Some readers may argue that a frugal miser would have very few possessions. I beg to clarify: a frugal person does live a simple life without many of the material things you see advertised in magazines. But that doesn't mean you should live without income-producing assets.
I bought my first house in 2003. It was a 2 bedroom townhouse that set me back $58,000. I qualified for a zero down payment mortgage (those were the days!) with monthly payments of $473.00. I had recently began working at a start-up software company and, though my salary was meager (something like $12 per hour), the payments were about the same as my rent was at the time.
Then, in 2006 D.R. Horton began construction in a neighborhood that was located just 5 miles from work. It was the height of the construction boom, and I fell in love with the location. My commute from the townhouse, though only 22 miles, often took an hour with traffic. I figured with my increasing income I could afford the higher payments that came with a $158,000 home (House #2). Besides, my commute would take about 1/5th the time and I would be driving about 170 less miles each week.
As luck would have it, my best friend had moved back home. He and his wife had separated for a short period and wanted to reunite. The townhouse would suit them fine, so rather than trying to sell it, I rented it to my best friend.
In 2007 I purchased my first foreclosure (House #3). It was a townhouse in the same community as my original townhouse, and was priced about $20,000 less than the one I bought. I was already living like a miser, so I had put invested a good chunk of my salary in the stock market. I did very well for several years in the market, so I could afford to take risk. I took out a HELOC on my primary house, and combined that with other funds to purchase the foreclosure and then invest in fixing it up.
I was delighted by how quickly and easily that property rented. A delivery driver for Lowe's, who was bringing the new dishwasher, stove and refrigerator I had purchased, was interested in renting it. I didn't have to spend a dime marketing the rental, so without any due diligence, I executed a lease. It didn't turn out so well, but before I had to evict him, this tenant had paid me about 6 months rent. Fortunately, the following tenant also landed in my lap. She had steady employment - with the same company for 14 years and currently in a management position. She still rents from me nearly a year later.
In 2008 I bought two homes and signed a contract for a third that would close in early 2009. The first home I purchased became the primary residence I now occupy (House #4). With home prices declining, I found a new subdivision near my childhood home under construction. D.R. Horton offered a house similar in size to the one I occupied, but with a larger yard and $30,000 cheaper. It is in an unincorporated area, which means property taxes are significantly less.
Based on how quickly the neighborhood I was in was developed, I figured it wouldn't be hard to find a renter for House #3. I hired a property management company to rent the property, as I wanted a reliable renter since this was my most expensive property to date. The week after the ad ran in the paper, six prospective tenants toured the home. Within two weeks of me moving out, a new tenant moved in. That tenant fulfilled his lease obligation and moved out a year later. Once again within two weeks, a new tenant had signed a lease...even though I raised the rent $100 per month.
House #5 was the easiest transaction to date. Another townhouse in the same community as the other 2, it was a foreclosure as well. This time, I paid $27,000 less than my original purchase for the same plan. Even better, it was practically move-in ready. My tenant had rented another townhouse in the development for over 5 years but was not satisfied by her landlord's inattention to a leak in the roof and steady increase in rent. She's still with me.
House #6 was purchased at the beginning of this year. My third D.R. Horton home, I bought it under special circumstances. Though the community is in a fast-growing area, homes were slow to sell and D.R. Horton decided to exit the community. The builder cut the cost of the home by $20,000. It was the same model as I live in now, but was selling for $30,000 less than I paid for my house. I couldn't resist. I did do my homework: the neighborhood is behind a new apartment community, so I checked into rent there and also called the management company for House #3 to evaluate comparable rentals in the area. Satisfied that I would be able to rent the house profitably, I signed a contract. It rented in about 3 weeks, and thus far the tenant has paid on time.
I got lucky with House #7. It is a small (2 bedroom, 1 bath) condo in the neighborhood where I grew up. For some reason, this foreclosure stayed on the market for quite some time. I bid in the HUD auction but lost. Fortunately for me, the winning bidder was not able to close. My lowball bid of $18,500 was accepted. For comparison, the last condo in this community of 20 units to sell was purchased several months ago for $65,000. I put $4,000 into the condo, which included new carpets, tile in the bathroom, all new appliances, some plumbing and electrical work and a good cleaning. I posted the condo on Craigslist and received 12 inquiries in 3 days. I ended up renting it to a young couple (he's 19, she's 18, and they have a baby). The couple had been living with their respective parents and this was their opportunity to move in together. They both worked in management at a Christian-retailer and had been employed there for about two years each (that's how they met). They actually send their rent check a few days early each month.
I am working on closing House #8. Unfortunately, the loss of my job has made qualifying for a loan terribly difficult. Suffice to say, this will likely be my last real estate transaction for a few years.
I've learned some lessons along the way which I will share in another post. Bottom line is that I have no regrets at all about buying these properties. The mostly-passive income is a great thing to have when one loses his primary, employment-based income.
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