Author Topic: [CAN] Should I keep working or become a full time landlord?  (Read 719 times)

kaypinkHH

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Situation:
DH and I are both 31, both Engineers. We have approximately 500k in savings.

Included in the above 500k, We currently have ~75k of "cash" savings in a high interest savings account. All of our TFSA/RRSP/RESPs are full. We have one rental property (which I include in that 500k savings). We also have our primary residence with a rental unit.  We have one kid (13 mo old) at the moment, and will probably try for another kid next year.

Our combined incomes are 140k (75k each) (gross)- 100k take home (approx). Neither jobs have pensions, so our savings are on us. (Both of us have a 3% matching, but we aren't getting a huge benefit by saving a ton with work) I posted a case study last year for more info...https://forum.mrmoneymustache.com/case-studies/what-to-do-with-all-our-money/msg1697048/#msg1697048.


After coming back to work post mat leave I'm very much not loving it. I thought it may have been an adjustment period, but after 6 months those feelings are only getting worse. I felt this way pre-mat leave but just assumed I was excited for the baby. I felt this way at my last job, but assumed it was the company, I felt this way before I hated the company, and assumed it was the project I was working on (you get the idea, I have never really loved what I do).

And in general my work is fine.  Coworkers are good, job is not too stressful, work hours are reasonable. Like there isn't anything wrong with my job, but I still feel completely disengaged. Also, we are working on projects with a end date and the future (end of 2019) is really uncertain. Starting in July I expect we will start to see layoffs. I personally have a spot until end of 2019, but who knows.

After a particularly frustrating day on Monday, I jokingly said that I should quit, and we could just buy more rental properties. Yesterday 3 duplexes came on the market one street over from our current rental. They have decent cap rates. We could take our 75k in "cash" and buy them all for a low downpayment.

Mathing it out, with our current rentals+these units, if I was to quit my job, I would be making ~20k less than working.

However I would also be saving day care costs ($900 per month), so looking at another 10k in savings. I have factored in some child care costs to cover days when I would need to support the rentals. From having our current rental for 6 months we definitely appreciate the work that goes into being a landlord (we have experienced a lot...tenants being late on rent, tenants fighting with each other, tenants kicking their spouse out, repairs, etc etc.) This stuff is annoying, but way less annoying than being stuck at work all day, doing nothing of value.

I also would be very ok with side hustles to add to my income. I have a lot of interests outside of my full time job that with some time and effort could be monetized. Even with me not working, on current trends, MrHH could join me in 10 years (so we would be 41). This assumes he never gets a raise at work.  If we cut our spending  a little bit, we can add more rental properties and MrHH can join me sooner.


So why my hesitation?  I'm super risk adverse. Right now I have a comfortable income, a decent savings rate, a health plan. I also worked hard at my degree and although it is dumb I feel like I'm giving up my "career"- even though I don't even like my career. Also (again a dumb reason) but other people in my life (ie my parents) think that owning rental properties is just stress that leads to an early heart attack, and I get all the judgement from just owning one...I can't imagine the comments if I made this my full time gig. I KNOW this is a dumb reason to not take action...but it is still at the back of my mind. I also can't help but do the math with us both working+ rental properities...that number is a nice number and would inflate our stache faster.


I would love advice from anyone who made this transition and what their experience was!!









mozar

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #1 on: June 12, 2019, 10:25:39 AM »
Your concerns seem legitimate to me. I doubt you are going to save anything on child care so you should price that back in and add full time daycare for the second one.
If I were you I would wait until the kids are in elementary school and then quit. Where I live kids can start public school at 4, or 5.
If you were me you would have quit a long time ago ( because I hate the corporate grind)


kaypinkHH

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #2 on: June 12, 2019, 10:38:17 AM »
Part of the reason for wanting to not work a 9 to 5 is to spend more time with my kid. It's interesting that you think we won't save on child care?

A good rule of thumb for time for managing rentals is 4hrs/month/unit. We will have 9 units...so 36 hrs a month. The admin part can be done on evenings, and any hands on stuff during the day is when I would need a sitter. In the past 6 months my husband had been on paternity leave managing our current 2 unit..and he has called for back up child care (from his mom...so free) once or twice. Our rental in our primary residence has been maybe 4 hours over the whole year.

Am I off base with the time estimate for this?

mozar

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #3 on: June 13, 2019, 07:53:13 PM »
Well you are planning on going from 2 units to 9? That's a lot more work. I'm not here to argue with you I just see it over and over again that a parent thinks they'll be able to work (they start working from home or get a job with atypical hours) and care for kids at the same time. And it doesn't work and they end up having to get fulltime childcare anyway. People make it work of course. You could strap one baby to the front and one to your back. Your baby is only a year old though. You don't know what it's like to have a toddler. And you want to have another one soon. It's very difficult to get anything done with two toddlers. And expecting your mother to provide free back up care isn't fair to her.

Papa bear

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #4 on: June 13, 2019, 08:47:33 PM »
Do you do any of the management / work on the rentals now?  Will you like doing this part time if you quit?

I find it perfectly reasonable to quit to manage rentals and work some side hustles.  You will have a mostly flexible schedule.

So about these rentals, you have numbers?  Are they worth buying?  If you are going to go “professional” with this, you better be making some damn good buys.  Or you’re going to spin in circles and not go anywhere. 




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mistymoney

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #5 on: June 14, 2019, 06:36:49 AM »
You guys are in such great shape right now, it would be a shame to make a costly misstep, so I think you are wise to really think this through.

Your family is not wrong about the stress of managing income property - and you don't want to be in a position where major repairs or a bad tenant/long eviction process is going to have a big impact emotionally as well as financially.

What I would do is buy the properties, hire a property manager, and continue working until you get a good feel for how this is going to work on a longer term basis. Maybe about 2 years or so.

Then you can make a good decision on if this is a secure jump for you or not while continuing to bolster up your savings.

kaypinkHH

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #6 on: June 14, 2019, 07:16:45 AM »
Hi all!

Yes we manage the current property ourselves. I'm currently a project engineer, so dealing with issues, managing cash flow, following contracts, managing contractors is very much in my skill set.

With the current property we have had already had issues with tenants regarding payments, tenant v tenant conflict, had to refloor a unit, fix appliances, deal with mould issues. All of this is annoying, but equally if not less annoying as normal work issues...and the flexibility is a key bonus that current employment doesn't offer.

The details of the rentals:
Total purchase price: 800k
Total net profit yearly: 47.5k (rent minus water, taxes, insurance and maintenance costs)
Mortgage payments: 32k

Take home: 1268 per month.

ROI (takehome+principle payments to mortgage)/total upfront investment)= 16%

We went to see them last night. Each house had 1 new renovated unit, and the other unit needs some TLC once the long term tenants move out...but are fine for now. We expect a minimum of 15k of work to fix some bigger issues (factored into ROI above).

The units are undervalued at rent with the current market. We would be raising rents slowly over the next few years to meet the average.

Not that I hold much value in this because it is speculation, but the neighbourhood does have room to grow..it is a "pre up and coming" area. Same for the city in general...but again all speculation.

I could probably keep working at least until I don't have a job here any more (6 months?). But it would be a really crazy 6 months unless we get a property manager...which wouldn't be the end of the world.

Lews Therin

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #7 on: June 14, 2019, 08:30:18 AM »
So the way I would look at your choices would be to take your current state: 50k income (after taxes) and 10k in childcare, so your income is realistically, 40k (lets act as if all the costs were on you)

If you were to leave your job, your family would lose 40k, but gain lots and lots of time. Would you be able to spend more time cooking, would that reduce the need for a second car if you have two? also remove commuting costs for yourself. (If that seems valid)

If each rental returns 1% monthly of the price of the place, I'd say buy them.

On the other hand, you are leaving behind sevrance, and paid Mat leave. Those are not insignificant. 10 years is also a long time for your partner to be working, and what are his thoughts on you doing this? If he loves his job, he's probably fine with it, but if he doesn't, it might make sense to buy the rentals, get a Property manager for the time you are still working, and then push to get a larger stash before cutting down on the firehose of income.

Remember that you can still buy the rentals and have a property manager, which would be a middle point as you would lose some income, but still get extra income without too much extra hours of landlording. (I'll be reading through your journal and I'll add anything else I think of after!)

The big thing I see is that if your income needed is only 55k (what I saw from the previous case-study).... Maybe you are extremely close to both being able to FIRE and being landlords.... all you'd have to do is get slightly more money to have a stash returning the amount missing for that 55k after taking in the rental profits.

@Reggie for expert landlording as someone who switched to part-time landlord in his family FIRE. @SnakesintheGrass for landlords while working

kaypinkHH

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #8 on: June 14, 2019, 08:48:29 AM »
Thanks for the detailed answer. No paid mat leave (just EI), and I've only been with the company for 1.5 year so severance would be quite low if/when the time comes for layoffs.

But I agree with your math..we would be down ~40k. Rentals would be 40k pretax and 30k post tax. So "loss of income" of 10k.

Yah we are closer to 76k per year in spending now. Not sure where that extra 20k came from. (I do, we spent too much money last year on stuff..new baby new house..etc.) Definitely are already looking at cost savings and would continue to optimize if I wasn't working.

Sorry my journal is really out of date...I should post an update.

For MrHH, he enjoys working, but ideally we would reinvest some of the equity of the rentals into more rentals in a year or two. And continue that until he could also retire.

The way I look at it is I'm going from a full time job to a part time job with a 10k pay cut, but with a 30k a year savings plan (the equity on the houses).

Lews Therin

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #9 on: June 14, 2019, 09:07:56 AM »
That`s a great way to look at it (I`m at page 3 right now)

Another helpful way to look at the next step is to look at amount of hours of work.

If you work 3 days a week for 5 years, or 5 days a week for 3 years... You've worked the same amount of days. Depends on if you want to go down to 0 faster, or are happier with slowly downshifting. You could still name yourself as a candidate for layoff, everybody wins. The company gets to choose someone who wants to go, you get some bonus money. Even if it`s small, it`s still cash in your pocket.

mrsmeganmustache

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #10 on: June 14, 2019, 09:17:58 AM »
My minor contribution/soapbox: keep in mind how much more work and how much less fun it may be to stay home with one kid versus two. A not-so-great work situation may be more appealing when compared to two baby/toddler/preschoolers. (or perhaps this is just me).

How easy is career re-entry after a break if you change your mind? Would it be easier if you timed your departure at the end of the project or at birth of new baby?

Papa bear

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #11 on: June 14, 2019, 10:01:25 AM »
I would suggest running a case study on those rentals.  At first glance, they would definitely not be a place I’d buy if you are going to quit your job.   Cash flows are king in rental property.  Principal payments are nice, but they do nothing for you in terms of working capital.

You need to get rents increased by 50-100% or the purchase price way down before this thing becomes a job replacement.  So either buy this and keep your day job or go find something better.




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Novik

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #12 on: June 14, 2019, 10:49:19 AM »
And in general my work is fine.  Coworkers are good, job is not too stressful, work hours are reasonable. Like there isn't anything wrong with my job, but I still feel completely disengaged.

Well that resonated a lot.


Your situation is tough, especially with the baby, the work layoffs looming, and the duplex opportunity dropping into your lap.  I think it could all work out if you bought them and left now, but I think there's a lot more risk in quitting + putting cash into houses + possible renos/issues all at once.  (plus a lot more flack that you'll get from the parentals)

The people recommending buying the places, and hiring a property manager for as long as you keep your job  (maybe just until the project ends?) seem to have the right idea. You have income to handle issues, a good story for why you left (layoffs everywhere!) in case you go back somewhere else, and an exit plan to keep you sane at work.


Smaller questions to think about:
- the taxes on the rentals - any way to shift more of that income into your name (now or over time) since Mr. HH will still have employment income?
- how much cash/investments will you have left if you buy, and how much will you continue to be able to add to investments?  Your allocation to local real estate might be really high...

Dicey

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #13 on: June 14, 2019, 02:38:06 PM »
Paging @Another Reader, @BlueHouse , @sammybiker, @waltworks and @arebelspy.

I like your idea, but let's see what these experts have to say.

Also, consider moving this thread to the Real Estate and Landlording section.

sammybiker

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Re: [CAN] Should I keep working or become a full time landlord?
« Reply #14 on: June 15, 2019, 04:38:50 AM »
Thanks @Dicey

@kaypinkHH

I'd buy them now, while you have employment, get them stable and reevaluate.  No reason to leave a steady and low stress pay check when you don't have to. 

Management, with your skill set, wouldn't be hard to automate and ensure low hands on time.

And lastly, you and I work in similar fields - $75k (cad) for an experienced project engineer sounds incredibly low.  Maybe shopping around a bit more and finding something with better pay and that engagement factor would be a plus.  All while building your rental empire.

kaypinkHH

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Thanks for the feedback all! I really appreciate it!

Update: we chickened out and didn't put in an offer. I'm regretting it.


There ended up being a multiple offer situation, and we could only offer asking, we were pretty sure we wouldn't get them, but we're going to try anyway.

Our realtor was drafting an offer for us, when we got word that our current rental had bed bugs. At first google, this looked like it was going to be a very expensive fix, and it spooked us from putting in an offer. (In the end, it's not a huge deal/expense)...

While all of this was going on, we were out of town, and would have had to coordinate inspections, finances...all under the judge eyes of my parents who were visiting. They don't get why we do these things (ie send a few emails/phone calls to resolve the issue).

So now I'm back at work...being a normal 9 to 5ver...for now.

@sammybiker herm, I thought I was on par with the average here...but maybe I'm not. I know I could make more other areas of the country, but chose where we live for QOL/close to family.

sammybiker

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@kaypinkHH   Understood on the QOL/family bit.

Sorry to hear the housed ended up in a multiple offer situation.  Onto the next, best of luck.