About a year after I had purchased my first apartment building, I decided that I wanted to fully rent it and move to another location. I just wasn’t sure where. By living in one of the units in the apartment building, my cost of living was too high. First of all, I was losing about $775.00 per month because that is what the unit would rent for at the time; and I was occupying it! I was also spending another $125.00 for heat, electric, and internet. So in a way, I was spending about $900.00 per month on little old me. I could say that I was actually spending more like $810.00 because the equity that was being built came to about $90.00 per unit at that time. But even that was not sustainable or conducive to saving. So, I decided to move out, live with family for about 9 months, rent the unit, and buy another building.
Here are some specifics on the initial part of the plan:
- By moving out and renting the unit, I was able to show a much higher income from rent on the tax returns I submitted to the lender on the second building.
- By living with family and friends, though not the ideal situation, I was living almost for free (not everyone has this opportunity and I was very fortunate). By living for much less for 9 months, I was able to save money I would not have otherwise.
In another post, I wrote about FHA and the amount of money needed to buy another multi-family unless other more creative tactics are used. I decided at this juncture of my life to buy a single family unit in the same city as the multi-family and rent out a room to a new friend of mine. I knew that in order to have a comfortable living situation, it would need to be set up to have separate living environments that would give each person the privacy they needed. I eventually found the perfect house.
- The bedroom I was renting out had its own, separate entrance from the outside of the house.
- The bedroom I was renting out had closet space and room for storage.
- Each bedroom had its own, full bathroom, attached to it, meaning complete privacy.
- The kitchen and living room were large with separate storage for all of our own things.
- The house had a basement clean enough and large enough for storage.
- It had enough parking spaces for each of our vehicles (and we could park without having to move so the other person could leave), as well as one extra for a guest.
These attributes are extremely important because living with another person is not always the ideal situation.
So, here’s how the math worked out:
|Mortgage, Taxes, Insurance & PMI||Plus Utilities (Average)||Total||Less base rent||Less half utilities||Less Principal (Average first 2 years)|
My average real cost of living (in terms of having a place to live), for the first two years, was $418.00 per month. Not only is that substantially lower than renting any apartment for myself or shared in my city, but I also enjoyed the freedom that comes with owning a home, having a yard, sleeping 6 steps from my shower, and having a huge amount of privacy.
Notice above that I subtracted the principal payment. That is because that money isn’t actually being spent, it goes back into our own pockets in the form of home equity. There is one other important point, I bought the house with the intention of renting it out completely when I was done living in it. That is important because there has to be an exit strategy. I was of course not planning on sharing my living space with a friend forever. I did the math before I bought the house to be sure that I would be able to rent it and realize positive cash flow. If there is none, and the plan is to only live in the house for a year or two, or even three, it could be pointless. The savings gained could be wiped out by the fees associated with buying and selling the house.
This type of arrangement obviously does not work for everyone in every situation. But, if you are willing to share a living space in pursuit of financial freedom, and your lifestyle (kids, work, etc.) allows for it, it is an incredible way to reduce the cost of living for increased savings.