Questions About Uber, Coconut Oil, Home Equity Lines of Credit, Mold Problems and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Damaged home and credit
2. Is Uber a full-time job?
3. UTMA account question
4. HSA without employer
5. mySmartPay Wealth Solution
6. Insurance and mold problems
7. Home equity line of credit
8. Payments on infrequently used vehicle
9. Bucket to flush the toilet?
10. Purchasing home on leased land
11. Books about dividend income
12. Coconut oil and soap

Yesterday, we spent several hours at Ledges State Park in Boone, Iowa. We had an early picnic lunch there and spent most of the afternoon wandering the trails.

Ledges is an extremely hilly park, meaning that most of the trails are on a steep incline or decline. Most of the trails utilize stone or wooden steps that the park rangers have installed, but going there still involves climbing lots and lots and lots and lots of stairs (and descending them, too).

Anyway, according to Fitbit numbers, we climbed somewhere on the order of 200 “flights” of stairs yesterday and my legs can definitely feel it this morning. I exercised some muscles that I haven’t exercised in many months – or at least not as much as I did yesterday.

It’s a good feeling, though. The sense of mild to moderate soreness that one gets after some significant exercise is something that I used to dread, but I’ve come to actually quite enjoy the feeling. While it is sore, there’s this positive feeling underneath it that makes it feel good, as though I achieved something and as though my body is becoming stronger and healthier.

While I am the farthest thing in the world from an exercise addict, I can certainly understand at times how this feeling can become addictive.

Q1: Damaged home and credit

If my home was damaged beyond repair by flood and I bail on my mortgage, will they report this to my credit?
– Michael

If you bail on your mortgage for whatever reason, the holder of your mortgage will certainly report it to your credit.

The reality is that the flood damage that your home received was a risk that was part of the package when you bought the house. It’s something that you could have purchased insurance against, but chose not to for whatever reason. None of that changes the arrangement you made with the lender to purchase the house.

Since you’ve devalued your home, if you were to bail on the mortgage, not only would it be on your credit report, it’s very likely that the lending institution will come after you legally. If a home is in good shape, the bank usually puts legal action as a low priority (though they always have grounds to come after homeowners who bail on their mortgage, even after foreclosure), but if the home is damaged, there’s a lot of value there that they need to recoup. There’s a very good chance that you’ll see legal action from the lender seeking the value you’ve cost them.

Q2: Is Uber a full-time job?

I wanted to know if a person can think of Uber as a full-time job?
– Danica

You absolutely can. However, the reality with Uber is that once you account for Uber’s cut and the wear and tear on your car, you’re not going to be making a very high hourly wage.

The advantage of Uber is that you can set your own hours and you can sometimes take advantage of synergy to make some cash on drives you’d be making normally. The disadvantage of Uber is that it adds wear and tear to your car and after Uber’s cut, the money isn’t very good.

Another thing to consider is that you’re an independent contractor if you do this, which means that Uber isn’t going to pay for your medical insurance, your dental, your vision, or your payroll taxes. There’s also no paid time off.

It can be a full-time job, but it’s a full-time job with a few benefits and a lot of drawbacks. I see it as a good fit for someone who is in between jobs and needs cash to make ends meet and some flexibility around their interviews and efforts to find a new job.

Q3: UTMA account question

Looking for some advice on UTMA accounts. We are paying off debt, so my husband and I aren’t investing right now (except in employer plans for the match). My parents set up 529s for our 3 kids, so my in-laws want us to invest the money they give for the kids into a non-educational account. We aren’t sure where to do that – they had previously invested the money with Prudential but I’ve been unhappy with the fees and performance so we’d like to move it. Any recommendations?
– Claire

For those unaware, a UTMA is short for Universal Transfer to Minors Account, which is a tool that people can use to save money for their children. In general, these accounts mostly make sense for fairly wealthy families who are going to be paying for college out of pocket and don’t worry about the financial aid process.

Why, you ask? The big reason is that assets in a UTMA are considered owned by the child, so when they apply for financial aid, assets in the UTMA count strongly against the child. Colleges expect that any money in the UTMA is going to be used for college. A 529, on the other hand, is considered a parental (or grandparental) asset, so it doesn’t weigh nearly as heavily against the child in applying for financial aid.

So why use a UTMA at all? It has the advantage of not having tax penalties levied against it for non-educational use. If a child comes of age and wants to use the money to backpack across Europe for a year, then there are no additional tax penalties involved.

My constant recommendation for investments is to use Vanguard, which offers a UTMA. I have most of our investments with Vanguard and I believe deeply in their financial philosophies. Their customer service and communication have always been top notch and their investment options have very low fees.

Q4: HSA without employer

My company has a high-deductible health insurance plan, which I am enrolled in, so I meet that requirement for HSA eligibility. However, my company does not offer a HSA. Am I able to open one anyway? If so, how and where?

As an aside, you are doing a great job; since about 2006 I’ve been following your posts in particular with interest. I also became debt free in August 2011 after I sold my vintage biplane and paid off my house. I am, like you and your family, headed for FI shortly! No one would ever guess that I am also a millionaire and am soon to be a multi-millionaire! I’ll have another vintage biplane then, and a private airport and custom house. It takes dedication, patience, and persistence to achieve not only debt free status, but also to remain in the accumulation phase (while living a rewarding and fun life) prior to FI.
– Stanley

Individuals can open an HSA if they wish. The only disadvantage of doing so is that there’s no employee contributions; the reason many people use the HSA at work is that their employer contributes to the fund.

If you want to read the fine print, IRS Publication 969 spells out all of the details.

As with the previous answer, I’m going to recommend Vanguard, which is what we use for most of our investments. Vanguard offers a HSA service and has great investment options and customer service.

Q5: mySmartPay Wealth Solution

Do you know anything about the mySmartPay Wealth Solution? Is it a scam?
– Rick

From what I can tell about it, mySmartPay Wealth Solution seems to be the latest version of what is called a money merge account. Such accounts aren’t scams, but they are pretty expensive for what you get out of them.

From my earlier article on this subject: “A ‘money merge account’ is a special home equity line of credit placed on your home. Every time you receive a paycheck, the whole thing goes straight towards first paying off any balance in your money merge account, then the entire remainder of your check goes towards paying the interest, then the principal of your home loan. Let’s say you had a mortgage with $1,500 payments and you set up a money merge account. Each month, you received $3,500 in paychecks, but only spent $1,200 (and sometimes less). That means that automatically $2,300 (and sometimes more) goes towards that mortgage each month – an extra $800 towards principal every single month. This means a 30 year mortgage would be paid off in 13 years and two months.”

This particular instance of a money market account essentially allows you to consolidate other debts into the plan using what amounts to a home equity loan.

On paper, it’s a good idea, but what sets off warning flags for me is that there’s no discussion of interest rates or fees on any of these things.

There’s also the big general problem with money merge accounts: it’s much like having a bottomless checking account. Every dollar you take out effectively adds to your home equity loan, but they allow you to take out lots of dollars and then charge you interest on that.

If you don’t have a lot of self control when it comes to personal money management, this account isn’t really going to help you at all because anything you gain from this system will be eaten up by the fees and by your own poor spending choices. If you do have a lot of self control, then you can probably set up an equivalent system on your own without paying them for the service.

Q6: Insurance and mold problems

My air conditioner broke down late last summer and the house was hot! The AC vents began dripping from the temperature change and subsequently I began to notice mold began growing on the registers and in the ducts nearby. I don’t know how extensive the problem is and I’m wondering if insurance will cover this?
– Gary

Standard homeowner insurance policies generally does not cover mold damage or mold cleanup. They’ll usually cover things like burst pipes and sewer backups, but mold is rarely covered when it is the result of something like an appliance breakdown, which is what happened here.

If you’ve visually noticed mold in your ducts, you probably have a pretty serious problem in there that needs to be addressed before you have any health problems as a result of the mold. The last thing you need are black mold spores coming out of your vents when you run the air conditioning.

Thankfully, this isn’t usually too bad of a problem to clean up. You can usually hire someone to inspect your duct work and remove all of the mold in there for about $500. That money will come out of pocket, of course, but it’s probably below your deductible anyway.

Q7: Home equity line of credit

I have an equity line account. What happens when I finish paying my mortgage? Can I keep adding to it to build more credit? Is the same interest rate applied to the credit as the debit?
– Carrie

You would want to talk to your bank about this. Likely, this is considered to be a separate loan than your mortgage, so that account wouldn’t have to close when your mortgage is paid off, but you’ll want to check with them to make sure.

In general, it’s probably not worth continuing to use that line of credit just to help your credit score. A much better approach is to use a rewards credit card and pay off the balance in full each month, as that will actually generate additional benefits for you along the way while also keeping your credit score up.

The best way to find a good rewards card is to look at the retailers you use most often and choose a MasterCard or Visa that offers rewards for doing business there.

Q8: Payments on infrequently used vehicle

I have a two-year-old truck. I owe $31,000 on it. But I drive it maybe twice a week. Would I be better off trading it in for a used vehicle or just refinancing? My payments are $650 but I pay $700 a month for something that I don’t use.
– John

Assuming that you’re not using this truck for anything critical that couldn’t be served with an older truck, you’re definitely going to be better off trading it than keeping it. Making payments on a loan for a vehicle you use twice a week for non-critical things is a really bad financial mistake.

It’s not just the payments, either. Your insurance is going to be higher on this new truck. On top of that, in many states, your vehicle registration is going to be higher, too.

The real question, however, is whether you can actually get the $31,000 out of this truck or not. It sounds like this is a pretty new truck without many miles on it, but it also means you can’t quite sell it as a new truck, either. In order to make this work, you’re going to have to recoup the costs of the truck.

My suggestion is to try to sell it for enough so that you can recoup the cost and pay off your loan, but that might not be possible at first. Keep at it and keep dropping the price until you can divest yourself of this truck and move to a lower priced one.

Q9: Bucket to flush the toilet?

My boyfriend’s grandparents think using a bucket to flush the toilet is saving them money. We think its not but actually costing them money. Along with damaging the plumbing. I can not find anything online besides how to flush if you don’t have running water… your help is appreciated.
– Diana

I don’t know for sure, but I’m almost dead sure that this is actually wasting water rather than conserving it.

The typical modern toilet uses somewhere between 1 and 1.6 gallons per flush. Depending on the size of their bucket, they’re likely using a comparable amount of water, if not more, to flush the toilet.

Even if it turns out that they’re using less water, they can simply fill up a two liter bottle of water and put it in the tank behind their toilet to reduce the water flow. Doing that will reduce the amount of water used each time the toilet flushes because there will be less water in the tank.

The bucket solution is probably wasteful and is definitely inefficient.

Q10: Purchasing home on leased land

Here’s a question for you: I recently learned about affordable housing through the concept of purchasing a home on leased land. You would purchase at 20%-60% below market price, and then get a formulated amount of the appreciation (25% in one city) in addition to the sale price of the home, and any additionals or value added to the home. This is all done with a 99-year renewable lease. The homes must be sold back either to the organization or to another qualified low income family. My current view (assuming this is not a scam or terrible idea) is that if we are going to rent anyway, we don’t gain any money. Our rent is almost the exact same as our mortgage would be (including taxes, ground lease, etc). If we rented for 5-10 years, we wouldn’t have any money in the end. If we purchased through this organization/ company, we would have a little bit in the end. What do you think? We are in a 1-bedroom apt. now with a child, and a house would be a 3 bedroom. (The one in my area is: cpahousing.org, but I know many states do this. I just want to know what the catch is, or if this is truly a good decent organization!)
– Ellen

There are several hurdles here, even with this plan.

For starters, you’re going to want to know the exact terms of the lease. While it may be a 99-year lease, it likely has some function built in for the land owner to change the amount on the lease over time. If there are not tight restrictions on that, I would run away from this deal, because having a house on land that someone else owns gives them quite a bit of power in this situation.

Another problem is that many lenders are hesitant to lend money in these situations because they end up in a legal mess if you walk away from that mortgage. They then own a mortgage on a house sitting on land that someone else owns, which is not a good situation for them.

In the end, the reality is that plans like this can work out for you, but they are full of potential problems. Unless you have every single corner case worked out, there are going to be avenues where you’re left with nothing at the end of this. I would have a lawyer review everything before I signed anything at all for a plan like this, because although I don’t have the documents in front of me, I see a lot of warning lights.

Q11: Books about dividend income

I recently read your “10 Things You Need to Do Before You Start Investing” article and I am excited to see that I’m already doing most of them including cutting the repayment of my debt down to nine months from 17 years!

The one I’m farthest behind on is learning about investing. I’m all set in my retirement accounts (my income prevents me from a Roth IRA and my 401k is about 99% maxed out) and I’d like to start understanding my options better so when I’m debt free I’ll be able to make smart decisions with a lot of extra money each month.

Can you recommend some good books that take the next steps beyond Bogleheads which I’ve already read? I’m most interested in learning about how to turn investing, and its dividends, into a healthy, second income.
– Maxwell

Investment books are a really tricky thing to recommend, for several reasons. First, many investment books are very much written to hype whatever the hot investment is for the moment. Those books hype this new investment to the moon, but then that information is worthless when the bubble pops. The obvious example of this is the hundreds of investment books written in the mid-2000s that lauded investing in the real estate market, and when that bubble popped, those books became kindling.

Another problem is that books written about specific strategies are often written by people who stand to make money from people following those strategies. Books about stock investing are written by stock brokers. Books about real estate investing are written by real estate brokers. They have a vested interest in making one particular investment strategy sound amazing – and lo and behold, it’s the same investment strategy that they’ll make big money from! Often these books make unbelievable claims, like “How to Double Your Income Every Five Years.” Give me a break.

There are very few investment books that don’t fall into one of those two categories, which is why I’ve stopped reviewing personal finance books on a very regular basis on The Simple Dollar.

If I had to recommend a book for you that’s “beyond Bogleheads,” I’d probably suggest Stocks for the Long Run by Jeremy Siegel. I think it’s geared toward what you’re looking for, though I still prefer an index fund driven investment strategy.

Q12: Coconut oil and soap

I was looking for a recipe for home made soap and came across your website. Very interesting recipe you have and I can’t wait to try. However, I need your help in tweaking the recipe a little bit… if you would be so kind to help. We are vegetarians and are not comfortable with lard, hence hoping to substitute lard with something else. Your recipe said both coconut oil and lard have similar properties but the volume is different. I wonder why. I would be very grateful to you if you could help me with this.
– Neal

Several years ago, Sarah and I wrote an article for The Simple Dollar on homemade soap making. In it, we used lard as an ingredient.

When you’re making soap, you need lots of fats, because it’s the reaction of fat and lye that creates soap. However, different fats have different properties that you want in the soap. The big reason for using lard is that it creates a hard soap that won’t turn into mush in the shower.

Other oils – olive oil, coconut oil, etc. – contribute different features to the end product. Some improve the lather. Others improve the softness on the skin. Some improve the actual cleaning qualities. It all depends on what you want.

So, here’s the problem when you exclude lard: You end up with some very, very soft bars of soap.

Now, what can you do about that?

One solution is to use palm oil. Palm oil does create a hard soap, but it’s fairly expensive and it’s usually gathered under less than ethical conditions.

Another solution is to simply make liquid soap. You can make a very runny soap without using any lard, but you’ll have to use a liquid soap dispenser.

A third solution is to simply age the bars for a long time, and by a long time I mean years. Your bars will have to age at least a year or two or so to become hard enough to withstand sitting in the shower between repeated showerings without turning to mush.

This is probably the best single article I’ve found on making soap from coconut oil. However, I find that her recipe really undersells how long you should let the soap age. If you use the soap with her recipe and the aging she suggests, it will be very mushy if you leave the bar in the shower between showers, especially after the first shower or two once you get down into the core of the soap bar which won’t be as aged. For it to be hard, you should let the individual bars age for much longer.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.