How Many Employers Require Formal Attire

I work in the high tech industry where 'business casual' is standard and 'anything goes' is often accepted.   Generally high tech companies have pretty minimal dress standards.   My wife used to work in a finance job where more formal business dress is pretty much the standard.   Most of my family worked in construction and their dress code was more about safety features like steel toe boots.

It is my experience and opinion that formal business attire is usually not a common requirement at most jobs.   The only places I see people wearing suits are banks and maybe a car lot.   I'm sure there are other jobs where people wear suits but they seem pretty few.    This may vary some geographically as well since I'm sure that some cities are more likely to favor formal attire and some places are more casual in general.

As is my wont, I went to find some real data on the topic.   I couldn't find a lot of information saying how common formal versus casual attire really is in work places.  I did find a couple reports.  




This article from the Business Research Lab has results showing that only 9% of workers in their survey have a formal attire dress code at work.   Their data was from 2003 so its a bit old now, but I don't think things would have changed radically in the past 10 years.

% of employers with different dress codes

Typical business attire = 9%
Business casual = 50%
Very casual = 41%

They say that 'very casual' includes jeans and t-shirts.    I assume that 'typical business attire' means suits and such.  These numbers match my expectations. 

Salary.com also had a survey about dress codes and they report that 40% of employees didn't have dress codes at work.   I don't see a date on that article though so I'm not sure when that data is from.  

I'm not sure if the two results over lap or not.   Its possible the first survey is only among companies that have a dress code or it could be that companies without a formal dress code mostly have very casual or some business casual attire.



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States with Estate Taxes, Inheritance Taxes or Gift Taxes

I've discussed estate taxes before but I have really only been talking about the federal level.   At the federal level only millionaires need to worry about estate taxes.   But theres also state taxes to worry about and some states also have state level estate or inheritance taxes they impose which are separate from the federal estate tax.    28 states do not have estate or inheritance taxes.   22 states and D.C. impose some form of estate or inheritance tax.

Each state that has these taxes has varying rules about exemptions and tax rates, so you have to look at the laws for the individual state to see if theres a liability.   For most cases you do not hit estate taxes at the state level unless you have an estate worth more than $1 million in value, but there are exceptions.  Inheritance taxes in Indiana can be levied for estates as little as $100 depending on the situation.

I found a nice Survey of State Estate, Inheritance, and Gift Taxes written by the state of Minnesota.   The document is from November 2011 so this information is dated but its always going to be a moving target with individual state occasionally making changes to laws.

Here's a quick summary of which states levy estate, inheritance and/or gift taxes.

States with Estate Taxes - 14 states & DCConnecticut
Delaware
District of Columbia
Hawaii
Illinois
Maine
Massachusetts
Minnesota
New York
North Carolina
Ohio
Oregon
Rhode Island
Vermont
Washington

States with Inheritance Taxes – 6 StatesIndiana
Iowa
Kentucky
Nebraska
Pennsylvania
Tennessee

States with Both Estate and Inheritance Taxes – 2 StatesMaryland
New Jersey

States with Gift Taxes – 2 StatesConnecticut
Tennessee


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Why You Should Get Rid of PMI

If you buy a house with less than 20% down payment then you generally have to pay PMI or Private Mortgage Insurance.   Simply put, PMI is extra insurance you have to pay to protect the bank from potential loses.

PMI can be costly.   

I talked before about how much PMI costs and I briefly touched on how it how the true cost of PMI is often significant as a percent of the equity in question.   I think its a pretty important point so I wanted to elaborate on it.


If you're looking at paying $50 or $100 in PMI per month that may not seem like a huge amount.   Its just one of the various things you pay to buy a house.  You might have an $800 mortgage payment, $200 towards property tax, $50 for insurance and $50 for PMI.    But the thing is that PMI is really only based on the short fall in equity so this $50 or $100 charge is kind of like paying extra interest on the extra money you borrowed.     So if you go with a 10% downpayment instead of 20% on a $100,000 home then the difference is $10,000.   The PMI charge is an extra cost for that $10,000 difference.   $50 extra on a monthly payment for a $100,000 house doesn't seem as bad as $50 a month to borrow an extra $10,000.


Consider an example : Lets say you want to buy a house for $200,000 and only have $25,000 to put down.   Thats a large chunk of money but its only 12.5% rather than the 20% down you need to avoid PMI.    For such a loan you would end up paying monthly PMI of about $90.   That would cost you $1,080 over a year just for PMI.  If however you had an extra $15,000 in the bank that you could put into the loan you'd avoid that $1,080 annual PMI cost.   Effectively this means you're paying $1,080 yearly for that $15,000 difference.  This equates to a 7.2% cost on that money for PMI alone.   If you then add in the mortgage interest cost you're looking at another 4% for the mortgage you pay based on borrowing the extra $15,000.

Between the mortgage interest of 4% and the PMI costs equating to 7.2% you're losing 11.2% on the short fall in your down payment.    PMI is effectively costing you 11.2%.   Thats a horrible rate.

Worse yet, PMI doesn't go down as your equity increases.   So the % amount you pay on your equity short fall only gets worse and worse.   Lets say you get this loan with 12.5% down and keep making payments for a few years.   4-5 years from now you'll have made some principal payments which reduce the loan and increase your equity.   If you look 3.5 years down the road you may be on the verge of having 20% equity.   Looking at an amortization table in 3.5 years you would have a balance of about $163,000 which is just $3000 short of 20% equity on the original mortgage.  However you're STILL paying the same $90 per month or $1,080 per year PMI charge.   That means that you're paying 36% in PMI charges on the equity shortfall.   With the 4% mortgage interest you'd be saving 40%!  

So just 3 years into the loan and your PMI is costing you 40% on your equity short fall.  Would you voluntarily pay someone 40% interest?   Thats not a good idea.

It only gets worse from there.   Move forward 9 months when you're about 4 years and 3 months into the loan and you now owe about $161,000 on the loan.   Now you're only $1000 short of getting 80% equity.   That means you're $1000 short of being rid of PMI.    Yet you're still paying $90 per month on your PMI bill.   This is effectively 108% interest for the PMI on that $1000 difference in equity.   Plus the 4% mortgage interest charge and now at month 51 of the loan the  PMI is costing you a whopping 112%!    Clearly at this point it makes a LOT of sense to pay that extra $1000 towards your principal and get out from PMI charges.


Like I said before... PMI can be costly.

I should point out that 80% is not really a magical point that you get out of PMI.   I just used 80% to illustrate the example.   Getting rid of PMI is another story.  You may have to get an appraisal to prove the value of the home and your home would have to maintain its value or go up in value.   I'll cover more on how to get out of PMI in another post.

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Should You Refinance a Rental and Maybe Cash Out Equity?

We own 4 rentals and we've got some good equity in some of them.   Two properties we own outright with no debt.  One property has a bit of debt but some equity and the other property isn't doing so well and is a bit underwater unfortunately.    Overall we're certainly positive equity by a large margin.   Right now we're considering refinancing a loan and maybe consolidating two loans.   That would give us better cash flow and a lower interest rate.   If we wanted more rental properties then we could even do a cash out refinance and use some equity as a down payment on another property.   My wife and I probably aren't going to keep buying more rentals due to the extra work it takes to run them.   So for us we'll likely just consolidate loans at a lower rate. 

There are situations where cashing out your rental property equity can by using a cash out refinance can be a good idea. 

Cheap Debt is Appealing
Today debt is fairly cheap so taking on more debt for rental investments might be a good deal.  Right now we've got very low interest rates and you can finance a rental for 4.5% to 5% range.  Typically rental mortgages are a little more expensive than primary owner occupied residences which I understand is due to a bit higher default risks.  But todays rates are pretty low and 4-5% is pretty reasonable interest to pay.    On the other hand if debt was more expensive then I don't think I'd be signing up to pay 7% or 8% or more longer term.   Todays low interest rates make refinancing particularly appealing.

Cashing out Should be for a GOOD reason
Generally I would only be cashing out equity on a rental if you have a very good purpose for it.   You shouldn't be cashing out equity to go buy a fancy boat or so you can blow it in Vegas.    I'd make sure your purpose for the cash is a good investment.   Personally I think the primary good reason to cash out equity from a rental is to acquire more rental properties and increase your investment and maybe maximize the rate of return on your equity.    If you have other high interest rate debts like credit card debts then rental equity might be a good way to pay off such debts.   You may also want to use equity from a rental to finance some other form of investment such as starting a small business.

Hows it Work, an Example

Lets say that 10 years ago you bought a rental with a 20% down payment.  You paid $100,000 for the property and put $20,000 down.  You had a 30 year fixed loan with 6% interest.   Your mortgage runs about $480 plus another $300 in expenses.  With it renting at $1000 you're netting a cash flow of $220.   Doesn't seem bad for that $20,000 down.  However the property has appreciated to $125,000 and you've whittled away the principal on the mortgage down to about $65,000 so you now have about $60,000 in equity.   That $60k in equity is only earning you a $2640 annual cash flow.    This might be a reasonable situation to refinance and do a cash out if you had a desire to buy another rental.   You could refinance that loan down to 75% LTV and then have a new $93,750 mortgage  and $28,750 in cash.   That cash would be enough to buy another property for around $100,000 with 25% down.  

Start : One property worth $125,000 and $65,000 remaining on the mortgage.  $60,000 in equity netting $2640 cash flow.
Step 1 : Refinance and cash out existing loan:  Original property now has $93,750 loan at 4.5% and a mortgage of $475.   Positive cash flow is now $225/mo or $2700/year.   Thats a return of 8.6% on your equity.  Plus the cash out nets you $28,750 in cash.
Step 2 : Buy 2nd property for $100,000 with $25,000 down.   This property will cost you $380/mo. for the mortgage and $300 in other expenses and rents for $900.   Now you've got $220 /mo. cash flow on a $25,000 equity.   Thats about 10.5% return on equity.

So you go from one property with $60,000 in equity and $2640 cash flow giving you about 4.4% return to having two properties with about $60,000 equity and $5340 in cash flow and 8.9% total return.    Sounds pretty good right?  

The Negatives
On the other hand with the original property you were only 20 years from having it paid off in full and only had to manage one unit.  With the refinance and second property purchase you now need 30 more years to pay off the mortgages and it will take twice the work.   And there is also the risk that your rentals could drop in value.   Lets say you did the maneuver above back in 2007 right before the real estate market crumbled.   If you lost 25% value in your homes they would have gone from $125,000 and $100,000 to $93k and $75k and you'd effectively have lost all your equity.    But if you'd instead kept the original loan and single property your equity would still be around $28k.

Paying down the Mortgage is a Good Plan too

One train of thought on rentals is to just pay off the mortgages and then own the properties free and clear.  My father did this and it worked well for him.    He paid off the mortgages gradually over many years and then eventually owned all his rentals free and clear.  Now he has a pretty good income stream from the properties and no debt to worry about.    I think this is a fairly safe and worry free strategy.   You aren't maximizing the return on your equity but you are taking low risk.




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