Should couple save and live with friends?
Dear Dave: Our yearly income is $45,000, we have a $75,000 mortgage with no other debt and an 8-month-old baby. We've been given a chance to move in with friends and rent the upstairs portion of the house. We'd share the kitchen, and it would help us save about $1,000 a month. Do you think it's better to stay and build up equity in our house or move and save money? Jennifer
Dear Jennifer: One thousand dollars a month is $12,000 a year. That means your place would have to appreciate 10 percent a year, and most homes don't do that.
I understand wanting to save money, but there's more at stake here. You need to consider that you'll be giving up a lot in lifestyle. Essentially, you'd be moving from your own home into someone else's bedroom. You'll be contending with other people's likes and dislikes on an hourly basis, and think about this: Do you really want your child going through toddlerhood in someone else's home? Talk about stress.
You guys make enough to pay down the house and keep it in good shape. And chances are your home is going up in value. The only question is how much.
When you take this into account — plus the quality of life issues for you and your family — I'd rather see you get serious about a budget. Find as many places as possible to cut your spending and stay in your own home. Dave
Health insurance for a small business
Dear Dave: About five years ago I started my own furniture building and restoration business. Things are going pretty good now, and I was wondering how to go about setting up health insurance for myself and the family. Pete
Dear Pete: In your situation I'd suggest a Medical Savings Account or MSA.
With an MSA you have a standard medical policy with a huge deductible — maybe as much as $5,000 — and a very low premium. It enables you to fund a savings account that grows tax-deferred, and the money can be used for medical care with no penalties, no taxes and you can keep what's left if you don't use it all. Plus, it saves you a ton on premiums.
Get with a good insurance broker who sells for several companies to help you set this up today. Dave
Landlord wonders how to protect assets
Dear Dave: I'm a new landlord and I'm wondering, in the event of a lawsuit, what is the best way to protect my personal assets? Carrie
Dear Carrie: I'd go with a liability umbrella policy of about two million dollars. This picks up where your liability leaves off on your car, homeowner's and rental property fire and extended coverage policies. It's not very expensive, either, and should only cost about $250-300 a year.
If you start to build a substantial portfolio of investment real estate — such as houses — you might want to begin putting every four or five properties you buy into a separate corporate entity. I'd advise an LLC, which is a kind of cross between a sole-proprietorship and a corporation. Plus, it has some of the best characteristics of both business types.
Each LLC is a separate company with its own checking account. If you do all the paperwork properly and an LLC entity owns a property where someone falls and sues you, then they can only sue for the assets of that company. Dave
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