“Our house in Marin has landscaping and a pool; then we’ve got our vacation home in Tahoe. And, there’s our investment property in Sacramento.”
This, from the mouth of a cousin who had expected to be retired by now…and oh yes, she wasn’t bragging. She was, in fact, explaining why she preferred to meet for coffee rather than lunch–because it would be less expensive.
My cousin: watching her pennies? She and her husband had always been seen as “the golden couple”–the ones who made smart investments, succeeded in their careers, put their children through Ivy League schools. In fact, they had been smart enough to pull their money out after the last recession and put it into real estate, therefore missing out on the recent, most drastic drop in the stock market since the Great Depression.
One would think she could still afford lunch out. But no. She is one of the new class of “on paper” real estate moguls who are now, in truth, “house poor.”
Each of her houses has its own sad story, and the sum of all the parts is painful disparity between appearances and reality.
For starters, there’s the cash flow issues. Cuz had always assumed that they could count on rental income to help them fund retirement. Of course, they would prefer to keep the home in Tahoe for themselves, but renting out Tahoe was always the back-up plan.
In this economy, even back-up plans need back-up plans. With rents on vacation market properties at rock bottom prices, and with the mortgage still being paid down, renting Tahoe would not even cover the payments–even if they could get somebody to move in. So the house sits empty waiting for their monthly vacation weekends, but they have cut back on gas and dole out trips to Tahoe by the drop.
Sacramento, too, their trusty little investment property engine that had faithfully turned out rents over the years, now suddenly sat vacant. Paid off in full, it quietly sucked away insurance and property taxes waiting out the recession.
The primary residence, the one in Marin, is also paid off–but the overhead, which was always high anyway, now makes all the difference between being able to retire–or not. They just applied for a line of credit on the house, which they plan to use for emergencies. But sell their house? Not in this lifetime.
And so, every spare penny is going into upkeep of their mini-empire. They pay the gardener and pool man but no longer go out to movies. They keep their houses well-painted and roofed. They have purchased every kind of insurance, including earthquake, and pay impeccable attention to every detail of maintenance knowing that their future is in their foundation, roof and plumber’s hands.
They are the new class of house poor, essentially camping out in beautiful digs, like it or not continuing to pour money into vacation homes, investment properties and timeshares and if they’re really lucky, treating themselves to a cup of Starbucks from time to time.
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Sounds very interesting.
Spike, you are awesome! Love your perspective, thanks for sharing.
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