Afford Anything - Ask Paula -- I'm Tired of Paying Rent. Should I Buy a House?

Episode Date: August 14, 2017

#90: Curious about real estate investing? I'm rocking the microphone solo on today's episode, tackling the rental property questions that you -- the listeners -- have asked. Rachel from the Ozarks asks: I'm inspired to start investing in real estate. I live in the Ozarks region, and the cap rates around here are fantastic. However, the online reviews for local property management companies are consistently terrible. What should I do if I can't find a good property manager? Daan from Malaysia asks: I'm a Dutch national who plans to be a global nomad for the next 10-15 years. I live in Malaysia at the moment, and I plan to continually travel internationally for my work. Many people in Asia are investing in real estate; do you have any recommendations for choosing investments abroad? A caller who wants to stay anonymous asks: I live in Denver and I'm tired of paying rent. I'd like to buy a house and eventually collect rental income from it, as well. But I'm having trouble saving enough money for a downpayment. Should I just give up? What should I do? Tom asks: I own land free-and-clear. Should I build on that land? Or should I buy a property that already exists? Finally, I tell the story of my most recent bout of lifestyle inflation. It involves sleeping in the back of my car. :-) Enjoy! - Paula For more information, visit the website at http://affordanything.com/episode90 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You don't afford anything but not everything. Every decision that you make is a trade-off against something else. And that's true, not just for your money, but your time, energy, focus, attention. Every country you visit is one that you're not visiting at exactly that same time. Every pet you adopt, every dinner you eat, you get the picture. Okay, I don't have to belabor it. The question becomes, given that we have way more choices than we have time or money or interest in pursuing, what are we going to choose? What is most important to us? And how do we actually make sure that our day-to-day actions align with those choices, align with those values? Answering this is a lifetime practice. And that's what this podcast is here to explore. My name is Paula Pantt. This is the Afford Anything podcast. Every other week I interview somebody and every other week, every week in between, I answer questions that come from you, the listeners. Now, many of you call in with questions about real estate and also many of you just don't care about real estate whatsoever.

So how I handle these listener questions is that in some episodes, I only answer real estate questions. And in other episodes, I answer the Behold Smorgasbord. This episode is an episode in which I answer specifically real estate related questions. So if you are not interested in that topic, let's shake hands over the internet, over the airwaves. And I'll meet you next week. Thank you so much for tuning in. If you are interested in real estate, please stick around because our first question comes from Rachel. Hey, Paula, this is Rachel. I live in general in the Ozarks area of the country,

and I've been listening to your podcast for a while, and it has inspired me to consider investing in some real estate in this area, and I'm finding a pretty affordable price around here and a good cap rate. My concern has to do with the property management companies. The reviews for all the property management companies that I've looked at online are consistently awful, and I'm concerned that without that piece in place, anything else I do is going to be an epic failure. So I guess my question is, how do you go about vetting a property management company? And if there is not a good one in the area, apparently, do you scrap that area and move on to a different one?

Or what do you do? I guess that's my main question for now. Thanks so much. Rachel, I am so glad you asked this question for a couple of reasons. Number one, I freaking love the Ozarks. That is such a beautiful part of the country. I have often believed, sorry, quick tangent, I swear this is only going to take two sentences. I have long believed that the Ozarks is one of the most underrated, underappreciated, beautiful areas of the country.

The Ozarks and the southwestern U.S., like Sleather and Utah, northern Arizona, just gorgeous. And for all of those of you who are listening, who are like, hey, what parts of the country do you recommend? where can we find good cap rates? Where can we find good returns? I've never personally looked at the Ozarks, but if what you're saying is right, and I'm sure it is, wow, that would be a sweet place to invest. It would be great to have an excuse to go there, make that a tax right off. So anyway, to your actual question, which is, is everything going to suck if I can't find a good property manager? Yes, everything is going to suck if you can't find a good property manager. But don't worry, Rachel, I believe you can.

So the reason that I'm really glad that you're asking that question is because implicit in your question is the understanding that you are as good as the team that you build. Your business will do as well as the weakest member of your team allows it to, which is why you always want to hire people who are as good as you or ideally better. For this podcast, Steve and Aaron are the glue that hold it together. I am totally the weak link. And I am so glad I have them because without them, this thing would have crashed and burned like ages ago. These people are incredible and I attribute a lot of my success to how awesome the people I've hired are. My contractor, I like him so much. I send a Christmas present to his dog every year.

So, yes, Rachel, what I love about your question is that you understand. the importance of putting together a good team. And you did something very smart, which is that you read reviews of property management companies in your area. That's an excellent way for the sake of anybody else who's listening, who's wondering how to evaluate property managers. That is an excellent way to do so. Now, there are a couple of things to bear in mind.

Number one, when you are online, let's say you're on Yelp or any other website, you're reading reviews of property management companies, those reviews will naturally skew towards bigger companies. If there is a mom and pop property management service that only manages a small handful of properties and let's say that many of the properties they manage are single family homes, they may not show up within those search results because just sampling bias. They're a mom and pop company and they only have a few units versus a large company that manages major 200 unit department complexes, sampling bias says they're going to show up in those search results a lot more. So the first thing I would say to you is if you are looking through these reviews and you're not

finding a company that gets good reviews, it may be that the way in which you are conducting the search inherently weeds out some of the smaller companies that could be a good fit for you. In fact, a mom and pop management company is in many cases, not all the time. I don't want to make a blanket statement, but could be a better fit for an individual. investor such as yourself. It's kind of like, okay, analogy here. You know when you're in college and you go to career fairs? And at the end of it, you get really disheartened because you've walked around to every booth at this career fair and absolutely nobody is hiring for your major. I had that experience a lot my junior and senior year. And then I realized the types of companies that get booths at career fairs are the companies that need to hire in volume. a small business owner who is hiring employee number two or employee number three is not going to have a booth there. A newspaper that has one or two openings for a reporter is not going to have a booth there. It's only the large companies that are hiring in mass that are represented in those types of environments.

And it took me months to figure that out. And to realize that the problem wasn't just my major. the problem was that I was searching in the wrong places. I was not going to wear my target audience, which in this case would be somebody who would hire me, would be at. So when you read online reviews of property management companies, the same thing might be happening. You're seeing the companies that manage the huge apartment complexes and not the companies that manage the little duplex next door. One thing that you can do is Google R-EIA real estate investors' associations. Association, plus the name of your city or town or municipal, whatever it is that people call

your area, and look for an in-person meetup of real estate investors. When you go to their meetings, you'll be able to talk to people face to face and many of them will be able to recommend property management companies that they work with. A lot of the people who go there are other individual investors who may have two or three or four units and who very much are looking for the same services and have the same needs that you do. Another way to find other investors in your area is just head to meetup.com. See if there are landlording meetups or real estate investor meetups. And again, when you go there, ask for recommendations for property management companies. Another thing you can do is go to npma.org. And I'm going to put that

link in the show notes. Show notes are available at afford anything.com slash episode 90. Everything that I talk about in this episode. Any resource that I mentioned will go into those show notes. So afford anything.com slash episode 90. Now, npma.org, that is the National Property Management Association. It is an industry group for professional property managers. And another related group is called NARPM.org. It's the National Association of Residential Property Managers. What you can do is go to those websites, look up who are the property managers in your area who have sufficient initiative and sufficient career-mindedness that they volunteer for or join or even take leadership, volunteer leadership positions in these industry groups. Because as a general

rule of thumb, the industry professionals who care enough about their job that when they're not working, they would go take a volunteer leadership position in an industry group so that they can become better at their job, they are as a generalized rule of thumb more likely to be good at what they do. Now, that said, it doesn't always work out that way. I once found a property manager through exactly what I just outlined. I went to the Narpam website. I found the name of a property manager who had a volunteer leadership position there. And you know what? This was actually a lesson in hiring. I had a great initial phone call with him. I was very impressed with that. I was that particular individual, but the day-to-day of the work that he did and his company did

was handled by somebody who he hired, who just did not do a very good job. And so eventually I had to let that property manager go. And, you know, and that's the other kind of component of the answer to your question is sometimes you do have to fire fast. You know, you do have to do your due diligence, find somebody who's good, get recommendations from other investors, have a meeting with them, and hire them and try them out for a while. And you know what, if after six months it turns out that they suck, cut the cord, let them go and hire somebody else. And sometimes you will have to do a few iterations of that before you find the right person. With my property management, that's exactly what happened. I had to fire a property

manager, let him go, and now I've got a great one. And I've done the same thing with contractors, too. I went through a couple of different contractors before I found the one who I've been working with for the past several years, before I found the one who's a really good fit. So sometimes, just like with any hiring in any company, you do have to go through a few rounds of hiring and firing. But all that being said, I definitely believe that you should be able to, unless you live in a very, very, very small town where there's really slim pickens, more than likely you should be able to find somebody in your area who is awesome. So get recommendations and keep searching. Thank you so much for asking that question, Rachel, and good luck with everything. Our next question comes from Dan.

Hi, Paula. My name is Dan. I'm a 20-year-old Dutch national looking to get some more information about investments. I'm currently living in Malaysia and I'm planning to do. I'm planning to do. this for the next 10, 15 years or so, living as a global nomad, so traveling and working in different countries for a few years. I have started to invest about 50% of my salary in a global index fund, both stocks and bonds worldwide with Vanguard, which is working out quite well so far. I'm quite comfortable with that. But I see a lot of people, especially around Asia, who are investing in real estate and I'm wondering if that's something that is necessary and I know you talk a lot about this on the show I'm starting to get more comfortable with it but there's a lot of information

a lot of salespeople out there and you talk a lot about the American real estate and you give a lot of useful tips but I'm wondering how much of that applies internationally and if you could give some more information about if you have that about Asian about outside of the U.S. real estate, basically. Also, if you have some people that you know that are talking about this on podcasts or on their websites, lastly, if you have any advice on what I should do or what you would recommend, please let me know. Thank you very much. I love the work you do on your podcasts, and I've been binge listening for the last four months.

got to episode 70 now, so I'm looking forward to listening to the rest. Thank you, Paula. Dan, that's a great question. Do you need to invest in real estate? The answer is no. Absolutely not. It is not necessary. You can build a solid portfolio.

You can build wealth. You can have a very successful financial present and future without any real estate investment whatsoever. Sounds like you're doing everything right. You're saving and investing 50% of your income. You're in Vanguard funds, which are low fee, low expense ratio. Absolutely, you can just stick with that. You do not need real estate at all.

The reason that I talk about real estate so much is not because it's necessary, but because there are many paths to the same summit. And real estate, specifically buy and hold residential rental properties, is the particular path that I chose, not because it is in. any way better or worse than any other option, but because, well, I chose it for two reasons. Number one, I wanted to create an income stream right away. So the assets gain in two forms. There's capital gains or, you know, capital appreciation, and then there are dividends or income streams that come from assets. So those are the two sources of returns. And you see that

in both stocks and houses, right? So in stocks, you have the appreciation on the a stock, and then you also have the dividend payout that comes from that stock. In housing, you also, you have the appreciation on the house as well as the income stream that comes from that house. However, if you want more of an appreciation-based strategy, stocks are historically speaking, at least in the U.S., which is the country and the information for which I know the best. In the U.S. stocks are where historically the largest appreciation returns have come from in the past 100 years. Housing historically in the U.S. has created a stronger income stream in terms of the cash flow and the cap rate. The cap rate is analogous to the dividend on a stock. So the reason that I chose rental properties is because my goal was to create a stream of passive income that could supplement and eventually replace my day job income, my trading time. for money income. And so to that end, I chose rental properties. That's one of the two reasons. The other reason that I chose it is because, like I said, there are many paths to the same summit,

but in order to stand out, in order to do well, you need an informational advantage. And that informational advantage comes from developing expertise in a particular field. And that is why it is, I think, inadvisable to try to be a jack of all trades and master at none. So you'll notice that I am not somebody who holds rental properties and also flips houses and also buys tax liens and also has warehouses and office spaces and commercial properties and mobile home parks and also is in the options and futures market and really into derivatives and commodities and gold. I don't try to do it all. I simply picked one thing and decided. that I was going to focus all of my time and energy and cognitive space into becoming

very, very good at that one particular niche thing. As they say, the riches are in the niches. So my niche just ended up being buy and hold residential real estate in the U.S. And that's what I do. And I'm, if I can pat myself on the back, I think I'm pretty good at it. I'm at least good enough at it that it's created a very solid stream of income for me, a very solid passive income stream. And that's why I do it. But I in no way think that it is not necessary and it is not necessarily even better or worse than any other option out there. So I guess that's a bit of a long answer to the first part of your question, which was, you know, your question was, do I need this? And the answer is no. You don't need it at all. Now, as to the second part of your

question, what about other countries? Here's the thing. When we talk about real estate, a lot of the decisions that we make are based around information that we have about, for example, operating expenses as a proportion of the value of the asset. And that is going to vary from country to country based on the cost of materials and labor. What does timber cost in Kuala Lumpur? Do people have asphalt shingle roofs there or do they use a different type of roofing material? What are the labor costs there? What is permitting like? What are the tax laws in Jakarta? What type of property insurance or umbrella liability insurance do you need if you own a property at the edge of Borneo? What are your assumptions about the utilities payments that you would need to make on a multi-unit dwelling in Chiang Mai?

And what is the historic rate of both inflation and appreciation in Perth? Like, you see where I'm going with this? There's no way I would be able to generalize about property investing in Asia, because Asia is so large. And really, it's not even right to generalize about it in the world. the United States, the only reason that I can talk about investing in the U.S. with a broad brush is because the tax laws, the historic inflation, the historic appreciation, the general cost of labor and materials, the general assumptions that you use for operating expenses, the justice system's treatment of lawsuits and evictions, all of those are reasonably the same across the

U.S. And so for that reason, with regard to economic indicators, and taxes and laws, I can make some very broad statements about the U.S. But you know what? I was adopted. I have two biological sisters. One of them spends half the year living in Kathmandu and the other half of the year living in Amsterdam and in the Netherlands. And the other one lives full-time in Sydney, Australia. The other day, I was talking to my biological sister who lives in Sydney, Australia, and she asked me, are houses in the United States cheap? And it was, I laughed. It was such a funny question because you can't really ask about houses in the United States. Are we talking about San Francisco or are we talking about the Ozarks? Are we talking Midtown Manhattan or downtown

Birmingham? So that's what I told her. And then she proceeded to tell me that a lot of the property in Sydney where she lives has exploded in value and the price to rent ratios just do not make sense there. In fact, according to her and I have not researched the Sydney market myself, but according to her, it's hard to find a property that would even be cash flow positive, or as she calls it, positively geared. A lot of the properties there are negatively geared and yet investors go into it anyway because of perceived tax benefits, which, by the way, is a very bad idea. Do not do that. Do not go into a negatively geared investment. So what I told her, which is the same thing that I'll tell you, is, well, you know what? If stuff in Sydney is too expensive, then you've got two choices.

Either look for rental properties outside of Sydney because the reason that you would buy a rental property is for the income stream. It is not for appreciation. Appreciation is speculation. So if she can find a good income stream in a different area, then awesome. And if not, go where the money is. I don't know the Australian share market, but if she thinks that she can get a better returns in the share market than she could via an income stream, then just go into the share market and don't bother investing in real estate. So that's my answer. As far as resources go, there's one particular book that I absolutely love. It's written by an Australian real estate investor. It's called From Zero to 130 properties in 3.5 years. I will link to it in the show notes. Show notes are available at Afford Anything.com slash episode 90. For any Americans who are interested in reading it, remember, it's written by an Australian investor. So please disregard the information in there that relates to laws and taxes and inflation and historic rates of return. All of those apply to the Australian market. But all of the other information in there, the broad how to think about an investment, those universal principles. That's great. Thank you so much for asking that question, Dan.

Our next question comes from a listener who has asked to remain anonymous. Hi, Paula. I would like to remain anonymous. I am paying way too much for rent. I live in the Denver area. and I am interested in purchasing a home, not just because rent is so expensive, but also because I would like to purchase a property that I could eventually use for rental income to get rental income. I am planning on purchasing my home with funds from a 401k and my savings account, and it's just barely enough to make a decent down payment, but it doesn't give me the best rate, But, you know, it gets me what I would want. So basically, I just wanted you advice on what you would do in my situation and, you know, whether I should continue pursuing this purchase a home idea or just totally give up, given that the market is really expensive, but just keep paying the high rent.

And it's not like I'm, you know, eating ramen noodles every day. I do have enough to save monthly and I, you know, eat pretty good. So, you know, I do have money at the end of the day, but paying so much in rent just seems like a terrible idea. So I just wanted to do opinion on that. Thank you so much for everything. All right. Here's what I want you to do. Go to a mortgage payoff calculator.

We will link to a few of them in the show notes. And look at the amount that you would be spending on interest plus taxes plus insurance plus, if applicable, HOA fees, which may or may not be plus, and this may or may not be in the calculator, repairs and maintenance, those are all of the bills that you would be paying that would not go towards the equity in your home if you were to become a homeowner. And what that means is that buying a home, buying a personal residence may not necessarily be a good idea, particularly if A, you don't plan on living there for very long, B, you have a high interest rate or C, if it's going to really create a hardship in your life. And even if this is something that you eventually would want to do, in many markets, there is no huge hurry to go into this right away. Now, let's look at some actual numbers because what I'm speaking about right now sounds very broad. It sounds a little ambiguous. So I don't know what your rent is. I don't know exactly what your situation is.

But let's walk through a hypothetical case study, right? Let's assume that you're looking at a property that would cost $300,000. And let's assume that you plan on staying there for five years. Again, I don't know your situation, but you sound, based on your voice, you sound young, and you may have career mobility. You know, you may get a job offer in a different city. You may decide to pursue a relationship with somebody and that ends up taking you to a different city. So let's assume that your mortgage rate is 4.5%. And in your question, you mentioned that you didn't have a large amount of money for a down payment.

I'm going to assume that you're taking out an FHA loan and making a 4% down payment. So that means a down payment of $12,000. We'll assume it's a 30-year mortgage. We'll assume that in your area, both the price of homes and the price of rent grow in the future at the same rate. We're just going to call it 3%. We'll also assume that inflation is 3% moving forward. We'll assume that any excess money that you would have, you know, alternate uses for your savings, would go into a broad market index fund that would give you over the long-term annualized average,

a 7% investment return. I'm going to assume that your property tax rate is 2%, so that's $6,000 in the first year that you'd own the home and more every subsequent year as the value of the home rises. And I'm going to assume that your transaction costs when buying and selling the home are 4% on the front end, 6% on the back end. I'm going to assume that maintenance on your home costs 1% of the total value of the property, so that's $3,000 a year. I'm going to assume that homeowners insurance is one half of one percent of the value of the property. So that's $1, per year for the first year and more so thereafter. Let's say that additional utility payments that are above and beyond what you would pay on your rental right now are, let's say, an extra

$100 per month. And we're just going to assume that you don't have any HOA fees. In this situation, if you can rent a place, if you can rent a home that you are happy with for, $1,600 a month or less, renting is actually a better deal. Now, that's according to the New York Times Buy versus Rent calculator, which I'm going to link to in the show notes. And how this is calculated is that it does not just look at a limited data set, which unfortunately is what a lot of people do when they're looking at buy versus rent. This calculator actually takes into account, what is the opportunity cost of keeping your money tied up and not putting it into alternate investments? What is the expected rate of return on that? What is the expected rate of growth

of both home values and rental prices. How much are you paying in maintenance, in property taxes, in insurance, in interest on that mortgage? What are your transaction costs when buying and selling the house? It looks at all of those variables. And when you start to do the math on those, home ownership is not the slam dunk case that many people believe it to be, particularly in expensive markets. I'm going to link to an article that I wrote on afford anything.com. This is a long article.

I think it's somewhere around maybe 6,000 words or so that dives deep into the rent versus buy question when it comes to your personal residence. Now, there was one thing that you asked about. You said that you wanted eventually to turn your primary residence into a source of rental income. That is not a wise approach in terms of thinking about it because you buy a personal residence based on personal and emotional factors, such as where you want to live, personal satisfaction, proximity to your job. You buy your primary residence based on those personal needs, and those personal needs have no correlation with whether or not a particular property is a good investment. So when you buy a personal piece of property, buy a personal piece of property. And when you buy an investment, buy an investment. Do not conflate the two. Your investment properties should

not be properties that satisfy your personal desires. They should be properties that have good cap rates, period. You know, my condo, I live in Las Vegas, which is a low cost of living area. And yet even in this area, the interest plus taxes, plus insurance, plus HOA fees on my personal property are equivalent to what a person would pay in rent for this same piece of property. So I am actually not saving any money by owning rather than renting. In fact, arguably I am losing money by virtue of the fact that I have a down payment tied up in this. And that is down payment money that otherwise could have been placed in the markets generating a much more substantial return.

So even here in Vegas, which is a low cost of living area, buying is not necessarily a slam dunk case. And the more expensive of a city you live in, the more that the price to rent ratios within that city are skewed, the less likely it is that home ownership is a slam dunk case. So, TL, DR, I wouldn't tell you to give up on your dream of homeownership. I would just question if you're doing it for the right reasons. Because it sounds to me as though you are doing it based on what I hear in your question. It sounds as though you're coming at this from the framework of you dislike the emotional pain of writing a rent check.

But what I want to hear you say is I've actually done the math. And the math says owning is a more financially solvent decision than renting in my particular set of circumstances. If that is the case, then awesome. Save up a down payment. Don't give up. Save up a down payment and buy a house. But if your sole motivation is the emotional pain of writing a rent check, then you haven't quite assessed the situation thoroughly enough yet to be able to make a decision as to whether buying versus renting is right in your circumstance. Again, I'm going to link to a long article about this plus several calculators in the show notes. Those are available at afford anything.com slash episode 90, and that will go deep into depth about this.

Thank you so much for asking that question, and best of luck with whatever you choose. We'll come back to this episode in just a second, but first, do you like to travel? Yeah, me too. As you know, your luggage makes a huge difference when you travel. Bad luggage can really weigh down your trip. Away travel is a new sponsor of this show, and they make awesome luggage. So they sent me some of their luggage recently. It was a really beautiful red carry-on-sized piece of luggage.

And I recently took two trips to Los Angeles to back-to-back weekends. I used this luggage with me on both trips. Here's what I like about it. Number one, it has an unbreakable shell, which means I could be rough with it. I could throw it around. It doesn't really matter. I don't have to constantly worry that the shell of my luggage is going to crack, which happened to me with my last suitcase.

I had this really nice, well-reputed suitcase, and the shell cracked after like six months of use, so that sucked. They've got a much more durable shell, and yet it's light weight and easy to carry. It's got tons of compartments, so it's easy to, like, you know, separate out your socks from your underwear from your actual clothing. And my favorite piece about it is that it has built-in USB chargers so you can keep your devices charged while you're in transit. If you're looking for awesome, minimal, beautiful, efficient luggage, well-designed luggage, head to away travel.com slash paula. That's awaytravel.com slash p aula and use promo code paula for $20 off your order. Again, that's away travel.com slash paula and use the promo code Paula, P-A-U-L-A, to get $20 off your order.

Have you ever been interested in starting a blog? If so, there's a page on my website, afford anything.com slash start a blog. That's afford anything.com slash start a blog, where I walk you through how to set up a blog in less than five minutes. On that page, you'll learn how to register a domain, how to set up hosting, how to install WordPress or another content management system. Basically, you'll learn all of the nuts and bolts about how to get this thing rolling. And I explain it step by step with photos, with a video, so that you can set this up, start to finish in less than five minutes. And if you don't believe me, there's a YouTube video in which we do this in five minutes so you can see it. Within this, I recommend Bluehost for hosting. And in the article, I explain why.

So check it out, afford anything.com slash start a blog. That's afford anything.com slash start a blog. Our next question comes from Tom. And it's only 11 seconds long. What would be the best scenario? Building a property in a land that's free and clear or purchasing a property. somewhere else. Well, Tom, that depends on what you want to do.

I'm assuming that you're talking about a rental property because if it's your own personal residence, then again, you're going to decide that based on whatever appeals to you personally more. The advantages of building a property include the ability to customize the property in the way that you want it, the ability to assuming that you have the proper permitting and zoning, build a multi-unit property so you could build a fourplex or if you can get the financing for something that's beyond residential and you want to go into the commercial space, you could build eight unit or 10 or 12 unit complex, which could really enhance the rental returns that you receive. You could make each unit uniform and you could build it to the specifications of a rental property investor.

If you're building it to what would appeal to a renter in the area, you may often be coming from a mindset that is very different than building for the sake of owner occupants. So in other words, building this property for. scratch would give you a higher degree of control. That being said, the cost per square foot of building something from scratch in your area, I mean, I don't know what it could be. Can you do it for $100 a square foot? Maybe if you lived in like rural Idaho, you might be able to build for 100 per square foot or if you are just very, very good at construction management, you know, or would your building costs end up being 150 per square foot? I mean, that's going to be a huge determinant of which one is the

better option. And, you know, hand in hand with that, what type of returns would you be getting? Would the average rents for the type of property that you're building meet the 1% rule, given your construction costs? I don't know. I mean, you're going to have to pay the cost of permitting, the cost of laying the foundation, lots of surveying, you're going to have to get plans drawn. There are a lot of costs that are associated with building a property from scratch. And if you have never done it before, if you have no experience with it, it's probably not the place that I would start because it is an additional layer of complexity and introduces the potential for some significant cost run up, particularly if you have not had a lot of renovation experience

in the past, which I don't know your situation you may or may not have. I think what I would say zooming out more broadly, don't let the fact that you own this piece of land free and clear influence your decision making. Because at the end of the day, the fundamental question that you want to ask is what provides better returns, A or B? And the only way to evaluate that is by knowing the cost of A, the total cost of A, knowing the total cost of B, and then knowing what type of net operating income you could reasonably expect to get from both A and B. Once you have those four variables, once you know those four pieces of information, then you can make a pretty easy calculation as to which one will provide you with. a higher likelihood of stronger returns relative to the, you know, tenant quality and level of risk and vacancy risk that you would get in those respective areas. So make your decision based on

that, make your decision based on the whole picture, the big picture, and don't isolate one component of the mosaic. Don't isolate the fact that you happen to have this land free and clear and use that to unduly influence your decision making. So good luck, Tom. And thank you so much for asking that question. By the way, while we're on this topic, I don't think I've ever actually announced this publicly announced it, but I actually do own some land free and clear in Crestone, Colorado. We have about five acres of land. We own it free and clear. And we're just sitting on it. We've never built on it. We've never done anything with it. It just exists. And we pay a property tax bill on it, and that's it. It has been far more worthwhile, more worth our

time to invest in existing properties in both the Atlanta and now coming up next the Birmingham markets rather than try to build something in this rural section of Southern Colorado. And that's because the price to rent ratios that we're finding in both Atlanta and Birmingham far exceed the price to rent ratio that we believe that we could get if we were to build something from scratch on this land in Crestone. So yeah, we happen to own it, but that doesn't mean that we have to act on it. So, and we just, we didn't buy it as an investment. We bought it just as a, we bought it just for personal satisfaction. It's gorgeous land. It's just beautiful, like surrounded by the Sangri di Christos and right by the great sand dunes. So we bought it thinking that maybe one day when we finally get around to it, we might build something on there for ourselves. Maybe we will, maybe we won't. I don't really know. Doesn't really matter. Because it wasn't that expensive. And frankly, I've got bigger fish to fry. Like I say on this podcast every week, your mental bandwidth is limited, your time and energy. and focus are limited. And so, you know, that land just sort of exists. Maybe we'll do something with it. Maybe not. But in the meantime, I'm not going to let that influence my investing choices. That is it for today's show. Thank you so much for joining us. And hey, before I wrap up, not that you asked, but here's a random story about my life. In one of the most recent episodes we chatted about lifestyle inflation, I just had some lifestyle inflation. And it's kind of freaking me out. As I mentioned in one of the earlier podcasts, I recently bought a camper. And as background, I've spent my entire life living on the east side of the Rocky Mountains.

I've never lived out west before. Two years ago, I moved out west finally, which I've been wanting to do for a long time. So now that I'm out here, I want to explore more of the western U.S., and there's so many national parks and all of that. So I found this camper on eBay. It was built in 1994, so it's 23 years old. My camper's old enough to drink. And it's small. It's single axle, 15 feet, factory weight, 1250 pounds.

For those of you who don't know what I'm talking. about what that basically means is by camper terms, it's tiny. It doesn't even have a shower in it. I'm going to have to just be stinky or take a solar shower or something. It doesn't matter. I'll figure it out. So anyway, I won it on eBay. Will and I drove out to West Virginia in order to pick it up. We towed it back with Will's car, which is this old, it's a 2006 Accura TSX, which is not really a car that should be towing something. So it was lucky that the camper, not lucky, but it was deliberate that the camper was. so lightweight. And I'd planned on just towing that camper around with a little sedan. But even though it could make it, it really shouldn't. I mean, it made it from West Virginia to Nevada, but yeah,

I could tell that that was not a wise decision, that I needed a vehicle that had actual towing capacity of at least 2,000 pounds. Now, I drive, as I've mentioned on the show before, I drive a nine-year-old Honda Civic, and I love it. Like, I know that sounds ridiculous, but I freaking love my little Honda Civic, my nine-year-old Honda Civic. So I procrastinated and I procrastinated because I don't want to let go of my nine-year-old Honda. I love that thing so much.

But eventually I had to face reality, and the other day I upgraded my lifestyle. I bought a 2013 Nissan Pathfinder. And it's kind of freaking me out because that's only four years old. I never imagined that I would own a car that new. When I bought my Honda Civic, that car was five. And I felt guilty about that for the longest time because, you know, who buys a five-year-old car? That's just that's so new. And now here I am buying a four-year-old one.

Like, yeah, I just. So that's my lifestyle inflation story. I'm driving down to Arizona to pick up my Nissan. So I will be driving heading there this week. sharing pictures of the road trip on Instagram at Paula Pant. Obviously, for those of you who are wondering, I of course paid for everything in cash. Duh. With the exception of houses, I've always paid for everything in cash.

And, you know, I wanted to explain the reason for that because there is an argument to be made that you could take out a loan, let's say take out a loan for a car at a 2% interest rate, you invest that money instead at a 7% return, and you keep the spread. And if the spread is sufficiently a risk premium that justifies that arbitrage, then that may mathematically be a decent choice. There is that argument. I totally get it. However, being able to buy something in cash is an excellent litmus test for whether or not

you truly have the money for it, whether or not it is within your means. If something is only within your means because you can make a little. the payments on it, but you couldn't buy the entire thing outright in cash, then I would argue that it's not within your means at all. Again, with the exception of houses, and with the exception of education, because both of those are assets that provide a higher stream of income over time. But with the exception of houses and education, it just makes sense for everything else to operate off of the litmus test of, is this within my means based on can I just write a check, pay for the whole thing and walk away. So yeah, that's the story of my latest bout of lifestyle

inflation. I got myself a pathfinder and a camper. And by the way, the reason that I chose the pathfinder, its towing capacity is way more than I need, but it gives me the ability because it's such a large car, I can sleep in the back of it. So when I don't have my camper with me, if I don't want to go through the hassle of hitching up the wagon and going on the Oregon trail, I can just lay down a mattress and snooze in the back of the car. So I guess all things considered my lifestyle inflation is not, you know, it's certainly no Gucci and Prada, but I still feel weird about it, man. It's just you get so used to living in a certain way that when you watch yourself level up, because I do not yet have the hedonic adaptation for this new level of living, it's, I'm very cognizant

of just how fancy it all seems. Like, wow, sleeping in the back of my car instead of in a tent or in a motel six. That's crazy. So, yes, that's what's new in my life. Again, I'll be sharing the pictures and the stories and some thoughts about it on Instagram at Paula Pant. Follow along, check it out. Thank you for joining me on this episode. Coming up in the next couple of weeks, we have an interview with the author of The Secret Life of Introverts.

She's going to explain all about the extroversion versus introversion temperament and how that applies to your work, your money, and your life. I also do a deep dive into an investing conversation with J.D. Stein from the podcast Money for the rest of us. And I chat with Pete McKitis on how to be awesome at your job. So all of that is coming up in the next few weeks. If you enjoy the show, please tell a friend. And don't forget to subscribe. My name is Paula Pant. This is the Afford Anything podcast. I'll catch you next week.