Real estate is definitely starting to wake up around here, thanks to the influx of Canadian and Chinese investors. Everyone thinks the market is improving and will continue to rise. In Phoenix, the inventory of houses for sale has dropped by 42.1% and the median price has risen by 34.5%, with both indicators trending positive at the end of March. Unemployment here appears to be dropping; in January it fell .3 percentage points to 8.7%—not great, but better than a continuing rise. Last night the instructor of my new real estate class remarked that the people who will be taking the licensing exam at the end of this spring or early next fall will be in an excellent position to start working.
Moi, I remain skeptical. My mother got a real estate license in southern California, back when I was in high school. She never made a penny at it. However…she didn’t work at it full time, and she knew little about marketing or business practices. Though I don’t know much, I sure know more about it than she did. And of course, she had my father and so didn’t have to earn a living; I’m pushed by an element of desperation.
Exactly how desperate that element is remains to be seen.
Last night I was noodling with the numbers and realized that if I were to take a 4% drawdown now, rather than continuing to put off drawing down retirement savings until I really can’t work anymore, I could live in reasonable comfort. Actually, there are several ways I could bring enough money into the house to restore something like a middle-class lifestyle. Each has its problems. But it could be done.
One is to draw down 4% from savings.
Because of the mortgage on the downtown house, I’d still have to teach. But not much. The amount I’d need to come up with annually, above and beyond the drawdown plus Social Security, would be $4,400. That’s 1.85 courses per year, a huge improvement on 3 +3 + 1. Since the online magazine writing course is now well established and drawing enough students to make every semester, it would mean I’d never have to go into a physical classroom again. And I’d never have to read another barfiferous fresman comp essay again.
Drawback: it wouldn’t improve my financial situation. I’d still have to pinch pennies and often would run unnervingly in the red.
A second strategy is to take a drawdown but continue to teach composition courses.
I compared my last GDU paycheck, in the fall of 2009, with what I’m making now. One regular month’s net pay came to $3,170. Today, my infinitely pared-back, rock-bottom expenses come to $3044 a month. So if I could somehow bring monthly net income back to where it was in 2009, I could cover my living costs and pay my share of the mortgage. A drawdown of 4% added to Social Security would give me $2,674 a month, a $496 monthly shortfall, or $5,952 a year.
To make up the shortfall, I’d have to teach 3.1 sections a year—much better than three a semester plus one in the summer.
This scheme—start taking a 4% drawdown now (not later) and make up the difference by teaching (but teaching a lot less)—presents some major drawbacks.
1. I would have to teach. And I don’t want to. Nor will I be able to do so for the rest of my life, unless I drop dead soon.
2. I’d have to marshal every penny in savings. It would leave me nothing to buy a new car, and keeping my 12-year-old vehicle running is starting to cost more than I can afford.
3. It would do nothing to improve my penurious lifestyle. I’m sick of pinching pennies.
If I taught 2 & 2, I’d net an average $3,314 a month. That would at least give a little wriggle room, but it doesn’t erase the problem that I need a newer vehicle.
Another possibility is to earn a rather small amount in another job—something in the real estate industry is what I have in mind—continue to teach while I can, and not take a drawdown.
As we noted the other day, my friend JS says he earns $200,000 a year selling real estate. That’s in the present supposedly peakèd market! Now, he’s been at it for 10 years, he has an MBA, and he’s a very fine marketer. However, a tiny fraction of that, just $30,000, would suffice to support me, if I kept on teaching—not unfeasible given that I’ve managed to reduce teaching to a minimal workload. Let’s assume I netted $15,000 after taxes and expenses:
That’s teaching three sections a semester (one of which is the online magazine writing course, a piece of cake), and nothing in the summer.
The result is more than I earned at the Great Desert University. It would be a bitch of a lot of work, at least until I could develop a business to the point where I could drop the teaching. But it would return my income to its former glory.
There’s a third alternative: take a 4% drawdown, net 15 grand in working in a real estate office, and don’t teach:
This would provide a monthly net of $3,924, significantly more than GDU was paying me. If I continued to keep an iron grip on spending, it would be enough to buy a car, which I’d have to do anyway if I were hauling prospects around to look at real estate.
And finally, a fourth possibility: continue to teach two sections a semester (only one of which would be in the classroom) while taking a drawdown and hustling a net 15 grand in the proposed other endeavor.
In this scenario, I would net $4,564 a month, more than I’ve ever earned in my entire life. It would be a lot of work. However, two sections a semester would be relatively easy, since only one would be a composition course (work for the online course is now minimal, since I have that down to a template).
The disadvantage to pulling down savings now is huge: it could mean I will outlive my savings. Women in my family have lived into their mid-90s…and they were freaking Christian Scientists! They never saw a doctor in their lives. Given decent medical care (assuming I can get it), I might live longer than that. With inflation forcing me to take larger cuts of savings, I certainly could deplete my savings before I die. And that is a real nasty prospect, given what we know of elder care in this country. One needs a large chunk of money at the end of life to avoid dying in hideous squalor, suffering, and neglect.
The disadvantages of teaching while trying to build a new career are large, too. I figure I’ll have to hang onto two or three sections while I’m getting started, in order to guarantee enough income to pay my bills. But if the real estate plan starts to fly, then I would want to quit teaching. The question is, would teaching in that first year or two or three be such a distraction that I couldn’t make the real estate idea work?
It certainly could be. Even though I’m not putting many hours into it now, even a few hours a week could be quite a hindrance. I may need all my energy and attention to build a new business.
None of the four schemes is ideal. What would have been ideal would have been to have kept my GDU job until I was 70, by which time I would have accrued enough in savings to support me and my son would be in a position either to sell the downtown house, as planned, or at least take on most or all of the mortgage payment.
Knowing that “ideal” will never happen again, I need to figure out how to make a choice among four less than perfect strategies to keep a roof over my head, food on my table, and wheels under my feet.
How about 2/2 with a 2 or 3% draw down? The possibilities are endless. What do your financial guys suggest?
That is another possibility.
The advisers have in mind that I’m going to spend all my post-tax savings, of which there’s about 35 thou’, before starting to take a percentage drawdown from taxable instruments.
This diverges from my thinking. I would like to keep the Roth into my dotage (and if possible add to it); preserve the 12 grand in the bank account as a long-term, major emergency fund, and try to live on cash flow from Social Security and some sort of earnings. At age 71, I’ll be forced to start drawing funds from the big IRA. Since that’s not so long from now, to my mind it would be preferable to delay drawdowns from the taxable IRA and from the non-deferred brokerage funds until the government makes me use them.
The Roth then would be available to my son tax-free, if I die before using it, or to support myself in nursing care without having a big ding taken out of available funds.
I may be dead wrong about this. Or after years of living frugally, I may simply be psychologically programmed to pinch pennies and so have an unrealistic view of how much I really can afford to draw down. I am, as we know, a little funny about money. 😉
I run these little scenarios all the time, so I guess I’m a little funny about it as well. 😀
Is there an “acceptable loss” scenario for the other home, where it is sold, the repairs/upkeep do not become your responsibility anymore, and it stops being your problem, even if it is still a little underwater, after a couple of years?
Is there a possibility of doing a private sale, private mortgage payments? A friend of mine has tried that with good success. A lawyer writes up the contract, if the buyer defaults on the payments, the house reverts to you. But the payments don’t go back to the seller, obviously. You could set up your own deposit down requirement and offer them the chance to pay off the mortgage up front or “refinance” it through a real bank when they get more creditworthy, etc. I bet there would be a family out there who would take advantage of owner-financing. There would be legal fees involved, and you’d have to pick a good lawyer who had done these before. But my friend is highly satisfied with her arrangement.
“Good” success as opposed to “limited” success, I guess? Shesh. Get me chose to Spring Break and watch my wording just fall apart!
And speaking of real estate, my father also never made a penny in it, although he tried.
One of your problems will be that if you are working another job you won’t be able available for your clients who will feel they have first priority on your time.
And I’m sorry to keep sounding like Debbie Downer but your friend, who is doing so well, has more than an MBA and marketing skills, he has that sales person personality, whatever that consists of.
Do you honestly feel you can hook up with some couple for weeks or months who can’t make up their mind no matter how many houses you show them?
The reason I have this view is my best friend is a broker and has horror stories of her dealings with capricious clients. She deal with it well enough. I know that I could not.
Just a thought.
@ E. Murphy: LOL! Thought that sounded like the Voice of Experience, ’til you got to the last paragraph: vicarious VoE.
Yeah, I think I won’t have much problem meeting people. I’m in class all of six hours a week in twice-weekly meetings: my classes are scheduled back to back on Tuesday & Thursday afternoons (next fall will be the same); I head for campus around noon and am outa there by 3:45, so can meet people any time on the other five days of the week, plus mornings, late afternoons, and evenings on TTh. I kinda doubt that class meetings will crimp my style too much. And if I only have to teach two sections…one of them is always on-line. That would put me in the classroom a grand three hours a week!
Yeah, it’s frustrating when people are picky about where they live. But then…so am I. I’ve inflicted exactly the same thing on JS: reluctant to sell my house before finding a place, because it’s so difficult to find something I want to live in that I can afford. And of the many houses we’ve seen: if I want to live in it, I can’t afford it; if it’s even faintly desirable, it’s outside my price range.
It took the ex- and me several years to find the last place we moved into. But when we did find it, we jumped on it. Prior agents had given up, so the woman who listed the house we bought also got the listing on the place we sold (for four times what we paid for it). Even after she gave us a break on her commission, she did very nicely. So did we.
LOL! Yes, JS has a great deal of low-key, non-pushy charm. On the other hand, I don’t know that I don’t have a salesperson’s personality: I’ve never tried. Besides, the real estate industry harbors many jobs other than sales. Because I need to earn so little, my thought is to look for support jobs that enhance sales staff’s success and are paid salaries rather than commissions.
@ Budget Glamorous: If a miracle happens and we sell the house for something close to what we paid for it, we will take a bath on something over $40,000 in renovation costs. My son is unhappy about this, but I (whose money it was) feel it gave him a nice place to live for as long as he chooses to stay there. At the time, I could afford it; today, I don’t sit around counting unhatched eggs.
However, anything more than that comes under the heading of “unacceptable loss.”
Values in M’Hijito’s area are already on their way up. The foreclosures seem to have been cleared out. All but one of the houses on his street have been nicely renovated, making a pleasant little neighborhood eligible for historic designation. It’s within walking distance of the lightrail, of several restaurants (one of them so popular the management has had to hire on valet parking), of the Murphy Bridle Path, of Rancho Solano (million-dollar homes on acreage), and of a very fancy and beloved gourmet grocery store, to say nothing of ten minutes from the mid-town office district and fifteen from state and city offices.
Much as my son would love to go back to San Francisco, at this point he doesn’t have a trade that will earn him enough to rent a room there. So his plan is to complete a graduate degree that will get him a decent job. In the interim, he has no place else to live. So I figure we might as well hang on to the place until he finishes the MMS (or whatever he ultimately decides to pursue). I believe that at this time every year we keep the place is several thousand dollars closer to the surface.
The central neighborhoods came through the depression in better shape than the outlying suburbs, and I believe they will recover their value much sooner than anyone thinks.
Sounds like a plan! At least there are options, and it’s good to see you pondering them. 🙂
How many miles are you driving every month? And what is the line item amount for gas in your monthly budget?
It seems like you are always driving and it is the single most dangerous thing most of us do and it is costly. And that cost is only going up! We could see $5/gal. gas in the not too distant future.
And another problem with driving is that many of the costs are deferred and so it seems less painful (cost-wise) than it actually is.
AAA has put the cost of driving at $1 a mile when you consider tire wear, maintenance, etc…and that estimate is 4 or 5 years old…certainly much more now.
If you are driving 500 miles/month now and can reduce that by one-half you save what? $300 a month?
Taking in a roommate paying only $350 a month could replace your teaching income…what’s the going rate there (for a room)? Living alone is not only a luxury, it is not good for people to live alone, in general.
Get a roommate and cut back on driving — that could net you over $600 a month — easy! And if you drive less, you might be able to make your car last longer — and you last longer, as well — what with all the stress of it. Driving in Phx is Mad Max, seriously!
You have options you have not mentioned.
@tmgbook.com: “Mad Max” — ain’t that the truth! LOL!
I limit my driving as much as possible by clustering destinations and going to a given place only when I have to go someplace nearby. For example, a Costco and the Home Depot are directly on the way home from the campus; the AJ’s, my son’s house, and a different Costco are near the church; our most regular client is within a couple of miles of my Thursday morning meeting, and my favorite nursery is on the way home from that office. Many days will go by without my leaving the house, especially in the summers and during winter break, when classes are not in session.
Unfortunately, public transit here isn’t a real option. I simply don’t have two hours to make a twenty-minute drive. Bicycling is extremely dangerous here, because the traffic is moving so fast and drivers are downright homicidal. And because a dangerous slum abuts my neighborhood, I don’t feel safe walking to the nearest grocery store, nor is it a place I want to shop in.
Augh! I’ve done roommates. There’s a reason I value my solitude. I’m sure I could rent a room for four or five hundred bucks a month — and I would, if I had separate living quarters on the property. But there’s no way on God’s green earth that anyone is going to move in with me again.
I have a friend who rents out rooms to make ends meet. That lady has some amazing stories. 🙄
Hummm- I’d ask Mr JS what he has sold in the ten months. Actually closed on. Lots of real estate people love to say they are making a mint.
Are you in the league to look like he does—suit and all—to sell those North Central homes?
More important do you have a ton of friends and family members who are interested in buying or selling their houses in the near future. Bringing someone into real estate usually means sharing client lists.
Don’t jump too fast into real estate, it isn’t as easy as it looks.
How about tutoring? “College bound” who would love to have someone work on their SAT skills in the Valley. How about working with students writing their college essays. Yes, it is loads of freshman comp, but the hours are your own.
@ Jan: Well, remember: I’m a former corporate wife. I spent 25 years moving in those rarified circles, and quite few people from my past incarnation are likely to remember me. Plus I hang out at a church that consists largely of the “Old Phoenix” set. Most of the big North Central money has moved to Scottsdale…but there are still a fair number of influential, socially connected folks around here.
The idea here is to exit the teaching arena. It’s just too poorly paid for the amount of work and skill it entails. Since I can get the RE training for $15 a class, I’m not averse to trying it. Nothing ventured, nothing gained…
It’s sort of mind boggling how many scenarios there are to consider, even though you’ve narrowed it down to four here. I’m not sure how draw downs from retirement savings work exactly; can you take a draw down for a few months and then elect not too? Or is it something that once started can’t be put on hold? This could give you flexibility to teach just the one online class and hold down a job in a real estate office, replace your car, and start building your clientele. If the real estate job takes off then you won’t need to continue to withdraw cash from the retirement accounts, right?
@ Linda: I don’t know how the answer to your question applies to a defined pension plan — in that case, I think, you just start taking your benefit, and you don’t worry about the money running out unless your former employer crashes in flames (which has been known to happen). With a 401(k) and similar instruments, the money is yours to manage as you please. So you can take out as much or as little as you please, whenever you please, until you reach age 70, when the government wants its taxes and so forces you to start withdrawing from tax-deferred accounts.
Most experts think a 4% withdrawal rate will stretch a large enough fund over most people’s lifetimes. But that assumes you’ll die in your 80s. If you live into really advanced old age, as a large portion of baby boomers probably will, the likelihood that you’ll outlive your savings is pretty high. Since women in my family have lived into their 90s, I think there’s a shot that could happen to me, too, and so I would like to defer spending my savings for as long as I’m able to earn money.
That requires me to find work that actually pays money, which right now I’m not doing.
Even moderate success at a sales or other job in real estate could pay me enough to cover my expenses for quite a while. However, if I made nothing — a distinct possibility — whatever I invested in start-up costs would be lost.
I can’t afford to buy a new or late-model car, which I certainly would need if I were hauling prospects around town. If I draw $15,000 or $20,000 out of my savings to do so, it will cut into the amount left to support me in old age. Plus I’m already putting aside $445 a month to cover taxes and insurance — that’s more than I can afford now. Insurance and registration taxes on a newer car would push that amount way, way up. This means that before I get rid of my 12-year-old vehicle, I would have to know a real-estate job would work for me.
And so far my crystal ball has declined to comment on that question.
😀