This entry was posted on 8/30/2006 1:33 PM.
Many people think they cannot afford or take the time to buy rental property in addition to their own homes. They focus on purchasing and maintaining their personal residences and often do quite well on those investments. However, some people really want to build their rental portfolios and need places to live but don’t have the resources to buy two houses at the same time. This summer I helped two clients buy homes which are going to be both rental properties and personal residences.
The first client is a student who wanted to quit paying rent. He bought a new house in an appreciating area with 3 beds and 2 baths. With two roommates each taking a bedroom and sharing the second bathroom, he still has a nice-sized bedroom and bathroom to himself. All three people share the kitchen, living, and dining rooms.
In another appreciating area, the second client bought a larger 4 bedroom, 3 bath house and is dividing it into two living spaces. The one for her family has 3 beds and 2 baths. The part for a roommate will be a one bedroom, one bath in-law suite with its own kitchen.
Both clients selected these homes for their investment potential. We analyzed appreciation rates and comparable prices in the neighborhoods to make sure we were getting good deals. Then we negotiated them into great deals. Now with different combinations of rental income, appreciation, and renovation both clients are set to meet or exceed their investment goals.
By renting out part of their own homes, both clients have found an innovative way to both own rental property and offset the cost of their personal living expenses. They get the benefits of both home ownership and real estate investing. They are planning to live in these homes for a while before buying other houses to live in and keeping these as rentals or selling them for profits. Instead of spending the money and effort to buy two houses: one to live in and the other to rent, my clients have spent half the money and effort buying one home that can serve two purposes.
With the benefits of having roommates also come the normal issues of sharing living space. For some people this would be enough for them to pass up this kind of investment opportunity. My two investors have decided the income is worth the inconvenience. When we were walking through the home after the initial showing, the second client was considering turning what is becoming an in-law-suite into her own personal retreat. I suggested that she do that as soon as she gets tired of the money.