Playing Fred & Ethel Mertz
My wife (@Shannon Smith ) and I started house shopping while living in Bend Oregon during late 2009, and we looked into the possibility of renting out a bedroom to help offset living costs. During our first few months of shopping we caught wind that we'd be likely moving to Redding California, so we kept an eye on both housing markets. The thought of reducing our living costs transformed into trying to find out if it would be possible to actually get paid to live in our own home. Ultimately we ended up moving to Redding in the summer of 2010 and this added about a year to our shopping process since we now needed to learn a new town.
After running numbers every which way on my excel sheet I decided that if we could buy a multi family for $50k/door or less the building would meet my desired results of making double payments on it's mortgage w/out me having to pull out my wallet, or it would pay the mortgage and pay me an equal payment in terms of cash-flow (at least given the rents in my area this quick rule would give me a fairly accurate filter).
In 2011 we got an accepted offer of $194k on a 4-plex in Redding CA and were able to rent the units for $685/mo. while living in one of the units. Our PITI was about $1,100/mo. So basically 2 units covered the mortgage and a few utilities, and the 3rd unit was cash flow while the 4th unit my wife and I moved into. We bought the building with a cash offer using a private loan from a family member.
After living in the unit for 2.5 years things were going very well with 100% occupancy and 0 turn over, so we re-fi'ed to get our cash loan back. Using the cash we bought a SFR in Shasta Lake California (about 5 miles north of Redding) for $61k and are now just finishing up the rehab. We should have roughly $90k into the house when it's all finished and the ARV will be ~$125k. We plan to move out of our 4-plex apt which we are now beginning to rent out on a furnished basis to international students at our local schools for $850/mo., and we can move into our new house which will be costing us close to $500/mo. after repairs netting us a $200 monthly raise and living in a nicer place.
With the remaining balance on our loan we will likely pay back the family member who originated the loan. However, we have been very heavily considering investing the remaining balance out of state since we are learning how much better other markets can be. We are even considering selling the 4-plex to raise capital to invest out of state since we have captured roughly $100k in appreciation so far.