Condos are fine, but do your research
Dear Dave,
I know when it comes to investing that you like mutual funds and paid-for real estate. What do you think about using condominiums as investment properties instead of single-family homes?
Jason
Dear Jason,
I don’t really have a problem with condos as paid-for investments. I own a couple of them myself. When it comes to making this kind of investment for the first time, however, I would advise that you keep a few things in mind.
Based on equal price and equal neighborhood, the average single-family home will probably increase more in value over the years. Now, a nice, well-placed condo will obviously go up in value faster than a traditional house in a lesser neighborhood. So speaking in an overall sense, they’re not bad investments if you do your homework.
You have to think about what you’re getting into and also take into consideration a number of variables. What are the HOA dues or condo fees going to be? Is the condo association being managed well? That and the neighborhood are the two biggest concerns I have when buying a condo. A lot of condo associations are very poorly managed. And if they don’t provide proper maintenance or keep a certain percentage of the complex owner-occupied versus rental, the condo association or complex can lose the ability to get normal permanent financing. If they can’t get FHA, VA or conventional financing, the values are going to drop like a rock—because you’ve only got cash buyers and investment buyers at that point.
Research on these kinds of things doesn’t take an awful lot of work. Just call the management company and the realtor who’s involved if it’s listed, and ask for the documentation. Most of the time this sort of stuff is public information, so it’s not hard to access.
Some other questions you might ask are: What are the reserves for the roof? What are the reserves for paint and the parking lot? Are they collecting enough to pay their bills, and are they actually paying their bills? Then you start looking at things from a buyer’s perspective. Would I want to live in here and have my wife and children here? Would a normal, reasonable person want to live here? If the answers are yes, then you’ve probably got a good, solid condo complex.
Dave
The church’s emergency fund
Dear Dave,
I pastor a small church that is debt-free. I’d like for us to save an emergency fund for the church, but I’m not sure what would be considered an expense. Can you help?
David
Dear David,
In terms of mathematics, I would advise looking at it the same way you would a small business. The goal, first and foremost, is to keep the doors open in case something bad happens. The secondary goal could be to pay bills on time for the sake of the church’s reputation, and the third goal would be to do all this without putting a strain on the organization. In business, we would call this fund “retained earnings.”
Technically, a church doesn’t have earnings, but they do have income. You’ll want to retain some of that on a regular monthly basis. For a church, basic things like payroll, utilities, insurance and taxes would need to be covered under an emergency fund. Coffee and donuts, new hymnals and mission trips aren’t necessities. You should already be running a monthly and annual budget on the church, so separate the necessities per month and multiply that by a three-to-six-month figure.
There’s a huge level of wisdom involved in a church being debt-free, David. Congratulations!
Dave
Competency and integrity
Dear Dave,
I’ve always heard that you shouldn’t ask a family member to be the executor of your will. What are your feelings about this?
Joyce
Dear Joyce,
I don’t necessarily agree with this line of thinking. In my mind, a family member who is competent and has integrity can definitely be the executor. “Executor” just means they execute; thus the name. They’re going to execute the wishes of the will. If the family member has the business acumen and trustworthiness to execute the wishes and directives in a will, then that’s perfectly fine.
Just remember to use some common sense, too, when choosing an executor. If you have an extremely complicated estate, say 80 pieces of real estate with investments and everything, you probably don’t want your 22-year-old niece, nephew or grandchild who just graduated college in charge of things. I would advise choosing someone with a little more life experience, and maybe some success in the real world.
The people who say family shouldn’t do this are the same ones who say you shouldn’t have family in your business. You can have family in both. You just have to have good boundaries, clear roles and honest, mature people. Make sure you give clear instructions and explanations for your decisions, too. Sit down with your family, explain who the executor’s going to be, and why, along with what the will says. It’s also not a bad idea to have an initial reading of the will while you’re still alive. This communicates your wishes personally and takes some of the pressure off of the executor.
Dave
Mixing the money
Dear Dave,
I’m getting married this summer, and I’m on Baby Step 4 of your plan while starting to invest for the first time. My fiancé is getting onboard with your advice, and he’s currently in the process of paying down his student loan. Should I put my emergency fund money, minus $1,000, toward his student loan debt?
Elizabeth
Dear Elizabeth,
Congratulations on your upcoming wedding! I’m really proud of you guys, too, for your mature behavior where money is concerned. First, don’t pay anything of his until after the wedding and you two are home from your honeymoon. At that point, “mine” and “his” becomes “ours,” and you can realign your money situation to reflect your total money makeover as a couple.
Make sure that “we” have an emergency fund of at least $1,000 in the bank at that point. Then, if you like, you can throw the rest of what you previously had in your emergency fund at the debt. You can both also pile up cash between now and the big day, so that after you two are official you’ll have even more cash on hand. Who knows, you might be able to knock out that student loan completely and begin your life together debt-free. That would be awesome!
Dave
*Dave Ramsey is America’s trusted voice on money and business, and CEO of Ramsey Solutions. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
