I wrote a post last fall about our Snowbird Housing Plan. It described how we bought the two homes we’ll live in during retirement for under $100,000. Our plan is to downsize this summer into a single family foreclosure we bought for $44,500 in 1994. This property has an unobstructed lake view and it’s been used as a rental since we purchased it and fixed it up. We’ve had the same tenant living there for more than 22 years. And we’ve never raised the rent. REALLY.
I wonder what you’re thinking right now. Maybe the tenant is a family member or good friend? Could the tenant be a co-worker? The tenant probably works for them somehow in exchange for not raising the rent.
If you were thinking any of those things – the answer is no. We put an ad in the paper (no Craigslist or anything back then) and chose strangers to move in the house. And although the tenant takes care of the snow and lawn, she doesn’t work for us in exchange for anything. That was part of the deal when they rented the single family house.
Maybe you’re thinking something totally different. Why on earth didn’t they raise the rent – like EVER?? No tenant can be that good. Why not raise the rent by at least the rate of inflation? Didn’t their taxes or other expenses go up? Are they crazy to absorb all of the increases over the years without raising the rent?
It wouldn’t surprise me if you thought any of those things either. Sometimes we think we’ve been crazy not raising the rent too. But we just didn’t do it. Were we lazy? Maybe. Were we stuck in the “status quo” mode? Definitely. Are we lousy landlords? I think it depends on how you look at it.
Let’s take a look at some of the data and then we’ll consider that question again.
- 2 Bed/1 Bath, 1050 s.f. House, 8000+ s.f. Lot w/ unobstructed lake view in upstate NY. Built in 1950.
- Sold as a foreclosure. Won with a sealed bid of $44,500. Needed some repairs, new roof & siding.
- Rent in 1994…$600, Rent in 2017…yes, still $600/month
- Total rent paid in 22.5 years = $162,000 (270 months x $600/month)
- Occupancy rate = 100% (Yes, this house has been rented EVERY month since we purchased it)
- Maintenance calls over 22.5 years = 10? (Actually, it might be only 7 or 8 – we haven’t kept track. The tenant only calls for major issues – no heat, roof leaks, etc.)
- Estimated Expenses (repairs/supplies/maintenance) over the 22.5 years = $15,000? (New carpet, updated bathroom, furnace repair, replacement windows, tree removal.) I have recent expenses, but haven’t kept all of our records over the 22+ years.
So…are we lousy landlords? In some ways, I think we are. We could have handed our property off to a management company. They would have known the comps in the area and increased the rents on a regular basis. We probably would have made enough money in rent increases to at least cover the cost of having the house managed. Probably.
But then I also remember that saying…no one cares about your money more than you do. And I think that holds true for your properties too. What would the vacancy rate have been? What about the costs related to each turnover? How many carpets would we have installed over 22 years of rentals? There’s a community college 4 miles down the road – would they have rented to a bunch of students each year? How many maintenance calls would we have had to deal with? Probably more than 10.
I looked at Zillow today and the rental estimate for our property is $1250/month. Whoa….That’s more than double what we charge. Even if the Zillow estimate isn’t 100% accurate (due to the lack of any recent data on our specific house), it is likely we could be renting out the house for $1000/month. But it wouldn’t rent for that in its current condition.
So now you might be thinking that the house is in poor condition and that’s why we kept the rent low. And that’s not true. The house is clean and the tenant takes very good care of it. But almost everything needs updating. Our tenant wasn’t interested in granite counter tops or stainless steel appliances. We didn’t spend money on anything that wasn’t needed, because she was happy with what she had. And we didn’t raise her rent.
If you’re still reading, you might be in the other “camp” that thinks that there are some good reasons for keeping the rent the same all these years. (OK- I fully admit that you still might be thinking we could have raised it SOME over those years, and yes – you are probably right!)
Maybe we aren’t as inadequate as landlords as it seems.
Here are a few things to consider…
- This rental is as close to passive real estate investing as we could ever get (and we saved thousands in management fees!)
- The house is worth more than 2X what we bought it for. (The Zillow estimate is over $122K which is $10K short of 3X the purchase price!)
- We’ve had tax benefits for 22 years.
- The tenant has paid off the mortgage twice. We refinanced the house after the second payoff and leveraged the proceeds to put a down payment on an 8-unit apartment complex.
- The tenant has never missed a payment and takes care of all minor issues.
- We listened to a smart realtor who told us NOT TO SELL this property because of the lake view. We’ve been tempted, but we stayed the course – year after year.
We could stress ourselves out by second guessing all of the decisions we’ve made over the years about this property, our tenant, and not increasing the rent. But we can’t turn back the clock either. So we’ve chosen to move forward.
And forward today included telling our tenant of the plan to end her lease and take the house back over this summer. It definitely wasn’t easy, even though we really don’t have more than a business relationship with her. Yet we know that our rental house has been her home for more than 22 years. And it was the home of her husband and her dog before they both passed. Her memories of home run deep in our house.
We think we’ve given her adequate time to find a new place to live, but I’m not sure we’ll ever feel good about this decision. But it is our house and that is certainly a benefit of owning rather than renting. We’ve been good landlords to this tenant and she’s been a good tenant to us. It’s been a win-win situation for all.
That’s all I have for today. I’ve been thinking about this post for months – wondering what people in the personal finance or real estate investing “space” on the web might think. It made sense to write it today after giving notice to our tenant. This is the beginning of ditching the status quo and embracing change this year.
I’m certainly open to criticism on our landlording skills! And I’m guessing there is someone out there who could estimate/calculate all the money we may have left on the table by not raising the rent! But after a few tweets about this, I know some of you saw positives I didn’t even consider. And thank you for that – I do think we’ve helped others (our tenant) for years and that makes us feel good too.
Photo credit: WDNetStudio@Pixabay