Cathy Curtis

Single Women and Longevity Risk Part 1: Why Independent Women Are Most at Risk

Single Women and Longevity Risk Part 1

This is the first blog post in a three-part series about single women and longevity risk. In this article, we’ll explore why independent women are most at risk of outliving their financial resources.

One of the reasons long-term financial planning is important is to minimize longevity risk, or the risk of outliving your financial resources. Longevity risk is generally brought up in connection with retirement, since the risk of depleting your savings increases once you stop working.

With advances in healthcare and increasing life expectancies, longevity risk is becoming an increasingly relevant concern for many retirees. Unfortunately, single women are among those most at risk of outliving their resources due to a variety of factors.

#1: Women Live Longer Than Men

First, women tend to live longer than men on average, which means they may need to support themselves financially for a longer period during retirement. According to a 2021 CDC study, the average life expectancy for women in the United States is 79.1, while for men, it’s 73.2.

However, using an average statistic to determine life expectancy and longevity risk can be problematic as each person’s family, health history, and lifestyle differ. Fortunately, the Social Security Administration (SSA) has a life expectancy calculator that can help you better understand your likelihood of living past a certain age.

For example, a 45-year-old woman’s life expectancy today is 85.4 years. But if she lives until age 70, her life expectancy increases to 88.9.

#2: Single Women Face Unique Financial Challenges

Second, single women often face unique financial challenges, such as lower average incomes. According to the U.S. Department of Labor, women working full-time and year-round make 83.7% of what men earn in similar jobs.

In addition, women are more likely than men to experience a gap in employment due to caregiving responsibilities, which can interrupt their earning and saving potential. The Covid-19 pandemic exacerbated this disparity, as women’s participation in the workforce tumbled disproportionately in part due to increased childcare responsibilities as schools and daycares closed.

Given these challenges, women tend to save less than men on average, further contributing to longevity risk. In fact, a recent T. Rowe Price report found that women tend to contribute less annually to workplace retirement accounts than men and have meaningfully lower account balances.

#3: Women Tend to Invest Less Often and More Conservatively Than Men

According to data from Morningstar, women tend to invest less and hold a larger percentage of cash than their male counterparts.

Studies show that this is largely due to a lack of confidence. For example, Fidelity’s 2021 Women and Investing Study revealed that only 19% of women feel confident in their ability to choose investments that align with their financial goals.

Unfortunately, this lack of confidence often translates to smaller nest eggs in retirement, increasing longevity risk. Consider the following example.

Suppose you invested $1,000 in the U.S. stock market 30 years ago, at the beginning of 1993. Over the next 30 years, the S&P 500 generated an annualized return of 9.7% before accounting for inflation.

That means at the end of 2022, you would have had $16,074 if you reinvested all dividends. Had you kept this money in a savings account that yielded an average of 1% over the last 30 years, you’d have about $1,347 at the end of the same period.

Thus, investing is necessary for single women to minimize longevity risk and outpace inflation, so your dollars don’t lose value in retirement.

How Single Women Can Address Longevity Risk

To address longevity risk, engaging in proactive financial planning is essential. This includes:

  • Saving and investing. It’s crucial to start saving early and regularly contribute to retirement accounts, such as 401(k)s or IRAs, to accumulate a sufficient nest egg for retirement. Within investment accounts, include stocks for their above-average growth potential and diversify your investments to mitigate market volatility risks.
  • Estimating retirement expenses. Assess your expected expenses during retirement, including healthcare costs, housing, and daily living expenses. This evaluation can help determine how much you need to save to ensure a comfortable retirement and reduce longevity risk.
  • Social Security planning. Understand how the Social Security system works and develop a strategy to maximize your benefits. Consider when to start claiming benefits and spousal or survivor benefits if applicable.
  • Long-term care insurance. Evaluate the potential need for long-term care insurance to protect against the high costs associated with extended care services. Research different policies and assess your options based on your health, family history, and financial situation.
  • Health and wellness. Prioritize maintaining good health and adopting a healthy lifestyle. Being healthy can contribute to a longer and more active retirement, reducing potential healthcare expenses and increasing overall financial security.

By being proactive and mindful of longevity risk, single women can take steps to secure their ongoing financial well-being.

Part 2: The Importance of Investing for Single Women to Offset Longevity Risk

Although single women face a variety of unique challenges and risks when it comes to financial planning, there are steps you can take to manage these risks and achieve your financial goals. In Part 2 of this blog series, we’ll dive deeper into why it’s so important for single women to invest when it comes to minimizing longevity risk.

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Is a U.S. Recession Looming?

Is a Recession Looming?

Since mid-2022, concerns about an impending recession in the United States have been making headlines. However, despite various warning signs and indicators, the U.S. economy has shown resilience over the past nine months.

So, what’s happening? In this blog post, we’ll explore the factors that have fueled recession concerns, discuss the current state of the U.S. economy, and examine whether investors should be worried about a potential recession.

Understanding a Recession

Typically defined as two consecutive quarters of contracting gross domestic product (GDP), a recession indicates a significant decline in economic activity. By this definition, the U.S. economy is not heading for a recession, as GDP grew by 1.3% in the first quarter of 2023.

The National Bureau of Economic Research (NBER) is responsible for officially declaring recessions. Its definition is somewhat vague but emphasizes significant and sustained decline in economic activity across various sectors.

Mixed Economic Signals and Concerns

Mixed economic data has economists divided on whether a recession is imminent.

The Federal Reserve’s projection of low GDP growth for 2023 and successive interest rate hikes have raised concerns about a potential economic decline. A minor banking crisis, resulting in the failures of some financial institutions, also fueled worries.

Moreover, inflation has remained above the Fed’s target, prompting rate hikes that affect corporate investments and consumer loans. As a result, analysts expect negative earnings growth for S&P 500 companies, while a tightened credit market has reduced lending to corporations and consumers.

Meanwhile, the yield curve has been inverted since the middle of 2022, as the yield on 2-year U.S. Treasury notes has exceeded that of 10-year Treasury notes. An inverted yield curve can be problematic as it frequently appears before an economic downturn.

And the New York Federal Reserve’s recession probability indicator, which uses the yield curve’s slope to predict U.S. recessions, suggests a 68.2% chance of a recession in the next 12 months—its highest reading in four decades.

Yet while some indicators have sparked concerns, the current strength of the U.S. labor market and economic activity has divided economists on the inevitability of a recession. In addition, positive earnings, as well as guidance from retailers like Walmart, indicate that consumer spending remains strong.

Though slightly below estimates, retail sales grew for the first time since January. The resilience of the U.S. economy has surprised experts, suggesting that a recession may be farther in the future than expected.

What Does a Possible Recession Mean for Investors?

While concerns about a U.S. recession persist, the economy’s current state and the labor market’s ongoing strength suggest that an immediate downturn may not be inevitable. However, in the event of a recession in the second half of 2023 or early 2024, investors need not panic. Historically, recessions have been relatively short-lived, with an average duration of around 10 months.

Economic downturns also tend to present attractive opportunities for long-term investors, with the S&P 500 generating an average return of 40% in the 12 months following the market’s low point during a recession. In addition, some stocks, such as Target, Walmart, and Home Depot, have historically performed well during recessions.

Thus, despite the potential risks, investors should take a long-term perspective and consider the historical patterns of economic cycles. Recessions, although challenging, have often paved the way for favorable investment opportunities.

For more information, download our free guide: 3 Simple Steps to Improve Your Investment Results

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S5E3: Real Estate Investing 101 with Property Powerhouse Ruth Krumbhaar

Real Estate Investing 101 with Ruth Krumbhaar

Real Estate Investing 101 for Single Women

This episode is Real Estate Investing 101 for single women who are curious about investing in real estate but may not know where to start.

Today’s guest is Ruth Krumbhaar, a successful therapist, coach, and part-time real estate investor who has built a reliable source of passive income through her investments.

Ruth’s journey began when she bought her first condo in an up-and-coming area of Berkeley, California and nearly tripled her investment in just a few years. Fueled by her initial success, she began learning everything she could about investing in real estate and has since expanded her portfolio to include multiple properties. Her experience has made her an expert in finding the right properties, building a successful real estate team, and managing a diverse portfolio of real estate investments.

In today’s episode, we’ll cover:

  • How Ruth made the transition from homeowner to real estate investor.
  • Some of the mistakes she made as she learned the business.
  • Why it’s important to manage your emotions as a real estate investor.
  • The types of properties Ruth has invested in and what she believes makes a great investment property.
  • How to build a great real estate team in any part of the country.
  • The financial planning aspects of investing in real estate as a single woman.

Ruth and I both believe that real estate investing can be a great source of passive income for single women, and I’m excited to share Ruth’s unique insights with you in today’s episode. So, sit back, relax, and join us for a fascinating conversation, as we explore the wide world of real estate investing in Real Estate Investing 101 with Property Powerhouse Ruth Krumbhaar.

Ruth's Post-Episode Advice

Ruth also offered these words of wisdom after her Real Estate Investing 101 episode:

“It’s also helpful to subscribe to local newspapers in the areas you want to invest in, so you’re up to date on what’s happening in local government, business, and culture. I recommend any person investing in rental properties also carefully study the planning and building websites for the jurisdiction, as well as the county site, for any incentives or information related to property ownership.”

Episode Highlights

  • [10:45] Ruth Krumbhaar shares some of the biggest mistakes she’s made as a real estate investor.

  • [15:06] What Ruth believes is her greatest success so far as a real estate investor.

  • [22:09] Ruth explains her process for identifying new investment properties.

  • [31:17] Ruth explains why it’s so important to research the local area and make sure you can find good help nearby before purchasing an investment property.

  • [34:40] How Ruth finds sources of help near her investment properties and researches potential growth factors in new locations.

  • [39:43] Cathy and Ruth discuss how financing works when investing in real estate.

  • [45:11] Why it’s so important for real estate investors to find an inspector they trust.

  • [52:30] Why real estate investing can be a great way to build wealth, even if you’re starting small.

  • [55:11] How rising interest rates have affected Ruth’s approach to real estate investing.

  • [58:08] Ruth Krumbhaar’s advice for single women who are interested in getting started in real estate investing.

Links Relevant to this Episode

FEMA National Risk Index Map

The BRRRR Method for Investing in Real Estate

Avail.co for Marketing and Managing Rental Properties (Free Landlord Software)

Beacon™ for Investment Property Research

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S5E3 Transcript: Real Estate Investing 101 with Property Powerhouse Ruth Krumbhaar

Cathy Curtis, CFP®: Hi, welcome to Financial Finesse, where we bring you insights and experiences from interesting and successful women. Today we have a special guest, Ruth Krumbhaar, who has built a source of passive income through investing in real estate.

Cathy Curtis, CFP®: Many women are curious about investing in real estate but don’t know where to begin. Ruth, I know that your real life and personal experiences and insights will be invaluable. Thank you for sharing your expertise and joining us on the show today. Can you tell us how you got started in real estate investing?

Ruth Krumbhaar: Well, it was a long time ago and I was looking for an apartment to rent in San Francisco. And I answered an ad and went to a beautiful apartment on Dolores Park. I remember it so well. And the woman there had just bought it and she said, you can rent half of this apartment, but I own it and I’m going to be working on it while you live here.

Ruth Krumbhaar: So just wanted to let you know. And I walked away thinking, wait, if she can do it, I can do it. I think I want to buy my own place. What’s going to, what’s stopping me? So I looked at real estate prices, which were very high. Real estate prices were already high in San Francisco.

Ruth Krumbhaar: I looked at my bank account, it was low. So, my stepmother generously, I talked to her and she said, I’ll give you money for a down payment, and it was $20,000. So that’s basically how much I had as a down payment.

Cathy Curtis, CFP®: Was that enough back then?

Ruth Krumbhaar: Well, I looked all over San Francisco, and I couldn’t find anything except in really, really scary places.

Ruth Krumbhaar: So I ended up expanding my search over to Berkeley because I figured that was a community that I believed in, that I knew was solid and I felt like also had little pockets that would appreciate. And I bought my first condo. Which my friends and I called the cheapest condo in the Bay Area in a little pocket of Berkeley that was sort of up and coming.

Cathy Curtis, CFP®: So cool. What was the pocket?

Ruth Krumbhaar: Well, it was, it’s called now the Gourmet Ghetto, but it was south, the southern part of it. And so it was a, it was a conversion from a T I C into a condo building. It was an old, an old building with six units, and it was the perfect opportunity for me. So together with the other owners, we got the building painted, we landscaped it, we all improved our units and I ended up doubling or almost tripling my investment within two and a half years.

Cathy Curtis, CFP®: You bought this to live, right?

Ruth Krumbhaar: I did. I lived in it, but I, I kind of worked on it, like the woman who I had gone to see the rental apartment, I was sort of following her model. And it was great. So that gave me, when I sold it, after a couple years, I had enough money now to move back into San Francisco, which is where I wanted to be.

Ruth Krumbhaar: And then I bought a place in the mission, and another one that I, I lived in, and you could just sort of see the neighborhood slowly changing.

Cathy Curtis, CFP®: What year was that? I’m just trying to get the timeline of when you invested.

Ruth Krumbhaar: Yeah, that was the early two. That was around 2000.

Cathy Curtis, CFP®: Okay, so that was in the dot-com boom.

Cathy Curtis, CFP®: Yeah, and real estate was probably, priced pretty high in the mission, or maybe not yet. Maybe not yet. Okay.

Ruth Krumbhaar: No, no. So again, one of those areas that I had a good sense, it was more of a gut sense than a, than a, than a, a research sense that this was an area where sort of people were wanting to live. It was kind of artsy.

Ruth Krumbhaar: It was eclectic, there’s beautiful architecture, great little cafes and restaurants were sort of popping up and, and so that told me it was a place I wanted to live. And because it was a place I wanted to live, I figured other people would be, would be coming soon.

Cathy Curtis, CFP®: So you’ve got the gut instinct for real estate, it sounds like, from these, just these two examples, which I think is a real thing.

Cathy Curtis, CFP®: I, you know, successful real estate investors go with their gut and yeah, maybe they do some research, but a lot of it is instinct. I want to talk to you a little bit more about that as we keep going. So you’ve now bought another place to live in the mission and what happens from there?

Ruth Krumbhaar: I got married, I had a kid, I moved out, but I kept it as a rental property and that’s when I switched over from having real estate to live in as my sort of home into something that was an investment and something that I generated income from. And, and that’s when everything sort of switched for me.

Ruth Krumbhaar: And then when I sold that, I sold that at the top of the market and was able to put that money aside for a while until the market tanked in 2008. And that’s when I was able to buy a property on Telegraph Hill, which is a two-unit property. And that’s when this seed money, this $20,000 that I got, that’s when it really started to take shape and turn into something bigger.

Ruth Krumbhaar: And I, I think real estate investment, I mean, you can make money right away by having a rental income, but it can also be a sort of longer-term thing. And it could, or it can be a sort of hybrid path. And that’s how I, that’s how I was looking at it.

Cathy Curtis, CFP®: Okay. This is interesting because I have a, a similar experience myself, investing in real estate as a single woman.

Cathy Curtis, CFP®: When, when I realized I could afford to do it, I, like you wanted to start out in San Francisco, quickly realized it was too expensive. So I started looking in Oakland, Berkeley. Even then, it was too high for me. And so I went all the way out to the deep burbs into Dublin.

Cathy Curtis, CFP®: So it happens I had a job in Pleasanton, but I was a, I’m such a city girl, San Francisco, born and raised. It was really hard for me to imagine actually moving there. But I was able to find a condo that was affordable. I bought it. And, but then I turned that I like you, I made a profit on that eventually.

Cathy Curtis, CFP®: Because real estate markets go up and down. I mean, and it, you recognize that, like, it sounds like you waited a long time before you bought your next property in the city because the markets really change over time. When I bought the place in Dublin, it was cheap. The markets crashed, then BART went out there and the prices went way up.

Cathy Curtis, CFP®: And I sold it, moved that money into another home. So, you know, some of it’s lucky timing, you can’t panic, so many things about it. It’s sort of like investing in the stock market in that way that you gotta have a really cool head about you and make smart decisions.

[10:45] Ruth Krumbhaar shares some of the biggest mistakes she’s made as a real estate investor. 

Ruth Krumbhaar: Absolutely. And I think some of the mistakes that I’ve made in, in real estate investing are panicking or a, a sense of scarcity or moving too quickly and not paying enough attention.

Cathy Curtis, CFP®: Can you give an example? People love to hear people’s mistakes. But we also all learn from people’s mistakes. So if you wouldn’t mind sharing one of those.

Ruth Krumbhaar: I think one, one is that I paid too much, I think for a property.

Ruth Krumbhaar: I, I have a, a rental property in Indiana. And, you know, I was so excited to get into this new market and I really knew the area that I wanted. I’d sort of done my research. I knew the, the, the kinds of people that were renting there. I found a property that met my criteria and it was very inexpensive.

Ruth Krumbhaar: So this was not a big, big mistake in terms of dollars, but. It was listed, get this at $95,000. I offered 85 and then we negotiated up to 90. I, I’m kicking myself a little bit because I still think I could have gotten it for 85. Between 80 and 85. Yeah, I really do, which would’ve paid for the improvements that I put into it.

Ruth Krumbhaar: So now, once I got it at 90, I put some improvements into it and, you know, it’s at, it, it’s fine. I, I’m getting income consistently.

Cathy Curtis, CFP®: Oh, you still, so you still own this one?

Ruth Krumbhaar: Yes. Yes.

Cathy Curtis, CFP®: Okay. But okay. So that’s, you think you paid 5,000 or so too much for it. Okay. So you’re, because it’s not cash flowing the way you want it to or the, the return on investment isn’t as big as you want.

Ruth Krumbhaar: It’s more that I think I could have gotten a better deal based on the other transactions that I’m seeing in that area.

Cathy Curtis, CFP®: Okay. Okay. That’s interesting. Yeah. All right.

Ruth Krumbhaar: I think I overpaid. Well, which we do, we make these mistakes when we get excited, you know, and sometimes aren’t thinking clearly or we’re not slowing the process down.

Cathy Curtis, CFP®: Well, I’m going to tell you about over excitement and, and so I’m going to share another story. So I, my husband and I wanted to get into investment real estate. So we right before the credit crisis, you know, in 2006, 2008, of course, we get all excited like everybody else, and we find a place in Utah, Salt Lake City area.

Cathy Curtis, CFP®: We found a rental house. We figured big families there, blah, blah, blah. But the timing was wrong. It was, you know, it, the bubble was about to pop. And so we invested and we ended up selling it. We didn’t make any money. We had a little bit of a loss, so there’s another mistake. And it was because we got caught up in the hype.

Cathy Curtis, CFP®: Like a ton of other people did. We’re very lucky it wasn’t our home. A lot of people, you know, foreclosed during that time, but you have to, so we didn’t have the instinct like it seems like you did for that.

Ruth Krumbhaar: And sometimes we make those mistakes. I made another one recently. I was trying to buy a property and I just didn’t bid high enough.

Ruth Krumbhaar: I knew it was competitive and I knew I also had a financing contingency on this particular one, and I knew. I knew it was a hot location and a great price for this particular house, and it had some architectural integrity, but, you know, it was really cute. It was a little craftsman bungalow.

Cathy Curtis, CFP®: Where was that?

Ruth Krumbhaar: In Richmond, Virginia. In this area called Churchill, which is, which is really happening right now. And so, and the price point was low, so I, it was lower than most properties in that area.

Cathy Curtis, CFP®: The one that got away, it sounds like. That must be disappointing.

Ruth Krumbhaar: Yeah. Yeah.

Ruth Krumbhaar: But we all have those, and, and you know, we have to learn from those.

[15:06] What Ruth Krumbhaar believes is her greatest success so far as a real estate investor.

Cathy Curtis, CFP®: Right, right. So tell us, I asked you about a mistake. What has been your greatest success so far in real estate investing?

Ruth Krumbhaar: Well, I think all my Bay Area properties have been, have been great. The one on Telegraph Hill particularly, because I bought it at the right time when things were really in a slump, and the sellers were really motivated.

Ruth Krumbhaar: They had some family issues and they, they wanted to just break even. And so I got it at a great price. There were no other buyers, the sellers needed to sell. It was helping them, and it was a property that also had some potential to improve. And so it went from a sort of mediocre, you know, ho hum property to something that I developed, into something that’s, it’s really quite beautiful.

Ruth Krumbhaar: And we’ve had people like rent out the patio area for parties and it’s, it’s pretty neat.

Cathy Curtis, CFP®: And so that sounds amazing. What led you to find that property?

Ruth Krumbhaar: Well, I was single again. I’d gotten divorced and I had, my son was five, and we were living in an apartment and we wanted a house. We wanted something with no one above us or below us.

Ruth Krumbhaar: And so this property has a little cottage in the back of the property, and then a courtyard, sort of terrace area in the middle. And then in the front it has a garage with a studio apartment above it. And it felt like the perfect property for us because I was figuring when he was a teenager, he would live in the studio.

Ruth Krumbhaar: He would have his own little zone and be away from his mother. But while he was a little kid, I could rent it out and so we ended up living in the cottage and then Airbnb-ed the studio. Which then I also used as a guest quarter for, you know, friends and family when they came to visit. So I would kind of time, I would block out the Airbnb portal for the weeks that I had people visiting.

Cathy Curtis, CFP®: Okay. And you used the profit from selling the mission property to buy this one? Yes. So, so far each purchase was first meant to live in, and then because of circumstances you rented, like you got married and then you rented the mission, and then this one you bought for rental purpose from the beginning.

Ruth Krumbhaar: Yes. But we, we actually left it because we wanted a bigger home and my son got into surfing, so we had to move out to the beach. So we live in the outer sunset now, but we now rent out both units. It changed from being a residence with an Airbnb to having two full-time renters.

Cathy Curtis, CFP®: And do you own your place in the sunset now, or no?

Ruth Krumbhaar: No. I, and again, another regret is I probably could have gotten into that market right when we were thinking about it, because it was about to take off, another area before Covid. Pre Covid. And some of the signs for that are just the popularity of a lot of the cafes and restaurants and the farmer’s market.

Ruth Krumbhaar: You could kind of tell that this is an area that people were really beginning to invest in. And there’s a whole wonderful culture there of young, kind of artsy people and great yoga studio and, you know, wonderful places to go in the evening.

Cathy Curtis, CFP®: I agree. I grew up on 14th and Rivera, and I’ve lived in the East Bay for a long time now, but I recently drove around that area and I’m amazed at how it’s changed.

Cathy Curtis, CFP®: So if you got into that area at the right time, you would’ve done really well. But, so this is something I want to ask you about in particular about San Francisco or any, any expensive metro area like that. Because, I often have clients ask me about rental, real estate investing. And I’ll say, well, where are you thinking?

Cathy Curtis, CFP®: Well, I’d love to buy something in San Francisco. And I, I always think, gosh, San Francisco, how are you going to be able to buy a rental property in San Francisco and make any money at all? And it always seems like San Francisco is going to be like that, but you were not afraid to dip your toes in, in two different places.

Cathy Curtis, CFP®: And I’m sure they weren’t cheap, I mean, relatively right. They were probably still a stretch, I’m imagining. So you had, you got over the fear or your instincts are really strong, or can you talk about that a little bit?

Ruth Krumbhaar: Yeah, I’m very pragmatic about things and so, you know, when I, one of the things that you may have found when you bought your place in Dublin.

Ruth Krumbhaar: Being a city girl, that I found in Berkeley was that my friends said, why are you living out here? Don’t you want to be in the city? Absolutely. And I have another whole thing going on. Don’t worry about it. And now they’re wishing they had done that.

Cathy Curtis, CFP®: I had a, I was single at the time and I used to go to San Francisco for my social life. When I lived out in Dublin. I had a guy tell me that I’d be a lot more attractive if I lived in San Francisco and not way out in the boonies.

Ruth Krumbhaar: Well, good thing you passed on him.

Cathy Curtis, CFP®: Yeah, and my current husband didn’t care.

Cathy Curtis, CFP®: I was living out there. Then when I first dated him, he drove out there, picked me up, brought me a dozen pink roses, and took me, drove all the way back to Berkeley to have dinner. Tell you what, guess who I got married to.

Ruth Krumbhaar: Oh, that’s great. Yeah, so anyway, the place in the mission, my criteria was I want two bedrooms and at least one and a half bathrooms because I wanted the option of having a roommate. So, and I wanted it so that if one of us was in the shower, the other one could, you know, use the bathroom. So that’s what I found.

Ruth Krumbhaar: And I got a roommate who only lived there part-time.

[22:09] Ruth explains her process for identifying new investment properties.

Cathy Curtis, CFP®: Oh, good. So do you literally, when you’re getting set to buy, right, first you identify, this is a good time, this is a good area for these reasons. And then do you make a like a handwritten list of your criteria and check it off? What, what’s your procedure?

Ruth Krumbhaar: Well, it really depends on the property. So, I think you and I had communicated about three properties that I’m currently working on. And so Muncie Indiana, outside of Indianapolis, is a, is a sort of small city that is on the uptick. Really cheap housing stock, three new factories moving in.

Ruth Krumbhaar: Ball State University is there. It was a, it’s a city where the mayor used to work in real estate, so he’s super real estate friendly. There aren’t many regulations around Airbnb or development. And the local government are really accessible and make development really easy. And what I mean by development, like adding a unit or splitting a lot or things like that where you can actually really maximize your investment.

Cathy Curtis, CFP®: Sounds perfect. I’m going to stop you right there. How did you find Muncie, Indiana, of all the cities in the United States and pinpoint it as a good place to invest?

Ruth Krumbhaar: You know, it’s funny. A friend of mine was who loves real estate was visiting her great-aunt there because she, her family originated from there and she took a look around and realized it was a good investment.

Ruth Krumbhaar: So she sort of set things up for me. I really, the path was well greased. She had a realtor.

Cathy Curtis, CFP®: You’re paying attention because you’re thinking investment. You want to do this, right. You’re all, you’re an investor, you’re a real estate investor. So you’re picking up on cues from everywhere probably.

Ruth Krumbhaar: Exactly. And that’s what we have to do. So Muncie was right for me because I had a good, you know, I knew there was a good contractor available. I knew there was, I had intros to a realtor, a really good realtor and an inspector.

Cathy Curtis, CFP®: And how did you know this contractor? Through your friend.

Cathy Curtis, CFP®: Okay. So personal connection is super important.

Ruth Krumbhaar: Super important, yeah. Especially for someone like a contractor. And he, oh, he’s been wonderful. And he’s also my rental agent, so he shows all my properties, and we’ve formed a really, really good working relationship. I also pay my bills immediately because that relationship is so precious to me.

Ruth Krumbhaar: I want him, I want to be his top client.

Cathy Curtis, CFP®: Okay. That’s, that’s really good advice. So you coddle these relationships and make sure there’s a trust established and all those things.

Ruth Krumbhaar: Yeah, so for Muncie, it was that, and it was also wanting to be in a particular area where I knew there was a good rental base.

Ruth Krumbhaar: So I’m right near Ball State University. And have you been there?

Cathy Curtis, CFP®: You know, I have never been there. This is fascinating. You really don’t have to visit the places you invest in, do you?

Ruth Krumbhaar: You don’t. You don’t. It’s good to, and I want to, but, but you don’t have to.

Cathy Curtis, CFP®: That adds cost too. It, it’s time.

Cathy Curtis, CFP®: It’s the flight.

Ruth Krumbhaar: It’s the flight, getting there. Rental cars, all of it. Yeah. Another, but there’s different criteria that I look at. I bought a vacation rental in Maine that was very different. You know, that was more like, it’s gotta be near a river, a mountain, a lake, or the ocean.

Cathy Curtis, CFP®: And what, where did this idea come from?

Cathy Curtis, CFP®: What, what inspired you to look in Maine?

Ruth Krumbhaar: Well, Maine is a place where I have family and I wanted a vacation, you know, a home for myself close to family living on the West Coast. I wanted something on the East Coast. And so Maine holds a particular place in my heart. And I also knew that my family all over the East Coast would come there to visit.

Ruth Krumbhaar: But I also knew it was an area where real estate was really beginning to take off. Portland has become a pretty trendy, an affordable option for a lot of young people. So there’s a lot of great restaurants. There’s a whole sort of creative community. It’s very artsy. And so I wanted to buy a property that was sort of a spinoff from that hub.

Ruth Krumbhaar: Where people would live who were connected to that kind of energy. And also where people would want to stay on their vacations. And so I layered and layered and layered criteria and ended up buying a home on an island, which has its own sort of community. It ended up sort of not following the model exactly because it was far enough away from Portland that it was really more of a Vacationland kind of.

Cathy Curtis, CFP®: Okay. But this happens, right? You, you have a plan, but it depends on what comes up.

Ruth Krumbhaar: Yeah. Yeah. So what was wonderful is that I had my criteria at my, my price point, and I called my cousin and she had actually just bought a property on the same island that I was looking.

Cathy Curtis, CFP®: Oh my gosh. So, a little serendipity there.

Ruth Krumbhaar: Yeah. So I got a little house in the town because I couldn’t afford something bigger. But the town holds its own sort of allure and it’s a great place for people who want to come for a weekend or a week to rent because they have access to all the amenities in the town and can feel really connected to it.

Cathy Curtis, CFP®: And for you too, it’s a vacation for home for other people, but then you reserve it when you want it.

Ruth Krumbhaar: Exactly. Sort of like what it sounds like you were doing with the Utah property.

Cathy Curtis, CFP®: No, that’s what’s interesting. We bought that strictly for investment. It was in a residential community and yeah.

Cathy Curtis, CFP®: Talking about the different purposes, our purpose was to make a stream of income and then sell it for a profit. I have, we have a place in Tahoe that we are doing what you do. With the Maine property. But no, it, that wasn’t the purpose.

Ruth Krumbhaar: Well, and the Maine property is, you know, just cheap and cheerful.

Cathy Curtis, CFP®: Okay. Did you use Airbnb to rent it or how do you rent it?

Ruth Krumbhaar: Right now I’m just using word of mouth because there’s enough, there’s enough people who would want to rent on that island that word of mouth is sufficient. And also I didn’t, because we had to sort of renovate it and we’ve slowly been, you know, pulling up carpeting and sanding floors or painting them.

Ruth Krumbhaar: While it’s beautiful, it’s not quite to the standard that I think that an Airbnb should be.

Cathy Curtis, CFP®: Okay. And are you doing this work yourself? So this is a place you go to regularly and you’re putting some love into it.

Ruth Krumbhaar: I’m putting a little, a little love into it. And the reason I’m doing that is there aren’t that many, and this is something important to consider, there aren’t that many people there to do that kind of work because it’s a lobster fishing community.

Ruth Krumbhaar: The year-round people are making so much money as lobster fishermen that they don’t want to do building. So while I have people who can do housekeeping, the, the bigger stuff, the, the more construction related stuff is, I don’t, I don’t have help for that. So it’s so important. When you buy a property, if it needs to be improved or it’s going to need some maintenance, let’s say it has decks or pools or things that may over time need to be repaired or taken care of, that it’s within a community where you know you can get help.

[31:17] Ruth explains why it’s so important to research the local area and make sure you can find good help nearby before purchasing an investment property.

Cathy Curtis, CFP®: Yeah. So that’s where sort of the research or having a contact in the local area becomes very important.

Ruth Krumbhaar: It does. And I think that having a really good realtor who understands your goals is one of the most important things that you can do in the very beginning.

Cathy Curtis, CFP®: Okay. Let’s riff on this idea for a little bit.

Cathy Curtis, CFP®: So, a person decides that they want to invest in a town in Tennessee. They discovered through a friend or family that this little town is starting to boom. Our community’s growing and so they don’t want to travel there. It’s not in their budget. And so they start trying to find a team.

Cathy Curtis, CFP®: Like a local first one would be a local realtor, it sounds like. And you can Google and find out who are the best. That’s probably not that difficult.

Ruth Krumbhaar: That’s, that’s fairly easy. And you want to interview them and make sure that you have a rapport with them. And you can, and that they’re responding to your questions in a way that makes you feel comfortable.

Ruth Krumbhaar: And that they are asking you the right questions as well. So, and you’ll know this, this is a sort of a gut thing.

Cathy Curtis, CFP®: Okay. And I’m assuming that local realtors, at least the ones I know here, they are so connected with contractors and, you know, people, decorators, and so many, there’s so many contacts. If they’re a good realtor, they develop their contact list to help their clients.

Cathy Curtis, CFP®: So that could be the first source of many other sources of help in building your team?

Ruth Krumbhaar: Absolutely. And so that’s one of the most critical pieces and they, they will send you leads. They will sometimes send you off market listings. And you should also be doing your own research in addition to that because you may find something that may be outside of your criteria, but that looks interesting enough that you ask them about it. I recently did this in Muncie with my realtor.

Cathy Curtis, CFP®: And so, so you would go on Zillow or some of those sites and just put in your criteria and do your own side search too? And then in finding out things like, like you found out this interesting fact about the mayor in Muncie.

Cathy Curtis, CFP®: That was through a personal contact, but could you also find out what’s going on, like development wise or companies moving to a city, things like that? On a, like a, a local community site?

Ruth Krumbhaar: Yes. I go, so for Muncie, for example. And actually I’m really interested you brought up Tennessee. Chattanooga is an area that I’m interested in.

Cathy Curtis, CFP®: Yeah. I’ve heard that several times. Tennessee has come up in conversations with people.

Ruth Krumbhaar: I think there’s, there’s still a lot of value there, and people are moving there.

[34:40] How Ruth Krumbhaar finds sources of help near her investment properties and researches potential growth factors in new locations.

Cathy Curtis, CFP®: We’re talking about how to find sources of help in the cities you go to, and how do you find out about the growth factors going on in the area?

Cathy Curtis, CFP®: A headquarters moving there, a progressive political scene, what, you know, where they want to build more community spaces, all those things that you can find out.

Ruth Krumbhaar: I think the key word here is to just be obsessive. And just start and just start looking and, and follow, follow the threads, so.

Ruth Krumbhaar: Right after I chose Muncie, I read in Forbes Magazine, there was an article about real estate investing and Muncie happened to be listed in it. I was like, yes, I made a good decision. And then I sort of followed some of the links in that as well, and it led me to understand that while the enrollment in Ball State is actually going down a little bit, which is concerning, these factories are coming in.

Ruth Krumbhaar: I don’t understand yet why Ball State enrollment is going down or what the levers are to improve it. Or, you know, what is exactly going on. I’m curious, so I want to get obsessed about that.

Cathy Curtis, CFP®: Yeah. See, that’s interesting. Is the curiosity, I mean, the fact that you are going to find out about that is fascinating to me.

Cathy Curtis, CFP®: That’s, that’s how deep you have to go to understand an area if you’re going to really do this, right?

Ruth Krumbhaar: Yes. And then you look at what the local government is doing in terms of development and in and investment in the infrastructure of the city. Are there new subway lines going in or bus lines, or is there a new bus terminal or is there an airport being developed?

Ruth Krumbhaar: Which airlines? So in Maine, for example, there’s a teeny tiny airport right near my island. And Cape Air has regular flights between Boston, New York, Nantucket, Cape Cod coming in to where the ferry leaves, an area right near where the ferry leaves to go out to the island. So that is important for me to study those.

Ruth Krumbhaar: You know, the flights, are they adding flights? Are they subtracting flights? What’s happening? How accessible is this area?

Cathy Curtis, CFP®: Also, things like all these natural disasters we’re hearing about now, the flooding and all, I’m sure that must be top of mind wherever you’re looking.

Ruth Krumbhaar: There is a website and I wish I could remember it. Basically, you can put in any address, and it shows you the potential for natural disaster, whether it be fire, severe weather, heat, flooding. I think there are a few other criteria. And they show these maps. Then they assess all the areas I think in the world.

Ruth Krumbhaar: But, I’ve just been looking in the areas. I’ve just been inputting addresses or city names that I’m in. 

Cathy Curtis, CFP®: You know what, we’ll find out what it is, and I’ll put it in the show notes after.

Ruth Krumbhaar: That would be great. And again, this is something if you want to invest in real estate, it’s fun.

Ruth Krumbhaar: If you like this stuff, if you like getting obsessed about these things, it’s really fun.

Cathy Curtis, CFP®: Yeah, I know. It sounds fun if you have the interest. I think that’s key to be successful on this. It can’t be taken lightly. Like, oh, I’m going to find a realtor in a city where I think it’s going to grow and I’m going to rely on them to find me a place. And then I’m just going to buy it and I’m going to make passive income and everything’s going to be fine.

Cathy Curtis, CFP®: It’s, it’s not, it’s not that easy.

Ruth Krumbhaar: No. And that’s, that’s why I think not everyone should do it. Because it is a pain sometimes. I just had a renter give notice, so now I’ve gotta advertise once again and get the place cleaned and check for, you know, it does require work.

Cathy Curtis, CFP®: But yeah, people, well, I know when you’re trying to figure out what the cash flow will be, you always have a vacancy percentage, right?

Cathy Curtis, CFP®: To see if the numbers work. What percent do you assume? 10% or 20%?

Ruth Krumbhaar: yeah, I just assume it’ll be rented 10 months a year.

Cathy Curtis, CFP®: Okay. That’s, that’s good to know.

Ruth Krumbhaar: And then I add in, you know, sort of cleaning, maintenance, landscaping, pest control. For Telegraph Hill, you know, there’s an issue with pests, so you have to have pest control.

Ruth Krumbhaar: Other properties, I don’t have to have that because it’s not an issue.

[39:43] Cathy and Ruth discuss how financing works when investing in real estate. 

Cathy Curtis, CFP®: Yeah. So you need to know all of those things. Let’s switch gears a little bit and talk about financing. Because I think people are going to be really interested in that. Is there a down payment requirement in any, I mean, tell us about your experience in financing these properties.

Ruth Krumbhaar: So it depends how much money you have and what your goals are and what markets you’re looking in. So, for example, in Muncie, I bought my property and I’m in the process of hopefully buying another one with cash. Because it was, it was not an expensive area. It was a good, I felt it was a good place for me to put my cash and just get some monthly income off my cash.

Ruth Krumbhaar: I’m in the process because I called around to some local banks in the Muncie area, and there was, there’s a really good deal going on where I can get a HELOC. So I can pull some money out of my house at just over 5%.

Cathy Curtis, CFP®: Is that variable though? Will that go up?

Ruth Krumbhaar: Yeah, but still it’s a low starting rate. And so that will allow me to free up some money temporarily to say buy the second house. The second house I’m buying from a private seller, and so he isn’t in a rush. So as soon as that HELOC comes through, then I’ll pay for the second house with that.

Cathy Curtis, CFP®: I love it. Okay. And then once there’s equity in the first place for you to pull out whatever cash you need. And is that because of appreciation or was there always the equity?

Ruth Krumbhaar: It’s a little bit of appreciation and there was always the equity because I paid all cash.

Cathy Curtis, CFP®: Yeah. Okay. Okay. All right.

Cathy Curtis, CFP®: So sometimes you have to pay all cash.

Ruth Krumbhaar: Yes. So for example, in Richmond, because it’s kind of a hot market right now with investors. And for people like myself and like probably a lot of your clients, it’s an area where you need to go in with cash. And so that was again, a mistake I made.

Ruth Krumbhaar: I went in too low and I had a financing contingency.  

Cathy Curtis, CFP®: This is what you didn’t get it.  

Ruth Krumbhaar: Yeah. And so you can do all cash by, say, pulling money out of another property if it makes sense. And again, you don’t want to over-leverage yourself. Or you can, if it’s cheap enough and you have enough reserves, you can spend all cash and then finance it later.

Ruth Krumbhaar: Or you can finance it and it’s really good, as you probably know and would tell your clients to have a good mortgage, a good relationship with a mortgage lender.

Cathy Curtis, CFP®: Oh, absolutely. Luckily, my husband was a mortgage broker for years at his own company and I learned a ton about mortgage financing.

Cathy Curtis, CFP®: So I can help my client, I can look over the statements and see if it’s on the up and up and, you know, good rate and all those things. It really pays to have a good mortgage person.

Ruth Krumbhaar: Yeah, it really does. So, and I like to get a local person where I’m buying, because they really know the ins and outs of that market.

Ruth Krumbhaar: And they also have contacts.

Cathy Curtis, CFP®: And you can a lot of times get those referrals from realtors too. They have their favorite mortgage broker because they want the deals to close. That can be a very tight relationship. And I think it’s okay to use the realtor’s reference for mortgage broker.

Cathy Curtis, CFP®: I don’t think that’s a bad thing. I mean, if you can find one yourself, great, through a personal referral. But I don’t think it’s a mistake to use the realtor’s mortgage broker reference. Do you?

Ruth Krumbhaar: I don’t. I think it’s a good idea because they, they’ve kind of gone through the steps together.

Ruth Krumbhaar: And so they kind of know each other’s way of working and communicating. And that way, if there’s any sort of hiccup in the deal, which sometimes there is. Because there may be issues that you discover along the way. They know how to work together to sort of solve the problem with you.

Cathy Curtis, CFP®: Yes. Oh, I want your opinion on this. I have an opinion on getting inspectors. Because you always want to have the property inspected, right? And I think it’s better to find your own independent inspector. A lot of times we all get excited when we’re about to buy a property and the realtor wants the deal to close and they’re very motivated and so they’re, they have all kinds of referrals and, and they could say, oh, I’ve got a great inspector.

[45:11] Why it’s so important for real estate investors to find an inspector they trust.

Cathy Curtis, CFP®: I really think it’s smarter to get your own inspector, not the realtor or seller’s inspector. Get your own. And is that realistic? And what is your experience with that?

Ruth Krumbhaar: I completely agree, and you may or may not have the time to do it, so you always have the realtor’s inspector as a backup.

Ruth Krumbhaar: But if possible I agree because they, you want an independent assessment, especially if you can’t go to the property or if you don’t know a lot about construction issues that might arise.

Cathy Curtis, CFP®: Because I, I know we all want people to be honest and disclose, but the truth is not everything gets disclosed.

Cathy Curtis, CFP®: And you, and an inspector may not do as deep a job as you would want an inspector that’s a referral from a realtor. And I think that’s really something to be careful of. Granted, like you said, a lot of times there’s time pressure. But if you can keep that in mind from the beginning, like when you’re looking in an area, maybe identify an inspector that you might use.

Ruth Krumbhaar: That’s a good idea. You could be ready for it. Yeah, I agree.

Cathy Curtis, CFP®: Okay, so this is, this talk about the financing is really interesting because I have a thought in my head for the listeners of some advice. So let’s say okay, they’ve decided Tennessee, Chattanooga, and so they have to figure out how are they going to finance this property.

Cathy Curtis, CFP®: So they first have to get an idea of the cost of properties there. But then they have to look at their cash reserves, do they have any cash reserves. Let’s say they know they can come up with $30,000. Does it make sense to then look, start there. You, you’ve identified a city, you know, you’ve got $30,000.

Cathy Curtis, CFP®: Look for the price range that, that will support a $30,000 down payment and plus, there’ll be other costs, closing costs and things like that, right? Would that be a good way to go into an investment?

Ruth Krumbhaar: I think it’s, well, I think you also need to consider that the property may need some maintenance.

Ruth Krumbhaar: And as you mentioned, all the closing costs, insurance tax, those numbers as well. And so, I would hesitate if say $30,000 was your number, and you want to put generally 20% down in a not super competitive market, then I would go a little lower than that. I would want to save maybe $10,000 for improvements.

Ruth Krumbhaar: The possibility of improvements, though, if a property is a turnkey property. Let’s say it’s a condo or, or a newly built dwelling, then that’s going to be a lot lower. So you can have a wider range of criteria, but just keep in mind that if it’s an older property, you’ll probably, there probably will be things you’ll want to improve.

Cathy Curtis, CFP®: Okay, great. So all the closing costs, which are roughly 2% of this, I mean, ballpark-ish. So make sure you take those into account, down payment and the state of the property. And estimate improvements if it’s not turnkey. Yeah, because that’s, that’s the confusing part with people.

Cathy Curtis, CFP®: I want to buy investment real estate. I always get that, I want to buy investment real estate. Cathy, can you gimme some advice? And it’s such a big question. It’s like, oh my gosh. Well, where are you thinking about buying is the first one. Why? Why do you think that’s a good market?

Cathy Curtis, CFP®: And this other criteria that you’ve talked about it, are you going to use it yourself and rent it? Is it going to be a full rental? Are you going to hire a management company to manage it if it is outta state? Which you will need to. So you have to have those costs in mind. Do you use management companies for your properties so far?

Ruth Krumbhaar: I have not. Because in Muncie I’ve got this amazing contractor whose wife is a house cleaner. And he and his team also mow lawns. He’s my rental agent. His wife is the cleaner, and he’s the maintenance guy as well. And it’s just a wonderful relationship.

Ruth Krumbhaar: So he’s kind of like my property manager in a sense.

Cathy Curtis, CFP®: Okay. That is fantastic. So you’ve got the maintenance and cleaning taken care of, and then you act as the rent collector, like you have them on auto pay? You do the books?

Ruth Krumbhaar: I do all the books.

Cathy Curtis, CFP®: So this is a huge savings because it is, what is the cut for a manager?

Cathy Curtis, CFP®: Is it 15?

Ruth Krumbhaar: Sometimes it’s 20.

Cathy Curtis, CFP®: Yeah. That’s a lot.

Ruth Krumbhaar: It is. So you want to build that in or find your person, like I’ve got. And I’ve got another person in Maine, and I just pay her a monthly fee to stay, to keep on top of my property, to make sure the pipes aren’t burst, to make sure that there’s, to clean it, you know, at the end of the season. And take, put, sort of take it in for the winter.

Ruth Krumbhaar: And make sure that no tree limbs have fallen and, you know, things like that.

Cathy Curtis, CFP®: Okay. So this begs a question. How much time do you spend on your property portfolio?

Ruth Krumbhaar: Good question. I would say I spend about five hours a week. Managing and thinking, you know, and doing things around them. Because sometimes it’s higher.

Ruth Krumbhaar: So when I have to rent a property, it’s a little bit more. And sometimes there are weeks when I spend no time.

Cathy Curtis, CFP®: Okay. And do you think that is a good use of your time as far as cost benefit return on investment?

Ruth Krumbhaar: I do. I think about, I’m, as you know, I’m also a licensed psychotherapist. And I think about how much money I make per hour doing that work versus how much money I make per hour doing the real estate investing.

Ruth Krumbhaar: And if I was just interested in making money, I would only do the real estate investing. Because I make so much more money per hour that I spend on it.

Cathy Curtis, CFP®: Yeah. Well maybe you, you do that in the future. You start spending more time on it or you know, depending on how many more properties you buy.

[52:30] Why real estate investing can be a great way to build wealth, even if you’re starting small.

Ruth Krumbhaar: Well, and the thing with real estate that’s exciting is you can start small and then just leverage that property and then get another one and then leverage that one and get another one. And it can be sort of, you know, it’s so exciting to see young people buying a property, whether they’re going to live in it or rent it out because you can imagine over time how that’s going to expand and grow.

Ruth Krumbhaar: If that’s what they’re interested in.

Cathy Curtis, CFP®: Well, your example is perfect. The Indiana property, where you’re going to take a loan out, a HELOC against it, to buy another property. That’s what you’re talking about leveraging. And I know that’s how many, many successful real estate investors did it. They started really small.

Cathy Curtis, CFP®: The beginning story is always fascinating. And then they learn that leverage is your friend with real estate investing, right? You don’t, you don’t really want to buy properties for cash.

Ruth Krumbhaar: No. The only reason I did that is because I didn’t know what else to do with that money.

Ruth Krumbhaar: So I figured just get me in here and then, but now that I found this good deal from the local bank, I’m pulling the money out and expanding on that.

Cathy Curtis, CFP®: Right, right. That makes so much sense. And I think people learn that as they go along if they don’t understand it from the very beginning.

Cathy Curtis, CFP®: Did you learn everything on your own through experience? Or did you read books, or do you have any recommendations for someone to get a kind of a broader understanding of real estate investing and financing? Because I think you need that as a base.

Ruth Krumbhaar: I think so too. I’ve attended a couple seminars on real estate investing, and they have lots of them. And there’s also, there’s some great people on YouTube and there’s some really good books that are very sort of simple and straightforward and kind of map out a process. There’s one guy that I particularly like, I don’t have his name right now, but I can send it to you.

Ruth Krumbhaar: And then I have friends who are in the mortgage industry or the real estate industry. And so again, you know, this is something I enjoy. So I like obsessing about it.

Cathy Curtis, CFP®: The curiosity is a big deal, so you ask a lot of questions, and you learn a lot. You know, I know we only have a few more minutes and I just wanted to ask something specific to the time that we’re in right now.

[55:11] How rising interest rates have affected Ruth’s approach to real estate investing.

Cathy Curtis, CFP®: So, interest rates have jumped up quite a bit over the last year, an amazing amount. How does that affect your decision making when it comes to investing in more real estate now?

Ruth Krumbhaar: Well, it certainly makes me more cautious. But really what you have to do is just look at the numbers. The numbers still pan out because less people are able to get loans.

Ruth Krumbhaar: They don’t want to pay the higher interest rates, so there’s potentially more renters in certain markets. And so if, if the numbers work out between the loan that you can get with the down payment that you can put down and all the fees associated with it, and then the rental income that you can manage. Or if you believe, say, in that area in Richmond, Virginia that I was talking about, I believed that even if I broke even, which was my goal, that the house itself would double in value probably. I’m just going to say within five years.

Ruth Krumbhaar: So that’s really why I wanted that property.

Cathy Curtis, CFP®: And so different properties will have different, you’ll be thinking about them in different manners, right? Some would strictly be good passive investments for income. Others will be that, plus really high potential for appreciation.

Cathy Curtis, CFP®: So there’s always those two factors at play. And it sounds like you think about those things in advance. This is why I’m identifying this particular area and property.

Ruth Krumbhaar: Yes. So for Richmond it’s more about the appreciation and breaking even, or hopefully getting some return. For Muncie it’s more about just getting a sort of steady stream of passive income.

Cathy Curtis, CFP®: Oh, the one other thing we didn’t talk about was the tax benefits, depreciation expense. And are you considered a professional real estate investor where you could take the passive losses every year? Or do you have to carry them forward?

Ruth Krumbhaar: I am not considered a professional real estate investor.

Ruth Krumbhaar: I am going to probably set up an LLC in Muncie because I want to avoid liability. But also it’s just a better way of doing business there. And there are tax benefits to it as well that I’m not as familiar with, but I was told it was a good idea for me.

Cathy Curtis, CFP®: Yeah. That, that does sound like a good idea.

Cathy Curtis, CFP®: Boy, we could keep talking forever about this, but I think we got in some good gems for the listeners. I really do.

Ruth Krumbhaar: I think so too.

[58:08] Ruth Krumbhaar’s advice for single women who are interested in getting started in real estate investing.

Cathy Curtis, CFP®: I so appreciate you sharing your experience, but I’m going to ask you one last question. If you were going to give three pieces of advice to a single woman who would like to diversify her portfolio into investment real estate, what would they be?

Ruth Krumbhaar: One is to be curious and a little obsessive, so that you find an area and a type of property that would work for you, and really think about how you’re going to use it. The other is to be brave and know that people who are brave can sometimes make mistakes. They can fail, but they can also be successful. And we can’t be successful unless we make some bold choices.

Ruth Krumbhaar: And then I think that the last is to really have fun with it. Try and talk about it a lot with people. Just gather information. Just, just enjoy it. It’s also an area where you can make good relationships and have a good time and do good business.

Cathy Curtis, CFP®: That’s fantastic. What a great last word. I love it. Well, Ruth, thank you again. This has been a fascinating discussion and I know all the listeners loved it too.

Cathy Curtis, CFP®: And I’d love to do it again. We could do part two so we could talk about that. Alright everyone, there will be show notes to talk about some of the things Ruth discussed, books and websites and things like that. So be sure and come back and look for those.

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S5E3 Transcript: Real Estate Investing 101 with Property Powerhouse Ruth Krumbhaar Read More »

S5E2: Here’s What Savvy Donors Need to Know About Strategic Charitable Giving

Strategic Charitable Giving Tips for Savvy Donors

Strategic Charitable Giving Ideas to Maximize Your Tax Savings

Cathy shares her strategic charitable giving tips, from deciding how much to give to maximizing your tax savings.

A lot of my clients are charitably inclined and want to include giving in their financial plan. 

Of course, I thoroughly understand my client’s personal finances. Thus, I can provide specific guidance as to how they should think about giving and how to incorporate it into their financial plan.

However, if you’re listening to this podcast episode because you’re also looking for answers to these questions, I can still offer some nuggets of wisdom without knowing the details of your financial life.

In this episode, we’re going to talk about:

  • How much to give to charity
  • Which charities to support with your donations
  • Strategic charitable giving methods to maximize your tax savings.

Naturally, everyone’s goals and personal finances are unique. Therefore, it’s best to consult a financial professional if you have specific questions on this topic.

Nevertheless, I hope this episode gives you a framework for how to think about giving, so you can continue to make an impact while also reaping the associated financial benefits.

Episode Highlights

  • [01:36] How much should you give to charity?

  • [03:17] Which charitable organizations should you support with your donations?

  • [06:52] Who can reap the tax benefits of donating to charity?

  • [07:51] How to use “bunching” to increase your tax savings from charitable giving.

  • [10:06] How donor-advised funds (DAFs) can support your strategic charitable giving goals.

  • [13:04] Why donors who have reached RMD age may want to consider making qualified charitable distributions (QCDs).

  • [15:44] The potential advantages and drawbacks of a charitable gift annuity.  

  • [16:46] Why you may want to consider a charitable remainder trust (CRT).

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Charitable Giving, Part 4: Tax-Smart Ways to Give to Charity (Part 2)

Tax Efficient Giving Strategies

In my last article, I shared a few charitable giving strategies that can help you be your generous self while at the same time being tax smart. In part four of this four-part series, I continue that theme and offer some final thoughts on tax-efficient giving.

Qualified Charitable Distributions

A Qualified Charitable Distributions (QCD) allows IRA owners above age 70 ½ to transfer up to $100,000 directly to charity each year. One of the benefits of donating via a QCD is that you can give to your favorite charity while potentially reducing your taxable income.

In addition, a QCD can satisfy all or part of your required minimum distribution (RMD) once you reach RMD age. This benefit makes it an especially tax-efficient giving strategy for people who have other income sources and don’t necessarily need their RMD.  

Keep in mind that you must satisfy a few key rules for a QCD to be a non-taxable distribution.

Most importantly, the IRS considers the first dollars out of an IRA to be your RMD until you meet your annual requirement. To get the full tax benefit of a QCD, be sure to donate the funds directly from your IRA to charity before making any other withdrawals from your account.

In addition, your IRA custodian will require you to complete and sign a form that details your QCD intention. Then, the custodian will send a check to the charity of your choice.

In some cases, your custodian may allow you to write checks against your IRA. Just be aware that your checks must clear before year-end, so it pays to plan ahead.

Charitable Gift Annuities

A Charitable Gift Annuity is a tax-efficient giving strategy where an individual makes an irrevocable transfer of money or property to a charity. In return, the charity pays the individual a fixed income for the rest of their life or a specific term. The fixed payment amount is based on several factors, including the donor’s age, the donation amount, and current interest rates.

In addition, the donor receives a tax deduction for the initial donation and potential tax-free income from the annuity payments. When the donor dies, the charity retains the remaining assets for its mission.

Here are some things to keep in mind when donating to a Charitable Gift Annuity:

  • The gift is irrevocable.
  • Annuity payments are fixed and don’t adjust for inflation.
  • The annuity payments may be lower than a comparable annuity that is not charitable.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust (CRT) is a “split interest” giving vehicle that allow donors to contribute assets to a trust and receive a partial tax deduction. The trust’s assets are then divided between a non-charitable beneficiary (who receives a potential income stream for a term of years or life) and one or more charitable beneficiaries (who receive the remainder of the assets).

There are two types of CRTs: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). Each has its own distribution method.

CRTs have several benefits, including the preservation of highly appreciated assets, income tax deductions, and tax exemption on the trust’s investment income. In addition, you can donate a variety of assets to a CRT, including cash, securities, closely held stock, real estate, and other complex assets.

CRTs can also be established by will to provide for heirs with the remainder going to charities of the donor’s choosing.

Final Thoughts on Tax-Efficient Giving Strategies

Qualified Charitable Distributions, Charitable Gift Annuities, and Charitable Remainder Trusts are all potentially tax-efficient giving strategies that can help you achieve your philanthropic goals. Yet they are also complex and may not be right for everyone.

If you’re considering one of these strategies or are looking for more tax-smart giving ideas, be sure to consult an attorney, tax expert, and/or financial planner to determine which strategies make sense for you. In the meantime, please visit our Resources page for more information on this and other financial planning topics.

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Charitable Giving, Part 3: Tax-Smart Ways to Give to Charity (Part 1)

Tax-Smart Ways to Give to Charity

If you’ve read the first two articles in this blog series, perhaps you’ve put some thought into how much you want to give to charity each year and to whom. In the second half of this series, we’ll discuss tax-smart ways to give to charity. Tax laws can be dense, so bear with me as I explain the strategies as clearly as possible!

The first thing to know about charitable giving and taxes is that you must itemize on Schedule A of Form 1040 to deduct your charitable donations for the year.

Your total itemized deductions must exceed the standard deduction for you to reap the tax benefit of giving to charity. In 2023, the standard deduction is $13,850 for single filers and married couples filing separately, $27,700 for joint filers, and $20,800 for heads of household.

Fortunately, if you typically take the standard deduction and the amount you give to charity each year doesn’t push you over the threshold to itemize, there are strategies you can employ to maximize your tax savings.

To maximize your tax savings, consider the following tax-smart ways to give to charity:

#1: Bunching

Suppose you’re a non-itemizer but get close to the standard deduction because you max out the State and Local Tax (SALT) deduction at $10,000. Then, you may want to consider a strategy referred to as “bunching.”

How Bunching Works

Bunching is a tax-smart way to give to charity where taxpayers combine or “bunch” their charitable donations into one tax year so they can itemize their deductions.  

Suppose a single taxpayer usually gives $3,000 to charity annually. Meanwhile, their other qualifying itemized deductions (such as state and local taxes, mortgage interest, and medical expenses) amount to $10,000 for a total of $13,000 in deductions.

Thus, it would make sense for this taxpayer to take the standard deduction of $13,850 and not itemize. But let’s say instead they give two years of their charitable budget, or $6,000, in one year.

In this case, they would itemize since their total deductions ($16,000) exceed the standard deduction. If this person is in the 24% tax bracket, their tax savings from charitable donations would be $516 for the year.

This strategy or something similar can be repeated over time, creating multi-year tax savings.

#2: Donor-Advised Funds as a Tax-Smart Way to Give to Charity

In the above example, we assumed the taxpayer wrote a total of $6,000 in checks and mailed them to their preferred charities in one year. Then, they skipped donating to charity in year two.

But there are other tax-smart ways to give to charity that can be even more financially advantageous than bunching and allow for giving each year. One example is to utilize a donor-advised fund (DAF).  

How DAFs Work

A DAF is a registered 501(c)(3) organization that can accept cash donations, appreciated securities, and other non-cash assets. Thus, if you hold highly appreciated securities in a taxable investment account, you may benefit greatly from donating to a DAF.

Here’s why. Suppose instead of writing checks for $6,000 to various charities, the same taxpayer in the example above transfers $12,000 worth of Apple (AAPL) stock with a cost basis of $35/share into a DAF. The stock is worth $160/share on the day of the donation.

The taxpayer can take a tax deduction of $12,000 (the current market value of the shares they donate) on that year’s tax return. They also avoid paying the capital gains taxes they would have incurred by selling the stock outright. This amounts to a savings of over $1,400 ($9,375 gain x 15% long-term capital gains tax rate).

Once they donate their shares to a DAF, the fund sponsor can sell the shares tax-free. The taxpayer can then invest the proceeds within the DAF and let the funds grow tax-free over time. In addition, they can designate which charities they want to receive grants from the DAF going forward.

Like bunching, donating to a DAF allows you to take a potentially large tax deduction in the year you make the donation. Yet unlike bunching, you don’t have to decide which charities to donate to right away. Instead, you can donate your $3,000 as planned each year from funds in your DAF.

Key Advantages of DAFs

  • Flexibility: Donors can recommend distributions to multiple charities over time without having to manage individual grants to each organization.
  • Tax benefits: Donors can claim an immediate tax deduction for the full amount of their donation, subject to certain limitations.
  • Investment management: DAFs typically offer a range of investment options and professional management services to help grow the value of the donations.
  • Privacy: Donors can choose to remain anonymous when making recommendations for grants, if desired.
  • Legacy: DAFs can provide a way for donors to involve their family in philanthropy and pass down charitable values and traditions to future generations.

Limitations of DAFs

Keep in mind that DAFs are not free. According to a 2021 study by National Philanthropic Trust, the average total fee for DAFs was 0.96% of assets per year. This fee includes administrative fees, investment management fees, and any other fees the DAF provider charges.

In addition, DAFs come with a number of rules, including minimum balance requirements, minimum grant requirements, deadlines, and grant approvals.

Many DAF providers require a minimum initial contribution ranging from $1,000 to as much as $25,000. Once you establish the fund, there’s typically a minimum balance requirement between $5,000 and $25,000. If you fail to meet these minimums, the provider may change additional fees or penalties.

In addition, some DAF providers may have minimum grant requirements ranging from $50 to $250 or more. And because most people actively grant at the end of the year, there may be deadlines for making grants to ensure timely processing.

Lastly, DAF providers must approve grants before disbursement to ensure the recipient is an eligible charitable organization and that the grant doesn’t violate IRS rules or regulations. However, disapproval of a grant is rare.

Despite these limitations, the potential benefits make DAFs a tax-smart way to give to charity worth considering in many cases.

Popular DAF Providers

While there are many donor-advised funds (DAFs) in the United States, the most popular providers tend to be large financial institutions and nonprofit organizations. Examples include:

  1. Fidelity Charitable: Fidelity Charitable is the largest DAF provider in the US, with over $35 billion in assets and more than 200,000 donor-advised funds.
  2. Schwab Charitable: Schwab Charitable is the second-largest DAF provider in the US, with over $20 billion in assets and more than 180,000 donor-advised funds.
  3. Vanguard Charitable: Vanguard Charitable is a DAF provider affiliated with the investment firm Vanguard, with over $14 billion in assets and more than 80,000 donor-advised funds.
  4. National Philanthropic Trust: National Philanthropic Trust is a nonprofit organization that offers DAFs and other philanthropic services, with over $8 billion in assets and more than 18,000 donor-advised funds.
  5. Silicon Valley Community Foundation: Silicon Valley Community Foundation is a community foundation that offers DAFs and other charitable services to donors in the Silicon Valley region and beyond, with over $13 billion in assets and more than 4,000 donor-advised funds.
  6. DonorsTrust: DonorsTrust is a nonprofit organization that offers DAFs and other philanthropic services to donors who prioritize limited government, personal responsibility, and free enterprise.

It’s worth noting that there are many other DAF providers in the US, and your choice of provider will depend on your specific philanthropic goals and financial situation. You must do your due diligence to understand the fees, rules, and requirements if you’re considering this tax-smart way to give to charity.

Next: Tax-Smart Ways to Give to Charity Part 2

Hopefully you now have a better understanding of why bunching and DAFs can be tax-smart ways to give to charity. In the final article of this blog series, I’ll share a few more giving strategies that can help you maximize your impact and tax savings.

In the meantime, please visit our Resources page for more information on this topic and beyond.

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Charitable Giving, Part 2: Which Charitable Organizations Should You Donate To?

Which Charitable Organizations to Donate To

This article is part two in a four-part blog series focused on charitable giving and will address the question: Which charitable organizations should you donate to?

Once you’ve decided how much money to give to charity each year, you can focus on the recipients. According to Giving USA Foundation, the types of charities that tend to receive the most donations are:

  • Religious organizations
  • Educational institutions
  • Human services such as food banks, disaster relief organizations, and homeless shelters
  • Health-related charities such as hospitals and medical research centers
  • Arts and culture charities such as museums, orchestras, or theatre groups

Many people tend to respond to end-of-year donation solicitations they receive by email or mail and give to the same organizations every year. But if you want to be more proactive about your giving, spend some time thinking about the issues or causes you care about and find the organizations that impact those issues or causes most.

Smaller organizations may have a greater need for your dollars than larger organizations. As such, you may want to take advantage of opportunities to give to local organizations, such as theatre or educational groups.

For example, I donate to a local organization called Foodwise, whose mission is “to grow thriving communities through the power and joy of local food.” Not only do I admire their mission, but I was also previously a board member and get a lot of pleasure from attending their events.

Another example is a client of mine who donates to a swim club she belongs to that’s organized as a 501(c)(3) organization. The swim club was renovating its clubhouse, so she donated dollars specifically to help get this project completed. Another client gives to a hiking club because she’s an avid hiker. 

A Word About 501(c)(3) Organizations When Deciding Which Charitable Organizations to Donate To

Suppose you’re eligible for tax deductions for charitable giving. (Ordinally, you must itemize deductions on Schedule A of your Federal Tax return to receive a tax benefit.) In that case, you should ensure that the organization you donate to is a 501(c)(3) organization.

A 501(c)(3) organization is a tax-exempt nonprofit in the U.S. that must operate exclusively for religious, charitable, scientific, literary, or educational purposes. It addition, the organization must not engage in political or lobbying activities or provide private benefits to any individual or group.

It’s also important to note that if you contribute money through crowdfunding platforms such as GoFundMe, Kickstarter, or Indiegogo, these donations are typically not tax deductible. That’s because the individual fundraising campaigns aren’t tax-exempt organizations. 

Investigating the Charitable Organizations You Donate To

There are several ways to investigate charities to ensure they’re using your charitable donations properly.

One well known charity evaluation organization is Charity Navigator, which provides ratings and financial information on thousands of nonprofits and assigns a rating based on their performance.

Another is GuideStar, which allows you to search for nonprofits by location, mission, or types of work. 

How Many Organizations Should You Donate To?

Lastly, many clients ask me if it’s better to give a large amount of money to one organization or spread their donations among several organizations. I’ve found that this is a personal decision.

Some people care about so many things that they want to spread their money widely. Meanwhile, others prefer to have a more significant impact on just a couple of organizations.

One thing I know for sure: try and give at times other than just the end of the year. The charities will appreciate it, plus you won’t get that anxious feeling that you haven’t done enough on December 31. In addition, if you write checks or take advantage of Qualified Charitable Distributions (QCDs), you’re more likely to meet the deadline to get a tax deduction in the year you donate.

Next: Giving Strategically

The first half of this blog series has focused on how much to give and which organizations to donate to. In part three, we’re going to explore various ways to give strategically, so you can make more of an impact with your donations while enjoying the associated tax benefits.

In the meantime, please visit our resources page for additional details on this topic, and stay tuned for more.

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Charitable Giving, Part 1: How Much Should You Give to Charity?

How Much to Give to Charity

This article is the first in a four-part blog series focused on charitable giving and will address the question: How much should you give to charity?

There’s a great need for charitable donations from private sources these days, and with those donations, the world can be a better place. If you have a desire to donate money but aren’t sure how much, to whom, when, and how to benefit from applicable tax laws, this blog series is for you.

How Much to Give to Charity Each Year

As a financial planner, clients often ask me for my recommendation on how much they should donate to charities each year. Because I understand my clients’ financial situation thoroughly, this is not an unusual question. I can provide a suggestion based on their cash flow or tax situation.

But with something as personal and individual as charitable giving, I prefer they determine the amount themselves.

What I’ve found helpful in guiding clients is sharing statistics on how much others give to charity. And as it turns out, there’s a psychological explanation as to why this is helpful.

It’s called “informational social influence,” and it occurs when people do not know the correct (or best) action to take. Instead, they look to the behavior of others as an important source of information and act accordingly.

How Much Do Others Give to Charity?

Americans are charitable, donating hundreds of billions of dollars annually to needy organizations. Although there are significant differences in how much Americans give, higher-income households tend to give a higher proportion of their income to charity than lower-income households (unsurprisingly). However, demographic factors, such as age, education, race, and geography, also come into play.

According to data from Giving USA Foundation, the average individual donation among all income levels in 2020 was 2.5% of income. But individual households earning over $200,000 per year gave a more significant percentage—on average, 4.5%.

According to the same report, households in the Northeast and Upper Midwest gave, on average, 3% to 4% of their income to charity. Meanwhile, households on the West Coast gave approximately 1% to 2% of their income to charity.

Of course, these are averages, and the actual percentages of income people in these regions donate depend upon many factors.

How Tax Deductions Impact Charitable Giving

Once I become familiar with my clients’ charitable giving goals, I include the discussion of “how much” in my annual tax planning meetings.

Why? Because the tax code provides incentives for individuals to make charitable donations by allowing them to deduct these gifts from their taxable income. Indeed, if you’re charitably inclined, you may be able to meaningfully reduce your tax burden each year.

Of course, there are rules and guidelines as to who can deduct such donations and to what extent. I will expand on these nuances later in this blog series.

In the meantime, I hope you find this information useful in determining how much you’d like to give to charity each year. Please check out our other resources for additional details on this topic and stay tuned for more.

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S5E1: Overspending? Here’s How to Get Your Spending Habit Under Control This Year

Spending Habit

Take Control of Your Spending Habit Once and For All

In this episode, Cathy shares her tips and strategies for getting your spending habit under control once and for all this year.

Welcome to Episode 1 of the 5th season of the Financial Finesse podcast!

Today I’m going to talk about spending—specifically, how to get your spending under control. Many of my clients told me that one of their goals for 2023 is to get their spending on discretionary items under control. (In other words, the things you really don’t have to have.)

And they may not have a spending problem per se. But they know their spending is probably one of the things that’s keeping them from reaching their longer-term financial goals, and/or it’s just making them uncomfortable. They don’t feel right about their spending habits.

I have to admit, I can relate to this because I have a little bit of a clothing infatuation. I love anything new, and I love clothing and accessories. So, I’m going to be right there with you in working on getting my own spending habit under control this year.

Episode Highlights

  • [02:11] What do habits have to do with spending?
  • [03:23] Identifying your biggest spending weakness or weaknesses.
  • [06:05] What are your spending triggers?
  • [08:45] Setting your new budget for the year ahead.
  • [10:32] How to find ways to support yourself in reaching your goal.
  • [16:23] Determining your values and aligning your spending accordingly.
  • [17:33] Download our free e-book, How to Take Control of Your Spending This Year.

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