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Another glimpse of the other side
Old 11-05-2007, 08:48 PM   #1
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Another glimpse of the other side

Following TickTock's example, here's a lifestyle we hope to avoid.

The other day we were working on our rental's yard when one of the tenants asked "How much is your electric bill?" I was all set to launch into my solar proselytizing when my spouse said "This house usually runs $50-$75 a month." Our tenant said "Our bill last month was $750."

When I regained consciousness we realized that they'd been running their bedroom window air conditioner. This is not a good idea in a house that has uninsulated walls and jalousie windows, but her husband spends all day in a freezing A/C windowless bunker and I guess he doesn't tolerate the heat very well yet. He just moved back to Hawaii six months ago so he'll probably adapt by next summer and their electric bill will drop back down. Once she realized what the issue was, she seemed to feel that the A/C was a necessary expense.

But he drives a late-model SUV too big to fit under the garage door and she drives a spankin'-new sedan. Over half of the two-car garage is stacked to the ceiling with toys-- an air hockey table, a foosball table, and lots of other man gear. Their media wall includes at least a 60" TV and associated high-powered acoustics. Their furniture is top-of-the-line and there's a lot of it. They even have a full-size pool table on the back lanai.

He's in his early 40s and she's fairly young-- maybe mid 20s. They have a four-year-old and a two-year-old and they've happily announced that she's pregnant. Nice people, seem to be good parents.

This lifestyle isn't possible on a GS-12 salary, but he earns a 25% tax-free COLA (for Hawaii's expenses) and he's a retired E-7. This works out to a rough total of $96K/year or $8000/month. Their rent is $2800/month so their housing expenses must be about 40% of their gross income, which is high yet achievable. The good news is that his job seems secure unless the DoD really slashes intelligence spending.

Raising three kids in Hawaii with that material lifestyle, we're pretty sure they're not saving for a house down payment. I don't know anything about their savings (or their inheritances) but at this spending level he's going to be working forever. I was ready to wave goodbye to these people at the end of their lease and sell our rental, but we might be looking at a long-term tenant. That's a good thing, but I sure hope his pay increases keep up with the rental market.

Is it good to know that your tenants are unlikely to move because they're financially hobbled, or should we be concerned about prolonging the longevity of the golden goose?

These are the questions that I ponder while I'm pullin' weeds...
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Old 11-05-2007, 08:59 PM   #2
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Cha Ching

Stuck in rentals. Because of thier choices

Maybe he has to cool the house because of all the computer/plasma/server stuff

what if he asks you to kick in for some of the air conditioning bill?

Sounds fair
(LOL)
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Old 11-05-2007, 09:50 PM   #3
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heir rent is $2800/month..
Wow - that's a nice income for you.
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Old 11-05-2007, 10:53 PM   #4
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Think he said the neighbors place was renting for 2800.
Take out up keep, property taxes and insurance.
If bought with a loan there goes more and then the income
it produces will be taxed. Lucky if the place will return 15%
for the worry. Then again appreciation could be a few 100%
if sold.
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Old 11-06-2007, 03:22 PM   #5
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You could be like my sister who rented to someone who stayed there for many many years... and kept the rent a bit below market to keep them there... from what I remember, only 3 tenants in 20 years. This has a huge advantage in not worrying about getting the check...
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Old 11-06-2007, 03:38 PM   #6
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Yeah, 2 of my SF have long term (10+ year) tenants. Trick was not to raise the rent - on the good ones - for a couple/few years. Now I raise the rent $50/year ... and they don't flinch because I am still just below market.

A demanding PITA gets an increase every year ... better to get them looking or at least make it worth my while.
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Old 11-07-2007, 07:38 AM   #7
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Originally Posted by Spanky View Post
Wow - that's a nice income for you.
It's just the scale of Hawaii real estate... after mortgage, taxes, & lowball maintenance our cash-on-cash return (at best) is 8%. 2007 was new ceilings & carpeting and 2008 will be a new fence, garage door & some landscaping-- so we're going to be below 8% for a good while. And our return on equity is less than CD rates. It's been better to have the place than to not have it, but all the times we've rented it out was only because it was easier than selling.

http://www.early-retirement.org/foru...rty-28264.html

My attitude has somewhat improved now that I was able to find replacement valves for the 11-year-old water conditioner. I can rebuild the old ones at my leisure, too, and have ready spares for the next crisis.

I should've known that the perfect tenants would move in just about the time I persuaded spouse of the wisdom of selling the place. Years down the road will probably reveal that 2008 was the peak of the market too...
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Old 11-07-2007, 08:09 AM   #8
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Do they take care of the place/ Do they pay the rent on-time? Obviously it's a positive cash flow. I'll always take a solid tenant at even a lower rent just for the peace of mind. Shoot Nords, you've got to find something to do with all your free time.
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Old 11-07-2007, 08:41 AM   #9
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Originally Posted by tightasadrum View Post
Do they take care of the place/ Do they pay the rent on-time? Obviously it's a positive cash flow. I'll always take a solid tenant at even a lower rent just for the peace of mind. Shoot Nords, you've got to find something to do with all your free time.
Positive cash flow is a good thing. I'm just seeing the glass as half full and wondering what other surprises are in store for us.

This rental is a potent example of the wisdom of cashing out for credit-union CDs... or even I bonds... instead of chasing cashflow or appreciation.

4-7 feet forecast at White Plains this morning, the remnants of one of the best late-season swells we've seen in a few years. It's been busy enough without the property repairs. As the bumper sticker says, I'd rather be surfing!
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Old 11-07-2007, 08:52 AM   #10
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Well said!
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Old 11-07-2007, 09:34 AM   #11
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But he drives a late-model SUV too big to fit under the garage door and she drives a spankin'-new sedan. Over half of the two-car garage is stacked to the ceiling with toys-- an air hockey table, a foosball table, and lots of other man gear. Their media wall includes at least a 60" TV and associated high-powered acoustics. Their furniture is top-of-the-line and there's a lot of it. They even have a full-size pool table on the back lanai.
Yeah, that's a typical renter...great cars, great furniture, lots of toys, no savings and really crappy credit.

They certainly see the world differently than I do.

Contrast that with the typical poster on this forum.
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