Profiles Of People Who Spend Six Figures A Year On Rent


Some say renting is like throwing your money away. If that’s the case, what about the people who spend six figures a year on rent? Is that like setting your net worth on fire?

I don’t think renting is throwing money away at all. You get shelter for the rent you pay. Renting is also necessary for many people in transition, i.e. those who don’t know for sure where they want to live or work. Further, if you are worried about the housing market, then renting could save you a lot of money or at least provide you more peace of mind.

If we ever move to Hawaii, we will likely first rent a fully-furnished place for 6-12 months. We’d like to try before we buy to make sure we really want to be in Hawaii for years. Further, we also want to ensure we really like the neighborhood as well.

Renting is also a simpler way to live. There is less responsibility, which feels freeing. For any homeowner who has gone through a big remodel or experienced a major maintenance issue, I’m sure renting at the time would have been highly preferable.

My Last Experience Renting

The last time I rented was in 2002. I was 25 years old and had moved to San Francisco a year earlier from Manhattan, where I also rented for two years.

In San Francisco, I was renting a two-bedroom, one bathroom place at the edge of Chinatown for $1,800 a month with another guy. It was cheap compared to the $2,100 a month studio + alcove apartment I rented with a colleague in downtown Manhattan in 2000.

Unfortunately, I think my San Francisco roommate suffered from schizophrenia. Once or twice a week at around 10 p.m., I’d hear his head banging on the wall as he screamed nonsense for about 30 minutes in a row. During each episode, I just stayed in my room, too afraid to check up on him.

One evening, my roommate came home from his night shift at In N’ Out Burger all bloodied. He had been whacked on the head with a bottle by assailants who stole his wallet as he traversed the Tenderloin, the most dangerous district in the city.

The droplets of blood he left on our hallway floor jolted me into making a lifestyle change. Saving as much money as possible on my housing was no longer a priority. Safety and a better lifestyle was.

I had come to San Francisco with a raise and a promotion. After a year, I knew I wanted to stay for the long term. Therefore, I decided to buy a two-bedroom condo overlooking a park in Pacific Heights in 2003 for $580,000.

The Most I’m Willing To Pay For Rent

Back in 2003, the most I was willing to pay for rent was $2,000 a month or $24,000 a year. I split some of the rent with my girlfriend pro-rated based on our incomes.

Today, with a family of four, the most I’m willing to pay for rent is $7,000 a month or $84,000 a year on rent. Any more and it just feels like too much. Remember, this is with after-tax money. Hence $7,000 a month in rent is more like $10,000 a month gross.

If I can’t find a nice place to rent for less than $84,000 a year that I like, then I will buy. Most rentals I see are not as nice as similar homes for sale. Landlords have the incentive to do the minimum to maximize profits. Whereas homeowners tend to spend more on their homes for enjoyment.

At my age, I’m no longer optimizing for saving money on living costs. Instead, I’m trying to live in the nicest home I can comfortably afford while my kids are still living with us. We can downsize after they move out in 16 years.

I’m not someone willing to pay six figures in rent. Perhaps it’s because I’m too frugal or maybe it’s the investor in me who really always wants to get a return. But spending a lot on rent does have a lot of value. In fact, renting luxury and buying utility is one of my core real estate investing strategies (BURL)!

Therefore, I thought it would be a good idea to figure out who is willing to pay six figures in rent based on the prospective tenants I’ve met. I’ll also come up with the income and net worth necessary to do so.

Profiles Of People Paying Six Figures A Year In Rent

I was once the landlord of a home which was rentable for $8,500 ($102,000 a year). However, it turned out to be too much work, so I sold it and reinvested the proceeds in stocks, bonds, and real estate crowdfunding.

Here are some of the profiles of those prospective tenants. Not all of them hang around on yachts dressed in white. Although, that’s admittedly one image that comes to mind when it comes to six-figure renters.

Profiles Of People Who Spend Six Figures A Year On Rent

1) Professional baseball player making $7.5 million a year at the time.

He had been acquired by the Oakland Athletics during the off-season. He and his family needed a place to rent for six months during the regular season. They already had a house in Tennessee during the off-season.

Given his large salary, I was surprised he was even considering renting my house. Ultimately, his wife didn’t like one of my bathrooms, despite asking to use it.

The MLB player was eventually traded to the Kansas City Royals where he helped win a World Series in 2015. He was then traded to the Chicago Cubs where he won another World Series in 2016! Zorilla’s story reminds me that anything can happen if you just hang in there.

2) A hedge fund manager of 10 years.

It was him, his wife, and his daughter in high school. They had just sold their 5,700 square foot house nearby for $7.1 million dollars. They wanted to downsize to a mid-2,000 square feet home. My home was about 2,300 square feet.

They had one daughter heading off to college and another daughter already in college.

I never learned their incomes because they didn’t send in an application. My house was probably too much of a downgrade for them.

3) A Berkeley Ph.D. student.

The Ph.D. student and her friends who worked in technology and energy wanted to move in together. The Ph.D. student drove a BMW convertible that cost $60,000 new. I’m not sure how she was able to afford the car. Maybe the Bank Of Mom & Dad was in effect. Each prospective tenant, except for the student, made over $160,000 a year.

4) Multiple groups of four guys working in tech and finance.

These guys all worked at places such as Twitter, Amazon, Apple, and Google. Guys outnumbered gals looking for housing 10:1. The standard budget per roommate was $1,500 – $2,500 a month.

Nice one-bedroom apartments in San Francisco used to cost $3,200 – $3,600. Regular two-bedroom apartments used to cost $3,900 – $5,500. Nice three-bedroom apartments used cost $5,500 – $7,500.

So by four or five people renting out my four-bedroom home for $8,500, each could potentially save several hundred dollars a month.

5) A 44-year-old private equity managing director.

The husband had a 28-year-old wife, two lab retrievers, and two live-in helpers (6 heartbeats!).

I asked whether the two live-in helpers would be OK sharing the room downstairs, and they said the room downstairs was “massive” compared to the room they were living in Hong Kong. I smirked inside because the space was not.

One helper would be the wife’s private driver. The other helper would cook and clean. Talk about living large! One of the reasons why it’s easier to retire abroad is because help is much cheaper.

6) A partner at a large law firm.

The partner had recently gone through a divorce and lost his home. He had a couple of kids who planned to stay with him a couple of nights a week.

He wanted to move to a more urban area where there is better nightlife, bars, and restaurants to meet people. It sounded like he wanted to look for love again. If you ever want to get in shape and start looking good again, become single!

7) A managing director at a boutique investment bank.

The MD came with his pregnant wife and two kids. They had been renting for eight years, and had decided living in an apartment with only one bathroom was too difficult.

They were the most nit-picky prospective tenants ever, asking why a door handle was loose, whether I’d repaint the walls, change the cabinets, etc. Then they played hardball with me on price by offering $7,000 a month even though I had lots of demand for over $8,000 a month.

I can see why they didn’t buy property any time in the past eight years. They had unrealistic expectations for what they could buy with the money they had. I find this common with many people with doctorate degrees. They spent so long getting educated that their demands and expectations are so much higher than the average person who worked those years instead.

8) A 60+ year old couple relocating from Massachusetts.

The woman retiree said, “life is too short to live on the East Coast. The weather is dreadful.” She went on, “I went to school in Berkeley, have been away for 25 years, and want to come back to the Bay.”

Alas, I think my home was too big and there were too many stairs. Something to keep in mind as we all get older.

9) Co-founder of a bootstrapped startup with 10 million users a month.

His company was runner up for a TechCrunch award for best bootstrapped startup. He had a wife and son. The funny thing is, he is now worth between $3 – $4 billion!

My dad and wife use his grammar company to help edit my posts. I should have asked him for a job.

10) A partner at a Venture Capital firm.

He invested in financial tech companies. Meanwhile, his startup CEO wife who had an urban babysitting business. They have three sons. I was surprised they hadn’t bought yet.

Maybe they just didn’t have the liquidity given they were required to invest in their fund and plow as much money back in their startup. Further, raising three sons in San Francisco is super expensive due to the cost of preschool and private school.

11) The President and CEO of an advertising agency.

The family had relocated from Bogota, Colombia. Their daughter was going to a private school north of the Golden Gate Bridge. They wanted to be in the city, but I think they ultimately moved across the bridge to be closer to school.

12) Co-owners of a popular Italian restaurant in Little Italy.

His restaurant had over one thousand Yelp reviews averaging 4 stars. I was hoping they might be tenants so I could get some comped food and always get assigned a table on a busy night.

But in retrospect, that would be a bad trade since I would get sick of eating one type of food every week after a couple of months.

13) CFO of a microchip tech company.

His company was publicly listed and went from $8/share to $33/share and back down to $3/share. The market capitalization went from about $800 million to $3.3 billion now down to $250 million. He had a wife and 11-year-old daughter. The wife had a small relocation business which seemed more like a hobby.

The family showed me over $500,000 in savings and over a $500,000 household income. It’s always good to see a top 1% income earner also have a good amount of liquidity. Often, this is not the case due to aggressive spending.

Rent growth in 2020 and 2021

Common Themes Of Prospective Tenants Willing To Spend Six Figures On Rent

Now that you have some idea of what types of people are willing to spend $100,000 or more a year on rent, I thought I’d tie together some common themes.

1) Lots of roommates looking to join forces.

From ages 22 to 35 it is common for college graduates, master’s graduates, and Ph.D. graduates to all live with roommates. You can easily find a room for $1,000 – $2,000 a month, depending on neighborhood.

With Facebook engineers making $200,000 right out of college today, and investment bankers now earning $110,000 base salaries + $40,000 bonuses, a lot of new graduates can afford $2,000 a month or more.

2) Empty nesters and people relocating for jobs.

San Francisco is an international city that attracts people from all over. I commonly ran into empty nesters looking for a new adventure and people coming to the city for job opportunities.

There seems to be a constant supply of people who are downsizing or upsizing. The couple that sold their 5,600 square foot home sold the home to buyers who were downgrading from a 10,000 square foot place in Napa!

For three years, I held off selling my 2,300 sqft home. Instead, I rented it out and downsized to a 1,900 sqft home with one less bedroom and bath. Then I finally had enough and sold it.

3) High cash burn rates. 

It’s expensive to raise a family in San Francisco. Today, with two kids, I think you’ve got to make at least $300,000 to live a middle-class lifestyle in a big city today.

If you’re spending this much to support a family, you need to make a lot of money and save. Otherwise, you will be working for a very long time.

This is the rat race trap I’ve tried to capture in my post, Scraping By On $500,000 A Year. The ability to relocate to a lower-cost area of the country while still making the same high salary is powerful. However, a lot of families are stuck in expensive cities due to school, their friends, and inertia.

What’s funny is when I wrote the $300,000 and $500,000 posts, there was a lot of backlash then. But today, there seems to be an acknowledgement that maybe my numbers aren’t unreasonable after all. Inflation is real. So is the grind that often leaves these types of families to burn out quicker.

I’ve tried to leave San Francisco since 2014. But every time I try to get out, the city pulls me back in. As a result, I’ve continued on my request to generate $300,000+ in consistent passive investment income. If I had just left San Francisco years ago, I probably would have felt less stress these past five years since our son was born.

How Much Do You Need To Make To Spend Six Figures A Year In Rent?

If you want or need to spend $100,000 or more in rent a year, you need to make a minimum of $350,000 a year. The renting affordability rule states that your annual gross income needs to be at least 40X the monthly rent.

$100,000 a year in rent is equal to $8,333 a month. Therefore, you need to earn at least $333,333 a year in gross income. I’ve just rounded the figure up to $350,00 to make it easier to remember.

$100,000 in rent on a $350,000 gross income figure equals 28.6%. So long as you are spending no more than 30% of your gross income on rent, you should be fine. It’s consistent with my 30/30/3 home-buying rule. However, the higher your income goes, the more variable it is.

Minimum Net Worth Required To Pay Six Figures In Rent

In terms of minimum net worth required to spend over six figures a year in rent, that is much more subjective. You could have a negative net worth so long as your income is high enough.

I say it’s good to have a net worth of at least 10X the annual rent plus an annual gross income of at least 40X monthly rent. In other words, if your annual rent is $100,000, you should have a net worth of at least $1,000,000 and an income of at least $350,000.

It’s very hard to build your net worth if you are spending six figures on rent. So most who want to increase their chances of becoming millionaires won’t even come close to spending $100,000+ on rent.

Rent Until You’ve Found A Long-Term Home

Renting is a great solution for those who are moving to a new city and want to try before they buy. Renting is also great for transitory reasons, such as after selling your house or getting a divorce.

As an investor, renting luxury makes sense if you’re investing in real estate that generates a much higher cap rate. Although the absolute rent prices in some cities are high, they are actually good bargains compared to the cost to purchase.

Eventually, however, it’s a good idea to at least get neutral real estate by buying your primary residence. It’s not just that owning long-term tends to be a better financial decision than renting long-term. Owning your home also helps you feel more grounded.

As an owner, you tend to be more invested in the community because you’ve got more money at stake.

If you see graffiti on the wall, you may be more willing to paint over it or call 311. You may be more willing to pick up after your dog’s poop. If there’s a crime, you might care more to record the crime and send it to the police or set up a video camera. Instead of letting your front yard go wild, you may spend more time maintaining it.

The more skin in the game you have, the more you tend to care. It’s just human nature.

Consistently Invest The Savings From Renting

For those who are fans of renting long-term, just make sure you invest your savings to beat inflation. Not only should you invest in the stock market, you should also invest in real estate to neutralize your short exposure to inflation. For eventually, you might one day change your mind.

Readers, have you ever spent a lot of money on rent? Do you have a rent threshold after which, you would rather buy? So you’ll never miss a thing, join 50,000+ others and sign up for my free weekly newsletter about building wealth.



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