The Rental Trap Defined (LA 1051)
Steven Butala: Steve and Jill here.
Jill DeWit: Good day.
Steven Butala: Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.
Jill DeWit: And I’m Jill DeWit broadcasting from sunny Southern California.
Steven Butala: Today, Jill and I talk about the rental trap defined.
Jill DeWit: Do you want to give the background on why we’re talking about this?
Steven Butala: The question that we should, the daily question is all about somebody who’s in the rental trap and trying to get out.
Jill DeWit: That’s going to set up the show. Okay. I didn’t know that.
Steven Butala: Have you ever paid rent? If you’ve ever paid too much rent, you know what the rental trap is, but we’ll talk all about it in a second and my suggestions on how to get out of it, like tomorrow.
Jill DeWit: Right. And as you can tell, this is all around someone talking about being an investor in our world and posting a question about being in the rental trap in our world.
Steven Butala: Before we get into it though, let’s take a question posted by one of our members on the landinvestors.com online community. It’s free.
Jill DeWit: And here it is. So Sean asked, “Bottom line is that I can’t make great money.”
Steven Butala: “The bottom line is that I make great money.”
Jill DeWit: Okay, “But I can’t afford to buy real estate in the city I work in. I’m stuck in the rental trap and it feels just like that a trap. I started looking to buying land and what it could do for me and I found Land Academy. I’m looking forward to starting on this land buying and selling business as soon as possible.”
Steven Butala: Excellent. Again, like I talked about, we’re actually filming the back, behind the scenes kind of about this podcast, and earlier Jill and I were talking about this and I said, “This is a perfect Land Academy member.”
Jill DeWit: Right.
Steven Butala: They’re doing well financially. They’re already having some success in their life, regardless of whether it’s a great job, or you own another company, but those types of people seem to be the superstars in our group.
Jill DeWit: Exactly.
Steven Butala: They’re really familiar with the nuts and bolts of how to run stuff and be successful, and they had what it takes or have what it takes to do something else. And now they’re applying all that, their personal style of how to do this with buying and selling real estate and they’re just killing it.
Jill DeWit: Well, and they’re simply just looking forward. They’re not just sitting there working their day job thinking, “Well, I guess this is it.” I mean, a lot of people that’s what they do. But to be sitting there taking a step back going, “All right, I’m actually doing okay. I need to be doing something else because I’m not getting ahead like I should. There’s more.”
Steven Butala: Right. So the rental trap, in my opinion, is this the meat of the show?
Jill DeWit: Go for it.
Steven Butala: This is the meat of the show. The rental trap, the technical definition of it is this. When you are renting and the percentage of your rent is, as a percent of your income, is more than 20%. That’s actually my recommendation. It should never be more than 20%. So how do you do this if you live in a very expensive city? Well, you have roommates. Or, “Oh, that’s great Steve, but I have a family and I have three kids and I can’t just go have roommates.” That’s why I say it’s really important to get rich before you have a family or any children.
Jill DeWit: Every time you say, “Well, that’s great Steve,” I’m sorry, that just makes me laugh.
Steven Butala: There’s a million ways you can get real creative with this rental trap thing. The good news about renting is that you can get out of it as soon as your lease ends. Find some place cheaper. Find a different city to live in. If you do have kids, all kidding aside, if you do have kids and a spouse and you’re already on your way and you’re in this rental trap situation, you have a lot of choices.
Jill DeWit: Right. I want to talk about this a little bit more because I feel like there’s a lot of people in our world that are listening right now that are feeling like, “All of this is great, but I could never do that.” And this is one of the reasons. I’m in a city where I have a good job, check. I’ve got a wife and kids, check. I can pay all my bills, check, but I just can’t get ahead. I’ve got to do something else. And I understand that. And you feel like, especially, I know there’s some cities that you feel like, “I will never be able to buy here.” And that’s sad. So something’s got to give. We did it. You know what’s interesting? We’ve taken steps backwards to take steps forward, and I don’t know why everyone doesn’t realize that that’s an option. And it might not be pretty, and it might not be fun, but you know what? I’m here to tell you, the right wife and kids will stay there with you, or the right husband, and whatever it is, girlfriend, boyfriend, whatever. None of it’s crazy. Do you see where I’m going with this?
Steven Butala: Yeah.
Jill DeWit: Okay.
Steven Butala: Yeah. I mean, I can talk about this for days.
Jill DeWit: Well, I’m using us as an example to you. I mean we could talk about it. We made some major changes.
Steven Butala: It comes down to this, and this is maybe more of a man thing than a woman thing, you got to look at yourself in the mirror and decide what you want, and decide what your limits are because we all have limits, and then figure that all out. We happen to live in a neighborhood, Jill and I, where there are no people here, none of our friends, not a single person, I don’t know a single person or couple who don’t own their own business because of how much it costs to live here. And because of Los Angeles and how Los Angeles is all set up, there are outlying places not outlying, but right in the city where, if you’re an engineer and you own a, let’s say, a machine shop for the aerospace industry, it’s less than a 15 minute drive for you if you live where we live, so run your business and run your life that way.
Steven Butala: So at some point, that engineer I just mentioned, did the same thing I did. At some point, looked in the mirror and said, “This is what I want. It’s going to happen and I’m going to put all the other pieces in place in my life,” like who you choose to spend your life with and the kids and all that stuff, where the kids are going to go to school. And then you just build it from there. So do you have to build an empire? No. Jill and I have a very good friend who’s in the military who said this, “There’s no way I can or ever will live where you guys live and I won’t even rent there. That’s why I’m moving back to Scottsdale.” And that is the kind of conversation that … He’s about our age and the girl that he’s with is adamantly against it, so they’re probably not going to be together forever. And I think that’s an incredibly intelligent and astute, and the guy knows himself and he’s not timid about it. And he said, “This just isn’t for me.”.
Jill DeWit: And that’s fair.
Steven Butala: That’s the conversation you have to have, rental trap or not. And let me reiterate, you should never ever pay more than 20%, as a percentage of your whole revenue, in rent or mortgage or household stuff. And that, I think, conservatively includes everything. Taxes, principal interest, taxes, insurance if you’re owning, if you’re renting all of it, plus utilities and all of it.
Jill DeWit: Didn’t that used to be a thing? I think it seems like when you used to apply for a rental thing that there was a percentage that every-
Steven Butala: It is 20.
Jill DeWit: Is it 20?
Steven Butala: Yeah.
Jill DeWit: Okay. That property managers would look at and landlords would look at and say, “Based on what you make, this is what you can afford and I’m not getting even going to rent to you if you can’t.”
Steven Butala: And more importantly, that’s what lenders look at. So when they go to give you a mortgage …
Jill DeWit: And see what your, yeah, that’s true. See where your debt ratio is to your income and all of that.
Steven Butala: Here’s more good news. If you have an internet job, like all of us have an internet job, where you’re not required to be somewhere every day, you have just tons and tons of options. Your choices are limitless about where you can live. Jill just did a bunch of research on, for different projects, satellite internet.
Jill DeWit: Yes.
Steven Butala: And you can get satellite internet connection for an RV if you have to while you’re building up your land business or whatever.
Jill DeWit: Exactly.
Steven Butala: When I was a kid, I lived in a terrible, terrible house that was like untenable with 10 guys and I think I paid my rent was like $85.
Jill DeWit: This is college.
Steven Butala: Right after that.
Jill DeWit: Okay. Oh, after college, okay.
Steven Butala: It was $85 and it included everything for a room with a guy in it. And the whole house was like Animal House.
Jill DeWit: You shard a room?
Steven Butala: Yeah.
Jill DeWit: How many people were in there.
Steven Butala: That was one of the reasons I got ahead. You know what? I got a full commission job when this is going on as a commercial real estate broker. And that’s all I could afford. I had a blast.
Jill DeWit: That’s funny. So you know what? This ties into this. I’m like, okay, so you’re in the rental trap. Let’s just say you think you’re in the rental trap. You have two choices. Number one, you either cut costs and like what you just described, that’s one way, or you make more money. I mean what about? Think about the people in our world that probably thought they were in a rental trap. They are in our community right now. And so what did they do? They saved up enough to get going and it may have taken them six months or a year. I know these people that have saved up, and then they spent two hours or whatever it is, got up early before they went to work and they stayed up late when they got home. And they were finding ways and using this to make extra money until they could make some different decisions. I mean, what? You don’t like that idea?
Steven Butala: No. That’s Jill’s way of addressing this. And Jill’s entire existence is, her problem-solving scenario is to make more money. If she wants a new diamond ring or a new dress, she’s going to make more money to pay for it.
Jill DeWit: That’s kind of how I do it. I’ll work harder.
Steven Butala: And she’s been like that since the day I met her. And my answer is to get to zero to cut costs. Cut costs, so we have less responsibility, so you can spend more time on the stuff that really matters and then really pull the stops out after it’s all happening and consistent.
Jill DeWit: Isn’t that funny how we are always so different? You’re like, “Well, you don’t need to drive that car.” And I’m like, “Well, I just need to work a little harder to have that car. I don’t see what the problem is.” That is so funny. Do you really need to eat today? I kind of do need to eat today and I kind of want to eat there today.
Steven Butala: When I hear rental trap, I hear, I’m living beyond my means. And that really concerns me a lot because now that’s not a real estate/financial issue. That’s like a in-your-head problem, like you need to have certain things in life or you’re not going to be happy. And that’s so psychiatrist. You need to talk to a psychiatrist about that.
Jill DeWit: For like three years. Oh, my gosh. That’s good.
Steven Butala: I’m glad we’re talking about this.
Jill DeWit: I think it’s funny how it didn’t even dawn on me until you brought it up how different we really are. Because you are the cut it back, cut it back, don’t need it, don’t worry about it, cut it back. And I’m like, “No, I can just work extra hard to get that.” And if we want to live there, okay, here’s what we’re going to do. And we’re going to make it happen. Because, for me, it has worked out every time. I work a little bit harder. I get the ball rolling and it all works out.
Steven Butala: You know what? For me, mine’s worked out every single time too.
Jill DeWit: Good.
Steven Butala: Seriously. I had to clear my schedule and cleared my financial situation, get it as close to zero as possible, and then really go at it, whatever it is. Make sure it’s scalable, make sure there’s a big huge prize at the end.
Jill DeWit: So I hear what we’re saying. Nobody’s right or wrong, they’re just different.
Steven Butala: Yup.
Jill DeWit: Okay. I can accept that.
Steven Butala: Exactly right. And here we are together.
Jill DeWit: Exactly.
Steven Butala: I mean here we are in this situation together, however many years later, and it all worked. And you applied yours for you and I applied, and we’re all here.
Jill DeWit: Well, and the whole big thing is our goals are the same, we just go about it differently.
Steven Butala: Yeah.
Jill DeWit: Done.
Steven Butala: What do you call it? The same big picture.
Jill DeWit: Yup. Same end goal.
Steven Butala: You and I have the same end goal, but two different ways of going about it.
Jill DeWit: Exactly. Yeah. Including our day-to-day.
Steven Butala: Hey, we know your time’s valuable. Thanks for spending some of it with us today. Join us next time for an episode called the best decisions you can make in your land business.
Jill DeWit: And we answer your questions. Plus in our online community, found it, landinvestors.com. It is free.
Steven Butala: You are not alone in your real estate ambition.
Jill DeWit: All right.
Steven Butala: It’s always fun to talk about our differences in a healthy, intelligent, and sometimes slightly romantic way. If we were all the same, or you were just following me around, or I was just following you around, it would be silly.
Jill DeWit: True.
Steven Butala: Or if somebody was lighting a candle before we went to bed.
Jill DeWit: Wouldn’t it be boring?
Steven Butala: Yeah.
Jill DeWit: I would probably be so boring. I had a boyfriend one time, this is true. Not really a boyfriend. It was just a guy that I dated. We didn’t get this far, obviously, because every single thing he was way too agreeable. I couldn’t take it. The guy had no opinion. I mean, about anything, about where we’re going to go eat, what we’re going to do. Everything was yes and sure, that sounds great, and oh, that sounds all peachy, but that got boring really, really fast.
Steven Butala: We don’t have an agreeable problem between us.
Jill DeWit: No, we really don’t. Some days I wish I had that, a little bit of that. Just kidding. I’m just kidding. Wherever you’re watching or wherever you’re listening, please subscribe and rate us there. We are Steve and Jill.
Steven Butala: We are Steve and Jill. Information.
Jill DeWit: And inspiration.
Steven Butala: To buy undervalued property.
If you have any questions or comments, please feel free to email me directly at steven@BuWit.com.
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