Pay Dirt is Slate’s money advice column. Have a question? Send it to Lillian, Athena, and Elizabeth here. (It’s anonymous!)
Dear Pay Dirt,
I live in a city where housing prices have skyrocketed, even before the pandemic. We had a period of flippers coming in and turning multifamily homes into single-family homes, which decreased the number of units. Several years ago, at the very beginning of this trend, I met some people working on housing justice. This group of people was trying to work on legislation to help improve access to housing in my city. This was going very slowly. Some of these people suggested that the best way to actually combat the new house flippers was to buy these houses ourselves and keep them as multifamily units. I decided to do this. I had some background in building houses and after more than a year, I was able to refurbish an old, run-down house. My plan was always to live in one of the units and rent out the other three at a reasonable price. I always tried to rent to people I knew or with who I had connections. I rented out the units below market rate at the time and kept the rent increases stable, even as the market prices skyrocketed around me. The prices I charge allowed me to cover my mortgage, maintenance, and taxes, plus a little extra. I had never planned for this to be my main source of income and I have a job.
Well, then the pandemic hit. I just went back to the housing justice group and it has changed a lot. There were a lot of people much younger than me there. I was talking with some of my old friends about how my house was and some of the younger people overheard and were appalled. My unit in the house is three bedrooms, two baths, and an office that could be converted into a room if needed. These young people think that is way too much space for a single person and I could get at least one more unit out of my place if I wasn’t being so greedy. They also found out that the rent covered my mortgage and said that I was a greedy landlord who was subsidizing buying a house with people who can’t afford to buy anything because of people like me. They said I should convert my house into condos or at least give my tenants a share of the house.
I, of course, think that there should be regulation of the housing industry and flippers should basically be banned, but are these young people right? I don’t want to be one of these greedy landlords who I see posted all over social media. I don’t think someone should get to have a passive income while others can’t afford a basic necessity, but I believe I’m doing a service by creating affordable housing units. Am I wrong? Am I a greedy landlord?
—Landlord Troubles
Dear Landlord Troubles,
I’ve grappled with this same set of questions, and there is no simple answer. I lived in and organized group equity housing co-ops and anti-capitalist intentional communities, and I’m now about to become a small-time live-in landlord. With all complex societal problems, there will never be a single solution that fixes everything. There wasn’t one circumstance that created our current housing crisis, but hundreds of years of contributing problems—income inequality, colonization, redlining, car-centric urban sprawl, and urban “renewal,” to name a few.
Buying a multifamily to keep it out of the hands of flippers was your solution to a specific problem. You kept more rental units on the market for an affordable rate. You aren’t single-handedly fixing inequitable access to capital—but that wasn’t the problem you were trying to solve. So you must decide if you are OK with your contribution to fixing one small part of a systemic problem. It’s worth figuring out what part of housing justice you’re most passionate about solving. Listening to these young advocates’ thoughts helps give you ideas, but you shouldn’t decide where to put your energy based only on people’s judgments of your good-faith effort. If housing justice movements refused to work with landlords unless they gave all their equity away, affordable rentals would never exist.
As for whether you should turn your building into a condo or chop up your unit into two units, that’s only a decision you, your lender, and city zoning rules can make. But a condo conversion won’t make your renters magically have the down payment, and they’d have to decide if they wanted to and could afford to buy in. What was an excellent rental for them might not be as good of a deal as a home purchase. Condo conversions often lead to tenant displacement and decrease neighborhood economic diversity.
Housing stock diversity is good. A healthy city needs a mix of affordable rentals of different sizes. Some people will always prefer renting over owning at various points in their lives. For that to work, access to affordable, diverse, and safe rental housing must be available. You reduce the supply if you eliminate three rental units from the market by converting your property into condos. One alternative that ensures the apartments stay permanently affordable is putting the land underneath the building into a community land trust. It could also be converted into a group equity housing co-op, funneling the profits into buying and creating more housing co-ops. You could also consider utilizing low-income housing tax breaks, which require a percentage of your renters to make 60 percent or less of the area’s median income.
If you’re charging reasonable rents for the area and are upkeeping the property, the monthly cost of your mortgage is irrelevant (and not worth dwelling on). As many co-ops have learned, houses cost more than just the mortgage to maintain. You don’t have to run the property at a loss to be a righteous landlord. You don’t have to make any of these changes to be involved in housing justice. You already utilized your skills and privilege to try to be part of the solution, and your voice as a landlord is valuable to have at the table. It’s easy for strangers to be holier than thou if they haven’t tried to solve the problem themselves.
Dear Pay Dirt,
By all appearances, I have a good life. I have a not-too-difficult job that pays well and has flexible hours. I’ve been married for 30 years and all of our children are doing reasonably well. While not wealthy, I have money in the bank and we own a home, cars, etc. I am able to indulge my interests and hobbies, including travel for pleasure and “experience” activities like hiking and skiing. However, I am completely burned out.
My wife has serious health issues so I am responsible for most of the housekeeping, home maintenance, finances, and parenting. I make all of the family plans and keep the family schedule, even small tasks like getting oil changes on the cars fall on me. I am often frustrated with my wife and kids because of the imbalance of responsibility. At my job, I am completely uninspired and just do the minimum. But, I am also stressed that should I lose my job our lifestyle will completely collapse. Many of my friendships feel one-sided, we mostly talk about their problems because my life seems so “put together.” I fantasize about a future where I have no obligations and often think about quitting, not just my job, but everything, pulling all of the money out of savings and leaving everything behind.
I have considered therapy, but I’ve had several bad experiences with therapists. It’s made me skeptical, not that therapy cannot work, but at the ability to find a therapist who is a good fit for me. Right now, my coping mechanism is to just keep plugging along in the hope that over time things will get better.
—Burned Out
Dear Burned Out,
I know it’s frustrating to get recommended therapy when it hasn’t worked before, but you are burned out enough that you wrote all your frustrations out to a financial advice columnist. What you are dealing with is not a financial problem—it’s burnout. The malaise and frustration you’re dealing with are common for the “default parent” in a relationship and the person that carries the “mental load.” The tools that will best help you navigate this will come from a trained professional. If you’ve struggled with finding a one-on-one therapist, you might want to seek a support group that fits your needs (such as through the Well Spouse Association). While you look for a professional to help you, I recommend reading Burn Out: The Secret to Unlocking the Stress Cycle by Emily Nagoski.
And for financial advice: If it’s within your budget, outsourcing some of the household tasks to lighten your load might provide you with some relief. See if your wife is able to manage the outsourcing of the tasks, instead of you.
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Dear Pay Dirt,
I have a question that involves ethics and math. My mother is 72 and retired; she owns her home. She has about $2 million in savings, and the interest from that account—combined with social security—is enough for her to live comfortably. She’s in good health and is a very lovely person. I’m 38 and married. In the next few years, I would really like to move so that my kids can attend a better school district. We’re not looking to upsize anything—we’d plan to get a house the same size and price as the one we have now, with a mortgage of about $500,000. The problem is that the mortgage we have now is at 3.375 percent—and current mortgage rates would mean that buying a new home at the new rates would make our monthly payment almost double. We can’t afford it.
I asked my mother if she would consider selling us a mortgage. She said yes before I could even finish asking the question. But here’s my question: What should the rate on that mortgage be? I’m not sure what she’s earning at her current bank. Maybe 4 percent? Does that mean that our mortgage should be at that rate? What if interest rates increase, and it turns out she’s earning less from our mortgage than she would have earned in a savings account? Does that mean I should change the interest rate every year? But changing numbers might make it hard for me to budget… Help!
—Uncertain Urbanite
Dear Uncertain Urbanite,
The good news is that the IRS publishes the guidelines you’ll need to utilize in setting up the mortgage. For family loans greater than $10,000, the IRS Applicable Federal Rates (AFR) define the absolute minimum market rate of interest your mother can charge on your loan without significant tax consequences. (If she offers you a zero-percent mortgage, for example, that could trigger taxes on the “gift” portion of the interest.) The AFRs are published each month, and the IRS will consider the month the loan was made in their tax calculations for the life of the loan. That would mean no annual interest rate recalibration unless you want to re-sign a mortgage yearly. So, if you began a 20-year mortgage in March 2023, your mother would have to set the interest rate at least 3.71 percent to avoid paying extra taxes.
If I were your mother’s financial advisor, I would be wary of her putting 25 percent of her total 2 million portfolio into something with the risk profile of a private mortgage, especially with the extra administration and legal burden. But we all have to get creative in current financial times. If this arrangement still sounds good to everyone, ensure you employ an attorney to draft the appropriate legal documents. It will cost money upfront, but save you from potentially very expensive future situations. Also, consider a handshake agreement to refinance the mortgage with a traditional lender in the future (such as when rates drop or your mother needs access to her capital).
Dear Pay Dirt,
Tax season is here and every time it rolls around, I have extreme anxiety about sitting down to file my taxes. I think this arises because 20 years ago I started an S Corp for some consulting and was hit with a sizeable bill from the IRS and my state division of taxation because I didn’t understand my responsibilities. I dissolved the S Corp because I was spending more time and resources dealing with compliance than actual consulting. In 2022, I created a sole proprietorship LLC for a new consulting job that never materialized. The remainder of my income comes from a steady 9-5 job where I receive a W-2.
I’m freaking out because I don’t earn much, to begin with, and I am terrified that I will be slapped with another large bill from the feds and state that will take me years to dig out of. Even throwing everything in the lap of a tax preparer seems daunting because I don’t have much discretionary income to spend on such a service. The labyrinthine language of taxes seems confusing and byzantine to a liberal arts person like me, and visiting the IRS website overwhelms me. Any advice for motivating me to get off my butt, gather my paperwork and get down to doing my taxes?
—Terrified of the Tax Man
Dear Terrified,
I understand being terrified of taxes, especially if you’ve had a bad experience. Taxes are not an innate skill, and the filing process has been kept intentionally complicated through lobbying by major tax prep providers.
The good news is that you shouldn’t be worried about taxes for a sole proprietorship LLC if you never earned income from it—the IRS doesn’t care about “pass-through entities” that don’t make any income. Unlike a C-corp, they don’t require their own tax return. If your taxes are W-2 income, it will likely be just a few hours of your time to file. If you owe taxes (though it sounds like the LLC income never materialized), it’s better to know what you owe than let it balloon into your head as a scary, undefined, looming entity. You can’t make a plan for what you don’t know. And if you do owe, the IRS will let you set up a low-interest payment plan (obviously not ideal, but not as scary as other debts). If you owe, you can use this handy calculator to adjust your day job withholding so that you won’t be in the same situation in 2024.
You don’t have to do your taxes all at once—make micro-goals to make the process less intimidating. Your first step is to gather up your W-2s and 1099s and put them in one place. Good job. You’re done for the day. The next day, you’ll use the IRS’s Free File lookup tool to find software matching your filing needs and set up an account. Your next day’s task will be to upload your W-2s and 1099s into the software, save your progress and walk away.* The following day, you’ll input your deductions. If you spend 15 minutes on filing tasks daily for a week or two, you’ll be done quickly without making it a massive production.
If you find that you’re completely stuck on your taxes even with the micro-goals, it’s an excellent time to hire someone who does this all the time for the sake of your peace of mind. And what’s more—the cost of business tax preparation services is tax-deductible if you have to file a schedule C for business income. If your income is less than $60,000 a year, VITA Tax-Aide is a fantastic place to get filing help from free, IRS-certified volunteer tax preparers. (Editor’s note: I am a former Tax-Aide volunteer and frequent collaborator.)
—Lillian
More Advice From Slate
I’m 30 years old and very much feel physically, emotionally, and financially ready to start trying to have a baby—understanding that it could take several years to happen. My husband says he’s about 70 percent on board. His hesitation is about the way our lifestyle will change with children. He is a good person at a heart, super kind, and wonderful with children. Up until recently I thought having kids with him would be amazing. But the more I’ve examined our lives and started planning for the realities of having a baby together—the more I realize that my husband is truly incompetent and unfit to be a parent.
Correction, March 8, 2023: This piece originally mistakenly referred to W-2 tax forms as W-4s.
