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Whoopsies. I had this post sitting at the back of the queue for too long and I forgot to finish it off.
We sold our rental a few months back. I wrote out this entire list of pros and cons a few months before we decided to officially put our Airbnb rental property on the market. Selling a rental or any property is always a big decision. I encourage everyone to write down their own pros and cons lists. This exercise helped me figure it out by laying out all my concrete thoughts.
I was able to move forward with little regret. The personal answer was abundantly clear after playing Devil’s Advocate on both the pro and con list. The “sell” reasons were much more diverse since it concerned not just money but those around me. Thus selling our rental property is much more convincing to me on the personal level. The bottom line was hard to argue with.
Why our rental was a smart investment –
Besides the cash flow there were other factors why we made the jump.
1. Bullish Longterm
Generally, once a big city “pops” it doesn’t “un-pop” until the entire industry dies. If you’re telling me e-commerce and cloud computing is a dying industry right now then…you’re nuts. We are at the baby phrase of things like this, especially in Seattle. It is where a lot of Silicon Valley exiters go. There is certainly more progress to be had and more growing pains ahead for cities with a robust tech sector.
2. Rapid Appreciation
As I’m writing this piece the local markets are still hot in the seller’s favor. All of the houses in our neighborhood has gone over 10% to 20% over asking from their market rate asking price. When you see numbers like that year after year, it’s almost too delicious to not take advantage of the leverage. Leverage is a beautiful thing if you can stomach it.
3. Low-Interest Rate
The interest rate for our rental was at around 4%. It’s historically low. I remember my friend told me her parents purchased their small house in the late 80s/early 90s and the interest rate back then was around 8 to 10%. That sounds like a gut punch to the deals we had in the last near decade. A quarter interest point change borrowed throughout 30 years can make a dramatic difference to the bottom line.
4. Stunning & Landmark Historic Neighborhood
Location, location, location. Finding a property like that, in that price range, in a neighborhood like that made our realtor reach out to shake my hand. She was impressed and I was satisfied with myself even though dealing with the seller’s agent was a nightmare and the property had a few unforeseen repairs at first.
The only homes that do not sell within the first 2 weeks in this market are the homes that are grossly overpriced and unresponsive to bids. It’s that simple.
5. Low Inventory (in our asset class)
Besides the location score, we also landed a single family home which has the perk of “outdoor” space. Single-family properties are becoming rarer and rarer as builders and developers go for higher profit and build the ever so popular jointed townhomes. There’s also an abundance of skyscraper condos in the pipeline but not enough single family homes.
6. Washington = Non-recourse State
No real estate investor wants to come to this but living in a non-recourse state can offer a lot of protection. Non-recourse basically means if you default on a property the bank can seize it but they can’t seize anything else that belongs to you. Even if the repossessed property doesn’t cover the value of the owed amount.
7. Waiting for Developers
The neighbors from a street away started getting calls and visits from local real estate developers and builders. They were kindly inquiring if anyone was willing to sell them their run-down property for a quick cash out. Some said yes, some said no but with how quickly the builders were moving, everything seemed like simply a matter of time.
So why did we sell our rental property?
1. Plans Plans Plans
The first thing a person has to ask themselves is what are their long-term plans.
It’s important to keep in mind that plans change, needs change, people change. Especially young people (like myself) a few years back.
When we purchased our rental property 2 years ago it made the most sense in the universe. Our Airbnbs were doing really well and I had more time on my hands back then. I loved doing Airbnb at the time.
Naturally, when one business is doing well, you want to expand it and replicate it. In a way, our rental property was successful at replicating my Airbnbs. We did a great job with the location and low-maintenance prospect of it. Besides a few hiccups here and there during the 2 years we had it, it drew in a profit especially in the summer months that always exceeded my expectations.
Now I’m really bored with Airbnb which sounds strange to people who dream of being Airbnb hosts but trust me, it gets boring quickly.
That might be that youth thing though. I compare Airbnb hosting to something like owning a hamster or a goldfish if that makes sense. I end up wanting something much more challenging at the end of the day.
2. Don’t Want to Be Landlords
There’s a smart ass out there going, “shouldn’t you know you didn’t want to be a landlord before you got a rental?”
Yes, but hindsight is always 20/20 and there’s always a “but” just to make life a little more convoluted. I honestly thought it was flexible because I could customize my listing to semi-long term stays like 2 weeks or a month. As a third option back up, being landlords didn’t look at bad at the time (they’ve passed new laws since then though.)
We knew we didn’t want to be landlords. BUT Airbnb was different. That was reason enough for me to spark a fuse. Short-term rentals had its own pros and cons. The pro is a much fatter cash flow in a large metropolitan city where cash flow is nearly impossible (or hellishly low) and enticed with the 15% YOY increases. The cons mostly had to do with the legality and insurance side of it which will be an issue starting next year in 2019.
The passion ran dry as soon as routine set in and I got bored. I was really into Airbnb and investing at the time but you know how 24-year-olds are sometimes…they don’t know what the heck they’re doing and I was one of those 24-year-olds. One day, I didn’t feel joy in it. It wasn’t worth it.
3. More Stress
This was a smaller fraction of why we decided to sell but it is worth noting. A rental can be stressful and if it’s an Airbnb rental, you can pretty much triple that stress.
I can say the vast majority of my guests were great and tried their best. We put a fire extinguisher right next to the stove and it was never used haha. Although I can tell you that at least 2+ of my Airbnb guests burnt pots and overflowed the oven. That was all small beans but it does add up in stress here and there.
If we were in a different financial situation as if we had debt, I would have powered through. But after we crossed over the first million mark there was less fire under my butt, so to speak, to put up with it.
4. Too Vested in Amazon
Real estate can be used as a diversification from stocks. It’s also a “real” asset that will always provide a service (keeping you dry, keeping you fed off the land etc.)
But our rental was not a diversification for us at all if you think about it. We already live here and have our primary residence here. We are still a little more bias (just a teeny bit) weighted in the tech sector – especially since Total Stock Market does have their own portion of tech already.
We sold when the second Amazon headquarters (Amazon HQ #2) was still making shockwaves in Seattle. Then closed right before Amazon halted all construction due to the controversial local company head tax (that was eventually repealed.) Seattle’s growth is not a miracle and we weren’t really diversified when we lived in Seattle, held tech stock, AND have another house in Seattle. Thinking back, that was kind of stupid of us to argue on the diversification front when there was none.
5. Keeping Us from FIRE
So I got bored really quick. And in comes the lure of a unique idea…the ‘jet set & go’ lifestyle as long as we kept our expenses and liabilities low. With all the talks about being location independent, I started getting a little jealous. To me, being location independent sounds like one of the most ‘boss’ things a person can say. I wanted in on that and I didn’t want to be tied down. We also started toying with the idea of moving when we never thought about it before.
6. Still Good Time to Cash Out
The rental provided about an extra $20,000 in cash flow while it was on Airbnb but it was not passive enough or realistic for the long term. We were lucky we got it in 2015 and not 2007. I cannot imagine that stress as a 24-year-old trying to deal with cashing out a decade ago. The temptation was how we would be able to get out with neither a small gain or a fair wash after realtor costs (which were quite a $$$ doozy).
Seattle’s market is still going strong. We closed that house when the buyer waived every single contingency and then put $60k on the table if they, for whatever reason, needed to walk away. That’s an enticing deal indeed on top of the full asking price they were offering.
If we couldn’t or were close to a wash, we would have kept it and gambled it for another year maybe? Maybe not? Sometimes selling a home is like pulling teeth but for us, it was effortless. Everything was already staged and the market was red-hot.
7. My Parents Plans
The situation with my parents is this:
My dad just officially retired a little earlier in the year. He lives with us.
My mom is a few years younger and is still working while living in San Francisco. She is working as a home care person. Her client is 100 years old. At that ripe old age, they can’t handle a new caretaker that doesn’t know their needs and continue fully.
My mom doesn’t want to leave her. She has been working for her for years and they’re quite good friends. She’s basically being paid to take care of a friend and hang out with her, keep her company, etc. She basically can’t leave her or move up to Seattle until her client passes away which can be today or tomorrow or a year or 10 years from now – we don’t know.
So the situation is messy and we have no set timeline because everything is set around…expiration. (How’s that for morbid, eh?)
So right now, my husband and I are simply in suspension and waiting to see what happens. It took us some time to realize that means having as little liabilities and ample room to pivot in uncertain situations like this.
My parents will most likely need us to cosign for them or buy them a house in South Carolina and they didn’t tell me this until the last minute. Actually, I’m not even sure right now what is going on 100% because we have a huge language barrier between us. That’s another reason why we hit the eject button on the Airbnb rental now rather than later.
8. Supply Build Up
There is some oversupply in the pipeline from the stats reports I’ve downloaded and glanced through. These (mostly) Hong Kong builders estimate opening up a ton of condos and apartments between 2019 to 2021. Condos are a different class of assets but size wise, it’s similar enough to put a damper on our parade in the short term.
There is going to be downward pressure on rental demand (it’s already happening in early 2018) because the builders have been too heavily focused on building luxury high rises for the stereotypical highly paid “Amazon” worker. These people don’t think outside the box enough…
The oversupply in the pipeline would not have directly affected us but it will make our backup plan much less lucrative.
I don’t want to caught holding the bag when I can see it coming. Eventually, brighter days are ahead but I don’t feel like braving through the storm when we’re this close to financial independence and saying, “Screw it, I’m out of here!”
9. New “Unfriendly” Laws
This didn’t directly affect us either but was well aware of the new local laws favoring renter protection. One of the new laws that passed last summer no longer allow landlords to choose their qualified tenants. Landlords MUST go by the whoever qualified first, it doesn’t matter who else came after more qualified or more fitting.
The first qualifier gets it no matter who they are. :\
I was pretty uncomfortable with that as should any other real landlord. And people always like to sprinkle in scary, expensive eviction horror tales and I’ve heard my share. In the end, looking at that cap rate as a long-term rental and the potential trouble and stress involved, eeeh, no.
On another similar note: Airbnb is under-regulated and undertaxed. The city of Seattle has passed new tax and laws for all Airbnbs inside the city limits which means everything is up in the air regarding profits. Hey, at least we’re not San Francisco, New York, or Japan which has basically banned them completely.
Hubby and I will see what comes our way exactly in 2019, we’ll try it out, or just convert to a long-term rental downstairs since we have space. I personally plan to fully pivot by 2019 either way. I saw this coming and I’ve said in passing in my old Airbnb posts that this is something that was bound to happen.
10. Lot Size
Builders like big lots of land. More land usually means it’s cheaper to build and high density in a city like Seattle means…money. Our lot was a little smaller than a standard single family home which meant we were probably not the prime choice unless our next door neighbors also decided to take the developer’s offer, which I doubt because they were a couple of 70-year-olds and not keen to change. This puts us specifically at a disadvantage because we don’t have the best size lot alone.
11. Life “Math” Made No Sense
I did feel immense sadness when I was standing in our beautiful rental. I asked my husband if he really wanted to sell it because, after all, we picked it out. We made it better! It was perfect for what we needed it for and it was definitely popular with our guests and a popular neighborhood. But he nodded and I think he’s right (he’s almost always right, it’s hugely annoying!)
Emotions aside, the math made no sense. I don’t mean math as in numbers but I mean math as in “life math.”
OK, when you add up ALL of those huge, huge, big, reasons I listed above and the fact that we didn’t need the money, the math stops making sense.
Nothing was working out with it as our future plans changed, personal aspirations changed, time devoted to it, the moment I found better things to do, etc.
“You’re going to miss those gains.”
Ho, ho, ho, nope. Some people look back and say, “Oh I shouldn’t have sold at 60, it’s at 156 now” but I never understood that.
What does it matter? I don’t do that because those kinds of regrets aren’t really my thing. I regret words unspoken and love lost but I don’t commonly regret a few missing dollar gambles that could be gained. If I did do that a lot then that’s a telltale sign that something else in my life is wrong but I can’t admit it yet which is the bigger issue to address.
Plus my husband literally doesn’t care if I zombie out and drool into a cup all day as long as I’m happy so if it’s something I don’t want to do then I’m not doing it.
I want to take a good ol’ The Simpson’s quote:
“I am too old and too rich for this.” ~ God (giving up on chasing down Homer.)
That’s something I’m 100% sure that the top 100 something bloggers on the Rockstar Finance net worth list have said to themselves at least once? Right?? What’s all that F.U. money for otherwise.
That’s another reason why being frugal is awesome. I don’t really want anything at the end of the day that is going to require me to sacrifice a large sum of money. I’m happy as a live clam in an aquarium if you just give me some food.
There’s nothing much in the world that I want so whatever money I make balanced with a high level of stress seems useless. Unfortunately, money can’t always buy a person self-esteem or everlasting peace BUT it can make now tedious chores go away.
Basically: don’t need the money, not for the trouble anyway, don’t feel like doing it, fulfilled zero #deeplife goals, why the hell am I doing it then?? = buh-bye rental.
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