Several years ago, I met a young couple, Bill and Ann. They were interested in buying their first home, but were hesitant about using all of their savings. Bill was a city employee, and Ann was a schoolteacher. They had great credit scores and had saved a sufficient amount for a down payment, but not much more. They were newly married and planned on starting a family in a few years. Although they both had stable jobs, they were limited in their chosen careers as to how much money they could actually earn. Their concern was they did not want to be “house poor,” a term commonly used to define someone that spends so much on their mortgage, they have little or no money left for savings or other non-essential expenses.
I recommended to Bill and Ann that they consider buying income-producing property as their first purchase. I explained that if they purchased a duplex instead of a single-family home, they could live in one half and rent out the other half. Since the rental income would offset a large portion of their mortgage, they would still be invested in real estate without feeling “house poor” at the end of each month.
Bill and Ann took my advice and purchased a duplex. They were thrilled with the investment; three years later, they sold it for a sizable profit and purchased a triplex, living in one unit and renting out the other two. Four years after that, Bill and Ann started a family and decided to move into a single-family home. The real estate market had seen solid growth in that time frame. Bill and Ann refinanced the triplex, using cash from their newly acquired equity to purchase their new home, while still maintaining cash flow from their triplex. A decade later, Bill and Ann had two children, two dogs, two triplexes, a duplex, three, single-family homes, and an 8-unit apartment building.
I recently received a voicemail from Bill that said the following: