From renting at $1250 to owning at $1440 with $100000 equity

[Madeline Lamour]

In the summer of 2019, we moved from abroad and had to rent an apartment. I was shocked at the price of renting. If we wanted a 2 bedroom (a couple and a toddler) in the city where my husband worked, we would have to pay around $1500, which we could not as that would basically wipe out half of his take home pay. So we looked at the next town, and numbers were not better. So we looked a little further, and there, prices were more affordable. We found a little apartment, with one tiny bedroom, one living room and one dining room for $1250. Still a lot higher than I was comfortable, but there was nothing else. We had the use of a common garden and a nice porch, where we spent a lot of time. We use the dining room as our bedroom and our son got the little bedroom. It was all nice, clean, comfy, bills were low as it was a very energy efficient apartment. 

And I hated it. Renting with a toddler is a nightmare. Don't touch the wallpaper, you'll damage it. Don't walk with your shoes in the living room, you'll dirty the beige carpet. Don't jump, there are people living below... 

I started looking to buy a house. I was leaning towards a multifamily, to have some more income coming in as I was not working. I visited a couple of duplexes. We visited a beautiful triplex with potential for a fourth unit, and lots of renovation needed to build equity. When we tried to submit an offer, someone has beaten us to it. Very disappointing.

Then I found this 4 bedroom house, in a cul de sac, with a big garden, and a garage which had been converted to an apartment. It was a foreclosure and I knew nothing about foreclosure. It had been sitting empty, winterized for a couple of years. When we visited, there was black mold all over the basement (which used to be a separate apartment in itself). We did not get access to the garage as the real estate agent did not have the key to it. The bank owning the building was in Georgia, we were in New Hamphire, the communication was therefore not straightforward. We visited it a second time. I loved the potential of it. We would have to renovate all of it, but the bones seemed good. There was this mysterious garage apartment which could potentially bring in some money. And more potential space in the basement.

I went to town hall to ask about the rental rules, permits... It turned out when they saw the state of the basement, which was partially finished, they removed that square footage from the finished area, and it immediately decreased the taxes (which are really high in this area). The clerk said: 'well if you don't buy it, that will be good for the person who does'. It also turned out that renting AirBnB is not allowed in this town, but you could rent out the garage as a Accessory Dwelling Unit. Good enough for me!

The next step was making an offer. But it was a foreclosure and we had to submit an offer onmine on the auction website. Also new to us. I can't remember the numbers, but we submitted the lowest offer possible and no one else bid. Our offer was still rejected because we had not met the reserve price and they asked us to add another 10 or 15 grants to our initial offer and gave us a week to do it. We did not. The next week, it was back on the auction website, but the inital bet was lower than before. So we tried again, and submitted the lower bet. Noone else outbid it. (This house was not on anyone's radar apparently). It got rejected again, because the reserve was not met. Why they don't just put the reserve price as the mimimum bet is just a mystery to me. They told us to add another $10000 if we wanted to meet the reserve price and gave us 3 days to do it. We had two options: keep playing that game and hope noone else was going to bid on it, or pay the extra money. We paid the extra money. The total price for the house and the website fee came up to $114000. We had to take a 203k loan, and had to get the mold removed and the roof redone (a lot more stories, explanations and numbers about that, but that would be for another post). Total loan: $145000 for a 4 bedroom house, a 2 bedroom garage and 0.3 acre garden on a quiet cul-de-sac. Monthly payment: $1444 (yes, taxes are high, and we had PMI).

After the financing clear, in October 2019, I started working on the garage apartment. In the end, it was in a general good state, a conversion from 2014. There was 2 bedrooms, a clean bathroom, a living room but no kitchen. I removed the carpet from the living room, added a small corner kitchen, painted everywhere and we moved in in December 2019. In the meantime, the contractors removed the mold from the main house and redid the roof. We continued the renovations in the main house and advertised the garage apartment for rent. We found a good tenant who moved in 1st of March 2020. 

Fast forward to December 2020 and we have redone (mostly ourselves) the kitchen, the bathroom, the whole upstairs (paint and floor), refinished most of the floor downstairs, painted everywhere and updated the electrical. We still have a couple of rooms to renovate but I wanted to refinance and take advantage of the low rates (our initial one was 4.125%). SO I reached out to our current lender and my local Credit Union. The CU does not sell our loan, therefore we avoid the extra fee that bigger bank have. They could also give us more cashback. We are about to finally close this refinance. The appraiser came to evaluate the value of the house, and we were hoping to reach $220000 to get the numbers we needed. Well, when the value came back, if I had not been buckled up in my car seat, I might have fallen over. Appraisal value: $299000. What??????

Here are the numbers summed up: 

2019
House value	179000
Loan	145000
Mortgage payment	1444
Rent coming in	1000
2020
House value	299000
Loan	16000
Mortgage payment	1108
Rent coming in	1000
HELOC	60000

I hope someone else can rejoice at those numbers with me!

I expected to have to wait longer to come up with the downpayment for a rental property, but there we have it.

The year 2020 was a great year for us (oh, and in the meantime, we also had a pandemic! With a toddler no longer attending school, a husband working from home and a baby born in April. Thank goodness for this house!)

Lots more stories to be written about the purchase, the renovation, the hiccups, the numbers... and I will, later. I also need to put together the before and after pictures.