Escrow Account

If you are renting through a realtor, the realtor might ask you to place a security deposit in an escrow account when you are placing an offer on an apartment. Be wary of this type of a situation.

If you place your funds in an escrow account, they are typically your funds to be put towards the move in cost of that or any other apartment. However, if you do not rent through your realtor, you might loose that money. This weekend, a realtor told me verbally that I can receive that money back, however, when I researched the company on the internet, there were a great number of negative reviews that stated that the potential renters submitted a deposit on a place, however, the place was rented out to someone else before their realtor were able to submit their offer. The renters were told that they could find any other place through their realtor and use the money in the escrow account towards the next apartment they found. However, the realtor fell off the map after that.

I can't reach my realtor now either. Thankfully, we did not submit a check. Supposedly, it is a rule of their company that if you do not rent through them, after a certain time, the funds in the escrow account are taken as their payment for "looking." Of course, not every company  is there to scam you, however, even large and known companies such as the one I dealt with this weekend can have unpleasant rules. Be wary of anything you sign and read up on the company before you do any business.

Discounts off the Listing Price

If you are looking for a place to rent, remember that the asking price is almost never the lowest price the realtor or the landlord is willing to accept.

With a landlord, you should negotiate like you would at a bazaar. Let's say a place is listed for $1,300/month. However you want to pay $1,150? Say that you would like to pay $1,050 and move up from there.

However, when a realtor is involved, you typically can ask what is the lowest price that the landlord will take. If the price is too high, ask if the realtor thinks that the landlord will accept your desired amount. Since you have no access to the landlord, it becomes more difficult to negotiate lower than what the landlord specified to the realtor.

The usual discount to aim for is 10%, however, if the apartment is listed for $1,275, for example, you should be able to take 10% off and round that down to $1,000.

Renting

Looking for a new apartment could be daunting. However, there are several things that can do to ease your search:

1. Walking around the area where you want to rent and looking at building that have for rent signs. I suggest jotting notes and the phone number on a notepad as you can easily confuse which phone number belongs to whom.
2. Looking up Craigslist posts. Again, if you are going to write someone an email about a posting, include the link in the posting so you can refer to it later. 
3. Calling a realtor in your area. Some places, realtors are not that common for renting, however, in others like downtown Miami, it is highly unlikely that you will find an apartment if you do not go through a realtor. You can find them by going to Realtor.com. They should not cost you anything and they will do all the work for you. Try it even if renting through a relator is not common in your area.

Remember to always negotiate the listed price. Realtors advise that you can get 10% off, however, I've gotten 20% off by starting low and offering to pay some months up-front. The factors you can negotiate is price, lease term, how much to pay upfront or for security deposit, utilities, etc. Therefore, if you are willing to dish out 6 months upfront, most places won't mind putting you on a month-to-month lease after that, for example.

Personal Finance iPhone Apps

After reviewing the apps for a months or so, here is my list of the useful personal finance iPhone apps:

1. Mint.com - see what happens to all of your money
2. All your banks such as Chase, which even allows you to take a picture of your check to deposit instead of visiting an actual branch or an atm
3. PayPal - Monitor your account and send money to friends easily
4. Investment accounts such as ShareBuilder to monitor your holdings
5. Zillow.com - useful if you are looking to rent or buy or are just interested in the prices of the houses around your location
6. LoanCalc - See how much sooner you will payoff any loan if you increase your minimum payment
7. Pay Off Debt Lite - See what percentage of your debt you have paid so far since the beginning to motivate you to pay more
8. Credit Card accounts such as Amex to allow yourself to pay your bills from your phone
9. ScoreAdvice - See what you can do with your credit score to improve it
10. Ask Dave - Although I don't always agree with what he says, he does have some good advice, this is an app with clips of his radio show
11. NPR News - the Money Matters radio program releases some great shows on personal finances
12. Local stores such as Walgreen's app to see what's on sale this week
13. Daily deal apps such as Groupon to see the deals of the day
14. News websites such as CNN money to keep up with the current personal finance news
15. Coupon Sherpa - coupons for retail stores near you, although coupons seem to be available for only a few stores
16. GasBuddy - will help you find the cheapest gas near you
17. Kayak - to find the best travel deals
18. Around me deal apps such as AAA Discounts (must have AAA membership) state discounts available using your current location
19. Bar code scanners such as ShopSavvy will help you find the best deal online or in stores
20. Key Ring - if you forget your loyalty card, you can scan the card on your Key Ring app instead
21. Check-in apps like Yelp that allow you to check in to a restaurant or a shop and  receive a discount or a freebie

If you have other personal favorites, let us know in the comments.

Suze Orman Expense Sheet - Budget and Emergency Fund Planner

Another great budgeting tool is on the Suze Orman's website, Suze Orman's Expense Sheet. You enter your emergency fund amount and break down how much you spend each month by category. Then, Suze lets you know what your essential expenses are and based on that how large your 8 months emergency fund should be.

If a budgeting category is off from the national average, the cell will highlight yellow and by hovering over the cell, you can see what the national average is. If you are spending less, that's great. However, if you are spending more than the national average on a category, you should reconsider that expense even if you have an above average income.

At the end of the process that takes 2 minutes, Suze will tell you to beef up your emergency fund if you do not have 8 months of essential expenses. If your emergency fund fits the bill, she'll say that you should aggressively pay down any debt.

The Liz Weston Budget

Budgeting is always in question. I've written a post on budgeting earlier, please see Budgets. However, it's always great to see other opinions as well. Liz Weston is a supporter of the 50/30/20 budget.

This means that 50% of the budget should go to your needs such as shelter, food, transportation, minimums on debts, and utilities. I think 50% for needs is great because in case of a job loss, you can easily survive on half of your income by working part time.

30% of your income should go on wants like clothing, entertainment, and dining out. This is perfect, however, for those who are saddled in debt or are behind on retirement savings, this is a little too much. I would spend half of this on debt repayment or catch up contributions, if I had excessive debt or were behind on saving. If, for example, someone does not have an emergency fund, they should not go out and spend 30% of their money on things they want, but do not need.

20% of your money should go to savings and debt repayment. I think you should be saving a minimum of 15% for retirement per year, therefore, leaving you with 5% for debt repayment. 5% is unrealistic if you have a lot of debt.

Therefore, this is a great budget to follow when you have a fully funded emergency fund, you are on track for retirement, and you have a low debt ratio. I would consider a low debt ration to be below 10% of your take home pay or even lower.

Kiplinger - Archives

Yesterday, I was looking through the Kiplinger magazine archives on Google Books. They have full online issues of magazines starting from 1947. Personal advise has obviously changed since then, especially since now we have more complicated products such as IRAs and ARM mortgages.

Here are some things that I found interesting.

Mortgages:

• Feb 1957 - When you borrow for a mortgage, make sure that you borrow reasonable amounts. A safe amount for a monthly payment on a mortgage is no more than 25.6% of your take home pay. You are probably okay with 28.8% of your take home pay. If the mortgage is over 33.2% of your income, you are going into the risky territory. The higher your income, the less mortgage that you should take out as it will be harder to maintain in time of a job loss.
• Feb 1957 - If your rent is 15% of your take home pay, you are either economizing or getting a break. If your rent is 25% or more of your take home pay, you are stretching it. Mortgages can be a higher percentage of your income as you will keep the home after it is paid off.
• Sept 1961 - The government approved 40 year mortgages. The article strongly advises against them as it would take you 29 years on a $12,000 mortgage at 5.5% to reach the tipping point, which the article describes as your loan being worth as much as the house. This example does not include a down payment. Graphs that were used clearly demonstrated that 15 year mortgages were the way to go as it saves a ton in interest costs. In fact, the magazine was trying to show that, due to interest, your monthly payments would only be slightly lower in a 40 year mortgage than in a 15 year mortgage. I did the math and the payments were $98.05 for a 15 year mortgage and $61.89 was for a 40 year mortgage. Doesn't seem like a large difference to us now, but the 15 year mortgage payment is more than a 1/3 higher. However, the magazine showed the difference per dollar borrowed, emphasizing that the difference is not that great.
• Mar 1964 - The average down payment declined from 28.4% to 24.5% in a year. The average mortgage term went from 19.7 years to 24.5 years in the same year. Please note that the average down payment was more than 20% in either case.

Student loans:

• Jul 1958 - First student loans are discussed. The loans have a 36 months term at 4.5%. Students are borrowing a few hundred dollars a year.
• Apr 1964 - 72 month terms for school are discussed.

There is much more information in those magazines. It is also interesting to see how, through the history, the down payments became smaller, the loan terms became longer, more types of loans became available such as personal loans and credit cards, and those other types of loans became more popular.

Renting vs. Buying

Before even considering if you should be a home owner, you should have a 20% down payment to minimize the risk of foreclosure and to avoid paying the mortgage insurance. You also should have a full funded (whatever that means for you) emergency fund since home emergencies can come up regularly. Some even advise that you should build a separate home emergency fund valued at 1-3% of the purchase price.

Once you have both of those criteria, it is smart to see if you should purchase a piece of property for yourself. The NY Times "Is It Better to Buy or Rent?" Calculator is great for determining just that. Have you considered association fees, insurance, taxes, maintenance, and closing costs? The property costs more than just the price tag. Do you know how long you are going to stay in that property? The break even point can come 10 years after the purchase. If that is the case for your situation, are you prepared to wait that long before your investment pays off?

Having lived several years in CA, I always thought that buying is better than renting, however, now that I live in Miami (a renter's market), I can see that there is no way I could afford a house in the area that I am renting and break even, even after 30 years. Therefore, landlords seem unavoidable in my foreseeable future.