Money talk: how owning a house can bring in passive income

When I first moved to Napa, I thought I may just rent indefinitely. After owning a home for more than 16 years, I wanted a break from maintenance and upkeep. That feeling didn’t last very long, though.

I think I finally hit my limit of waiting for someone else to approve maintenance requests during Memorial Day weekend of 2016, not quite a year and a half from when I started renting. That was the weekend when the main drain line clogged, and the only bathroom in the house became unusable. I had a couple of friends visiting that weekend, and we weren’t able to take a shower or use the only toilet in the house until an emergency plumber responded. I had been reporting issues that pointed to imminent failure of the drain line for over two weeks, but the landlord was dragging his feet on approving a company to come out and address the issue. I’m sure he was regretting it when he got the bill for that emergency call on a holiday weekend.

After an experience like this, I realized that I wanted to be the one to make the choice of when and what type of repairs should be made. Yes, it could be a hassle to find good people to do the work, but I preferred that to being stuck in a situation where I was forced to find a place to squat in the yard to pee.

There are many articles and blog posts one can find about the “rent vs buy” debate that outline the pros and cons of each. This isn’t one of them. I’m just sharing one of the reasons I find that owning works for me: I can choose to bring in extra income by renting a bedroom in my house. Renters are legally bound by the terms of a lease, which usually do not allow sub-letting the unit or portions of the unit without landlord approval. As an owner, I don’t have this restriction.

I first started renting rooms in my home when I lived in Chicago. I had a fairly large house that was perfect for this arrangement. I had my own bedroom and bathroom on the main level of the house, and I rented out the two bedrooms with a bathroom on the second floor. The kitchen area was shared, and while I made it clear that my housemates could use living and dining room, too, they rarely did.

I used the equity from my Chicago home sale as a down payment on my house in Napa. Property values are much higher here, and the house I purchased is smaller than the one in Chicago. I went from owning a house with four bedrooms and three bathrooms to one that has only two bedrooms and one bathroom. I use the larger of the two bedrooms and rent out the smaller bedroom. The kitchen, bathroom, living room, and dining area are all shared space.

Potential renters are plentiful. During the harvest season or “crush,” there are frequently people hired on a short-term basis to work in the labs and support the winemakers. Additionally, many of the wineries hire interns throughout the year to work in the tasting rooms or with back office functions like marketing, sales, and events. The local hospital employs many “travelers” to fill nursing and technical positions, too. Vacancy rates for rentals is very low, and like all of the Bay Area, housing is expensive, so sharing housing is quite common here.

The local community housing organization actually has a free program to promote home sharing by matching applicants with owners. I thought about using this program to locate a new house-mate, but I wanted to have the option of having a month or two “off,” so I decided to rent my room through Airbnb.

As long as I have my listing set for a minimum rental of 30 days, I don’t trigger any issues with the city. The demographic I am targeting — people who are in Napa for short-term work assignments or internships — are also looking at online sources such as Airbnb or Craigslist to find housing, so the service works well for me. I have full control of who I accept through Airbnb, and I require that they be “verified” by Airbnb (verification of government issued IDs) before I consider their request. I also usually have some back and forth messaging with the guest first to confirm their reasons for booking. While I could make more money by renting directly through Craigslist, I prefer the extra protection provided by Airbnb and their verification process.

This may be obvious, but I rent the room furnished. I already had a modular shelving/desk unit and chair for the room, and the closet has an organizer with built-ins. I had to buy a bed, bedding, some linens, and hangers for the closet. I saved the receipts for all of these up front costs for tax purposes.

The extra income I get from renting my room is taxable income. But while I do collect income for the room, I also have expenses, such as extra costs for utilities (water, gas, electric, and internet), supplies (paper and cleaning products), maintenance, and fees to Airbnb. Keeping track of these expenses and itemizing them on my annual tax form works in my favor. For individuals with income less than $150,000 a year, the IRS allows these expenses to offset the income under their rules for “passive activity losses.” Those making less than $125,000, get the full benefit of passive income loss rules, which are gradually reduced up to the upper limit of $150,000. However, for those making more than $150,000 it’s still worthwhile to keep careful records and report expenses every year as any losses are applied when one sells the property.

When I was bringin in a lower salary in Chicago, I had passive losses most years. I was getting money throughout the year from my renters so I had cash flow, but a portion (about 40%) of the maintenance costs — landscaping upkeep, and repairs to the house — was a business expense. I didn’t end up having to pay taxes on any of that income due to the fact that I had a loss every year. Now I have a high enough income that I can’t claim any passive losses on my annual income tax return, but I still keep records because if the tax laws aren’t changed and I sell the house, I can perhaps use those losses to offset any taxes on any gains I earn.

My income in 2017 from renting out my spare bedroom has offset the expense of caring for my elderly dog and given me extra breathing space in the budget every month. I had hoped to use the extra money to pay down the mortgage faster, and eventually I may be able to do that.

I’ve also met some great people. I’ve had five people stay with me over the course of the year, and only one left me less than happy with the experience. Last year’s harvest intern was a tad immature and messy. I quickly got tired of living with a sloppy boy, who seemed genuinely clueless about his bad habits such as running the hot water in the shower to “warm it up” for so long that there was water beading in the walls. He did respond when I directly talked to him about correcting his behavior, at least.

The intangible benefits of having someone else living in the house are that I tend to keep the house neater and cleaner. I’m not generally a person who lets dishes pile up, but when I’m on my own I’m more likely to put off dusting and vacuuming. I also have some additional opportunities for socializing by occasionally sharing a meal or taking a walk with a guest.

Ideally I’d like to have the house to myself and build what is called an Accessory Dwelling Unit in my large backyard. I’ve also thought about putting an addition on the house to expand the back bedroom into a suite with its own bathroom, or perhaps add an entirely new master suite, giving the house three full bedrooms and two bathrooms. While there is plenty of room in the backyard for any of these ideas, I simply lack the capital and don’t yet have enough equity in the house to even think about using it to get a loan.

Sharing one’s home with strangers isn’t for everyone, but I often recommend it to people who live alone and have extra space. It is a great strategy for bringing in extra cash, and can provide an extra level of socializing and security.

If anyone has ideas on how to raise capital for major home improvements, I’d love to hear about it in the comments.

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Sister sucker punch

I intended to write another money topic this week. Then I had a conversation with my sister two days ago that knocked me back hard and I’m still reeling. It does have a money component, so I can still stay on theme, I guess.

On Tuesday, sister pinged me in the morning and asked if I could talk. I answered in the affirmative. She called me moments later and said she had a couple of things to ask me about, one of which was to check on how my dog was doing and how I was doing. From a previous call sister knew all about the expensive and stressful issues I’ve been facing with my dog, and I thought it very nice for her to call and check on us. I told her the dog was doing OK and so was I.

Then she got to the meat of the conversation: she wanted to tell me that she is holding me accountable for half the cost of a Life Alert service she ordered for our mom last year. I was shocked and outraged. I’m STILL shocked and outraged.

Sister had approached me with this idea last year, just before she moved to Napa from Chicago. She asked me if I would be willing to split the cost with her. I said no. She went ahead and ordered it anyway.

A few months ago, sister vented to me about how she had tried to cancel the service (mom wasn’t using it and not even remembering to wear the device) and was told she would still have to pay the contract in full. She had asked before signing the contract if there was a cancellation fee and been told no, so she thought she had been lied to. She brought the contract by my house and asked me to look at it, so I did. It was easy to find the part of the contract that stated the cost, and that by signing she was agreeing to pay that it in full no matter what. So, there was no “cancellation fee” and they weren’t lying about that. There was just the cost of the contract. Period. She was frustrated about this, but must have decided there was nothing she could do about it.

So when she called me two days ago and said I would have to pay her half the cost because I had agreed to it, I was upset. I told her I had not agreed to pay this cost. She said I had. She said I had even paid her some money in the past. I can’t find any record of that in my electronic payments, despite her claim. Besides, even if I did give her some money at some point, that doesn’t negate the fact that I objected to the contract and said I would not pay for it.

So here we are at an impasse. She says I agreed to the contract, and that I owe her money; I say I never agreed to it. She says she expects me to pay her the full $1,000 (half of the contract cost), and that the current tally of what I owe is around $300. I maintain that I should not owe anything towards the cost of this contract.

My relationship with my sister has always been rocky, but I perpetually hold out hope that one day we will treat each other with kindness and find enjoyment in each other’s company. I don’t know why I keep this fantasy alive. From the time we were small children, she has bullied me. When her adult daughter was visiting last year, she even asked me why I put up with the shit her mom does to me.

By not demanding money from me right now and simply putting me on notice, my sister seems to think she is being magnanimous. Whereas I have been struggling to keep myself out of the absolute pit of despair after this conversation. Do I pay up, or do I give up on having a relationship with my sister? I’m already at arm’s length with my mother and father; moving across the country introduced a safer, saner distance for me. I thought that sister and I could have a chance to build a better relationship if we lived close to each other. I settled in Napa, specifically, instead of some other town in the Bay Area for that reason. Did I fall into a trap, where I am her punching bag whenever she feels the need to let off some steam?

I saw my therapist yesterday and sobbed my way through the appointment. I have had some very dark times over the past few days. I confessed to my therapist that I’ve found myself asking “What’s the point?” Why am I bothering to trudge along anymore?

I keep myself together because I know that would be a really shitty thing to do to my friends. But this situation is not helping me stay in a positive place.

Living with an elderly dog

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My dog Hannah kept me awake for more than two hours last night. She paced. She stood next to my bed staring at me. She softly whined. She loudly plunked her body on the hardwood floors instead of settling into her cushy memory foam bed. Between 1:30 and 3:30 AM I was up six times to see if letting her outside would help her settle down. It did not. I finally had to resort to shutting her out of the bedroom so I could get some sleep.

Hannah is 15 years old. For a dog her size, the charts peg her comparable age as a human at 83. Like most elderly folk, she has arthritis and needs pain management. However, she has the further complication of chronic liver disease, which limits her medical pain management options. Her increasingly frequent bouts of bedtime restlessness suggest she also has a mild case of canine cognitive dysfunction (AKA “doggie Alzheimer’s”).

Her care has become increasingly more and more expensive. To preserve her liver function, she needs to take a daily medication I can only get through the veterinarian that costs $93 a month. Every 6 weeks or so she gets a blood draw at the vet’s office to check her ALT, a measurement of her liver health.

For her arthritis pain, the only drug she can take is gabapentin because the NSAIDs cause her ALT to skyrocket, and that is not a good thing. Gabapentin is at least fairly cheap, costing just under $15 for 100 capsules. However, over time its effectiveness lessens, so she needs to take more and more. Currently she goes through 100 capsules about every two weeks. Then there is the cost of the supplements that provide a modicum of help: Movoflex, Dasuquin, curcumin (turmeric), and Vitamin E.

Just before Thanksgiving she woke me in the wee hours because she was vomiting in the corner of the bedroom. Then she laid down and I had trouble rousing her. I bundled her up and took her to the emergency vet. With her history, one of the first things they did was draw blood to check her liver health. Her ALT was a shocking 4,000 (normal is under 107). Only four days earlier during a routine check at the local vet it had been 273.

Since Thanksgiving, the cost of hospitalization, tests, and drugs has been just under $6,200. That includes trips to the emergency vet again over the New Year’s holiday weekend when she started shivering and panting, and whining due to discomfort or pain.

Every time a new expense pops up for her care, I question whether it is time to let her go. My measure has always been whether she is still enjoying life, and it seems to me she is. Long walks are no longer possible due to her arthritis, but she still enjoys short walks where she can explore scents. She loves riding in the car, and now that the weather is cool and often overcast, I can take her along as I drive about town to get groceries and stock up on household supplies. She watches the activities on the block through the front windows, and barks a warning whenever she sees another dog being walked past the house. She still shows interest in playing with her toys, and in her meals.

Most pet owners I know have considered what they would do if their pet was diagnosed with a terminal disease. “I won’t put my dog through chemo,” we say, because we tend to think cancer is a the most likely fatal disease our pet will face. What we fail to consider is that, like us, our pets will also face the slow decline of bodies that are wearing out.

How can I justify to myself withdrawing supportive care for Hannah dog’s pain? Or refuse to treat the infection that suddenly flared up in her liver nearly eight weeks ago?

How can I find the energy to push through the days following nights of interrupted sleep? And how can I keep paying the vet bills?

Money talk: finances as an older single woman

I’ve decided to write more about money this year, so let’s kick this off by setting the stage and outlining some key facts about me.

  • I’m 50 years old.
  • I’m single. I was married, but divorced nine years ago.
  • I have no children, and my only current dependents are a fish and an elderly dog.
  • I’m entirely self-supporting; I don’t receive or pay alimony, or have access to family money.
  • I’m not a financial planner, nor do I work in financial services. I’m not a “money expert.”

In the personal finance and money blogosphere, there aren’t many single women aged 40+ who are writing. I can think of only two: Donna Freedman at Surviving and Thriving, and Funny About Money.

While I don’t consider this a personal finance blog, money — making it and managing it — is something that I’m always trying to learn more about, and I find value reading the personal stories, opinions, and research that is shared via blogs. So, here I am perpetuating that approach with my own personal slant.

My money goals are as follows:

  • Generate enough income to pay for my basic expenses of housing, food, and personal care;
  • Maintain a generous emergency fund;
  • Save enough to support my future self during retirement, or when I’m no longer able to work full-time;
  • Support my animal dependents;
  • Have some extra funds for fun stuff and luxuries like vacations and fancy meals.

Those are just the basics for now. Off the top of my head, I’m planning to write posts about income generation, my savings and strategy, and lifestyle choices that impact my budget. I also occasionally add tweets to the #1GoodMoneyThing topic started by Revanche at A Gai Shan Life.

Are there other topics you think I should explore? Do you know of any other older single women writing about how they handle money (such as saving and investing, budgeting, etc.)? If so, please add to the comments.

Happy New Year!