Teaser Elucidated

So the “other” bit of personal business that I mentioned in my previous post is, we bought a rental house.  I’d been thinking about it ever since house prices started to decline, thinking that we’re due for some heavy inflation, and rising interest rates, and the stock market looked like a particularly hostile environment for any extra cash.

I’d been looking at listings online, but hadn’t really started pounding the pavement going to open houses, etc.  Then this property a couple of blocks from our house came on the market, and everything just sort of fell into place.  The price was a little higher than the range I’d been considering, but it was a good value, and I was feeling that the market was starting to bottom out.

The weird thing is, a friend of ours used to own this place back in the late 70’s/early 80’s, and we’ve been there for many social occasions.  It was really weird to walk through the place after some 25+ years.  Our friend was single when he lived there and, while not a wild & crazy wastrel, was still a single man in the 7os.  So, since I just finished The Widows of Eastwick, and was reminded of their ringleader in The Witches of Eastwick, Darryl Van Horne, we’ve been telling ourselves that we’ve purchased the Van Horne mansion.

It’s been an interesting and educational experience.  I’ve never before been through the whole real estate purchase cycle: offer, counter, accept, financing, inspection, contingencies, closing, escrow.  We bought our residence from our landlady in 1975 on a land contract.  Meaning, we didn’t deal with realtors, lenders, appraisers, etc.  We just kept paying our landlady every month, only it was principal & interest, not rent.

One of the highlights was having the Van Horne mansion inspected.  The inspector was a woman recommended by a realtor friend of ours, and turned out to be something of a character.  She was real energetic and talked to herself as much as she talked to us.  A refrain she repeated several times as she moved about the place was “I’m a raindrop.  I’m a raindrop.  Where am I going?” to figure out if we’d have flooding problems.  (It’s only rained a couple of times since we made our offer, so the jury’s still out on how the place handles water).

You expect a cold shower from a real estate inspection, but there weren’t that many deficiencies that our inspector called out.  A few things need to be fixed, but nothing that needs to be done before tenants move in.  We couldn’t really get our seller to fund anything, because he had received several offers higher than ours, so we’ll chip away at these things as we are able.

Also, the financing was a little bit of an adventure, since I’m self-employed.  Well, I’m an employee, but of a corporation that I own.  So, I had to educate the lending underwriters about how I couldn’t really say I earned $xx per month, because I only write myself a paycheck when I collect my receivables.  And that it’s actually safer to lend to me, because a client can fire me and I still have multiple sources of income, where if an employee’s employer fires him, he’s got bupkis.

So part of this process is a little social engineering.  Our son will be our anchor tenant, meaning that he no longer resides in our house.  This was another little angle - he was going to move out and rent somewhere this fall anyway.  Since I was considering a rental investment, why should he be paying rent to someone else?  Plus, we’ll now have an extra bedroom here.  And it gives me an opportunity to collaborate with him on any projects there, which resonates with me on many levels.

It’s a bit of a culture shock for us, since we’ve never really had a mortgage payment in our lives besides our 70s-era payments to our old landlady.  Rental cash flow will cover most of the payment, but it’s still gonna feel weird, opening my Quicken and seeing that lozenge of debt sitting there.

Oddly, as we’ve been over tweaking things, I’ve felt a couple times that I might like that place better than our current residence, that maybe we should move there and rent or sell our current residence.  Hafta see how it plays out.


  1. Good for you … though have to say we did this once and got out. That’s mainly though cos engineer hubby kept worrying about maintenance etc. The worry wasn’t worth it to him. BUT there is something appealing about investing in something solid and real isn’t there? Will we see photos is time?

  2. So you know we’re doing this with the Stepford house while we live here near Matt’s school in Faux Town. In fact, Crazy Actress just moved out this weekend and we need a new tenant. Know anyone who wants to pay a ridiculous amount of money for a modern 3 BR with view but no a/c in a posh-ish westside L.A. neighborhood? Yeah, unfortunately, me neither.

    Unless we can’t rent the thing, we still figure it’s better than my husband’s sad 401K.

  3. roger:

    isn’t that lozenge of debt balanced by a dimple of an asset? (which was prepurchase discounted) ok. i’m beyond my depth of accounting now.

  4. I wish you had photos of both places, so I could get a sense of each. A very cool idea to buy now and to have that built-in tenant who you dearly love. That’s got to be the best of all worlds.

    I also wish Kathy R would tell us who that Crazy Actress is… there are just so many to choose from.

  5. Carroll:

    Well, that sounds like a very fun new chapter in your life, Phil. Tinkering with stuff — and having a son in tow with whom to tinker — definitely all good :-)

  6. Sounds like a good deal for everyone. And you’ll avert alzheimers by learning new construction skills. My hubby, PhD in English, put in a ceiling fan last Sunday. Took four hours all told. Electrical installation instructions aren’t written in textbook English…good mental expansion.

  7. […] View original here: Teaser Elucidated […]

  8. Looks like a win-win and in dodgy economic times. A smart move.

    We’re taking possession of a new (well, old) house on the 11th. Thanks to my late mum, we’re buying cash so will be in no hurry to move from here. We want to extend by a bedroom so we’ll have to sell the present house in order to finance it, otherwise we might have crossed the ideological floor and become landlords!

  9. Carroll:

    Isn’t it time to be talking a little football around here, Phil?

    Tough loss for you guys yesterday. Our whole household was rooting for the Buckeyes. Daughter-in-law is a rabid UCLA fan, so her favorite two teams on any given weekend are the Bruins, and whoever is playing against USC :-) I suspect she was just as upset as you were over that one.

  10. Omygod!! Phil, what financial crackpots have you been listening to?? The stock market’s going to 25,000, fer shur.

    Really, I wish we were in shape to do the same thing, but having bought only ten years ago, our timing was all wrong. We did convert 2/3rds of our basement into a MIL 4 years back, $850 per mo at 100% occupancy since. Smooth move and congratulations for you and the kids.

    The stock market is defying gravity through trade & volume manipulation that remind me of late-stage crap the Kremlin pulled when they were in you-know-where. In essence, the bail-out is now trading with itself. In August, just four stocks accounted for as much as 35-40% of total NYSE volume: Bank of America, Citigroup, Freddie Mac and Fannie Mae. Reality has left the building.

  11. Phil:

    Marc, it’s 10pm. Why, oh why, do I read anything with your signature after lunch?

    Carroll - I really had to wonder how we could lose that game. Not looking forward to another white-out at Happy Valley.

    Kathleen - some stuff that looks like it will be a piece of cake ends up taking days and costing a cuppla Benjamins. Framing in 1918-era houses isn’t always exactly square.