The room mate scenario goes like this. I find a 3-bedroom house that fits all my regular criteria for renting it out, but instead of renting it out to a single family, I live in one bedroom myself and rent out the other two bedrooms to two room mates. Obviously we share the rest of the house. For example, this scenario would let me charge each of my room mates $450/month such that the total of $900/month was enough to pay for the mortgage in full plus a little in maintenance and other expenses. I would do only minor maintenance myself, and hire a handyman or professional to do the rest.
If this were my financial level at the time, I would then take the $450/month that I no longer have to pay for rent, and I would save it. If I saved $5,000 of that per year, then after five years I’d have enough to buy a second house at 15% down payment. (See here for details.) That new house would earn me about $4,000/year in cash flow after tax, so at that point I’d be saving or earning $9,000/year. After another three years (total 8 years), I’d have enough money to buy a third house, again at 15% down. (These two houses as 15% down require mortgage insurance, and I’d only be allowed two of these. So now I’m maxed out for the 15% down options.)
With three houses, I’m now saving or earning $13,000/year. Subsequent houses require 20%, 20%, and then 25% down payment after that. This keeps snowballing as I buy more and more houses, accumulating 10 of them after a total of 20 years. (Purchases are in year 0, 5, 8, 11, 13, 15, 17, 18, 19, 20.)
With 10 houses now, I’m saving or earning $41,000/year. If along the way I bought a separate house to live in by myself, I’d only have 9 others to rent out because the mortgage limit is 10. But if later I used that income to pay one or more off, I could then get that 10th rental or even more. And if I were married as I am now, the limit is actually 20, where we each get mortgages independently from one another. Also, regarding qualifying, after I’ve done this for a few years, the mortgage company I use in real life right now let’s the rentals almost qualify themselves based on the expected rental income.
Remember… each house would have a fixed-rate 30 year mortgage. Those mortgages would get paid off in years 30, 35, 38, 41, 43, 45, 47, 48, 49, 50. When they’re paid off, they would make about $8,000/year cash flow each rather than only $4,000/year, both cases after tax. If I was 26 in year 0, then by the time I become 67, four of the mortgages would be paid off and I’d be earning about $56,000/year after tax. That’s like $84,000/year before tax. That’s a fine retirement if I didn’t retire earlier on less. And by the time I become 76, and hopefully haven’t kicked the bucket yet, all of the mortgages would be paid off and I’d be earning $80,000/year (like $120,000 before tax). (These later estimates assume I separately purchased and paid off a private house, then began renting the original house to a single family. I don’t want room mates for 50 years! So I say “earning” rather than “saving or earning”.)
Finally, by the time that income reaches $80,000/year in cash flow after-tax, I have now created “generational wealth” that I could pass on to my children or other heirs. Of course, they may have their own rentals by this time.
But what if I don’t want room mates? What about the other scenarios…
