn to predatory, high-cost financial services because they don’t have many choices. Banks — and even credit unions, which are thought to better support local communities — do not set up retail locations in economically-stressed neighborhoods because it’s not profitable. There’s little trust in either direction between the banking industry and poor communities. Even if convenient retail locations did exist in high-poverty locations, customers would not walk through the doors.

But everyone goes to the Post Office or receives deliveries from a letter carrier. While the USPS reach in rural locations isn’t great, delivery services touch almost every household in the country, regardless of socio-economic status. If the U.S. Postal Service is able to offer check-cashing and small loans, and perhaps limited deposits again, and able to offer such services at a lower cost than what is currently available, it could mean a better lifestyle for those living in tough financial situations.

The foreign precedent for banking at the post office.

Other countries have successfully implemented similar models.

  • In Australia, you can bank at the post office. Australia Post works in partnership with the financial industry to accept deposits and make withdrawals and pay credit card bills.
  • In the United Kingdom, the Post Office offers banking services that compete with retail banking, and has recently expanded their selection of banking products. The Post Office in the UK is structured differently, with a different service that handles delivery and collection of mail (the Royal Mail), and both are now private companies than they are government agencies.
  • La Poste in France has its own banking subsidiary, La Banque postale, and post offices in that country offer banking services.
  • Poste italiene in Italy, which was once a government-owned monopoly but is now a public company under government control, offers financial products such as savings accounts and prepaid cards.
  • The postal service in Japan, again a former government agency that has gone through privatization, offers a variety of financial services including savings accounts, government bonds, investments, and loans.

The banking industry isn’t a fan of the idea.

Banks don’t want competition from outside their industry. Competition of this kind is a threat to the reputation of the industry, especially when an organization as unhealthy as the U.S. Postal Service can come in and undercut their pricing. A recent article in American Banker, the trade publication of the American Bankers Association poked fun at the idea that the USPS could serve poor communities better than the financial industry with “15 reasons why the post office should stay out of banking.” Each “reason” was a Tweet in which a Postal Service customer complained on Twitter about an interaction with the mail or an employee of the post office. The 15 reasons were in fact just one: poor customer service.

Customer service is a legitimate complaint. It seems far-fetched to take a work force that already seems displeased with the responsibilities they have and introduce more services. They will need training. They will need more staff to handle larger volumes of customers. The proposal could take a generally bad customer experience and make it much worse.

But the postal service does not hold a monopoly on bad customer service; in fact, the post office and the financial industry are roughly tied in the American Customer Satisfaction Index (ACSI). When it comes to pointing out customer service issues, the banking industry can sit back down.

Some in the U.S. Postal Service approve of the idea.

The U.S. Postal Service Office of the Inspector General released a white paper with research about and support for the idea. The Postal Service considers itself to be one of the most trusted companies in America (citing the Ponemon Institute’s survey which named the USPS the fourth most trusted company in the United States), but the organization isn’t usually included in surveys of the most trusted private companies because the USPS isn’t fully private. If the Post Office is trusted much more than companies in the banking industry, it is well-positioned to handle consumers’ financial responsibilities much better than banks.

The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector. It could accomplish this largely by partnering with banks, who also could lend expertise as the Postal Service structures new offerings. The Office of Inspector General is not suggesting that the Postal Service become a bank or openly compete with banks. To the contrary, we are suggesting that the Postal Service could greatly complement banks’ offerings. The Postal Service could help financial institutions fill the gaps in their efforts to reach the underserved. While banks are closing branches all over the country, mostly in low-income areas like rural communities and inner cities, the physical postal network is ubiquitous.

Here’s the bottom line. The banking industry has no interest in expanding services to cover poverty-stricken communities and households and those households have no interest in dealing with the banking industry. At the same time, the poverty needs financial services, and they are restricted to their only, expensive options like payday loans and check-cashing storefronts. These products exist because there is a need for them — or for something. So far, this has been the only profitable, and thus sustainable, way to bring financial services to certain communities.

If we can leverage an existing infrastructure to reduce the cost of financial service for the poor, and reduce their financial burden at the same time, it’s worth looking into. The U.S. Postal Service is not always the example of a perfect organization, but it is not any worse than your average bank. Despite closures, the Postal Service has the infrastructure in place to better reach communities underserved by the financial industry. Any other method of expand financial services would require a much bigger investment in infrastructure and would not be financially viable.

The U.S. Postal Service should begin to offer basic banking services, like savings accounts and prepaid debit cards. The financial industry doesn’t need to see this as competition, because the primary target customer isn’t interested in working with a bank, anyway. The Postal Service could partner with the industry behind the scenes to take advantage of the financial infrastructure that already exists. A relationship is possible, and rather than fight society’s attempts to better serve the underserved, the financial industry should welcome any kind of innovation that would help bring banking to lower classes.

Eventually, as households in poverty become better acquainted with financial products, they will become better customers for banks, even if it takes a generation for that to take hold.

Photo: Flickr

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With More Options for Marriage, Income Inequality Increases

by Luke Landes

An article on The Atlantic brought new research on the growth of income inequality to my attention. The article explains that the cause of today’s income disparity between the wealthy and the rest of the country is explained by the plot of the film When Harry Met Sally — or the increasingly common occurrence of […]

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2014 Federal Income Tax Brackets and Marginal Rates

by Luke Landes

Anyone who likes getting a look at their future tax expenses might be interested in seeing what next year’s tax brackets and tax rates will be. The IRS has now announced the official rates and brackets for 2014, although the numbers have been predicted for months because the IRS uses a simple process of inflation […]

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How the Affordable Care Act (Obamacare) Will Affect My Insurance

by Luke Landes

In just a few days, one of the major provisions of the Affordable Care Act will go into effect. The health insurance marketplace will open. The public discussion about this marketplace and about Obamacare overall is full of partisan politics, so it’s difficult to see beyond the rhetoric and get an idea of what this […]

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How to Save Money Without Worrying About Coupons

by Luke Landes

The retail industry has everyone fooled. While millions of people spend their time scouring for deals, clipping coupons from the newspaper if they’re old-fashioned, plugging into the latest mobile deal applications if they are somewhat more technologically inclined, sharing their finds on Facebook to recruit friends for group deals, the companies on the other side […]

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8 Reasons to Sell Your Business

by Luke Landes

I was an entrepreneur by accident. When I started blogging in 1994, I didn’t expect to earn money; I wasn’t even trying. But almost ten years after building my first website, I created Consumerism Commentary to learn about personal finance and to improve my own money situation. Within about a year, much to my initial […]

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Many Low-Income Families Can’t Use Mainstream Banking Even If They Wanted

by Luke Landes

I’ve written previously about many different reasons households, particularly those in locations where families typically have low incomes and those in areas where certain minorities constitute a majority of households, are more likely to take advantage of the high-cost alternative banking system including payday loans and check-cashing storefronts. For example, traditional banks find it difficult […]

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