Monday Night Finance- Volume 57

Published

Turning Our Primary Residence Into A Rental Property

There are as many ways to earn money with real estate as there are houses and land parcels in the United States. Some people seek out multi-unit rentals to acquire. Other people “house-hack” or find ways to rent out a portion of their house, either in a short-term AirBnB or to long-term clients. Still others invest in storage units or other development opportunities on unimproved land. One interesting question is what to do when you move houses. You have a choice of either selling your old house or renting it out. In this article, Kevin shares his rationale for renting out his current house after his recent move.

There was some debate about whether to sell our old house or keep it. I’ve heard of plenty of rental property horror stories and with the real estate market on a tear, there were good reasons to sell and cash in on the equity we’ve gained. But I thought the decision was an easy one. We had to keep the house!

They say that location is everything with real estate, and location factored heavily into Kevin’s decision to rent out his old house. Kevin lived very close to a major University. This location meant that it was easy to find tenants and that rentals in his neighborhood had a very low occupancy rate and high demand. The article is very transparent and works through the math behind renting out his old primary residence. Kevin rents the property for $2,400 per month and taxes, mortgage, and insurance are $1,400 per month, leaving a cushion of $1,000 out of which he pays a few smaller fees. Another important part of Kevin’s plan is that if he hates being a landlord, he plans to sell the house within 3 years. With the current tax laws, if you sell a house that you lived in for 2 of the past 5 years, you do not need to pay capital gains taxes. If you’re thinking about moving, check out the article for even more tips about whether or not you should consider renting it out.

Why do I feel so guilty spending money?

We talk about the FIRE movement (financial independence/retire early) a lot on Monday Night Finance. The idea is that if you are able to save enough money, your portfolio can sustain your lifestyle indefinitely and you can leave the workforce if you so choose. (CountAbout now has some great FIRE tools to help you track your progress towards Financial Independence). People within the FIRE movement carefully analyze and track their spending each month. And there are many different “FIRE blogs” where you can follow individuals’ journeys towards financial independence. One such blogger “Mrs. Rich Frugal Life” (or RFL) recently talked about how difficult it can be to make large purchases while on the path to FIRE.

Money shame is real. No matter where you are on your financial independence or debt-free journey, it’s easy to get carried away by the momentum of your progress. Doing so can cause you to tighten the purse strings a little too much, often at the expense of your own happiness.

Mrs. RFL describes her battle with some oversized landscaping that came with their recently purchased home. Her husband tried to remove stumps with a pick-axe and spent several weekends trying to remove these stumps with a pick-axe in 100 degree heat. Finally, they called a landscaping company who was able to use a stump grinder to remove the stumps within a few hours for about $1,000. I found the story extremely relatable. I can think of numerous times I’ve tried to do something myself to save money, but in the end it has cost me a lot of time. While money is an infinite resource (just ask Jeffrey Bezos), we only have so many hours in our lives. The article does a great job of discussing how saving money can actually cost you something more valuable than money (i.e. time).

15 Good Reasons To Retire Early

If you’ve heard about the FIRE movement, you probably have already formed an opinion. Maybe you think it’s awesome and dream of retiring in your 40s to spend you time doing projects you’re passionate about. Or perhaps you wish you could do it but don’t think it’s financially feasible for you. On the other hand, maybe you hate the FIRE movement. Perhaps you think FIRE devotees are careless or wasting their opportunities in life. Or you might think that early retirees are living a life of forced deprivation. If you think the FIRE movement isn’t for you, check out this article by Financial Freedom Countdown which gives 15 great reasons to retire early.

None of us are going to live forever. After having worked hard all your life, do you want to spend the golden years of your life still working? The primary reason people retire early is that life is uncertain. As you get older, the risk of dying increases. You don’t know how long you will be alive. Life expectancy is lower as you age.

The top reasons to retire early involve scarcity. While many people think about scarcity in terms of money, Financial Freedom Countdown points out that both our time and health are scarce resources. Retiring early puts us in control of how we spend out time on this planet. There will always be a chance that you run out of money no matter what path you choose in life, but you will certainly run out of time (and health) at some point. Another benefit of retiring with so much time and health left is that you can be a more active retiree. You can explore new hobbies or engage in travel at your own pace. And these benefits are just the tip of the iceberg. Check out the article for all of the rich experiences that early retirement can provide.