Tag Archives: Real Estate

Is a basement apartment worth adding?

We have the opportunity add a basement apartment in our home. Does it make any sense?

basement apartment

Should we add a basement apartment in our house?

Longtime readers might recall that we kicked off a pretty significant basement remodel last year. We knew it was an inevitable future project, but we hadn’t wanted to start while we had such a little kid running around.

When my wife decided to change jobs, she ended up with some time off before starting the new job. An opportunity to have someone watch Pretired Baby while I smashed drywall was something that couldn’t be wasted. So I headed downstairs and grabbed my hammer.

As always, we underestimated how much time the project would take, mostly this time because we didn’t really figure in the time I’d have to keep things quiet for naptime. And because the scope kept expanding.

As we got deeper into the project, an idea that we’d talked about many times began to look increasingly realistic. The idea: add a basement apartment.

I talked quite awhile back about how we bought too much house when we moved here. We had specific things we were looking for and the size of the house wasn’t much of a consideration at the time. Although we love our house, I have to admit buying it was a significant mistake. A cheaper, more appropriately sized home would have been a smarter move. In fact, the extra amount we spent on this house is right about the same amount I currently need to declare myself officially pretired. Obviously if we were to downsize at some point (something that could still happen someday), I could declare myself financially free and be done with it. If we stay here, I will likely need to go back and bank a few more years of salary to put myself over the top.

Or is there another option? Could I downsize in-place? Let’s examine the situation.

  • Total house square footage: 2,500, split evenly upstairs and downstairs.
  • Upstairs layout: three bedrooms, one bathroom, dining room, kitchen. Bathroom is tiny.
  • Downstairs layout: One bathroom, which will be nicer than the upstairs bathroom when done, two bedrooms (One is tiny — only technically a bedroom, but would work for a kid. The other is currently planned as an office and has a fireplace in the room and no closet yet.)  There is an awkward entry area that would likely be a junk-collecting area and there is a large open room that would work nicely as a kitchen, but is currently planned as an exercise room. The laundry is also downstairs.
  • Our mortgage situation: Regular readers already know all about this, but the short story is I’ve paid off my portion of the mortgage to prepare for staying home with Pretired Baby. My wife now owes about $90,000 on her half, with about seven years until the loan matures. Her payment is around $1,500. Zillow puts the current value at $650,000. Appreciation was 11 percent and 14 percent the last two years, so if the market stays hot, we gain about $50,000 or so a year in value.
  • Other bills: Our core bills are around $1,600/month, so $800 each. We’ll call it $1,000 each to include some occasional splurges.
  • Potential rental income: We could easily get $800 for the space, potentially up to $1,000. While we’re daydreaming, it’s conceivable we could double that or even triple it if we went the VRBO route instead, although that would probably only be the high season, so likely we’d average back to the $1,000/month, especially once the extra tax and other expenses are considered.

That’s the big picture. So should we add a basement apartment or just finish up the space and enjoy it? I’m really not sure which way to go.

Yes, we should build a basement apartment:

  • More money is more money. Why wouldn’t we go get more since we’re already in mid-remodel anyway?
  • We’re not really using the space currently and things seem fine. We do have some things stored downstairs but that’d be a minor issue.
  • The extra money could essentially cover a nice chunk of our bills. If we brought in $1,000/month, we’d only need $500 each going forward. Appealing! And $1,000/month is about what my fourplex produced with a lot of hassle. This would be an easier way to get the same cashflow.

No, a basement apartment is a terrible idea:

  • Do we really want someone else living in our house? What if they’re nuts? We have a young child in the house. Is it safe?
  • There is extra work, so more scope creep. I’d have to run an additional drainline under the concrete floor. I’d also have to add laundry upstairs and while I sort of have a space for it, it’s awkward and would actually cause some storage issues.
  • Back to landlord hassles. I’ve really been enjoying not being a landlord the last few months. It’d really suck to go back.
  • We’d have to be considerate neighbors and keep the noise down. With a toddler running around and crying a few times every hour, that may not be possible. One of the best things about living in a house is that you can make lots of noise without annoying your neighbors.
  • Is $12,000 a year really worth it? We’re appreciating at four times that amount right now. I don’t mean to act like that’s pocket change, but in the grand scheme of things that amount of money doesn’t seem to compare favorably to the negatives.

As far as the extra works goes, the thing that scares me the most is adding laundry upstairs. Everything is possible, but the hassle and expense of that is off-putting. The biggest negative overall is just giving up part of our house — having a stranger around all the time. Maybe we’d get lucky and manage to rent to a busy airplane pilot who is gone all the time, but odds of that are slim. For $1,000/month, it just doesn’t seem worth it. If we were reliably bringing in $3,000/month or more, it’d be irresistibly doable.

But maybe I’m wrong. Small amounts of money do add up over time and this would greatly lower our overhead on a percentage basis. By effectively lowering my overhead to around $500/month, my existing pretirement fund would enough to cover all my bills, essentially rendering me essentially financially free without working another day of my life. (Naturally we probably wouldn’t want someone living in our house the rest of our lives, but presumably, we’d eventually sell and downsize so the rental phase would act as a bridge until the market ripened to where it became time to sell and move, at which time I’d have additional pretirement funds available.)

So on one hand, more work, more short-term expense and a major hit to our comfortable, private lives. On the other hand, I wouldn’t need to think about working ever again. Ever again. That sounds pretty sweet, too.

What do you think? We should add a basement apartment? What would you do? 

What do you do when there’s nowhere to invest?

nowhere to invest

Nowhere to invest? With a sky-high stock market, it often seems like there’s nowhere to put money.
Image courtesy Renjith Krishnan via FreeDigitalPhotos.net.

I had an interesting exchange with a reader named Bradley recently. Bradley’s basic question was “with the market at all-time highs, where do you put your money? It’s a good question because it does feel a bit like there’s nowhere to invest right now.

And it’s a particularly relevant question for me because I’ve been facing this exact dilemma with the recent windfall from the sale of my fourplex. Making matters “worse,” I just sold another piece of property so I have even more cash coming my way.

If you’ve ever made the mistake of reading any news site comment sections related to the stock market, you already know that there are two main contingents who both believe they are 100 percent correct: One says the market is headed for a crash very soon and only a fool would gamble his money in the stock market. The other group, equally sure their beliefs are correct, say the market will keep going up, up, up and only a fool stays out of the market worrying about a crash. (To get a handle on your investment portfolio, be sure to sign up for a free account from Personal Capital.)

Naturally, both sides are right and both are wrong. In reality, we all know that this market will undergo a significant correction at some point. We also know that the market will grow its way out of that dip. What we don’t know, of course, is when and we don’t know how long it will take to recover. That’s why the most important factor in any investment is the investor’s personal situation. For example, this is why people nearing retirement are typically advised to move to safer holdings as they age, although ironically people in this situation currently are among those who feel strongest that there is nowhere to invest. For some perspective, consider that my first money market account back in the late ’90s paid five percent!

There was a pretty interesting piece in CNN Money in January. While generally sticking with fairly standard allocations and advice, the writer reminds us that good ol’ cash also used to be seen as an asset class.

I recommend heading over and reading the whole thing. Lots of interesting data points pulled together, such as the fact that the market usually has a 10 percent drop once a year but hasn’t seen one in 2 1/2 years (at the time the article was published).  The writer suggests 10 years of disappointing returns await. And, oh yeah, the level of borrowed money in the market is already reaching pre-crash levels. So we’ve got a bubble again, inflated with Fed policy, borrowed money, greed and blind trust.

I might be the last honest blogger, because I’ll just tell you the truth: I have no idea what’s going to happen or when. I held my real estate winnings in cash at the end of last year, partly because I was expecting at least a small correction (which we’ve finally gotten a little taste of) and partly because I haven’t had time to really focus on it. (Which is not to say I didn’t do anything with my money last year. I actually was moving and reallocating funds quite a bit, which is still going on.)

So far this year, I have picked up a few individual stocks when I see a good value, but I’ve held off on buying much more in the way of mutual funds so far. And, in fact, I’ve been moving more money into cash, as I finally dump some stuff I’ve been packing around with higher costs. I’m dreading the tax impacts after this year, but I just want to clean up my portfolio.

My short-term strategy right now is to go ahead and sell my high-cost funds (I have seven of them left at this point with various amounts of money in them). Thus, my cash position is increasing. I’m selling those semi-quickly. Meanwhile I’ll be moving this cash back into individual stocks and/or low-cost Vanguard funds — however, this will happen much more slowly, basically dollar-cost averaging my way back in. By default, depending on how slowly I move these dollars back into the market, I’ll be effectively keeping significant assets in cash as well. I don’t want to say I’m hoping for a big market crash, but if one were to happen, this would be a pretty awesome time.

So that basic framework aside, let’s get back to the main question: what do you do when there’s nowhere to invest?

Let’s start by recognizing that, really, there is always somewhere to invest. Maybe with a sky-high market, now isn’t the time to move a large sum in all at once. But there are always a few undervalued stocks. But you have to be careful. It always rains after I wash my car and the market always dips when I make a purchase. And with the market so inflated, I have been thinking quite a bit about what options do exist outside the usual menu we typically think about. Here are a few things I’ve thought about.

Pay off debt

If you’re carrying any consumer debt at all, this is a good place to start. Whatever your interest rate is on the debt you’re carrying is your effective return by paying off that loan. Still carrying a car loan? Maybe instead of buying into an over-inflated stock market, you pay that car off for good. The free cash flow you now enjoy could dollar-cost average its way into the market or you could save it up so you’re ready to pounce when things drop.

Keep funds in cash

Why consider holding money in cash? Well, on one hand it’s a defensive move — you’re protected from a big crash. When everyone else is panicking, you’re kicking back on your pile of cash. That pile is, however, slowly disintegrating under you, however, as inflation eats away at your buying power. There is another advantage, of course. Imagine if you’d been sitting on big pile of cash during the real estate crash. I know if I didn’t have all my money tied up in, yes, real estate, I would have been on a shopping spree. Thus retaining cash can be an offensive move as well. Sit, wait for a big drop and start swinging your big weapon.

Pay off your house

If you don’t know where to put your money right now but you’re still carrying a mortgage, perhaps it’s a good time to increase your security by putting a bullet in your mortgage. If you’re worried about missing a big market dip, maybe open a HELOC on your now paid-off mortgage. If things look irresistible, you can pull out the funds from your house again and take advantage of market conditions. Remember the crash you’re waiting for could be two or three years away and you could be enjoying the cashflow improvement in the meantime.

Lower your overhead

Recently I wrote about forcing cashflow and how it can hurt you or benefit you. If you’ve got a sum of money and no place to put it, spending some of that money on increasing your cashflow situation can be a savvy move. For example, I’m still considering making the move on solar panels for our house (no-brainer if we’re going to stay in this house long-term). A $15,000 investment in solar would permanently remove our $75/month electricity bill. The downside is it doesn’t pay if we move. But the idea is the important part. For you, it could mean upgrading to a more efficient car, new insulation for your house, moving closer to work, buying new clothes that don’t need dry cleaning. You name it.

Increase your security

You could also tap your funds for  increasing your financial security as well. This might mean stepping up and paying for a few things now just so you don’t have to bother with it later. Maybe your roof is starting to fail — writing that check now while you have the cash not only removes a hassle from your list, but think about the alternative: Imagine you bought in big to the market at the top and suddenly find yourself with several years of waiting before you’re out of your hole. Then, while you’re waiting, the roof fails completely, leaving you in desperate need for cash. By making sure these aspects of your life are rock-solid now while you have this free cash, you’ll be in a much more solid position when crash time comes.

Be creative

People forget there are other places to invest outside the stock market. There are too many to list here, but for example a guy I used to work with owned shares in a local pizza place. There are always people looking for private investors — some people have friends or family who are interested in starting business for example. (Be careful!) You could even buy a small business if desired. Always wanted to own your own restaurant? Now is your chance! If you can think of it, you could probably make it happen. Have a great idea for a mobile app? You could probably hire a development team overseas for less than $20,000 and bring your idea to reality. In addition, there are online lending options such as Lending Club or Prosper where you can make a decent rate on your invested funds.

Jump in anyway

And, of course, where most of us will end up is back in the market, hoping any dip is not too deep or long-lasting. This is where I’ll probably end up as well. I’ll dollar-cost average my way in, at least, but more than likely I’ll limp my way back in and just wait out any dips, just like I always do. In the end, prudent, boring investing in low-cost index dividend funds is usually the best bet. But when you have a big chunk of cash you’re sitting on, it’d sure be nice to start out with a lower price.

What do you think? Any other creative places to put money while the market remains so high? What would you do if you had a large sum that needed a home?

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Another way to decrease your debt: Recast your mortgage

We lowered our mortgage payment by more than $1,000 without refinancing. Here’s how to recast your mortgage

recasting your mortgage

Image courtesy Sujin Jetkasettakorn via FreeDigitalPhotos.net

As I alluded to back in May in Save money with a tool library, there is some potential that we may decide to rent out our house for some period of time. We have a few different ideas in mind, some of which aren’t ready for public eyes. However, since we wisely chose a 10-year mortgage when we last refinanced our house, our payment has been large enough that we’d have negative cashflow at current market rates.

So we had a bit of a conundrum. We didn’t want to restart the clock on our mortgage term, but we wanted that payment to go down. Fortunately there’s an option that perfectly fit our needs and it could fit your needs as well.

Hold up! I suppose it’s time I explain myself. Since I’ve started this blog, I’ve simultaneously mentioned that I don’t have  a mortgage payment and have also said that we’re still working on paying off our mortgage. How can both be true?

The answer is really pretty simple. Being several years older than my wife and because I had a chunk of change from selling some real estate a few years ago, we decided it made sense for me to pay off my half of our mortgage earlier so that I could move toward pretirement (although I still pay my share of the escrow costs). Pretired Mama had quite a bit more saving to go (although she’s far ahead of where I was at her age). But that’s why I had the freedom to quit my job and stay home with the baby (even though I’m still shy of being fully pretired). (I also have two more mortgage payments related to some property I own with my brother, but that’s a story for another day.)

Anyway, here was the situation on our house as 2013 was winding down:

  • Mortgage (1st): $186,000 (10 year loan paid down from $251,000 — all of this is Pretired Mama’s debt)
  • Mortgage (Home Equity Line of Credit): $10,000 (leftover from a deck we recently had built and some other stuff – half of this was my share)

The payment on the first was around $3,000 including escrow. The payment on the second is just $100 (the minimum it can drop to under the terms of this loan.) We could probably rent our house for somewhere around $2,500/month so we’d need to drop it a fair amount to get into positive cashflow territory.

Pretired Mama has been faithfully following my patented template for rapidly paying off a mortgage (seriously — check it out if you’re working on paying off your mortgage. I have yet to see anyone produce a more efficient way to get there quickly.) She had some $40,000 in side savings built up so we had some options. Originally we had planned to do a refinance later this year, but we realized we could get to the same place easily without paying any expensive fees.

Recasting — the easy way to lower a mortgage payment

The method is called “recasting your mortgage” and it may just be the biggest secret in the mortgage industry. A recast of your mortgage simply means the bank will reset the amortization clock based on your current equity situation plus any funds you may wish to bring to the table. The timeframe of the loan remains the same, only the principal drops. She had been paying roughly three years on a 10-year loan so effectively the recast was equivalent to starting a seven-year loan at the new balance.

The bank’s rules (a local credit union) were that you had to be in good standing on the loan and you had to have a minimum of $10,000 to apply toward the recast (either that much equity or cash you brought forward). The processing fee was $150. No appraisal, no credit check, no income check. All we had to do was making a principal payment, call the person in the special products department and tell her the payment had been made, sign and notarize some documents (called “loan modification agreement” — probably the same documents people use when the bank agrees to lower the principal for people who are underwater) and wait. It really was that easy. There was one other question I asked the woman from the bank: “So does our other debt have any impact on this process? For example, if we withdrew some money from our HELOC would that impact our ability to complete the recast?” She said, “No, we don’t look at that at all. You bring the money and we recompute the amortization. That’s it.”

The biggest hassle was trying to get notarized. The bank’s paperwork was unclear about whether we had to have a witness to the notarization or not so we wasted an extra hour with a bored baby at the bank trying to figure that out. (People were scowling at us as we dealt with the signature issue and I’m pretty sure they were assuming we were deadbeats trying to get a loan modification. Heh!)

So here’s how we ended up structuring things. I paid off my half of the existing HELOC ($5,000) as originally planned. Then, we actually pulled some additional funds out of the HELOC to combine with Pretired Mama’s side savings. So effectively, we brought $86,000 to the table from the bank’s perspective (even though half of it was their own money). The remainder on the first mortgage would be $100,000 and the HELOC would now have around $51,000.

When we were done, the loans looked like this:

  • Mortgage (1st): $100,000 (still officially a 10 year loan, but with just seven years left — still all Pretired Mama’s debt)
  • Mortgage (HELOC): $51,000 (this is now all Pretired Mama’s debt as well)

The new payment is $1,800 on the first (including escrow) and it’s still $100 on the second. Monthly savings of more than $1,000/month! So now we’re well below what we could get in rent and Pretired Mama should have the HELOC paid off in a year or less. From there she can either stay on the accelerated plan to pay off the first mortgage or she can shift over to rapidly building up her pretirement fund. Another interesting fact is that the bank said there is no limit to how many times you can recast. So it’s possible we could do one more of these before our loan term is done.

Will your bank allow you to recast your mortgage?

Since I was dreading the high costs and hassle of a refinance, I’m now in love with the recasting concept.

Unfortunately, not every bank is on board with letting you recast your mortgage. My brother and I tried it with another piece of property we own together and they told us they don’t offer this service. And why would they, really? They lose thousands in interest. The only advantage I can see from their perspective is that they retain your business vs. letting you refinance away to another company. But since we use a credit union that offers good service, it’s still an available product (although one they don’t advertise at all).

But if you’re in anything close to my situation, it’s worth a phone call to find out. With a sky-high stock market it can be tough to find a good place to put money. If you’re sitting on cash and are worried about buying at the top of an overpriced market, a recast could be a good solution. You could recast your mortgage, lower your payment significantly then invest the savings on monthly basis, thus dollar-cost-averaging your way into the market — all with less debt hanging over your head.

It made sense for us right now, but every situation is different. Be sure to do your homework. For me, though, I’ll be confirming any bank I take a mortgage from in the future offers a recast. I like having options.

Forcing cashflow — when should you do it?

Image courtesy of renjith krishnan / FreeDigitalPhotos.net

Image courtesy of renjith krishnan / FreeDigitalPhotos.net

Ever heard the term “forcing cashflow” before?

If you’ve done any real estate investing at all, sooner or later you’ll run into the concept but it’s a topic with implications well beyond real estate. It’s a tricky subject and one that I still struggle with today.

I faced the classic “forcing cashflow” situation a few years after I purchased my infamous fourplex. Regular readers might recall I actually bought two fourplexes at the same time from the same seller. After a few years of thin cashflow and pouring too much free cash in to feed the mortgages, I dumped the more problematic of the two and walked away with some decent appreciation profit.

I examined my situation. My personal monthly bills (outside of mortgage) totaled about $1,500 at the time. I was pretty obsessed with cashflow in those days so the math was simple based on my objective — specifically raising the monthly income from the property up above the amount I’d need to cover my bills. I talked to my friendly neighborhood mortgage broker and asked how much cash I’d need to bring in if I wanted to bring my payment down to $1,000/month (including escrow). Rents in the four units were around $650. So on paper I’d have $2,600 in revenue and after paying the mortgage my cashflow would be a sweet $1,600 (not counting maintenance, vacancies, etc.).  Not bad, right? Who wouldn’t want a free $1,000+ coming in every month?

Well, there are a few ways to look at forcing cashflow that complicate the matter. First we have to break out of the mindset that forcing cashflow is either “good” or “bad.” Rather there are various types of forcing cashflow that may or may not make it a good idea for your particular situation.

Old school real estate investors usually talk about forcing cashflow in the context of something amateurs do to make their numbers “work,” while they, the savvy investors, boast about their “cap rate” and similar methodologies to evaluate their purchases. And they’re quite right to do so because strictly forcing cashflow ignores the opportunity cost of putting the extra money elsewhere. For example, in my case, I would have been MUCH better off investing the money in stocks. That is to say the return I got on the additional funds was less than I could have gotten elsewhere. Thus my overall income situation would have been better by paying more attention to return and less to cashflow.

However! While all of that is true, there are other important ways to think about this. Let’s reverse things to help see this clearly. Imagine for a moment, I pulled some cash out of my property instead of putting cash in, say via a simple home equity line of credit loan (forcing a negative cashflow, if you follow me). Suddenly instead of the $1,000/month coming in, perhaps I have to feed it by $500. This could put an investor in an untenable situation, unable to keep up with payments and vulnerable in a crisis. Or to put this another way, if you were buying a rental property, how much should you put down? How could you know what the right amount is?

Cap Rate (along with GRM and GSI for you real estate investing nerds) is cashflow neutral — it only helps you determine whether the purchase (or sale) price is fair (based on revenue). Cashflow is profit-neutral, it just tells you how you’re structured. For example, you could have a 10 percent Cap Rate building (unheard of around here, we’re usually around 6 percent if we’re lucky), but if you bought it with 20 percent down and had some vacancy issues and repairs, you may have gotten a good “deal”, but the building could still be draining you every month. If you decided to force the cashflow, though, and put 50 percent down, you got the same good deal on your property and are enjoying some tasty cashflow. However, you’d have to examine your overall investment posture because you might have come out ahead by putting that additional cash into other investments.

Real estate makes a good example, but we face decisions on forcing cashflow every day, often without realizing it. Every time we’re faced with a decision on whether to pay for something up-front in order to save more over the long haul we’re making this kind of decision. Older car beginning to cost more and more in repairs — would a newer car put you ahead or behind? Worn-out refrigerator burning way too much electricity? Better to keep limping along or upgrade?

So how does one know how much to force cashflow? I have three ways I evaluate this kind of situation:

  1. Payback time – Identifying the time until you reach break-even can be a smart way to look at things. All else being equal, it can be a good idea to achieve the shortest possible break-even time with all invested money. Say you’re considering dropping $5,000 on new windows in your home to replace the drafty single-pane pieces of glass in your house. And let’s say your heating and cooling bill is $200/month and you estimate it’ll drop in half with new windows. So, “savings” of $100/month. Worth it? At a savings of $100/month, it’d take just over four years to break even. So it obviously comes down to how long you’d be staying in the house. If it’s your forever home, the sooner you get started the better. If you’re planning to move in two years, tape plastic over your windows and tough it out.
  2. Yield – Another way to look at forcing cashflow is to compare the income (or ongoing cost reduction) to what you could do in the market. In the above example we were considering investing $5,000 on new windows. What if we took that same amount and invested it in stocks? Using my 5 percent rule, we’ll assume we can make an annual 5 percent if we put our money to work in the market. Let’s compare that to our energy savings with our windows. Our energy bills drop by $100 in this example, so $1,200 per year. Making that on $5,000 isn’t too shabby. And if this is our forever house, we make that (24 percent!) into perpetuity (after year four). (Which is why it makes so much sense to make your house as energy efficient as possible. Although keep in mind saving $100 a month may not be realistic for quite a few of you.) But you do effectively make zero for four years so it’s a long term investment and that’s the way you have to look at it (although you’ll be warmer in the meantime, which is nice). And, of course, you’ll want to count the money you’re NOT making for four years in your math.
  3. Bar lowering – Traditional investors will scoff at me (rightfully maybe) for this one, but since my goal is pretirement, there is another way I look at things. I call it bar lowering and the idea is that even if your potential investment doesn’t make sense under the first two items, it may still be worth doing if it brings your pretirement closer. The idea is that it may be easier and simpler (and more guaranteed) to spend some money lowering your expenses to bring your needed income amount down. The most common example of this is paying off a mortgage. If your interest rate is only 3 percent, it may not make sense mathematically to pay off your mortgage when you could probably make more in the stock market. Let the stock market gains pay for your mortgage and keep the difference, right? Depending on your overall situation, especially your age, it might actually make more sense to take the guaranteed win of paying off your mortgage, which also lowers the amount of passive income you need each month. In effect, this is what we’re doing when we buy the new windows above as well. By dropping our bill by $100 a month, that’s $24,000 we don’t need to earn and invest (again based on 5 percent — $24,000 * 5% = $1,200/year). The basic idea here is that it’s easier and less risky to cut costs than to build up an investment portfolio. So it’s just another way of cutting “spending” even though it’s not the mindless consumerism we talk about so often here on Pretired.org.

So to me it’s not as simple as just comparing everything against what I could do in the market, although that’s become my main approach. And there are other things that complicate these decisions further. How do you really figure out what the savings could be on something like new windows? Basically it comes down to a guess. And then there are factors like resale value and your personal comfort to be considered.

For example, I constantly struggle with whether it makes sense to add solar panels to my house — something I really want. We currently budget $100/month for electricity (yes we have some of the lowest-cost power here in Seattle). I estimate it’d take $15,000 to solarize our house. That means the payback would be over 12 years! That’s hopelessly long — especially considering that we may not stay here forever. I really want them, but it just makes no financial sense. The only thing that tempts me is the bar lowering. With one up-front payment, I’d never have to pay for electricity as long as we stayed here. My share of the minimum monthly bills requirement would drop to a tiny $700!

Yet, the equivalent amount invested would only yield maybe $62/month (applying 5% to $15,000 again). And because I wouldn’t be paying a bill of $100/month, it’d be worth it, right? I don’t know! See? Confusing!

We make these choices every day without realizing it. Some are simpler than others. For example, we finally got smart and bought our own cable modem instead of leasing one from the cable company. It took nearly a year to break even but now we have the lower bill and every month is gravy. Not a big deal, but just another little hole to plug in our budget. We switched the gas furnace a few years ago at considerable expense. That was probably a 3-4 year payback timeframe, but we’re warmer and the ongoing bill is lower (lower monthly overhead).

Do I regret forcing cashflow on my old fourplex? I wouldn’t do it again. In retrospect, I think I would have been better off improving the building and increasing the rents versus trying to lower the financing overhead. But if I’m honest, if I could go back in time I’d sell that building much earlier and dive into the stock market head first. I became so obsessed with cashflow, I forgot to keep an eye on the big picture. Fortunately what I learned about cashflow and the positives and negatives of forcing cashflow help me greatly today as I put together the final elements of my pretirement.

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