Oops, I didn't mean to buy a rental

[Melissa S Vrobel]

Investment Info:

Single-family residence buy & hold investment in Harmony.

Purchase price: $317,000
Cash invested: $96,000

I bought this home right before the real estate crash as my primary residence. A promotion that moved me to San Francisco in 2007 turned me into a landlord as I couldn't sell the house (it was worth a 1/3 of what I bought it for). Turns out that I love being a landlord and this town is awesome for long term tenants.

What made you interested in investing in this type of deal?

I loved the neighborhood and bought the home to live in.

How did you find this deal and how did you negotiate it?

I rented this home from the owners who weren't ready to sell, but when I went looking at homes for sale near the end of my lease, they offered the home for sale to me. It was an easy transition and I thought that I was getting a deal until later that year.

How did you finance this deal?

FHA with a second mortgage with 5% down

How did you add value to the deal?

I repainted the inside and added upgrades like french doors.

What was the outcome?

I refinanced in 2017 and paid down the mortgage using the equity from my second home. Now PMI is off and the balance is low which increases my cash flow. I plan to pay off the mortgage and use the monthly cash flow to retire early. Then leave the house to my nephew in the will.

Lessons learned? Challenges?

This house had a negative cash flow until I refinanced in 2017. That is almost 9 years of losing money, but buying the second home when the market was down was a great deal. I netted around $500 less in mortgage payments by renting the upside down house and buying one in foreclosure. Luckily, at the time I had great income and could handle the loss.