Our First Rental Property

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Setting:

It’s early 1993 and I’m a newly commissioned civilian. Still working at the Base (Wright-Patterson) as an engineer in virtually the same position I had while in the Air Force. I want to buy a house. But, housing prices seem high in Dayton, Ohio. We start to look at alternatives. We get a little creative. In the end, we get our first house but it’s not in Dayton …

Rents Keep Going Up!

“Rents always go up – we should buy.” I told myself as I sipped my coffee sitting in my rented condo.

I never felt comfortable with renting. Every year you can look forward to the stress of having to deal with a rent increase. Even if the rent doesn’t go up, you still get to deal with the stress of worrying if it will! So, as with most things that bother me, I decided to develop a plan to deal with it. My plan was to look at buying a house.

House for Retirement

Part of my motivation was to have a house for us in retirement. I wanted to make sure we had a decent house to live in during our later years. It seemed to me, if we bought it now, it should be paid off by the time we retire. That would be one less stress to have to face upon retirement. Now, if we had plenty of money in retirement we could always buy another house. But I just wanted something that would be there for us in case we didn’t have the money for a new house. I guess my thinking was a bit draconian and leaning way over to the conservative side, but I wanted to hedge my bets and make sure we were covered.

Learning from the Old Timers

Part of this overly conservative thinking came from my observations of the guys retiring from work. A lot of them seemed to be overly stressed about their retirement; stressed about finance. And, one subject that seemed to pop up fairly often was housing. They expressed concerns about being able to pay for their retirement homes on their pension. They expressed concerns about high housing costs. At least compared to what the costs were years ago when they first started their careers. I listened and learned.

Ken’s Story

Let me share one story with you that really stands out in my memory. It’s a conversation with my office mate Ken. He’d been working at the base for well over 20 years after spending 4 years as an Air Force officer. Let me tell you a little about Ken before I jump into our conversation.

Ken was a big guy. Not tall but very wide. He seemed to sit at his desk from the time he came to work until he went home. I can’t remember him getting up during the day. Of course he must have, but I just don’t remember it. He seemed to always be at his desk.

He smoked a lot. Now you may wonder, how did he smoke a lot if he hardly ever got up from his desk? Easy, he just lit up at his desk. There was a no smoking policy but Ken lit up anyway and the management didn’t have the nerve to tell him to stop.

Apparently, in the old days people smoked at their desks. No drama. It was the norm; the done thing. Ken was from the old days. He’d been smoking at his desk for years. He wasn’t about to stop just because of some new policy. Ken and management had an unwritten agreement; he could smoke at his desk. No one mentioned Ken’s smoking as long as it was confined to his desk and his office area. And, as long as none of the other office mates complained, he was free to smoke. Essentially he was “grandfathered”; the no smoking policy didn’t apply to him.

There was another old timer in the office and he didn’t mind Ken’s smoking. As for me, I moved into the office knowing full well that Ken smoked so I wasn’t really in a position to complain. I felt Ken’s smoking situation was not nearly as bad as the toxic “personality” situation I’d dealt with in my previous office. So, I moved into Ken’s office. And, my desk was next to the window so I really didn’t mind his smoking too much.

Ken was a cheerful, productive and smart fellow but very set in his ways. He typed away at the computer all day working on his C++ programs. He seemed to enjoy his work as long as management left him alone. Ken was not a meetings guy. On rare occasions he would be cajoled into going to some mandatory meeting but it was never an easy task for management. He was a guy who produced results. He wrote programs that worked. He seemed to be the “go-to” guy on the floor. If someone needed a program to calculate fuel flow for a new ramjet engine design, they’d see Ken. If someone had a question about rocket trajectory analysis, they’d see Ken. And, he was personable. He seemed to get along well with just about everyone. He was from the south; Pell City Alabama to be exact. He had a nice southern drawl. I liked him.

“Well, Dave, let me tell ya.” Ken seemed to always start with a down home friendly lead in. Very good conversational style. Let’s the listener get adjusted before starting in with any heavy details.

“I remember when we first came to Ohio (pronounced Uh-hi-a) and we bought our first house. Nine thousand bucks for a 3 bedroom house near the base. My hand was shaking as I signed the paperwork. Dang, that was almost as much money as I made in a year! I couldn’t get over paying that much money for a house. But, my wife wanted it, so we got it.” Ken explained.

I’d been talking about buying a house in Dayton and had been complaining about how the prices seemed too high. Ken was now giving me some background on the housing situation in Dayton over the years.

Ken continued his story. “Then after a few years my wife started talking to the other wives about the houses up in Huber Heights. They were more modern, had bigger rooms, fancy kitchens and bathrooms. And they had attached garages. They were top of the line. And, guess what?”

I just stared back at Ken waiting for the answer to his rhetorical question.

“My wife had to have one.” He answered his own question.

“So, a few months later, I’m sittin at a big fancy desk in some bank filling out more paperwork. You should have seen me shaking this time. Not just my hand, but my whole body; just a shaking. The house was costin me about $14,000! That was more than I made in a whole year of working. I couldn’t believe we were going to pay that much money for a house!” Ken said with a tone of excitement that was way outside his normal even keel level.

“There you have it Dave. I couldn’t believe paying that much money for a house back then and now it seems like nothing. The same house today is fetchin maybe $80,000. I don’t know how people do it these days. They’re making $40 grand a year and buying a house that cost them twice that. And, they think nothing of signing the paperwork. No shaking, no sweating. Just sign away. Don’t know how they do it.”

I listened. What he said stuck with me. I was one of those folks who were looking at paying over twice my annual salary to buy a house. “Wouldn’t it be great to just pay about $40 grand for a nice house; that would only be one year’s pay. What a deal that would be?” I thought. But, no. Times had changed. That same deal now costs $80 thousand; twice as much. All I could imagine was how much houses would cost in another 10 years. Would they be twice as much again? Even if they just went up 25%, that would bring it up to $100 thousand. Is my pay going to go up that much in 10 years? Don’t think so; especially, if I keep working as an engineer. I see what the other engineers are making – guys who are 10 years further down the track – and it’s not exciting. I see what kind of cars they drive, where they live, how they pinch pennies; definitely not exciting.

Ken’s story had a big influence on me. It convinced me to take action. It convinced me to buy a house now. Not in a few years, not after the kids get older, not when I think I have enough money; but now. Right now!

Look for a house …

So, Marieta and I started looking.

We began our search in the Dayton area. I remember looking at older homes near the base. Nothing too fancy. No extras. Very old homes. And, I remember the price; about $105,000. I felt very uncomfortable with this number. It just didn’t make sense to me based on my income. Price too high; income too low. Take your pick. But, I had a burning desire to buy now. There was a dilemma, I wanted to buy now, but the numbers didn’t make sense financially. I didn’t want to spend that much money especially when I saw the houses; seemed like a lot of money for not much house.

I started thinking and thinking. I want a house for when we retire. That’s the driving motivation here. So what other options can we explore? Then a question came into my head, “I wonder how much it would cost to build a brand new home on our land in Florida?” We had that acre of land just sitting there doing nothing, what if we could put it to use? What if the numbers made more sense?

I made a phone call to realtor in Florida and asked about house prices.

“We can build you a beautiful, brand new 3 bedroom home on your land for 70 thousand.” Dottie said with complete assurance. “We have our own builder who’ll give you a 10 guarantee. It’s a very simple process.” She continued.

Off to Florida …

Marieta and I booked a short holiday to Florida to find out more.

We arrived in beautiful Tampa Florida and drove up highway 75 to Citrus County. Then we started looking.

Dottie took us through the display home. Beautiful 3 bedroom, 2 car garage on a huge lot. Nice lanai in the back, beautiful carpet, large bedrooms. Great big master bedroom with walk-in closet leading to the big spacious bathroom. The other two bedrooms and the family bathroom were all spacious and very well presented. As you walk into the home you’re hit with the big great living room which opens to the dining room and you can just see the long kitchen counter. All very impressive. Nice big open plan arrangement.

I looked over at Dottie and asked, “So, you mean to tell me you can build this same house on our 1 acre lot for 70 grand?”

“Yup. That’s right. What are you waiting for? Came Dottie’s matter of fact reply.

I’m not sure of my exact words but I think I said something like, “Where do I sign?”

But, we didn’t sign right then and there. Instead Marieta and I went back to our hotel to discuss our options. We could pay about 100 thousand dollars in Dayton and get an old house without a lot of the trimmings or we could build a brand new home on our one acre lot for 70 thousand. Then I asked Marieta the magic question, “Where would you rather retire, Dayton or Florida?”

I called up Dotty the next day and told her, “We’ll take one just like the model home you showed us yesterday.”

Before you know it we were in the sales office meeting with a slew of people ready to sell us their wares. First, was the lady from the bank. “No problem. We’ll get you a loan. Use your land as collateral so you don’t have to put anything down. Do you want a fixed or variable rate loan.”

I responded like the seasoned professional I was, “Huh?”

She explained the loan options and we finally went with a variable even though I felt slightly uncomfortable with the concept. But, she was convincing and I was unknowing, so that’s what we ended up with. Next, came the curtains person.

Marieta took over here. It was all a blur to me. I couldn’t care less. Just get something that won’t offend renters.

Then we discussed tiles. You’ll have to wait until Marieta writes her book to find out where this conversation went. I had the same attitude as before, just pick something that won’t repulse renters. Something neutral that doesn’t evoke hostile reactions.

The parade of salespeople seemed to go on forever and I got more and more bored. But, the procession finally ended and we were dismissed for the day. We then got on a plane and headed back to Dayton. We would have to wait several months to see our new home.

Building Process …

I remember the building process was pretty good. At least it seemed that way from 1000 miles away. After all, we were in Ohio, the house in Florida. The builder kept us informed of progress. They sent plans, they called with any questions about our preferences. They were like a good waiter, talked to us just enough to let us enjoy the process and look after our needs but not so much as to be a bother. My attitude was really one of “hands off.” Just build the house and call me when it’s done.

I learned later on that not everybody took this approach. I remember a person who worked with me at the labs (Wright-Patt AFB) who’d come into work every day detailing the dramas with building his home. From the way he was talking, the builder had virtually no freedom from supervision. It seemed the builder had to get approval from this guy before hammering in each nail! He seemed pedantic beyond words. I wonder how anyone could work in such a micromanagement environment. I also wonder how the house came out. I wonder if the builder just walked away half way through. I wonder if the builder didn’t just end up decking the guy. I personally wouldn’t want to have someone looking over my shoulder – critiquing my every move – while I’m working. Would you? Would you want you’re builder to dislike you immensely? Or, might it be better to have a good working relationship with your builder? If the builder is not doing his job, then you must fire him. That’s different. But, if the builder is good, then I’d prefer to tell him what I want done (it’s called building plans) and then let him do it.

It was a bit hard for me to micromanage the building given the separation between me and the building site. And, I suppose that was ok. I had no intention of micromanaging the project anyway.

Then one day the phone rang. “The house is done. When can you come down for the closing?” Said, Dottie excitedly. She was looking forward to payday. The day of closing is the day she gets paid her commission.

Back down to Florida …

We booked another trip to Florida.

The house came out great. Just like the model we saw those months earlier. Except our house was reversed; garage on the other side. This was one of the changes the builder recommended based on the slope of our land. We agreed and they pressed 2 or 3 keys on the computer and the plans were redrawn to reflect the change.

The only sore spot was the landscaping. I’d call it modern sand trap. Great for working on your sand wedge swing but not very attractive around a new home. We did have some grass put in the front yard and a bit on the sides but the back yard was all sand. From the road you could see the sand in the back and the front where the grass ended. We probably needed about twice the amount of grass to get a good look.

Marieta and I ended up going to the hardware store and picking up grass seed and other items to carry out lawn care. I remember racking, shoveling and spreading grass seed. I’m not sure our efforts gave us any lasting benefit, but at least we got in there and made an attempt. Looking back on it I wish we had just ordered more sod (grass) and had it installed. But, the extra sod wasn’t cheap and we were probably looking to save a few bucks.

We visited the bank where they plopped a mountain of paperwork in front of us. I remember reading pages saying something like, “Don’t sign unless you understand what it means!” I made a futile attempt to read seemingly endless pages of fine print but gave up after about 5 minutes. It was double talk. Gobily goop. I quickly realized if we didn’t sign, we didn’t get the house. Marieta and I just started signing every page they put in front of us.

I couldn’t write for a week after signing all the documentation.

Then we visited the local property management business and signed an agreement. I think we had it rented before we left. The rent was $650 per month, which pretty much covered all our expenses.

Happy Ending …

We had our retirement home. And, we had our first rental property. It was a relatively painless process.

We took our first big step in building our rental property portfolio.
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