Editor’s Note: Some time back, I posted a guest article about becoming a student landlord. I have heard of someone in my school doing it, but it was mainly with seed money from parents. I didn’t really think there existed students who would be responsible enough to raise the funds by themselves, deal with the issues associated with becoming a landlord, and top it off by saving their earnings diligently. Until I read Ginger’s frugal students blog that is! Ginger and her husband (who is also a student) have an incredible story of owning income property with a positive cash flow, bought from their savings, while they are still in school. Ginger was kind enough to share her story here. I hope you feel as inspired as I did to read it! (Note: If you have an inspiring story to share, feel free to contact us, so we can feature you in one of our future stories).
Handing it over to Ginger now…
Buying any residential property can be frustrating and difficult but when you are buying for more than one reason, it can be even more so. My DH and I bought a duplex in December of 2009. We had not planned to buy it so soon, in fact we had debt we wanted to pay off before buying a property but the first home buyers tax credit made us decide to buy.
The Decision to Buy, And Raising the Money
We had just moved from San Jose, California to Buffalo, NY during August of 2009 for my DH to go to graduate school. During my college years I had put money aside in both a Roth IRA and a traditional IRA for my first house. All together I had saved about $7000. During my last year of college I was eligible for subsidized student loans and took out the max amount of $5500 for the year. I ended not needing the extra money and was planning to pay it back for the interest started accruing but then as we were looking around in Buffalo, we discovered we could buy a property for about $60,000, which with repairs would cost $685 per month or rent an apartment for about $500 per month. If we could find renters, the monthly costs would almost be covered by them.
This seemed like a great idea but we still needed closing costs. Before moving to Buffalo both my DH and I worked extra hours at our college jobs, we cut expenses and we decided to drive across the country and camping thorugh the nights, instead of hiring movers and staying in hotels. By the time we moved my DH and I had saved up enough for the closing costs. Once we arrived in buffalo we spend hours checking neighborhoods, combing the listings, and looking at properties. Every night and weekend for four months was spent looking for the perfect place. Well now I know the perfect place does not exist, however we did find a pretty good place.
Issues Galore!
But there were problems, first there were no renters in place. We can swing the full cost for our duplex without the rent but it means we do not save more than $50/month towards retirement. Secondly, both the furnaces and water heaters were old. We would have to replace them within two to five years. Third, the place was a mess. Do not believe it when the contracts says the house will be “broom clean”. We had to hire a cleaner to come in and both she and I spent four hours cleaning the bottom apartment just so my DH and I could move in. My DH and I then spent hours cleaning the upstairs and fixing some issues upstairs.
Remember to include the all appliances you want are part of the contract, we did not and we had to pay an extra $250 to keep the refrigerator. We did however bargain very well and brought up the age of the furnaces and water heaters and we able to buy the property for $60,500 with the seller paying all closing costs. This meant we were only going to bring $12500 to the closing. We then decided we wanted a lower interest rate and paid one point ($1000) to bring the interest rate down to 4.75%. In hindsight, I would not have paid the extra $1000. In my opinion it was not worth it.
Finally, the Dust Settles…
After purchasing the house my DH and I started fixing the problems, first by cleaning and then by adding a vinyl floor and painting. We were lucky to have friends who were willing to help, some of who had experience with home repair, as did my DH worked for his uncle doing construction for a summer and pick up some skills then. However we do not know how to do everything. For some things google and youtube have been lifesavers but for others we have paid someone else to do the repairs. To be able to do this, we save set aside $100 from each unit per month (both ours and rental) for repairs. Be prepared to have to drop everything and either repair something or hire someone to do so. Nothing could go wrong in months and then three things break all at once.
Now that we have renters we assume that the rental apartment will be rented about ten months out of the year and budget based on that. We use the extra income from the rental to increase the amount we save in our Roth IRAs.
Even though we make a good amount of money from the rental much of it is not taxed. Half of our property taxes, insurance and any repairs for joint areas are deducted from the income we receive. This allows us to pay little in taxes compared to amount we receive. I would recommend young people, if they have the time and ability and the circumstances are right, to buy multiplexes for first homes.
Editor’s Note:
As I mentioned earlier, I just find this story incredibly amazing. What did I learn from this story? For starters, how about – “If you plan for it, you can pretty much do any thing“? I mean, seriously, if two students have the diligence to save up for the down payment on a multiplex, is anything out of reach?
And how about – “Dream big, and don’t be scared of a little elbow grease“. Boy, it must have taken a lot of guts to jump into home ownership at such young age, and all the responsibilities that go with it! Just the thought of all the paperwork involved to buy the place, and then rent it out makes me shudder. Not only did they tackle all that overwhelm, but poured in their sweat to fix the place up. Kudos!
And lastly, “Don’t lose sight of the ball“. Most students would blow any extra money they could lay your hands on. But not these two. Did you notice that Ginger mentioned that they use the extra income to bump up their Roth IRA contributions? On her blog Ginger has a meter that shows their progress towards a million dollars. Right now it seems like a far away goal, but the direction these two are headed – with gutsy moves like home ownership, and smart moves like squirelling away the earning – I have a feeling they will get there far sooner than any of their class mates!
What about you? What did you take away from this story? Share in the comments section below. And feel free to contact me with your own story.
I am still in school and we are renting our house, but we didn’t actually plan for it to be that way. Circumstances just kind of lead us in that direction. I started my program in one part of the world and now I am finishing in another part of the world, so in order to keep the house we needed some insurance of being able to pay the mortgage. Renting it out has worked for us, although it is not always an easy thing, especially from afar. Fortunately we have really good people helping us out back home.
Jerry
You’re right, few students – close to none – would be responsible enough to do something like this. But there are exceptions. I recently read about a student that at the age of 21 has over ten employees in his software development firm, and the big boys are knocking at his door to buy him for a small fortune.
But i’m sure of one thing, these young men didn’t spend their youth partying and skipping class like the majority does.
Claire recently posted..How to Kill House Mold
As someone who is WAY past college age (hubby, albeit a bit older than me, is ready to retire), this is so inspiring! I wish we had been smart enough to do something like buying rental property when we were younger. Now, we’re struggling to live frugally enough so hubby can retire without it affecting our lifestyle too drastically. This could make such a huge difference had we pursued it. Great job, Ginger!
Darlene ‘Dee’ Bishop recently posted..Living Within Your Means
There is a guy I built a house for that started up buying houses and flipping them with 4 other of his friends while they were in college in the early 80′s (4 of the 5 guys were going to school to be teachers)
I read an article on these guys company 3 years back they own around 125 properties nation wide that they rent to Walmart, plus numerous comercial & residential properties. The article said their company owned $7 billion in real estate assets. Not to bad for a group of want to be school teachers looking for extra money to get through school.
On a side note I know these guys work their tails off. The guy I built the house for works 7 days a week and still personally inspects most of the properties that his company purchases. Hard work does pay off.
DuBois recently posted..Chicago Bathroom Remodeling Project
The story is really quite exceptional. I can’t believe that there are people as responsible as they can be. Lucky for Ginger that, she has a partner who shared the same vision as her’s and they really did things according to there plan. How I wished that more student read this story and get some good idea behind it.
I am very amaze with this story I’ve never heard a story like this before. This is really one of a kind and I hope I can be like them I am really hoping to experience to be a landlord.
Its just so inspiring to read such stories. Its good to see young people achieve great success, what you’ve shared is one great impressive story which all youngsters should read and get inspired. Today technology has advanced a lot so we have more opportunities though competition is tougher but I should say the kids are also becoming more smarter.
Thanks everyone for your kind words.
It’s very inspiring to read stories like this…and coming from young people, I am very impressed. I wish I could have stories like this to share too.
Becoming a landlord at a young age is not easy. There are many tasks and responsibilities that you have to attend to.
Great story and really great tips. i started investing in some condos when i got out of school by accident. I moved from job to job and instead of selling my condo when I moved i kept it and rented it and then rinse and repeat. I have a few units now and all your advice and experiences are right on. One of the best tricks i did find was to take my time and find a good tenant and treat them well. it is a lot easier to keep a tenant happy then to look for anew one every 12 months!
Howard recently posted..Tips on How To Do A Tenant Credit Check And Finding A Great Tenant
I wish more students could read this story. Rather than complain how difficult it is to get by, they could find some inspiration in it.
Very inspiring! Responsibility doesn’t come with age. So long as you put your heart and mind to it and you have a very good partner, anything can be accomplished.
From the story, I know that as long as couples work together for a same dream, no matter how hard it is, it will finally come ture. I am encouraged by the author and her DH.
I am no longer in school (and blew all my money on alcohol), but I am 27 and saving to buy my first home and then investments to follow… kudos to Ginger for such an awesome effort! In Australia, even with all the so called economic troubles, property continues to pay dividends for many investors.
This is really inspiring and it gives motivation for those in college that they can already invest in property. I admire both of them because they know what to do, how to budget and how to cut expenses. They know what’s really important and they sacrifice things that would just add to unnecessary costs. They are a good example and they’ve proven that anyone can be an entrepreneur.
I was in a similar situation like your “house hunting” a couple of years ago, except I was looking for a retirement home for my grandpa. I didn’t find the perfect place, but after months of searches I found a pretty good one.
Debbie recently posted..Situations Where First Aid Skills Are Essential
This looks like very inspiring but hard to do being a student landlord is difficult but really an inspiring story from Ginger..!
This is a great first step in many categories: business, taxes, cash flow economics, people, etc… The biggest couple of lessons that I learned when I owned rental properties were: 1) Always do a credit check on the tenant. This gets rid of many potential problem. 2) Always check past rental references. This saved me a couple of times when the credit checked looked good. Finally, keep a cushion of 3-6 months payments on the house that will also act as maintenance fund for that furnace or A/C repair/replacement. It is a great way to fund college, if you’ve got the 20-25% down.
Chris recently posted..Hope Scholarship And Video Lottery Terminals
That’s the way to go, the way to financial independence and getting out of dept.
This is a incredible story, but it’s not impossible, although rare. Maybe their parents were the ones that taught them to save up on money, set up goals in life and work their b… off to achieve these goals. So it’s a matter of origin actually, where do these people come from, how they were raised and they will probably teach their children to be that hard working and smart also. Very inspiring…
Bravo… that’s all I have to say.
There’s no short cuts to saving, investing and eventually earning from your investments. It takes sacrifice, diligence and hard work.
This is great inspiration story because it is very hard for students to buy any property. Mostly, students spend money for enjoying but they never think to use it for any effective way. Thanks for sharing this story.
True! I got a son and he keeps asking money from me and he spends it to some useless stuffs with his friends. This is a great story that every students should know of. I wish I can get my son to read this and then he could at least start to understand how important money really is and that it should not be wasted.
Thanks alot for sharing the story!
This is very inspiring! Study shows that people who works and earns at early age were successful in life when they grow old.
Sara recently posted..The Soul of an Ecommerce Web Design
This truly is inspiring. Many who are my age–50s–are way behind those hardworking youths. The closest I can come to matching this story is my daughter. She is a married homeowner (3 yr.), just finished college and has two young kids at 21.
Wherever you are; dream it, want it–that is REALLY want it, and do it!
David Sneen recently posted..Earn Money Easily/Follow This Ancient Advice
What an inspiring story! My husband and I still rent and I’m in grad school but it goes to show that if you put your mind to it, you can accomplish anything with a little hard work. Thanks so much and congrats Ginger!
One thing that i’ve learnt from this story is that age doesn’t matter. One just need to be willing to work. He is definitely going to be successful in his life…Thanks a lot for sharing…
There’s a lesson for us all here! I came ouf of college in debt, while this lady and her husband managed to save for a house and plan for retirement at the same time. Truly admirable financial restraint and planning!
Wow, that is a pretty amazing story. Thanks for sharing it with us. I don’t think many if at all any students of that age would have been able to plan out and partake in such an undertaking of responsibility. It just shows how the age of maturity is getting lower and lower. On a similar note, I see more and more entrepreneurs that have already made considerable fortunes in ventures that far exceed their experience or age but they manage it somehow and impress us all.
-Jean
Jean recently posted..How to be proactive about used tire problems
That is a really nice story. I’m inspired with this story and would like to work harder. I’ve also learned a lot of things from this. Thanks for sharing the story and inspiring us. I’ll definitely remember this one.
Thanks,
Mike
I would like to share how this story had helped a friend of mine. He is also a student and is planning to invest into a property to rent out. I’ve shared to him this story and now he is also a student landlord. Your post is really helpful.
What a great story indeed. I really learn a lot from this story and enjoyed your whole post. Thank you for sharing the post as it serve as inspiration to many. Continue your good work.
Thanks,
Peter
Austin water damage
I geniunely wish I had this type of information available to me when I was a student! I pondered purchasing my own place and even looked at some investment properties but I was always scared of the ‘big M workd’ – mortage!
What I didn’t realised back then was all it takes to beat a mortage is common sense and a little bit of organisation. Ideally this post will spur on some students to take the educated risk and begin building their property portfolios sooner, rather than later.
I’m throughly enjoying your pieces, Sam!
The author states that they pay very little in income taxes compared to the money they take in because of the property taxes, insurance and repairs, and I’m not understanding that. Insurance, taxes, and repairs are actual expenses unlike depreciation which is a non cash event. So if you’re not paying much in taxes on the money coming in because of insurance, taxes, and repairs, it means you’re not making much money either. Depreciation on the other hand allows the landlord to deduct for the rental unit, and this gives the owner the benefit of an expense write off that’s not an actual cash outlay. When buying a rental, the location, price, and condition are the big factors to appreciate. Take the emotion out of it, and use the income approach to analyze the transaction’s merit.
Larysa recently posted..Texas Land and Ranches for Sale
Just to answer, why I the property taxes, insurance and repairs cost do not matter as much to a person who owns a duplex, at least in my area, is that my rent would be $550-$600 to rent an apartment here. Including all expenses I only spend about $700-$750 so much of the rent is pure profit, because otherwise I’d just be paying another landlord property taxes, insurance and repairs and not even getting equity.
That is truly amazing you really shown the power of not only, pounding but being consistent every single day heading toward your goal. it’s sometimes difficult to keep a positive mind especially in the property industry when there are so many pitfalls and potential issues. This is further exacerbated most would seem in your issue when you’re working with very small incomes.
Truly amazing what you have managed to achieve!
It is a true hair and tortuous story.
Mike recently posted..What Types Of Air Conditioning Can You Service And Maintain
It never crossed my mind on investing on rental apartments during college years. I was too busy with all the duties, paper works and examinations that having part time business never appeared on my to do list. But I think It’s a good idea. It will not only help you pay your tuition fees and other miscellaneous fees, but it will also train you on handling money wisely. Once you invest on this you could still use this as part time business and at the same time pursuing your career.
Abby Wenceslao recently posted..UK Government Outs UFO Documents
This is a great success story and I must congratulate Ginger on what she has achieved. It is very difficult for students to begin any kind of property business due to the income levels of students and applicants for mortgages often need to demonstrate a sufficient level of permanent income to a lender. To do all of this with such little resources is a great achievement and I’m very impressed.