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.
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.
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.