Why We Decided to Rent vs Sell

cross country driving adventures

We knew we’d return to the East Coast to be closer to family at some point. So, after 10 years of loving life in Seattle, we made the move back to the Philadelphia area.

The Seattle real estate market is insane. We lived in a 1,300 square foot single family home in a desirable neighborhood with great schools and close to downtown (i.e., short commute to Amazon). Prior to purchasing this house in 2006, we sold our Philadelphia home for a nice profit, affording us to pay off my student loans, buy two (used) cars and put 20% cash down on our new Seattle home. This was all without a thought of kids (which came only two short years later). Thankfully, the house worked for our family of four because we quickly realized we couldn’t afford a bigger house that wasn’t a fixer.

During our time in Seattle, we also purchased a smaller investment property in another neighborhood. We didn’t follow the “buy the worst house in the best neighborhood” rule, but we bought what we could afford and got newly renovated (low maintenance) house in a neighborhood we knew was “up and coming.” For three years, we acted as the property managers with no turnover and very few issues.

So, when it came time for us to move, we were torn: sell or rent? The Seattle market has seen such growth: was it a bubble and should we sell now (2016)? Or hold onto the properties with a nice monthly income, hope the long-term growth continues and accept there will be maintenance and management costs? We took a deep breath and decided to rent, turning over the property management to a company that takes 10% off the top of the first rental and 8% off the top of the second. This has proven well worth it! They take care of everything and are prompt to answer any questions of concerns.

In the two years since February 2016, property 1 (primary) has grown in value by 35% and property 2 (investment) has grown by 46%. This doesn’t account for the monthly rent which more than covers the mortgages. So, I didn’t do an entirely accurate comparison, but in the same time period, a $10k investment in VTSAX would have grown around 35%. Selling our properties would provide a much larger investment, so perhaps this would have been a wiser decision, but I like: 1) the passive monthly income and 2) having diversified assets.

The Plan for Property 1:

  • Keep it for the passive income during retirements, or
  • Move back! Right now, we’re thinking about retiring in WA.
  • We also keep in mind that if we sell by 2020, we can avoid paying capital gains tax for having lived there for two of the prior five years.

​We definitely have an emotional tie to this house and neighborhood and simply don’t want to sell it. At least we recognize this!

The Plan for Property 2:

  • Keep it for passive income in retirement, or
  • Sell it to pay for college for two kids in 10+ years, while collecting monthly rent. But, with this, comes real estate market risks and increasing maintenance costs as the property ages.

And, of course, the ever-present threat of an earthquake in the PacificNW that could reduce both properties to a pile of rubble.

The Nightly Rental Option: I recently looked at what nightly vacation rentals would look like for each of these houses, but our steady monthly rent exceeds the estimates. 

We purchased our big, old, inefficient home in the Philly ‘burbs, but the market here is not nearly has hot, so it’s not so exciting to think about. With some improvements coming to the neighborhood that will increase walkability and overall appeal, I’m sure we’ll sell it for more than we bought it, but if you consider the real costs of home ownership, I can’t confidently say we’ll see a profit.

Either way, we’re in a great place with these investments and will keep them for now. I’m not sure what would change that. I’m afraid that if we sell and funnel the profit into investment accounts, we’d be putting all of our eggs in one basket. It’s all about balance!

(Failing) to Save on Heat

Blogging in a sweater and slippers … not quite as chilly as Our Next Life’s 55 degrees, so it’s definitely not our “selectively hardcore.”
We keep our house around 62-64, which isn’t warm! We’re in the Philly ‘burbs and it’s been a very cold winter, so our oil bill was a ridiculous $417 this past month. We could add another layer and lower it, but there’s the beer. We had to move the fermentation from the basement to living room because it can’t go below 62. So, there we go. My very good excuse.

I’m not going to entertain an energy assessment … I know this old house is not well insulated. I think we’ll have to chip away at a few cost-saving measure:

IMG_5188
Warm kitty
  • Convert to gas? No. That’s a minimum of $8,000 just to bring the line to our house; appliances not included.
  • Add a zone? No. An HVAC contractor advised against this because it’s cost prohibitive.
  • Storm windows closed? Yes. And caulked around frames. Although I’m not sure they make much of a difference in this drafty house.
  • Thermostat programmed? Yes. Steady at 62.
  • Furnace maintenance and filter change? Yes, annually.
  • Change providers? Our provider’s rates have increased to$3.09 … I have to shop around!
  • Replace furnace? Yea, yea. It’s probably 30 years old and really inefficient. That would be about $5,000. Our A/C is also old; I wonder if there would be an efficiencies in having them replaced at the same time.
  • Improve insulation? Yes, I’m sure this can and should be done. Add it to the list.
  • Convert fireplace to wood stove?  Probably not. I like them, but I can’t see DH making the switch.

So, immediately, I think we should shop around. Long-term, we have to spend a lot to save a lot? There has to be other ways … I would love, love, love to change from oil. Perhaps I’ll run a breakeven for gas conversion.
Either way, the beer stays at 62.

Save Over $800 per year by Changing Wireless Plans

I had no idea. There are wireless plans available that use the same network as the major carriers, but under different names and for a fraction of the cost. It’s like the generic, store brands of wireless plans. Of course, I learned about this on an ChooseFI podcast then learned more through the ChooseFI Facebook group. (I’m a shameless ChooseFI cheerleader.) Since the Facebook group isn’t public, here’s another resource for information about cheap wireless plan options available.

I compared the costs of several of the discount carriers and chose to go with MintSIM because it was one of the cheapest that fit my usage. (Side note: They have great branding with simple, easy-to-understand information and instructions.) I have my own iPhone, but when I got the SIM card, I couldn’t activate it. I didn’t realize that my phone was locked and I had to wait another 30 days to unlock it. It was locked because I had recently changed jobs and the liability of the phone went from my employer to me. Despite my best effort to understand the fine print and not be locked into a contract, I failed to realize that the change resulted in my phone being locked for 60 days.

It was all downhill from there.

Their customer service hours are basically the hours I (and most of the workforce) work and I simply don’t have an hour in my workday to do this. They do have after-hours support, but not for what I needed: SIM reactivation. And when you call, you don’t get MintSIM directly. Anyhow, the agents I did speak with were great and I was able to get the same one twice (per my request) which is amazing. They just couldn’t reactivate my SIM. Each time, they said it was good and I should try again in 24 hours, but no. It didn’t work. After three calls over three weeks and no success, I asked for my money back. That was the only good part of my experience with them. I got my money back no problem.

I am now on Total Wireless (who uses the Verizon network) and love it. I haven’t had a need to call support, so I can’t compare that service, but it was easy to purchase and activate. It’s $35 per month for one line with unlimited talk and text and 5GB of data. I used a promo code and got $10 off my first month. I was using 12GB a month when I had unlimited data, so I wasn’t sure how I would survive on a data diet. I have 13 days remaining in my first month and haven’t used even half my 5GB data yet. It was easy: I turned off cellular data for everything and then turned it back on per app, as needed. And when I can, I always connect to wireless.

Some day, I’d love to go with Project FI, but the iPhone is (not yet) compatible.

By the end of January, DH will make the switch from Verizon to Total Wireless. A shared plan of our two lines is $60 per month, savings us over $800 per year after we both switch.

2018 FIRE Goals

Building on the strong foundation we set in 2017, here are our goals for 2018:

#1: Debt reduction. We made some great strides in 2017 by simply organizing our finances and recognizing that we need to be more aggressive and focused on debt reduction. This will, of course, continue …

Hawaii, 2015

#2: Travel. We haven’t traveled much lately and we NEED to! This is a no brainer: open a Chase rewards card. Actually, I already got mine and my husband will get his soon. We went with the Chase Sapphire. I’m not sure yet if we’ll get as aggressive as the chase gauntlet just yet. We’re thinking a family vacation to the Bahamas … perhaps that’s because it’s freezing cold right now.

​#3: Max out all pre-tax contributions (401k, HSA, FSA).

#4: Increase college savings. Keep 529s at $100 per month and contribute an additional $100 per month into another, separate investment account or Roth IRA for each child.

#5: Save (more) on wireless phone bills. Change DH from Verizon to a Monthly Shared plan with Total Wireless for $60 per month, saving $67 per month. That’s over $800 per year. Cha-ching!

The debt reduction is the biggest nut: credit cards, HELOC, two car loans and three mortgages. It’s daunting, but it’s there and we’re going to make it disappear. POOF!

2017 Recap: We Started Our Journey to Financial Independence

 

We started on this journey in May 2017 and I think that in our first eight months, we accomplished a lot. It wasn’t too much of a stretch for us: we know we need to save, but learning from the FI community, we realized that being more aggressive about both decreasing  debt and saving more will enable us to stop working our traditional office jobs in about 10 years (at age 54) … we hope. College for two kids is such a wild card. And I don’t even want to think about healthcare.

Our first eight months on the path to FIRE looked like this:

  1. Transferred both our Wells Fargo IRAs, rolled over prior employer 401k and an old pension into Vanguard IRAs, focusing on consolidating into VTSAX
  2. 401ks – we didn’t quite max these out in 2017; they will be maxed out in 2018 and super happy to see there’s an increase of $500 more per year in 2018 on the 401k max
  3. Continued to contribute $100/month into each of two 529s
  4. Maxed out pre-tax HSA and Dependent Care FSA
  5. Sold high expense ratio funds to purchase VTSAX (still working on this because there’s a charge of $50 when selling more than one non-Vanguard fund within 60 days)
  6. Successful job arbitrage saving city wage tax, commuting costs and time, plus a bonus and salary increase
  7. Tracked spending with Every Dollar; this was really helpful to understand where and when our money was going and helped us get started. I feel like we’ve got our finger on the pulse of this now and I’m not tracking every dollar.
  8. I’m addicted to the Personal Capital app. I love seeing our money grow and debt shrink and it also provides a spending analysis that has replaced Every Dollar for me, but it’s not as robust in that department. I was hesitant to provide all my account info and logins to a third party, but their superman encryption convinced me it was safe.
  9. Changed one of two cell phones to a low-cost, pay-as-you-go plan with Total Wireless, saving $45/month!
  10. Switched insurance providers for primary house, two rental houses and two cars: saving over $600/year.
  11. Increased rent in both rental homes; this wasn’t by design as much as strongly recommended by our property management company due to market trends in one and tenant turnover in another.

Whew! I’m proud of this. I wish we started 10 years ago, but there’s no looking back, just moving forward. We still have a long way to go: we have goals and we can see how we’ll get there. Here’s to 2018!