Money Management

The houses near my old neighborhood rent for more than double my old mortgage payment. Read on to learn why I’m holding on to the next home I buy. 

Years ago, the house I rented in an inexpensive neighborhood went up for sale. I knew the owners previously had a difficult time trying to sell the house, so I quickly contacted my real estate agent and put in an offer.

The owners wanted a quick and easy sale, which meant I got a pretty good deal on the house. This allowed me and my family to stay where we were already and resulted in our monthly mortgage payment being about $400 less than our rent had been.

The house wasn’t old, but it needed some updating. I figured I could make a few cosmetic changes and sell it soon after for a profit. My plan worked out, but I think it worked too well.

Simple changes to add value

I installed new flooring in the kitchen and in one of the bathrooms. I also did an inexpensive update to the kitchen and bathroom countertops, making them look much better. I painted the entire inside of the house, stained the decking, added a small floating deck in the backyard, and replaced some ugly bushes with flowers.

All together, I spent several thousand dollars updating the home, and saved money on the repair work by doing most of it myself. After I was all finished, we sold the house two years after buying it for a profit of about $20,000.

I’m not going to complain about making some money from the sale, but had I held onto the house and rented it out instead of selling, I could have made a lot more money from the home.

What I’d do differently

When housing and rent prices skyrocketed during the early days of the COVID-19 pandemic, the value of homes in my old neighborhood also jumped.

Last year, the person I sold my home to sold it for 33% more than they paid. Had I held onto the home myself for a few more years, I would have made significantly more money. Of course, I couldn’t have anticipated the huge housing demand increase over the past few years, but seeing the big change does sting a little.

And my decision to sell looks even worse when I look at current rental prices. Currently, comparable rental homes in my old neighborhood are listed for 100% higher than my monthly mortgage payment. If I had rented out my old house, I would have easily been able to afford the mortgage, paid a property management company to take care of it, and still made hundreds of dollars in profit each month.

The two financial lessons I learned

I’m not kicking myself too hard for my mistake of selling the house instead of renting it out. But I did learn two important lessons from this experience.

First, I’ll likely hold onto any property I buy in the future for a very long time. The next time I buy a house, I’ll probably rent it out when I decide to move. I don’t want to miss out again on the potential gains from holding onto real estate over the long term.

And second, I’ll be more open to a little risk. I had a previous bad experience being a landlord, which made me think doing it again would be a mistake. While there are challenges to renting out a property, they probably would have been worth the annoyance had I held onto my old home.

None of us make it through our lives without making financial mistakes. It’s not worth dwelling on them for too long, but it’s definitely worth reflecting on the missteps so we can do better next time. Now, if you’ll excuse me, I’m going to take a quick look at cheap properties on Zillow.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.

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Economic uncertainty and tightening lending standards mean it’s becoming increasingly difficult for small businesses to access capital. Learn how to build your business credit. 

Unfortunately, it’s becoming harder and harder for small businesses to borrow money. In addition to economic uncertainty, many lenders tightened their standards following the banking crisis earlier this year. As a small business owner, this makes it more important than ever to build a business credit history.

Your business credit history is a record of how well your company handles credit. A strong business credit score will help you access credit when you need it, potentially qualify for better terms, and could also strengthen your hand in supplier negotiations. If you don’t have a score at all, the opposite could be true.

Just as you can’t build personal credit overnight, establishing business credit also takes time. Here are five steps to take if you want to build your business credit score.

1. Establish your company and get an EIN

An EIN is an Employee Identification Number that’s issued by the IRS. Think of it as a bit like a business Social Security number. You can get an EIN whether you’re a sole proprietor, corporation, LLC, or partnership. Indeed, depending on your business type, tax wise, you may need to get one anyway. Even if it isn’t necessary, an EIN will make it easier to open a business bank account and establish credit.

2. Register for a Dun & Bradstreet D-U-N-S Number

There are three main business credit bureaus, Dun & Bradstreet, Equifax, and Experian. You’ve probably heard of the other two as they also monitor personal credit scores, but Dun & Bradstreet is 100% focused on business credit. It’s free to register, and you’ll need to provide basic information about your business. It can take 30 days to process your application and send your D-U-N-S Number.

3. Open a bank account

There are several excellent business bank accounts on the market. Not only will opening one help you keep your personal and business expenses separate, it also helps demonstrate that you know how to manage your money. Look for an account that has the features you need, such as mobile banking or branch deposits. Pay attention to any fees and minimum balance requirements.

4. Apply for a business credit card

The catch-22 when it comes to building credit is that you need to have credit in order to show you can manage it and pay it back on time. Business credit cards often get approved on the back of your personal credit score, so if that’s in good shape, it’s a great start.

READ MORE: Best business credit cards

If you’re worried about the impact your business card may have on your personal credit, it’s understandable. There’s a hard credit inquiry when you apply for the card which will ding your score slightly. Outside of that, assuming you pay your bills on time, many business credit card issuers won’t report the activity on your business card to personal credit bureaus. Check to see what the card’s policy is.

In addition to boosting your credit score, business credit cards can pay rewards on business-related spending. Plus, while it can get expensive to run up a balance you can’t pay off at the end of the month, your business credit card can tide you over if you’re facing cash flow difficulties.

5. Pay your bills on time — or even early

A credit score gives potential lenders an idea of how good you are at managing credit and how likely you are to pay back a loan. Dun & Bradstreet use something called a PAYDEX Score, which ranges from 1 to 100. The higher the score, the better. A score of 70 or above is considered to be a good score. To get into the excellent zone, businesses need to not only pay bills on time, but also pay them early.

An excellent score gives potential suppliers, lenders, or even landlords the reassurance that they won’t have to chase you for payment. Encourage your suppliers to report your on-time payments to Dun & Bradstreet if they don’t already do so.

Monitor your credit history

Once you’ve got the bases established, your business credit history will start to build itself. But don’t sit back and forget about it. Check in regularly to find out how you’re progressing and know what information other people can see about your business. This will also help you catch any fraud or mistakes and rectify this information if necessary.

Many businesses rely on credit to get started or expand their operations. Don’t wait until you need a loan to start thinking about your business credit score. Take these straightforward steps today so you can build a strong record of on-time payments and make your business a more favorable loan candidate.

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Want to reach millionaire status? Read on to see what habits might prevent you from getting there. 

There are an estimated 5.3 million people in the U.S. who are considered millionaires. That might seem like a large number, but actually, millionaires only make up about 2% of the U.S. adult population. However, if you’d like to join the ranks of the select few (relatively speaking) who get to call themselves millionaires, then these are a few habits you may want to break.

1. Spending money on interest

Many of us routinely spend money on interest. We do so when we finance vehicles or pay off our homes via a mortgage loan. And in situations like these, spending some amount of money on interest may be unavoidable.

But one type of interest it really pays to avoid is that of the credit card variety. Not only does credit card interest tend to be exorbitant, but it often (though not always) goes toward purchases that aren’t essential (whereas having a home and a car are essential, unavoidable expenses). So if you want to become a millionaire over time, do your best to limit your debt to key purchases only. And also, borrow judiciously to minimize the amount of interest you’re paying when doing so is unavoidable.

You might, for example, have to finance a home repair because you don’t have the money in your savings account. But doing so via a personal loan or home equity loan might mean losing less money to interest than charging that expense on one of your credit cards.

2. Spending your paychecks in full

Many people consider it a victory to make it to the end of the month without having racked up any debt. But while that’s a good thing in its own right, if you want to become a millionaire in time, you simply can’t keep spending your entire paycheck month after month. If you don’t free up some money to save and invest, you’ll struggle to build wealth.

If you’re eager to break the habit of spending your earnings in full, do a spending audit. Comb through recent credit card statements to see where your money has been going. Chances are, there are at least one or two items you can eliminate or cut back on to free up some cash.

3. Playing it too safe with your money instead of investing

You may be inclined to keep your money tucked away in a savings account, where it can earn interest without the risk of losing out on principal (assuming you have that account at an FDIC-insured bank and aren’t over the $250,000 limit for FDIC protection). But if you stick to a savings account through the years rather than invest your money, you might end up falling short of your millionaire goal.

The stock market has, over the past 50 years, rewarded investors with an average annual 10% return (before inflation), as measured by the S&P 500. Savings accounts happen to be paying generously these days, with many offering around 4% interest on your money. But today’s rates aren’t the norm. And so if you keep your money in a regular savings account over time, you might end up with a lot less wealth than what you’d get by investing in a brokerage account.

Let’s say you contribute $300 a month to a savings account over 40 years, all the while generating an average annual 4% return in the process, which, again, is generous for banks. All told, you’ll end up with about $342,000.

Now, let’s say you put that $300 a month into S&P 500 stocks or ETFs over a 40-year period. Assuming a 10% average yearly return, you’ll end up with about $1.6 million.

Becoming a millionaire certainly isn’t easy, which explains why only about 2% of U.S. adults have reached that point. But if it’s a goal you want to pursue, kicking these habits could be your ticket to making it happen.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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A personal loan can be used to finance purchases just as a credit card can. But find out why a personal loan may be a better option for some borrowers. 

Ideally, when you make purchases, you will use the money in your bank account to do so rather than borrowing. But that is not always possible. Sometimes you need to buy something now that you don’t have the cash for.

If that happens, you could use either a personal loan or a credit card to finance your purchase. While there is a place for both, there are some potential reasons why borrowing with a personal loan could be a better option. Here’s what they are.

1. You will likely pay a lower interest rate

A personal loan can sometimes come with a lower interest rate than a credit card. In fact, the St. Louis Federal Reserve reported the average credit card interest rate at 20.09% as of February 2023, but reported the personal loan interest rate at 11.48% during that same period.

Obviously, if you have to borrow, it’s better to pay 11.48% than nearly double that amount at 20.09%. The lower your interest rate, the lower your borrowing costs will be and the more of each payment will go toward actually reducing the balance due.

2. There are no surprises as to when you’ll be free of your debt

There’s also no mystery about when you are going to be done paying off your personal loan since personal loans come with a definite payoff term and your monthly payments are set to ensure you pay your debt back on schedule.

Say, for example, you opt for a $5,000 personal loan with a five-year repayment term. If you chose a fixed-rate loan at 11.48%, you would pay $110 per month over the life of the loan, incur total interest costs of $1,594.77, and would be free of your obligations after five year’s time.

On the other hand, let’s say you charged $5,000 on a credit card at 20.09%, your minimum payment was 2%, and you paid only the minimums so your monthly payment would be lower at around $100 to start with (and slightly declining as your balance declined). You would be paying your debt for 677 months and would incur $22,126.31 in interest charges.

Of course you could pay more than the minimum on your cards. But without the certainty of a set payment and fixed payoff timeline, it can be difficult to determine exactly how much your balance would cost to pay off or when you’d be done doing so.

3. They could be better for your credit score

Finally, a personal loan could be a better option than borrowing a lot on your credit cards if you care about your credit score.

If you charge a lot on your credit cards, this could result in having a high credit utilization ratio (that’s the debt you use versus the credit you have available). A high ratio — above 30% — hurts your credit score. But if you have a personal loan you pay on time, this can give you a good mix of different credit, which can help improve your score as you show you can reliably pay back installment loans as well as a credit card.

For each of these three reasons, it is worth considering using a personal loan to finance a big purchase rather than charging it. Just take the time to consider what makes sense for your situation so you can pick the financing plan that costs you less and helps you get debt-free the fastest.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Some credit cards offer you the chance to cash back or other perks. Read on to learn how I use mine to grow my net worth. 

I earn a lot of credit card rewards. That’s because I charge almost every single thing I buy on my cards.

It would be easy to use those rewards to get free trips or to buy fun stuff. But while that may sound like fun, it’s not the approach I take. Instead, I’ve devised a system that really allows me to make the most of the rewards I get from my credit card spending.

Doing this with my credit cards just makes financial sense

In order to get the most value from my credit card rewards, I’ve signed up for a cash back card that allows me to have my rewards money deposited right into my brokerage account. I then invest the money that I earn in credit card rewards. I invest the money in an S&P 500 index fund that tracks the performance of the S&P 500, which is a financial index made up of 500 of the largest companies in the United States.

The S&P 500 has pretty consistently produced average annual returns of about 10% (before inflation) over the long term. This means for every $100 in credit card rewards that I have deposited into my brokerage account and that I invest, I will likely end up with an extra $259.37 at the end of a decade.

This can really add up, especially since I spend a ton on my credit cards so I can easily earn more than $100 in monthly cash back rewards. Investing $100 a month over a decade would allow my balance to grow to close to $20,000. And that’s all from my credit card rewards, not counting any other money I put in.

There’s nothing else I could do with my credit card rewards that would provide me with this much value over time. To be able to take advantage of essentially “free” money I get from spending I would do anyway and turn it into a brokerage account balance worth tens of thousands of dollars seems like an easy call to me.

What should you do with your credit card rewards?

If you have a cash back credit card, you may want to consider choosing to invest the money just as I am doing. Some cards allow you to have the cash back deposited directly into a brokerage account like mine does. If yours doesn’t permit this, you could have the money deposited into your bank account. Or you could get a check or a statement credit and then transfer that amount over to your investment funds.

If you don’t have a cash back card but you have some other type of rewards card, like a travel credit card, you could transfer over the amount of money you save on airline tickets or hotels to your investment account when you use your rewards to fund your vacation.

By investing your credit card rewards, you can turn a great rewards card into an engine for building wealth. Give it a try and you may just be amazed at what credit card rewards can do for you.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Are you hoping to buy a home soon? The housing market may continue to get more competitive. Discover why your future home search could be difficult. 

For many people, homeownership is a big goal. But it requires a lot of money and planning to buy a home. Homeownership is becoming more expensive for the average person as the cost of homes rises in many parts of the country. Are you thinking of buying a house? Finding a property to buy may soon become more challenging. I’ll explain the top reasons why below.

Many current homeowners want to keep their existing rates

Mortgage rates can significantly influence the housing market. According to Freddie Mac, the weekly average mortgage rate was 6.71% for a 30-year fixed-rate mortgage during the week ending June 29, 2023. Three years ago, for the week ending July 2, 2020, the average rate for the same type of mortgage was 3.07%. That’s over double the average rate three years ago — not great news for wannabe buyers who plan to finance their home using a mortgage loan.

With the difference between those rates, it’s easy to see why putting your home on the market now would be undesirable — unless it’s necessary due to a life change, like relocating for a new job. Many current homeowners are staying in their homes even if they’ve toyed with the idea of selling because they want to keep the lower interest rates they currently have.

Housing inventory is low

Since many homeowners are staying in their homes, fewer homes are listed for sale. According to Realtor.com, new home listings were down 29% nationwide compared to a year ago for the week ending June 24, 2023. This information is worth knowing if you plan to start house hunting soon. Having fewer properties available can make your search challenging.

Housing availability varies greatly depending on where you live. But it’s a good idea to get a feel for the availability of homes to buy in your area before you officially start house hunting. With fewer homes available, getting an offer accepted could prove to be more difficult.

Since fewer homes are on the market, the competition is greater as more hopeful buyers put in offers. According to Zillow’s May 2023 Market Report, the typical U.S. home value rose 1.4% from April to May 2023. With this information in mind, you may need to offer more than you planned to get a yes from a seller.

As you search for a home to call your own, keeping your budget in mind is essential. If you put in an offer for a home that is beyond what you can comfortably afford, you may become house poor, which could negatively impact your personal finances.

Be realistic during the home search process

As you look for potential homes to buy, it’s best to remain realistic. If you’re struggling to get an offer approved or if there are few homes available that fit your budget, you may want to hold off until the market improves. Waiting could prove to be beneficial.

If you can stay in your current home for a while longer, you can continue adding cash to your high-yield savings account so you’re financially ready when the time comes to buy. If you plan to buy soon, review our list of the best mortgage lenders to explore your lending options.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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