Getting Started in Real Estate Using Rent-by-the-Room

Moving to Seattle, Buying a Home
In 2002, I graduated from Duke University in North Carolina and moved across the country to Seattle, Washington to start my post-college lifestyle as a Microsoft programmer and aspiring professional drummer.  Among my first tasks was to find a place to live.  Intuitively, I felt it would be beneficial financially to own my house rather than rent, though I knew nothing about purchasing real estate.  I also wanted to find a place where I could practice drums 24/7 which excluded the possibility of living in an apartment or condo.  So, I started looking for homes as close as possible to the main Microsoft campus in Redmond.  Based on my starting Microsoft salary, I was approved for a mortgage and found a 3 bed / 2 bath home which I bought for $240k.

Renting the Extra Bedrooms
At the time, there was a Microsoft-only classified website which had a section for posting rooms-for-rent.  I decided to post an ad, even before I had closed the purchase of the house, to see what response I would get.  To my surprise, I was able to quickly rent out the extra 2 bedrooms in my house and could nearly cover my monthly mortgage with the income.  I would still have the master bedroom and bathroom to myself, so I felt like I had enough private space.   At first it felt surreal to be a 22-year-old owning a home and providing housing to others, when a few months previous I was a college student living in a dormroom.  After a while it became natural and I enjoyed the role of "roommate-landlord". I was able to use my Microsoft salary to pay ahead on my mortgage and eliminate my mortgage insurance within about a year.  I converted the garage into a soundproof room where I could practice drums without bothering my roommates and neighbors.

Selling and Upgrading
A couple years later, the market had appreciated, and I started thinking about upgrading my home.  I enlisted an agent and looked for houses one afternoon and immediately found an ideal home to upgrade to.  It was directly across the street from another Microsoft campus, was recently remodeled, had a huge master bedroom, and had a layout well-suited to renting out extra rooms.  There were 3 extra bedrooms instead of 2.  I was able to quickly sell my first home for $300k, giving me $60k proceeds which I rolled over tax free as the down payment on the new home.  I was amazed that after 2 years of living in my 1st home where my renters covered most of the mortgage, the house had appreciated enough to allow me to gain $60k (a respectable annual salary in some professions).

Leaving Microsoft
With 3 bedrooms to rent, and a better quality home, I was able to cover my full mortgage with the income from renting the 3 extra bedrooms.  This allowed me to use my Microsoft salary to invest in my music career, pay off my car, and build some savings.  When I reached a point of having 6 months living expenses in savings, I left my Microsoft job.  I cashed in some stock options and took a 3-month yoga teacher training course in Hawaii that I had been aspiring to attend.  As a financial safety net, I had a home equity line against my home which gave that I could tap into if needed.  It was exhilarating to take the plunge and leave my corporate job, and the successes of my small real estate moves were a key enabler.

Moving Out
The following year, I felt the desire to live on my own, rather than sharing my home with 3 renters.  Though I had enjoyed building friendships with many of my renters, I decided I wanted to have my own space and transition my rental business to a more professional mode.  I was able to rent out my master bedroom and use the money to rent out a cottage that I moved into.  This allowed me to transition from "roommate-landlord" to "offsite-landlord".

Transition to Real Estate Investor
The experiences I had renting my rooms gave me a taste of the power of real estate.  The magical aspect was that the financial benefits of real estate accrued slow-and-steady in the background, 24-hours-a-day, while I was going on with my daily life, eating, sleeping, working, drumming, exercising, etc.  The ongoing duties of being a landlord became a habit, part of the normal stream of life.  The thought arose: What if I could scale this concept up and own additional rental properties?  This line of thinking lead several years later to my current path of building a portfolio of multifamily rentals.