November 24, 2020
In Update #18, pre-pandemic, I was talking myself around to being less irritable about the rental. This is supposed to be a long term investment, we were relying on the cashflow to cover the costs and the little left over to build up a buffer to cover long term costs. This property was the first brick, a cornerstone, of a decades-long investment strategy starting in 2015. I had grand plans.
However.
We started 2020 with clearing out the absolute shambles left behind by Tenant 2. I emptied out the coffers and added more money out of pocket to renovate the entire place from top to bottom. That was a lot of money and a lot of work even just to oversee from afar and I had hopes of a good fresh start.
Tenant 3 seemed lovely on paper. They had stable jobs which was nice and we were finally charging market rate.
Then the pandemic shut downs began.
Then the neighbors started being horrific trolls.
Then Tenant 3’s jobs needed them to move.
Then the PM wanted to quit managing the property because of reasons that I am almost positive are simply code for racism (or laziness).
Insert a very long sigh and some cursing and more sighing.
I finally admitted that I am not only not enjoying this investing venture anymore, I kind of hate it. I hate the PM’s inability to communicate clearly, I hate their refusal to manage in the way that I asked. I hate the HOA and their non-responsiveness to tenant issues and to my emails and the constant violation notices for the smallest of infractions. I hate dealing with people, period.
Everything about this experiment forced me out of my comfort zone. While that was a good learning experience, it turns out that everything about this type of investing rubs me the wrong way.
I did some initial research on both sides. I searched for a new PM and talked to my original broker to suss out the market. It seemed like a pandemic would be a terrible time to sell but the initial conversations suggested that it’s good enough.
After the broker did a thorough walk through, I made the decision that it was absolutely ok to simply not want to do this anymore. Luckily, financially, it can also make sense to sell now.
I gave the broker the go ahead and the man went to WORK. He had that property listed by the next business day, and held ten showings the day after that. We had offers in hand that night. I was stunned. Happy but stunned! We had a brief ten minute conversation and chose an offer to accept.
We had to have an appraisal, negotiate on the results of that appraisal, have an inspection done, and then finalize the details of the offer. I must have e-signed half a dozen addendums. Then we had a notary come out and I whipped through those forms.
Until the end, it all moved really quickly. We got stuck the week of closing on some incorrect demand statements from the local utilities and I had to spend about 6 hours that week sorting out the various utilities and talking the escrow officer through the discrepancies because I wasn’t going to wait around for my payment for 3-5 more days when we were so close to the finish line!
From the day I officially told our broker to list the place to the day we closed: exactly 7 weeks.
I will love…
Not dealing with the HOA anymore.
Not paying bills associated with the rental anymore.
Not dealing with the PM’s constant phone calls, instead of texts and emails as I had insisted we conduct business from DAY ONE.
Not dealing with the PM’s excuses for processing payments late even when the tenants pay on time.
Not dealing with the PM’s inability to proactively communicate.
Not having to vet new tenants.
Not having to drop everyone to deal with someone else’s broken utilities or appliances.
Not having to maintain a cash reserve for the rental.
The feeling of FREEDOM from this rental is glorious!
With glee, I happily deleted the scheduled payments for the HOA, the line items for the rent and the mortgage in my annual cashflow spreadsheet, and the rental mortgage off our net worth. I transferred the rental’s cash reserves back to our accounts since I had saved a full year of mortgage and HOA payments specifically for the pandemic out of pocket and it “owed” us about $10K in repairs anyway.
I suppose it’s possible that when I don’t have a full time job, one and a half kids, and two dogs to take care of, I might want to try some kind of ethical real estate ownership again but for now…
“So long, farewell
Auf Weidersehen, goodbye
Goodbye
Goodbye
Goodbye”
February 24, 2020
If you’d like to join me in helping Lakota families and/or rural libraries this year, please read this post. Over 6 weeks in 2019, we raised $2669.94 for the Lakota families, touching 27 lives. What can we do in 2020?
Current total: Lakota, $521.62; Rural libraries, $321.62.
It’s time for a more pragmatic look into whether or not we should get out of the landlord business. I can’t just make a decision like that based on my irritation level and a vague recommendation from the PM who hasn’t given me enough data to go on. The thing is, they were originally pushing me to consider selling because of the money, now it’s because of “the neighborhood”. When a professional’s recommendations are vague and unsubstantiated, I have to do my own research.
I consulted with a friend who’s a veteran in the business and we did some searching. Initial research says: the neighborhood isn’t sketchy. Maybe the next one over is, and there’s overflow, but their gut feeling was to keep the property. The PM just sounds lukewarm about it, but as Veteran Friend advised, if it was an actual problem, they would say so outright and refuse to handle the property any longer. This bears observation but not a rush to sell.
So it was time to run the numbers. Getting into this rental cost about $34,000 out of pocket. After 6 years of rent, rent has paid down 10% of the mortgage, and the house has appreciated on paper by 66%. We have about $140,000 in equity if it sells for what the assessed value is now. (more…)
January 20, 2020
2020: If you’d like to join me in helping Lakota families this year, please read this post. We have $25 in contributions so far!
Frustration upon frustration.
At first, I thought that my PM was overreacting to the tenant’s first late payment in four years, but we set up a plan in case that was the start of a pattern.
Unfortunately, it was. The tenants were mother and son but the mother was the person paying rent and that first late rent occurred as soon as mother was moved out for health issues. The rent has been late every month ever since.
Not only that, the late payments continued accompanied by repeated (totally preventable) HOA violations that cost $100 a pop and a lot of time to fight back to save that money. Sometimes the time spent was wasted anyway because they wouldn’t remove the fines.
I only do a little better than break even on monthly costs so a tenant that doesn’t pay on time, racks up very avoidable fees that we have to take time to fight, and takes up precious extra time meant that I could no longer afford to charge below market rent.
If he’d actually talked to us honestly about issues with his income, if he’d cleaned up after himself and didn’t rack up extra fees every month ($100-400 a month!), we would have continued to work with him. (more…)
December 2, 2019
Dollar cost VERSUS lump sum
For traditional retirement savings, I’ve always been a dollar cost averaging investor. I fully believe in automating my savings and investing.
I do NOT believe in automating my bills because I don’t trust those companies any further than I can throw them. Look away and they’re tacking on extra unauthorized charges! And even the decent companies can make mistakes. And I can make mistakes that need to be rectified before the bill is closed out. So no automated bill pay for me but I am all over automating the money that goes back into our pockets!
Sadly, despite my honed and stellar money skills, I’ve never once had enough disposable income to max out an employer sponsored 401K plan. Not even close, not even within shouting distance of halfway close. Worse, my employer hasn’t offered a retirement plan for years and probably won’t for years. Finally accepting this reality, in the summer of 2018 I buckled down on making up for lost time.
For the first six months, I spread out the transactions.
After 13 transactions, I decided to give lump sum investing a try. It’s viscerally satisfying, I get nervous about regular contributions when I’m trying to keep our cash buffer healthy in case of market crashes *cough* hoarder! *cough* market timer! *cough*. I’m also curious about how that would work since I’ve never done it before.
There are also two practical, non-emotional, components to this. I could be contributing monthly but I don’t want to have to account for these withdrawals in my monthly cash flow. For later, not that I’ve done a lot of thinking about this, I want to reduce the number of lots we have to sell off.
I switched to hoarding cash to make a few big deposits in the year the way I do for our IRAs to keep things simpler.
Here’s what I noticed:
For our IRAs, I love it. This was somewhat accidental but I’ve fallen into the habit of saving cash the year before. In the first week of January, barring any complications, I max out both IRAs. Done and done. I only think about it again the rest of the year when I’m pulling together the next year’s contributions.
For our brokerage: In the first six months I became hyperaware of price movement. It shouldn’t matter but I was. In the run up to making a big quarterly deposit, I keep checking the price: VTSAX, VTBLX, VTIAX. I couldn’t shut off my urge to find the best deal! I lost all perspective. That’s annoying.
I really wished that I could just set a buy price and forget it.
After a full year, my hyperawareness calmed down a bit but not because I came to my senses. It was because I decided that with the recession still looming, my gut wants to hold on to the cash and buy in a really significant dip to make our cash go further. My VTSAX purchases have ranged from one delightful low of $59/share up to $71/share and I’d like a lot more of the lower share price thanks.
Tax efficiency: gain and loss harvesting
I’ve been feeling guilty over not engaging more fully in making our portfolio tax efficient. One of the ways I felt like I should be addressing our portfolio is using tax loss and tax gain harvesting. At the risk of sounding immodest, I had no use for tax loss harvesting because in our individual stocks portfolio, all of our stocks were winners between 2008-2017. Since, I buy and hold, the minor ups and downs of the stocks were of little interest to me. I’m only interested in the long term prospects!
I finally made a bad buy in 2017. I bought GE at $30 per share, realized that I didn’t have faith in the company over the long term, and decided that I’d rather lock in the loss than ride it out. That was my first tax loss harvesting and it was clumsily done. I exercised the sale at the end of 2017 so the sale didn’t even register until 2018! Whoops.
My lot sold at $17.59 per share and I used that loss to offset our taxes in 2018. The stock is sitting around $8-9 per share right now and maybe it’ll come up 4-5 years from now but I only buy and hold companies that I fundamentally believe in, so I’m ok with locking in that loss when I did. Who knows. I’m not a stock wizard, I’ve only done as well as I have because we’ve had an incredible bull market, but I’ve got to have some kind of rational blueprint for buying and selling.
That brings us to tax gain harvesting. I’ve vaguely had this sense that I was failing at advanced investing because I have never felt comfortable with the concept and harvesting but after chatting about it with money blogger friends a bit and doing more digging, it does actually seem like it’s not a tool we need right now.
If I’m understanding this correctly:
- Only long term capital gains tax would apply since I hold shares forever.
- We are married filing jointly, so our LTCG tax in 2019 is 15%.
- We’ve also been subject to the net investment income tax (a 3.8% surtax that applies to income from investments) in the past, when we sold property.
- In 2019, our LTCG tax only drops to 0% if our income drops below $78,750.
At the moment, I don’t see any benefit to our harvesting gains because we’d be paying the 15% capital gains tax and possibly an additional 3.8% surtax depending on the timing just for the privilege of resetting our basis. That’s really expensive for no real gain. I don’t expect to sell these stocks for income until we’re not making W-2 income, so even if we are still in the 15% cap gains bracket, we’d certainly be making less income than we are now. Holding off means we can avoid the additional surtax. Though we would arguably be more able to foot the tax bill now, it’s not necessary and we would assume
:: How do you invest? Are you using tax harvesting in any meaningful way?
September 23, 2019
Last year, we had to replace all the appliances in the unit ($2000). This year, we had to replace the hot water heater ($1000). A huge moneymaker this place is not, especially since the monthly profit margins are very thin. The PM makes about as much as I do in a month.
Then, after 4 years of on time payments, the tenant was late paying the rent. There were extenuating circumstances, I’m told. One person was ill and the other person had an issue at work, so they were several days late. While they’ve not been perfect tenants, we have several issues with HOA violations a year, they are minor issues and don’t speak to the quality of the tenant as a payer of rent.
I’m concerned with whether they pay in full, on time, and whether they are treating the property with respect. They are doing both, so while I didn’t love the late payment situation, as long as they ended up paying in full before too long, I was willing to be understanding.
My property manager had what I thought was an outsized reaction. They filed a “7 day pay or quit” notice and asked me to agree to issuing a 30 day vacate the premises notice after they paid for this month. I was taken aback. Why on earth would I throw out tenants for being late once? I’m not trying to let them take advantage of me but after one late payment? That was unreasonable.
I discussed the situation with a landlord friend who agreed that being understanding of tenant life situations includes letting them pay late one time without kicking them out immediately after they make that payment. If it happens more often, that’s a concern but at the moment, after 4 years? A single late payment does not warrant a vacate the premises notice, thank you very much.
After asking for more context, I found that the PM was (overly) worried about the potential for a non-payment situation in which case it would take time and cost money to evict, and cost us both in lost revenue. That would suck, yes, but again, a few days late one time just didn’t warrant that panic, to my mind.
We agreed that we’d wait to see what happened next month. If we had another late payment that indicates the tenant isn’t able to keep up with the below-market rent any longer, then we’d discuss what actions to take.
It is rather frustrating to keep having to deal with their HOA violations, though, because that’s precious time taken out of my schedule. I’m not sure if we can charge for repeat instances because it’s generally the same problem repeatedly and the tenants don’t have any consequences but we do. Repeat transgressions suck up a lot of my time but they also end up costing a lot of money as well in HOA fines.
:: Do you have to deal with HOA violations as a tenant or as a property owner?
August 20, 2018
My former property manager was a disaster. For the purposes of this post and my crankiness, she’s being renamed from Crappy Old Property Manager to Fiasco. She ran hot and cold: sometimes taking care of business and communicating, sometimes taking days and weeks of emails to get something done.
The rent was usually paid on time, but every so often, we’d run afoul of the HOA rules because the tenants weren’t in compliance now and again. The issues were things I THOUGHT were simple, and wondered why they couldn’t manage to comply but I didn’t take direct action. I’m a bit of novice at this and wasn’t sure of the right course of action.
Normally I wouldn’t do business with someone this inconsistent, I was enjoying being hands off too much in these first years with JuggerBaby and all the house stuff. But no more. It turns out that there was so much wrong under the surface, I’m so glad that I got fed up before the mess got much worse.
There’s an outstanding balance that the tenants haven’t been paying from the HOA morass two years ago and Fiasco claimed the tenants were aware of it every month but wouldn’t pay down more than a fraction of it. Fiasco dismissed it as something that’ll just come out of the security deposit but as I reassess the value of each person I’m paying money to work for me, that’s just not going to cut the mustard. We don’t know what, if anything, we’ll need the security deposit to pay for at the end of these tenants’ stay, but if it’s significant, I don’t want to have wasted it on this bill. (more…)
July 23, 2018
Oops, I missed writing up the April report! I think about our investing all the time but somehow forgot to report since last July. It’s been a bit busy here. 🙂
Observations
- I predicted that we’d see about $2600 in dividend income in 2017. We netted $2,445.95.
- Knowing that at some point, we’re due for a recession, and with stock prices being so high, I’m focusing on buying consumer defensive stocks – necessities, not luxuries.
- I’m trying to decide how I feel about buying Amazon stock. I don’t own any right now, and I’m very not cool with how Bezos treats his employees – the way he pays his employees is awful. At the same time, it’s the one company that provides a significant number of the services and products I need so I use them quite a bit as a consumer and that bothers me. Similarly, when the racist incident happened at Starbucks, I was really annoyed that we hold stock in a company that responded so badly at first, but I came around to realizing that it doesn’t make sense to dump stocks, or refuse to buy stocks, entirely on how a company conducts itself on single episodes. It’s a tough needle to thread sometimes and I’m still figuring out how to make this work.
- First quarter dividends (Jan-March): $346
- Second quarter dividends (April-June): $770
- Total net dividends year to date: $1,293.07
- New purchases: 100 shares of CLX, and 100 shares of KMB
- I sold GE at the start of the year at $17.59 a share and that felt silly because I mistimed it for tax loss harvesting for 2017 but it should work well enough for 2018.
(more…)