Did you know I have a rental property? I do! Many of you have asked me to share an update and so today, I will! I love hearing what you want to read about on Frugalwoods, so please keep the suggestions coming! You can add your ideas for future posts in the comments below or send me an email (liz@frugalwoods.com).

Our First Home = Our Rental Property

We bought our first home in Cambridge, MA (which is Boston-adjacent) back in July 2012 with the short-term plan of living in it and the long-term plan of renting it out. In June 2016 we moved to our Vermont homestead and signed our first tenants for the Cambridge house. Since then, it’s been fully rented with no vacancies and we’ve been able to charge market rate rent each year. We’ve used the same property management company from the outset and consider that expense a very worthwhile trade-off. Every year we analyze the Cambridge housing market and make the determination of continue to rent vs. sell. Every year we’ve decided to continue renting because the property cash flows, it has appreciated tremendously and continues to do so, and owning a rental property is a great diversification of our overall asset portfolio.

We started saving up the downpayment for this house when we were 22 and bought it at age 28 entirely with money we’d earned and saved ourselves. As I’ve discussed previously, there’s a great deal of privilege that goes into home ownership and into our ability to earn and save this money, which I don’t take lightly.

Overview of Our Rental Property

  • Location: Cambridge, MA
  • Purchased: July 2012
  • Began renting it out: June 2016
  • Purchase Price: $466,500
  • Mortgage: 30-year, fixed rate of 3.6%
Cambridge Rental Expenses* Amount Per Month
Mortgage and Taxes: $2,293.14
Insurance (not escrowed through mortgage): $149.92
Property Manager: $185.00
Total monthly expenses: $2,628.06

*I don’t include these rental expenses on my monthly expense reports as they’re covered by the rental income.

Cambridge Rental Income Amount Per Month
Rent: $4,800
Minus monthly costs: -$2,628.06
Monthly net revenue: $2,171.94
Annual net revenue: $26,063.28

Caveats To These Numbers

It’s important to note that these spreadsheets are just a snapshot in time. For example, we haven’t had a major capital expenditure yet, but we will someday. One year, we’ll need to replace the roof or install new flooring or redo the siding, which could easily consume all of our profits for that entire year. Given that, the above financial picture is overly rosy right now, which is why it’s crucial to have a maintenance reserve for your rental property.

Plus, prices typically increase annually:

  • Property tax goes up around 4-7% per year
  • Insurance usually goes up around 3%
  • Property Manager fees can go up
  • Rents also typically increase

Additionally, there’s risk involved with owning rental properties and they–like all other investments–aren’t a sure bet. Just because a rental makes money one year doesn’t mean it’ll make money the next. On the other hand, one of the primary reasons we keep this house is its appreciation and its potential for more appreciation, which isn’t accounted for in the above. The house’s excellent appreciation is the defining factor for why we’re renting it out and not selling it. If you’re interested in our comprehensive rent vs. sell analysis, check this out.

Why We Bought This House

We initially bought this home to live in, although we always had the vision of one day turning it into a rental property. Before making an offer on this place, we spent five years casually researching real estate in Cambridge. Five years is kind of a long time to house hunt, but it took us that long to save up a downpayment! Plus, all that research was fun (who doesn’t love snooping around open houses!) and informed our decision in profound ways. After living in the house for four years, we were ready to make our move to rural Vermont and turn this house into a rental.

Our Cambridge house

Thanks to our years of open-housing (we went to at least 270 over the years!!!), we had a clear sense of the Cambridge market and the neighborhoods we wanted to target. To round out our research, we visited a number of properties in surrounding towns (including Arlington, Belmont, Lexington, and Somerville), to confirm our hypothesis that we wanted to buy in Cambridge. All of this research gave us confidence in our purchase and our ability to one day leverage the property as a rental.

If you’re in the early stages of home buying, or if even thinking you might want to buy a home, it can’t hurt to start visiting open houses and giving yourself a thorough education on the market in your area. Wondering how to kick off your own open house exploratory committee? Here’s how we did it: Our 12 Tips For Visiting Open Houses: We’ve Been To Over 270.

Buying A Home With Renting In Mind

When you buy a home to live in with a plan to later rent it out, you’re doing two things at once. You have to consider the property more from an investment perspective and less from an emotional “I love this house” perspective. This isn’t always possible (or advisable), but, if you live in a hot rental market and have aspirations of building a passive income stream, buying a home that can be turned into a rental can be a great option.

One of the main reasons we wanted this property is that it’s a single-family home in a city of mostly apartment and condo complexes. Single-family homes are shockingly rare in Cambridge and so, when we realized this house was all on its own, we were sold. Here’s why:

  • Single-family homes in Cambridge are typically worth more (per square foot) than condos or apartments
  • Single-family homes are (usually) not part of a Home Owner’s Association, which means there are no monthly HOA fees, no association board to contend with, and no HOA rules governing the ability to rent a unit out
  • That last point is crucial since some HOAs restrict or outright prohibit the ability to rent out a unit

Bedrooms Galore

One of the bedrooms in the Cambridge house

Another reason this house rose to the top of our list is the fact that it has four bedrooms. Additionally, the house has two offices, two full bathrooms, and a semi-finished basement with an in-unit washer and dryer. This number of bedrooms allows us to rent to four tenants, as opposed to one or two, which informs the rental price. Plus, the offices can be used for studying or working-from-home, which has proven to be a great asset for our tenants.

Had we not been focused on the appreciation and rental potential of this house, we probably would’ve purchased a much nicer–but much smaller–condo unit that had been recently renovated.

As it was, this house needed a fair amount of work, and we did our fair share of maintenance and repair over the years. Another salient reason we chose this house is that it was, in many ways, the proverbial cheapest/oldest house in a nice part of town. The real estate axiom of “buy the cheapest house in the best neighborhood” can really pay off when you’re angling for appreciation.

Luck Is A Factor

While it’d be nice to say we were geniuses in buying this house, that’s not true. The truth is that we got lucky. We’d researched the area for five years and tried to do our due diligence, but you never really know how a real estate investment will pan out until much later. So, yes, we just so happened to buy the right house at the right time in the right location. As it turns out, we paid the lowest price per square foot of all habitable units sold in Cambridge that month. That, my friends, is pure luck.

The kitchen in our Cambridge house. We refinished the cabinets ourselves and tore out a wall unit and re-drywalled to give it a more open, modern look

This was also a largely unemotional purchase for us. I wouldn’t say that either of us was deeply “in love” with this house. What I will say is that we both saw the low price per square foot, the ample bedrooms, and the excellent up-and-coming neighborhood and sensed that–of all the places we’d looked at–this was the best deal, the most likely to appreciate, and the easiest to translate into a rental. 

We took the exact opposite approach in buying our Vermont home: we didn’t focus on appreciation potential, we have zero plans of ever renting it out, we plan to live here for decades/until we die, we dearly love it, it’s newer construction and just the right size for our family.

We applied the opposite metrics in choosing our Vermont home because we knew it would never become a rental. Plus appreciation is unlikely in this region. I give this example because I think it’s helpful to identify why you’re buying a home and what you hope to gain from it. In the case of our Cambridge property, our goals were: appreciation, rental potential and a longterm revenue-generating asset. In the case of our Vermont property, our goals were: a move-in ready home that we love and plan to live in for a long time.

A Rental Is No Longer Your “Home”

Our Vermont homestead in the woods

Continuing in the unemotional vein, I want to point out that there’s a psychological factor involved in renting out a house you once lived in. You have to divorce yourself from the house emotionally.

While we grew to love our Cambridge home and made lots of updates and improvements while living in it, I no longer consider it “our home.” I’m not crestfallen that walls need to be repainted or that floors are getting dented. I no longer have an emotional attachment to this house.  The property is now a line item on my balance sheet. The house is an investment and I consider it only in terms of the return it delivers.

If you don’t think you’d be able to handle this emotional remove, you may not want to go the route of living in a house and then renting it out. Because no one is going to treat a home the way you want it to be treated. You could make yourself crazy trying to micromanage tenants in the hopes of keeping a home in the pristine condition you kept it in. And beyond being crazy-making, that style of landlording would engender loads of stress and defeat the purpose of generating a (mostly) passive income from a rental.

Always Remember The One Thing That’ll Never Change: LOCATION!

The master bedroom in the Cambridge house. We painted it, refinished the closet doors, and put in a new light fixture to modernize and lighten up the room

Our rental is located in between Harvard University and MIT. Why does this matter to us? Because of the tenant pool. You’ve got to know who you might rent to and, in our case, Harvard and MIT graduate students are (thus far) the people most interested in renting our house.

This works to our advantage because:

  1. Students are typically in town for a short period of time and thus are more likely to rent than buy;
  2. Graduate students (in our experience) make excellent tenants;
  3. Being within walking distance to these two universities increases the value of the property and makes it attractive from a resale perspective (were we to sell it one day).

The house is also close to a number of biotech companies, subway and bus lines, restaurants, night life, coffee shops, parks, breweries, shopping, and pretty much everything else you might want in a city. We bought into a neighborhood that’s still establishing itself and was considered a bit on the fringes of “ideal” Cambridge locations.

However, our research indicated that this neighborhood was on the upswing and that a new subway line was slated to be installed just north of the property (construction is underway now!). Additionally, it’s near the biotech-boom of Cambridge, making it walking distance to the new headquarters of such firms as Novartis, Biogen, Genzyme, Akamai, and many more. This, again, is advantageous from both a tenant pool perspective as well as the overall appreciation of the home. All of these indicators made us predict that home values in the area would rise, and they have. A lot.

Should I Get A Rental Property Too?

The Cambridge kitchen before we did a DIY revamp

This is an impossible question to answer because it’s dependent on so many different factors. If you’re working to asses the viability of becoming a landlord, here are some questions that I think are helpful to consider:

1) Are there any restrictions on renting in your neighborhood/HOA?

  • As noted above, if you have a home owner’s association, the very first step is figuring out what (if any) rules they have around renting out units. Do not assume it’s fine just because your neighbor down the hall rents out their unit.
  • Some HOAs have restrictions on the number of owner occupied vs. rented units and your neighbor down the hall might be the very last in the quota for rentals.

2) What is the percentage of rental units versus owner-occupied units in the area?

  • The Cambridge kitchen after

    Cambridge has a staggering 63.8% of occupied units rented (with just 36.2% being owner-occupied).

  • This is salient because it means there’s a big demand for rental properties and a large population of people looking to rent in any given year.
  • This metric is essentially an assessment of the supply and demand for rentals in your area. For example, in an area with very few rented units, the demand might be very low, which leads us to the next question…

3) What is the potential tenant pool?

  • It’s important to consider who might want to rent your property. Is there a built-in, robust tenant population (such as students or traveling professors/business executives/nurses)?
  • Is there a demand for higher-end rentals? Or will you be competing with the lowest price rental options?
  • What are people willing to pay in monthly rent and how will they treat the property?
  • If there’s no sufficient demand for rentals, it’s going to be tough to find high-quality tenants and you might weather a lot of vacancies or gaps in tenant occupancy and/or need to cope with evictions.

4) What’s your projected rate of return?

  • To calculate a rough rate of return, figure out:
    • What you can expect to rent the property for every month minus all of your expenses, including:
      • Mortgage, taxes, and insurance.
      • Glum Before
        Cambridge staircase before we refinished it

        A maintenance reserve for capital projects. This is money set aside for when you need to replace the roof, redo the siding, install new floors, etc.

      • A reserve fund to cover your expenses anytime there’s a vacancy. For example if a tenant breaks their lease and moves out, you can’t find new tenants, etc.
      • A property manager, or, the willingness to manage it yourself, which entails a not insignificant amount of time/stress.
    • Research if rentals in your area include utilities (electricity, water, etc) or if tenants bear the responsibility. If utilities are typically included, that’s going to further cut into your profits and should be included in the above calculations
  • If your rate of return is projected to be low, it might not be worth it

You can find most of this information online through city government websites. You can also browse Craigslist and similar for rental listings to get a sense for market rate and how quickly properties are rented out. And, best of all, if you know anyone who serves as a landlord in your area, chat them up! They’ll probably be delighted to share either the horror show of landlording or the remarkable success they’re experiencing. Since so much is contingent upon where you want to purchase a rental, finding a local resource is ideal.

To Hire a Property Manager Or Not To Hire a Property Manager

Glorious After!
The staircase in the Cambridge home that we refinished ourselves

A property manager is someone you hire to manage your rental property. The extent of a property manager’s involvement varies and you need to figure out how much it’s worth to you to not have to deal with middle-of-the-night phone calls from your tenants about clogged toilets.

We chose to hire a property manager because:

  • We don’t live in the same state as our rental property and didn’t relish the thought of a six-hour round-trip drive every time something breaks in the house.
  • We found a great property management company with a fixed monthly rate that’s low enough to keep our monthly return quite high.
  • Our property manager knows more about managing rentals than we do and we are happy to pay them for their knowledge and expertise.
  • Here are just a few of the things they do for us:
    • Draft the lease
    • Find tenants
    • Suggest the annual rental price
    • Vet and approve tenants
    • Manage the transition between tenants
    • Handle all repair, maintenance, and tenant-relations needs, including replacing broken appliances, fixing plumbing issues, coping with a tenant breaking their lease, etc.
    • I have to say, it’s lovely to just receive an invoice for a replaced oven and not need to go buy the oven and install it myself. Lovely, I tell you.

If you decide to manage your rental(s) on your own, you’ll need to handle all of these issues yourself and, if you’re not handy, you’ll need to know a reliable plumber, electrician, and contractor who are all willing to do small jobs on a quick turnaround. While you might be willing, for example, to live with a plumbing issue in your own home until you’re able to get a plumber to come out, your tenants will not. They will expect you to fix their problems immediately.

Longterm Appreciation and Portfolio Diversification

The Cambridge master bedroom before our DIY revamp

In addition to the nice return this property delivers every month, we choose to not sell it because of its longterm appreciation potential. In the ten years we’ve owned it, it has appreciated tremendously and continues to do so.

This longterm appreciation is another reason we wanted to buy a home in this neighborhood of Cambridge.

Since Cambridge has a super tight housing market, a lot of rental units, very little new construction (due to extensive historical building restrictions and limited space), established industries (primarily universities) and emergent industries (primarily biotech), we saw a lot of potential for appreciation.

In addition to the appreciation and the revenue generation, having a rental adds diversity to our portfolio.

Without this property, we’d be more heavily weighted in the stock market and less diversified. This property–with a mortgage–provides a nice balance to our overall portfolio.

Why Not Buy Another Cambridge Property?

And the bedroom after! I refinished the jewelry chest and the closet mirrors myself

Since this rental is working out so well for us, folks have asked why we don’t buy another Cambridge property. The answer is simple: we can’t afford to. Cambridge real estate continues to soar and everything on the market is too expensive for us to generate immediate profit from. In other words, the mortgage would be so expensive that we wouldn’t break even with renting it out.

This is the eternal Catch 22 of buying rental properties in hot markets: since the market is hot, you can charge a lot in rent, but because the market is hot, the purchase prices are astronomical and you’ll probably lose money renting it out initially.

In the case of the house we own, the purchase price was low enough to enable us to rent it out for a profit. That doesn’t mean we don’t still watch the Cambridge market from afar… if something affordable ever pops up, we might scoop it up. But I’m not holding my breath.

In Conclusion

Renting out a property can be the best of times or the worst of times. You need to consider your location, your potential tenant pool, your projected rate of return, the property’s longterm appreciation potential, and your ability to cover unexpected capital expenditures. While a rental can add revenue and diversity to your portfolio, it’s not a risk-free, guaranteed investment.

If you want to discuss rental properties in greater detail–or ask me more questions about my rental–feel free to schedule an hourlong call with me.

 Do you have rental properties? Are you interested in exploring the possibility?

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  1. Curious why you didn’t refinance in 2021 ! 3.6 is low but that year you could have gotten 2.5 especially if moving to a 15 year!

    1. I refinanced to a 15 year in 2020 and am locked in at 2.25% 🙂
      Typically, those low rates only apply to your primary residence, not investment properties.

  2. We have a STR short term rental at the shore- a nice townhouse we rent via Evolve & a realtor. It rents for 3 months and its empty 9. We use it to access sailing & the shore fun, We had turn over service but we kept losing maids and it was a PIA, so my wife & I and her friend share the 150.00 cleaning.( We do linens and garbage) It makes 20k a season, of that expenses take it down to low cash flow. It will yield us 20k in retirement. There is 50 k left on the pay off.

    Questions to group:
    1) We were told we’d be taxed hard if we paid it off and took our 20k every year! We both work and make to much. Is that true for any out there?
    2) Love to buy #2 and have 40k saved , but my god homes are way way over valued. We watch our dreams and time running out as now interest rates are heading up.

    Frugalwoods house: OMG 4 tenants in 1 house!! No way.. we had a huge LTR ( long term rental) and all was great for 10 years and then they became entrenched in our old Huge Victorian home. Long story but we had to sale to get them out during Covid.

    I’ll only consider short term rentals these days.. looking for a ski slope home…

  3. I want to first say that I love reading your blog and have followed since you belonged to our small (now huge) buy nothing cambridge group. I wonder if you have discussions around the ethics of rental units for income, especially in places like Cambridge. Families can not afford to live here because rentals are so high (and to buy? Forget about it) One major reason is that students up rental prices because they can afford to each pay. But asking for high rental prices (which is the investment wise strategy) you take a house that could be home to a family with children if rented for a reasonable price and make it out of reach. I wonder if you would consider renting it for the section 8 Max (or a little more)? Or rent it for less once you are paid off/your finances are in a way that allows for a lower rental income. My parents bought the home we currently live in (2 family) in 1992 on a day care teachers salary (140k for the house) today we can only afford to live in Cambridge on a teacher and lawyer salary because they charge us just the mortgage price which is way below market. We are able to raise our 4 kids here without worrying about rising rents or getting kicked out when we have a child. But there is immense privlidge in that, and I worry that the constant buying up of units for a high rental market is part of the problem.

    1. I’ve thought this too, but I figure we live in a capitalist system and if the Frugalwoods hadn’t snapped up this property to rent out, someone else eventually would. We aren’t going to fix the housing issues in Cambridge by relying on the goodwill and ethics of individual investors. Something about the system – the way rentals are approved, the tax rates, etc. – will have to change in a way that makes distant landlords no longer feel like it makes financial sense to rent out properties here, and then maybe the housing crisis will ease up a bit. But I’m not really holding my breath for that happening anytime soon. And I can’t really blame the Frugalwoods for doing what makes financial sense to them, individually, even though it does perpetuate a system of inequality.

      I mean, investing in index funds is also problematic because some of that money is definitely going to businesses I am ethically uncomfortable with, but I still do it because at this point it’s the best option for me to protect myself financially in the future.

      1. I really appreciate this comment and all the thoughtful responses. Sometimes it feels like the only way to build your own financial health is to make self-serving choices to the detriment of the greater community, and I struggle with it all the time. It’s nice to know people here care about this issue too.

      2. Amanda I totally agree with you. There are no ethical choices in capitalism. And we need to do a lot better in the systemic way we look at housing. However I do think there are “ethical” ways to rent if one is financially privlidged enough to do it. For example, charging a rent that is less than market but still gets you a small amount above what it costs. Or charging the same price but offering it to security 8 families (who can sometimes afford more than their stipends) or by saying you will charge a tiny bit less than market and try to rent to families instead of students. They sort of why I asked about plans ones let’s say the mortgage is paid off. I also know a neighbor who is selling their house )I believe it’s 3 or 4 family) to Just A Start for less than market value but still over a million dollars which will all go to his children because the house was paid off decades ago.

        So I do think we can think about being socially conscious in our investments including rentals. I would much prefer someone like the Frugalwoods buying it because I do think they think about this stuff. But if we buy properties and then act the same as the bug money who are buying it, then does it really matter?

    2. This for me underscores the need to advocate for and build subsidized housing. The market isn’t going to undercut its own profits, and I don’t think the ethics of landlords will solve any problems. We need policy solutions.

      1. 100% this.

        I also question a bit why we put the housing needs of “traditional” families above those of single adults who want to live in community (although all would benefit from more and more subsidized housing!)

    3. This is something I consider often. Not just as it relates to Liz or long term rentals – but in many of our travels out west we’ve heard comments regarding short staffing at restaurants or other establishments, even guide services. Folks are saying it’s exacerbated by out of towners buying second homes or homes to use as Airbnb rentals which prices many locals out of long term rentals and therefore they look elsewhere for work, closer to where they can rent.

      I don’t have the solution, but, I definitely see how the problem is compounding and whether the rental market is the chicken or the egg, something will have to change.

      1. I live out west in a town that has been taken over by Airbnbs and people purchasing multiple properties as second/third/fourth homes. It sucks, especially the Airbnb aspect because the only people benefiting are the people renting out the property for extra cash. I would really encourage people who are purchasing multiple properties just for the sake of earning income they don’t really need to consider the longer-term impact to the community (I’m not directing that comment to the Frugalwoods — I think their situation is different).

        For us, we won’t be able to purchase unless we receive a windfall, and I don’t know if we’ll be able to continue renting here if prices keep going up.

        1. All of these comments are so interesting and something I think about *a lot*. Similar to frugalwoods we rent out our first house, in central MA. We have had one amazing tenant for 5 years who just moved out and didn’t raise rent though we could have. Now we are renting to a refugee resettlement agency below market rate. It means we don’t generate cash flow but we will have the house paid off in 7 years. I feel very conflicted about owning this extra house, my husband less so. Interestingly my father in law who lives in another state but shares a name with my husband has gotten calls from wholesalers wanting to buy it, so yes someone else would want to snap it up if they could.

          I work with very low income people, so I am totally aware of my privilege and also aware that I have no idea how we will pay for college. We are a (part time) physician and a PHD. So this property is in essence a college fund for us.

          I hate that this feels like the game we have to play and think a lot about how it feels like I am hoarding this house to put my own kid in a better place while other people can’t find a place to raise their families. Blergh capitalism.

    4. I was curious about this, too, as it’s something I’ve thought about a lot. Even if we could afford to purchase a rental property I’m not sure that I’d feel comfortable with using my wealth and privilege in being able to afford property to further increase my wealth, by charging market rate rents knowing what so many folks go through to try to afford their rent payment. Curious to hear others thoughts on this.

      1. Kate, there’s no reason you have to rent at market rates. There are other ways to build community and be an ethical landlord. Growing up, my mom charged below market rates of her MIL unit in exchange for childcare. Win-win for all. There’s always a need for a good landlord and you don’t need to follow the conventional thinking about renting out your place.

      2. Why would you work hard at your job and pay your own bills, but not expect your renter to do the same? Socialism is always a downward spiral, period. It is a fact that each person on earth has different levels of what they consider “productivity” . I worked a job that paid based on your productivity and I made three times some of my coworkers; only one coworker found that objectionable and she was very unreliable and unmotivated.

    5. Leigh, I’m across the river in Boston and we have a RE Tax Reduction program for owner-occupied units. My property tax on my condo is ~60% lower than it would be if I owned the property and it was not my primary residence (i.e. it was rented-out). Measures like this can help promote homeownership by reducing the costs and also discourage would-be landlords from driving up home prices. I’m not sure if Cambridge does something similar, but it seems like something the city would be on board with!

    6. This is such an important point and I’m glad you brought it up and got so many thoughtful responses! I think it’s helpful to advocate for structural policy changes that make being a landlord less profitable and encourage the construction of lots of new housing. Like, I’d rather people have affordable healthcare than donate to their gofundme for a necessary surgery, ya know? I see this the same way. We can’t operate under the goodwill of individuals.

    7. On a macro level, this issue is more or less true in most cities with draws, like being an economic or educational hub. The thing is, there’s a question of degree involved. Having owned, done up and lived in a house, with the eventual goal of moving elsewhere and keeping that one house as an investment is not what’s causing housing problems. That’s a very reasonable idea, it’s one that people have always done, literally since time immemorial.

      Where it becomes a problem is when consortiums and ”developers” buy up wholesale tracts of houses, apartment blocks and flip them or completely redo / rebuild to squeeze maximum resale, regardless of any other concern, that the systemic problems become major. It is a privilege to own a second property of course, but it’s also a risk, it’s an investment, it was a substantial amount of work to get it right, the roof will one day need redoing, the boiler will conk out, these things will happen, and who will be the one holding the bill for that?

      It’s easy to paint ”being the landlord” with a catch all brush, but really, there are so many different ways it happens, and many of those ways are not remotely Ruining Lives For Families.

      1. Caroline I agree with a lot of what you say, but the idea that buying housing for income is actually not something that has always existed, snd in fact in many countries where housing is considered a right not a privlidge/commodity it isn’t really an investment rhe way it is here. Rent control and other measures make it so that yes, people own and people rent- but it’s not the “this is my retirement/this is my college fund” way. And I 100% agree that one of the biggest problems is the hedge funds etc that are buying these properties up as purely investment is one of the root problems of the current crisis.

        That being said, I do still think that thoughtful people who have this privlidge can help ease it where they can buy charging less than market or being thoughtful about who they rent to. Just like I often have a modestly smaller return on my investments bc we only invest in “socially councious” funds snd companies. We aren’t starving, investing is a privlidge and an extra so making “less” is still making something and in the process I *hope* we are also helping ease the global burden.

    8. I don’t see why someone would rent their house for, let’s say, 3000$ if all around this house the rentals are 4000$+. Frugalwoods are not doing charity work here, they are renting for money and some people have the means to rent it. THAT said, for a family this is absolutely not affordable (even for students, IMO, sharing it 4 ways), in which case : you get to choose where you live to a certain extent, right? I live in Canada, it would be great to move to BC one day or Toronto even, but it’s not affordable, so we stay in Quebec. We cannot ask strangers to manage our lives or financial needs, that is unfair.

      1. Isa, you would rent it for 1,000 less because you don’t need the extra $$ and it allows someone who otherwise would not to be able to afford it. The frugalwoods are very charitable and very socially aware, that’s what I like about them. So to think about how their investments (including rentals) affect the community is not off brand. And I don’t know how different it is in Canada, but there is a huge housing crisis right now in US especially on the coasts. And there are a million reasons people can’t pick up snd move cities or states. So having affordable units on our city is an important thing to consider. And while as stated above it can’t just be individual landlords, it CAN be a partial solution while we figure out a more systemic one

        1. Hey Leigh, I get what you are saying and, yes, it`s pretty aweful in Canada too at the moment, but it`s not changing my opinion on the matter : they don’t run a charity and they should not feel obliged to help total strangers by, technically, paying a part of their rent (because this is what is it, really : if they lower the rent to accomodate someone, they are technically paying part of the rent for a stranger). If I was a renter and could afford it I would totally help out a family member or a friend by lowering my rent price. But a stranger? No. I guess we will have to agree to disagree. Have a great day!

  4. I noticed that you don’t address the issue of tax on your rental income (although you reference “taxes” in one place, I assumed that was property taxes, not income tax. Apologies if I’m wrong.)

    I’m based in England and what has struck me is the number of people who have done what you did – retained their former home for many of the reasons you did – but actually have never done their “ROI” (return on investment) calculation to see if it is a good use of financial resources. When I did this calculation for one friend, we discovered that she was making less than a 3% ROI, once the right figures were included. The main issues (which you’ve addressed) were the maintenance/repair funds and the increased costs of services (like the letting agent). However, income tax was the killer which (bizarrely – I mean, how do you not notice a 45% tax bill each year???) she hadn’t taken into account.

    I’m therefore curious about what your post-tax ROI is. I’m also interested in your sense of what would tip you into realising your investment in the next five years?

  5. I find this update so interesting – one of the things I’ve been realizing a lot recently is that I don’t feel like a lot of frugality/FIRE blogs feel relevant anymore. They’re all written by people who just happened to be in the right place at the right time: high earners during a recession who were able to take advantage of incredibly low housing prices and historically low interest rates. Most people nowadays aren’t able to do anything like this (unless they have massive amounts of cash) because the housing prices are still insane and the increasing interest rates have priced people even further out of the market – as I’m sure you know, your house would likely cost at least 2x what you paid for it today.

    I’m in the Cambridge MA area right now and, even with two healthy incomes, there is no way we could purchase a house to live in, much less as an investment. We’re already worried about getting rent and daycare hikes that will cut into our ability to save for retirement. We can move further away to get lower costs, but housing costs in those areas are also inflated and daycare spots are extremely scarce. And other, smaller cities don’t have the job opportunities. It’s a Catch-22 that a lot of middle-to-high earning households are stuck in right now and it just feels like the personal finance blogging world is completely blind to it because we keep getting the same advice based on what worked in 2012 and, ten years later, the financial landscape is completely different. I still love reading this blog and a few others but the content here feels much more aspirational than realistic, even as a semi high earner.

    1. This is a really interesting comment and I tend to agree with all the points you made, Amanda. Cutting expenses to the bare bones will only go so far when the housing market is simply unattainable for most people no matter how much they cut costs on groceries and extracurricular activities. Higher interest rates and inflation are further eroding people’s ability to get ahead and it’s just not feasible for many people to move to a lower cost of living area as job opportunities are usually still tied tightly to expensive cities. I’m just not sure the original FIRE advice applies to the current circumstances most of us are facing.

    2. Yes yes yes yes yes. I so appreciate Liz’s story here and she did have some important caveats, but I know exactly what you mean. Like, let’s just assume that house is worth like, IDK, 1.2 million now or something. Interest rate 6%, 20% down- mortgage payment BEFORE taxes and insurance of $5,756. I hope everyone is reading this under the lens of like “a neat story about the past” not “here’s a set of circumstances you have any chance at replicating”

      1. Sure, maybe not in Cambridge Mass, but maybe somewhere else, possibly? Maybe not a house, maybe a flat, maybe a condo because it’s best for the area.

        Every time anyone buys a property, it’s at a moment in time. That’s why it’s an investment, and that’s why there’s risk involved. Replicating that exact thing in that exact place is unlikely, but it’s an outline of their timing, their plan, how they’ve worked it, why and how it’s worked out so far.

        1. Yeah you can buy a home somewhere else but you won’t see the skyrocketing rates that Frugalwoods take advantage of.

          My larger point is that many FIRE blogs are written by people who came of age at exactly the right time to take advantage of a historically cheap housing market and other affordable investments. While the general, common sense strategies they used are beneficial for everyone, the outcomes they’ve seen are largely due to timing and luck. Most people following their advice today will not see the same ROI. This isn’t a critique on them, more just musing about what role if any these blogs play as people look toward a financial future that looks very different.

          1. Agree completely. Most also don’t have kids or the kids are quite young. I do think there are many ways to build wealth, and it is important to be educated so you are prepared take advantage of markets when you can. And they were smart enough to pursue boring, tedious jobs (albeit that paid well) rather than pursuing their passions. But the key was they took advantage of a situation when corporations were on its heels. Those starting FIRE now are competing with large, well-funded companies who are extending into every segment of society to squeeze out profits.

            Which brings me to all this hand-wringing about privilege: puh-leese! It’s the large companies (The Blackstone Group) and wealthy investors, who pay low taxes thanks to the huge and continued tax cuts buying up properties. Even trailer parks are now owned by large companies. Instead of all this angst, get involved politically to elect people who will tax the super rich, support programs that provide all who are willing with a good secondary and post-secondary education, identify evidence-based mental health strategies and implement them, and teach financial literacy to all.

    3. This is a really interesting comment, and I agree to some extent. But I still think there’s much to be learned from this particular experience- Liz acknowledges that luck was on their side, but they also researched and saved for 4 years before buying a house they really didn’t love that needed a lot of work. I’m sure they could have gotten an FHA loan for a nice condo at the beginning of those 4 years, and the nice condo would have appreciated, but they wouldn’t be in near as good shape financially now as they are. Waiting for the right time and buying for an investment is how you make luck happen. (But yeah, it will probably never happen again in Cambridge.)

    4. Hi Amanda! I don’t know what your income is, but I highly recommend looking into the homebridge program. My friends (public school teachers) were able to buy a condo using this program, off the regular market with HUGE help from the city on their down payment. The cap is pretty high, and they have plenty of money, although the program doesn’t get as much attention as it should. https://www.cambridgema.gov/CDD/housing/forhomebuyers/HomeBridge

      1. Thanks Leigh! Responding late, but I am aware of that program. One challenge with these programs as a whole is there is often a very, very narrow window for qualifying. For us, we don’t qualify because we had a home prior to moving to Massachusetts (when we lived in a much cheaper state). And by the time that no longer disqualifies us, we’ll be just barely over the income limits. I know a lot of people who have looked into these programs and very few who have qualified. Those who have often had to work with a professional years in advance to buy at exactly the right time, when they could qualify for a loan but aren’t yet above income/savings thresholds. It’s a great idea but tough to take advantage of.

    5. As someone who also writes a frugality blog, I feel this way about myself. I started feeling this way the second Covid hit, when we were safe in our home and able to work remotely while so many lost their jobs, their opportunities, their lives… Yeah, you could have done it then, but now? Especially with inflation where it is just over the last few months.

      I personally wouldn’t have a chance of affording my current life. Our house tripled in value, and the taxes would be an extra $14k a year on top of the $3k more a month for the mortgage payment from the increased purchase price. Not happening.

  6. Thanks for this update! It seems not much has changed since you moved out. Does the property manager expense cover things like cleaning and painting between tenants? Small fixes like a clogged drain, broken appliance, etc.? It’s only mentioned that there were no major expenses like a new roof, but there are often lots of small things that break in a house.

    1. From my understanding they typically don’t. They also typically charge a percentage of the rent, my local area is about 10%. So the flat fee mentioned is a really great deal!

  7. We own a 2-family home just north of Boston (10 miles). We have always lived in the larger unit (9 rooms) and have a furnished 4-room , 2-bath apartment. We haven’t rented the apartment out much in the past several years and have instead left it vacant for our grown children when visiting. Worked out great during covid when our daughter, SIL, and baby grandson moved in so they could teach (college professors) from home while we all took turns with little one- 4 of us working on zoom rotating with baby. Now we are retiring this year and will be renting out our apartment. we just finished refinishing cabinets, doing over 2 bathrooms, painting , and installing mini-splits and we’re ready to list for rent. We anticipate the apartment it will bring in about $2200/month to help with retirement. Our mortgage is paid off.

  8. The picture with Frugal Hound! ❤️ You were living in this house when I first started following your blog. thank you for all the awesome frugal knowledge you share with us!

  9. Thanks for sharing. I live in CA and bought Single family homes in my neighborhood and rented them out. I basically broke even every month when you took into account maintenance etc even though there was reasonable equity in them (I purchased them between 2013-16 so got lucky with the timing). I have sold them and invested the profit in property syndications (mostly multifamily, but some mobile home parks, self storage, industrial) and now have few headaches, much better cash flow and the paperwork is delightful at tax time! I found it hard to feed my kid from equity in a spreadsheet but easier from cash 🙂 It has enabled me to get closer to FI so I can be like the Frugalwoods one day 🙂 Lots of different options out there to meet different needs which is awesome. Thanks for sharing your pathway which sounds like it is working out really well.

  10. Asking individual property owners to subsidize their tenants does not seem like a viable solution to the housing problems faced by so many cities. Why not tell people who invest in the stock market that they need to give away $5,000 or $10,000 to strangers each year? If someone who rents out a property is penalized, then they won’t be landlords. Which means that no single family rental houses will be available. Is that what we want, that anyone who needs to, or prefers to, rent has only apartments as an option? (mind you, the second and third home buying is another issue, and it really bothers me to see communities with natural beauty reduced to mostly empty houses and no volunteers for local organizations like the fire department – paying taxes is no substitute for being a year round participant in the community).

    But back to the cities. I agree that if housing is going to be subsidized, then the cost needs to be carried by everyone, i.e. paying for it through taxes or fees.

    Yet this just a game of musical chairs. The biggest problem is a lack of sufficient housing in the markets that need it. And that leads us to zoning. Current owners of property, including me, benefit from restriction of supply – it leads to appreciation. Increasing density is the only answer that solves the real problem.

    When my neighbors illegally transformed their single family home into a triplex I did not notify the city. Mind you, I didn’t expect to have nine cars show up – there is a reason people don’t like density! But I support providing more housing. With nine adults plus kids squeezing in next door a lot of people are being affordably housed. The Yes In My Backyard movement has its downsides, yet I think the only effective solution to lack of housing is more housing. And when cities have no more vacant land, then upzoning for more units is the only effective answer.

    1. The trouble comes when other properties follow suit. Your infrastructure will suffer and that completely ignores the fire and other safety risks that you now live very close to. I come from a place where this is rampant and it is a massive, massive problem on so many levels. Traffic is a nightmare when in theory it shouldn’t be, schools are completely and totally crammed..

      Will you be that understanding when the house on the other side or across the road from you does something similar? Having lived it and witnessed it, I’d be on that so fast.

  11. I think it’s amazing that you are getting such a good profit on your rental. I can imagine that the graduate students you rent to love the fact that they have a quiet home where they can study.

    It’s wonderful that you make a good profit. I appreciate your transparency on your finances and that you get folks commenting on “the ethics of renting homes for profit” as if you’re some sort of monster. I love the fact that you’ve achieved FIRE, are on a self-sufficient homestead, DONATE LIKE MILLIONAIRES, are raising socially conscious and CAPABLE children who likely won’t expect others to pay off their student loans. Well done, Liz.

    1. Right?

      There seems to be this notion that anyone who has been fortunate and lucky and hard-working (all of these things are necessary!) to do something of this kind is Contributing to the Ruin of Communities and Children Will Be Homeless, when in fact it’s the larger developers who buy up blocks and properties wholesale, flip them and squeeze out poorer people as an actual business strategy who are the problem.

      Having a second property is not Capitalist Evil. It’s a long term investment that has entailed work and responsibility, and risk. Lots of risk actually, which seems to escape people.

    2. TOTALLY agree. Your parents raised kids who worked hard, saved, and did well, with timing working in your favor as well. Congratulations on your work (and your parents work) paying off. That’s no small thing. My in-laws own a property in another state, and I get cold calls multiple times a day asking if we want to sell….and it’s not even my house! If they didn’t own it, someone else would, who knows how they would jack up the rent, and that income is helping them live comfortably in retirement, the fruit of a lot of years of hard work. Nobody was handed anything.

    3. Yes!!!!! Why should they fell responsible of fixing someone else – -a stranger – finances by lowering their rent while all around the rents stay up? I feel a lot of those comments are just jalousy and bitterness at not being in the same financial position as the Frugalwoods. They are not running a charity, they are renting to make money, and it looks like some people are actually able to afford the rent so I say Good for them.

    4. I really don’t think the comments above are denigrating the Frugalwoods and the financial position they are in. It’s just that reading about their circumstances opens a bit of a window into how many people are currently struggling in the face of large scale inequity in the housing market. It’s not a problem that only the Frugalwoods can solve, and I don’t really think that the commenters were suggesting that – it’s just that we are trying to figure out how to operate ethically in a system that seems rigged for so many. I applaud that Frugalwoods are so generous with their time and money, and so sustainability oriented.

      1. Yep. I’m not saying anyone is a monster but I’m saying I’m trying to work out the ethics of it for myself, and it’s ok to question “how much is enough?” It’s also true that one person or landlord cannot change a system but we can decide how we feel comfortable stewarding our resources and using them for the greater good.

  12. Thanks so much for this update – I’ve wondered about your Cambridge house over the years. I’m glad to hear your thoughts on buying an eventual rental vs. your family home. I similarly bought in 2014 near UMass Lowell and commutable distance to large tech companies in Burlington. I’ve always imagined that someday we will rent this house, or perhaps our children can live here while attending college.

  13. I cannot imagine going to 10 open houses, let alone over 200!! When we bought this house I sent my husband (who likes to shop) out and told him to come back with 3 choices and I would agree to one of them. YOu are smarter to do it your way but I would rather live in a house I hate than put myself through all that house hunting.

  14. Is the monthly property management fee of $185 in the normal range for Cambridge/Boston? Property management fees in other metro areas run from one month’s rental upfront plus a percentage of the monthly rent (5 to 10%). Also,interested in hearing from others.

    1. One unique thing about the Boston area is that brokers can charge renters a “broker fee” which is usually one months rent. So that expense is still there, just shouldered by the renter rather than the owner. Not sure if that’s true of the company that Frugalwoods use, but it’s common in many properties here (unless the owner is the broker, then they can’t charge a fee).

  15. We bought and moved into a future rental near NC State last year. Love living in the house but we will move whenever we find the next place at the right time. Depending on how much you’d be willing to share… do you write individual leases to each of your tenants, or are they on one joint lease? Are they undergrad or grad students? Do you have cosigners on your lease(s)? We’re trying to decide what we will do and are leaning towards cosigners and tenants all on one joint lease, but I’ve heard trying to find four sets of cosigners (usually parents) to agree to be on one lease with not-just-their-kids can be difficult. Thanks!!

  16. I really appreciate reading your perspective! My husband and I have considered jumping into the rental market at different times but have decided it goes against our family ethos, and it’s hard to sometimes realize we’re walking away from a viable cash strategy that we could easily afford right now and make money on without feeling like we made a bad or regrettable decision. I certainly don’t want to make you feel guilty by saying this, nor is my comment mostly directed at your family’s decision! Just wanted to add this to a comment for anyone else pursuing FI that feels they can’t ethically own a rental property — you’re not alone.

  17. We bought two rental properties, in 2015 and 2018 respectively, with the intention of holding on to them for at least 15 years each, the length of the mortgage. We have no property manager. Since moving out of town, it’s been slightly more annoying to deal with them. And after seeing prices rise so much last year, we decided to sell the 2018 property last spring. It sold for 45% more than what we paid for it four years earlier, and you NEVER see price increases like that where we live, so it was a good decision. We held on to the other one for diversification’s sake.

  18. We have owned 2 rental properties over the years and were glad to sell them, although they did create income and appreciate in value. If you don’t want to do the work of managing the property, look very carefully at property managers – the one we hired was not very helpful when things went south with one tenant. They should have a plan for when a tenant stops paying rent/ doesn’t care for the property. Absolutely can lose an entire year of income if you have to make major repairs – the year we replaced a heating and cooling system, it was a negative cash flow situation (which can be an advantage on taxes). One house we had lived in and it was tough to see the damage done to the house and cost a bunch to fix up and sell. When you sell, your profit is subject to capital gains taxes because its a business. I also had a difficult time when tenants at one house told us sad stories about not being able to pay rent on time, etc. Just realize that you will need to be able to deal with these things whether hearing them yourself or through your property manager. We too wrestled with the ethics and came up without any great answers.

  19. I know that you mentioned Property Taxes, but how does the Rental Income impact your Income Taxes? I am most curious about this factor when looking to buy a rental property.

  20. Wow, this is one fantastic rental property, and in my eyes a ‘Never Sell”. Being in between Harvard and MIT, you have to have some great tenant’s, who I would assume treat the property pretty well. They aren’t typically your fraternity types who throw parties and trash the place. I would imagine the value of this keeps going up in perpetuity. Great find, and wise decision to buy it when you did!

  21. Those who worry about the ethical implications of owning a rental are worried about the wrong problem. We live in a blue collar neighborhood. The houses were built post WW2 and average about 1000 sq.ft. surrounding our neighborhood on three sides are lower income apartments half or more filled with immigrants from Africa and west Asia. Housing availability is part of the problem for low income Americans but it’s not the main problem. Education is. And not just at school (our schools are junk) but also at home. Many of my neighbors do not know how to manage money. We have 4 kids and live on less than 50k a year. But we own our house (mortgage);and have an emergency fund and a retirement fund. But my kids know that we only buy from the ice cream truck once a summer because it’s cheaper to buy a tub of ice cream from the store. The ice cream truck makes a killing in our neighborhood. So does the corner store that sells alcohol, cigarettes, and snacks. Low income Americans go to the more expensive grocery store. The immigrants go to Aldi. And the government isn’t helping people actually get ahead. You can’t qualify for SNAP if you have any decent savings. Say you’ve been trying to save for a new car. But then you lose your job or a medical bill comes up. Your income level means you qualify for SNAP but your savings disqualifies you. So you lose your savings. I think a lot of people are to the point that they don’t even save. Help with a down payment is nice and all but not if you can’t save to replace the roof or the water heater. Or pay the property taxes. I’m not blaming people. Some people are in the third and fourth generation of families who don’t know how to manage money and/or are not getting a good elementary school education. And it probably wasn’t their grandparents fault.
    So please do not feel false guilt when looking at renting. Families owning one or two rental properties is not where the problem is. Own that property, care for it, and then donate your income to a local organization that has a track record of actually helping people – programs that make sure kids do well in school or help parents learn money skills or career skills.
    Another story: my check out clerk at the grocery store told me that she had over 50k in school debt and hadn’t finished yet. She is on disability and had applied for government help. But because of the stipulations of the “help” she could only make a certain amount of money a week. So she couldn’t work more hours or get a better paying job in a field related to what she was studying. Somebody should have sat down with her and helped her figure out what kind of education she needed with “help” that would actually help her, not keep her from getting ahead.

  22. I can’t get over STUDENTS paying $4,800/mo to rent, even if there’s four of them (at LEAST, I hope?!) splitting the rent. That may be the going rate, but I would have thought it would price out students and post-docs. I’d picture adjunct professors forking the dough over, though. They deserve it, right?

  23. Thanks for the years of enjoyment ! I don’t think that I mised a issue since before the move to Vermont. Thank you, it is always enjoyable and educational!!!!

  24. I’m curious why the reserve fund isn’t in here. Isn’t that a huge part of a rental property? You mention in the narrative that it might eat up all of your profits in a year. Maintaining a home – not just roofs, but appliances, painting, etc takes money. I don’t understand why those expenses aren’t reflected here.

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