I've got an efficiency idea that could do my community some good: Provide subsidized housing to those who may need it the most. Given times are more difficult during a pandemic, being able to provide affordable housing may be very beneficial.
The remodeling in my new home is almost done. I could move into my new home and rent out my old home for a lower rate to help ameliorate the housing affordability crisis in San Francisco.
With the median house price at roughly $1.6 million and the median rent for a two-bedroom apartment at roughly $4,400, it is very hard for teachers and other essential workers to live in the City.
Spending at most 30% of your gross income on housing is usually what determines your affordable housing. Therefore, a teacher would need to earn roughly $128,000 a year just to afford a $3,200, one-bedroom apartment.
Given the average teacher's salary in San Francisco is closer to $70,000 – $80,000, what ends up happening is that teachers either rent a room in a multi-bedroom apartment, rent a studio, live 30-60 minutes away, share a space with a partner, or do a combination of the above.
Without affordable housing, it's hard to retain teachers over the long term. With higher turnover, our children and our communities tend to suffer.
Helping Solve The Housing Affordability Crisis
Since 2001, I've been to fundraisers that supported political candidates focused on building more affordable housing in the City. I've seen affordable housing legislation, passed years ago, that still hasn't broken ground. Housing change happens at a snail's pace in my hometown of San Francisco.
It seems to me like there is no strong will to fix the affordable housing crisis in San Francisco and in other expensive cities. Existing homeowners don't want more density, especially as the coronavirus rages on.
More supply also may suppress home prices. Further, it has become extremely expensive to build housing due to rising construction costs, city building requirements, rising property taxes, and permit fees.
Instead of donating to pro-housing candidates who aren't guaranteed to win or voting on pro-housing legislation that will get tied up in bureaucracy for years, I think I may have found a better idea.
Why not rent a portion or all of my existing primary residence to a couple preschool teachers at a subsidized rate?
Here are the benefits I see to providing subsidized housing:
- The housing will fulfill an immediate need for housing to the very people I'd like to help most: teachers
- The housing will be at a 40% – 50% discount to market rate
- The housing will be of much higher quality than the existing housing inventory
- The housing will be only a 5-7 minute commute by car or bike to school when it reopens
- The housing will be rented to my son's preschool teachers and thus bring familiar faces to the neighborhood
- The housing will create a support network for our family if the teachers would like to earn some side-hustle money providing childcare
- Despite renting out my house at a subsidized price, the rent will still cover my property taxes, maintenance expenses, and general wear & tear
Subsidized Housing Rent Price
If I only rent out the top floor of my house, I would get about $4,400 a month in market rent. The top floor is completely remodeled, has about 1,350 square feet of space, two bedrooms, one bathroom, and panoramic ocean views. The tenants would have their own washer and dryer and parking in a great neighborhood.
To cover my basic costs (no profits + a maintenance buffer), I'd be willing to rent the place out for $2,400 a month, or a 45% discount to market rent.
With each teacher paying $1,200 a month, each would only need to earn $48,000 a year to be able to afford the place. Given I know they make closer to $70,000 – $80,000, I think this could be a win. It would help bring housing as a percentage of each person's gross income to under 20%.
Just to make sure $1,200 was indeed affordable rent for the city, I asked a burly softball buddy his thoughts. He is an after-school activity coordinator and responded, “Sam, for that price, I'd dance naked for you!“
I passed but thanked him for his offer.
The Cost To Me For Providing Subsidized Housing
The cost for me to forgo market rent and charge a subsidized rate would be $2,000 a month ($4,400 vs. $2,400). This equates to $24,000 a year.
Whoah, when I write it out, that's a lot of money! It's interesting because it feels easier to provide $24,000 a year in subsidized housing rather than write a check for $24,000 a year to charity, even though the amount is tax-deductible.
Further, $24,000 a year would go a long way towards helping me build more passive income. During times of uncertainty, more income is always good. Our passive income is what enables my wife and I to be stay at home parents. Two young children require a lot of care.
My family is everything to me. I want to earn enough passive income to spend as much time with my kids until they fly away.
If for some reason my prospective tenants find $2,400 a month to still be too expensive, perhaps I could lower the rate even further down to $2,000. In exchange, they could provide some childcare help.
Although my wife and I both don't have jobs, it would be nice to have our own time once in a while. It also takes several hours a day to write a post and maintain this site. Who better to care for our son than his preschool teacher?
Given both teachers would be in their late 20s, I have to imagine working an extra eight hours a month shouldn't be a big deal. When school was in session, they worked 40 hours a week + any overtime.
Heck, when I was in my 20s, I was regularly working 70 hours a week. But now I'm sounding like an old fart lecturing the younger generation.
The Downside To Providing Subsidized Housing
Here are the downsides to providing subsidized housing I can think of:
- More time spent on managing and maintaining a property. Time gets more precious the older we get.
- The property will slowly get worn down and damaged over time. Maybe the tenant breaks something by mistake, who knows.
- What if my new tenants decide to stop paying rent, even after a 44% discount to market rate? That would sour our relationship with the teachers and the school.
- Increased liability. Homeowners insurance should take care of rental liability, especially if the tenants get renters insurance, which I would require.
Anything else? If so, please share.
Provide Subsidized Housing Or Not
According to the latest census data, there are supposedly over 11,000 empty homes in San Francisco.
In fact, there's one really nice $2.6 million home a block away. It was purchased by a foreign investor for his daughter. The daughter lived in the home for about six months while attending art school and hasn't returned in years. What a waste of space!
I have no intention of leaving my home empty once we move into our new home. Leaving homes empty when there is a housing shortage could be characterized as a moral failure.
However, I have also been toying with the idea of turning my old home into the Financial Samurai office. The home would have a writing studio and a recording studio. It could also be a place to relax in the hot tub and unwind.
I'm curious to know what you would do if you were me? Be a good citizen and offer $24,000 a year in subsidized housing by renting out the upstairs portion at a 45% discount? Rent out the the upstairs at market rent to continue building more passive income? Or don't rent out the house at all and use it as a place to work and unwind?
Worth A Shot
I'm leaning towards at least trying to offer my place to my son's preschool teachers. This is the first time where I feel I can directly make a difference in the community on a very important issue. It also feels good helping people who are helping the people most important in my life.
One of the few positives about the pandemic is that it has helped make housing more affordable in San Francisco and other expensive cities. Rents seem to be down about 5%, depending on property type, quality, and location.
However, paying $4,417 for an average two-bedroom apartment in San Francisco is still not that affordable. Whenever there is a visible problem, it's good to solve it if you can.
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