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| Saturday, October 29, 2005 |
| How could I afford my house? By renting out my basement! |
I live in the Boston area which is one of the most expensive areas in the country. I purchased my single family home in the Spring of 2004 for $369,900.
In 2004, the median price of a single-family home in Greater Boston was $376,000, up 9.5 percent from 2003, the report says.
So, how did a single woman manage to buy a median priced home in the Greater Boston area? It was not easy. I had been actively looking and bidding on properties from the Summer of 2003 until I finally won my home in the Spring of 2004. I was repeatedly outbid by dual income couples who were willing to offer as much as $30,000 over asking price. During this time prices seemed to be rising by $10,000 per month. Homes were regularly going for above asking price and to add to the pressure interest rates had bottomed out and were now rising.
During my house hunting, bidding, and bombing period (as it was called by my family and friends), I had to learn a whole new way to shop for real estate. Everytime I saw a new listing for a cute, charming, updated home with buzz words like craftsman details, gumwood molding, Victorian mantelpiece, etc. I just dismissed it. While I would LOVE to own a home like that, experience had taught me so does everyone else, and guess what? Everyone else seems to have more money than I do. Instead my heart would start to beat faster when I saw listings for 1950's ranch homes which might lack charm, but did have location, affordability, and most importantly limited desirability going for them. But even limiting myself to properties like this I still faced competition, just not such insane, cut-throat competition.
I firmly believe that the only reason I was able to purchase this home was because of two quirks. The first being the bedroom addition built in the 1980's to provide the main level with two bedrooms. It was poorly designed and built so you had to walk thru the first bedroom to access the 2nd bedroom. It was clear to me that the previous owner did not build the hallway to separate the two spaces because it would have made the first bedroom very small. The second quirk was the basement level. Since the home was originally built with only one bedroom on the main level the basement level contained a bedroom. The house had been built into a hillside and the basement level is actually three steps up from the sidewalk, so the level has full normal windows and is actually quite sunny. It had been finished in the 1950's when the house was built, so knotty pine paneling covers the walls and at some point a 2nd kitchen had been installed along with a 3/4 bath. A stair case cut the basement living space in half and impeded the flow of that area (see photo above - taken last year before I ripped out the staircase and made other small improvements to the basement apartment).
Those dual income couples I was always losing out to were turning up their noses at this property. Even though it had a great location (directly across the street from a playground and park area) and was two blocks away from the ocean, it was not suitable for a young family. Meanwhile, the realtor was listing the house as a three bedroom with two full baths and was target marketing toward the young family looking for a starter home. What did not work for a them did make perfect sense for me. I quickly saw that the pass thru bedroom would make a perfect home office and that awkward basement would be a great in-law apartment (once I removed the staircase which freed up space and separated the two levels).
The best thing about the house was its neighborhood. It was surrounded by large Victorian homes which seldom turn-over. This well established area was highly desirable. This little awkward house has great potential (add a level for more bedrooms and baths - appeal to that family market or improve within current footprint to appeal to condo-alternative crowd). The second best thing about the house was that the previous owner, who had lived here for 30+ years, was only the second owner since it was built. He was a single Dad of a college-aged daughter who spent money on upkeeping the mechanicals of the house. He may have had poor design taste, but he did have a nice new energy efficient boiler and water heater. A roof less than 5 years old and all new replacement windows.
Obviously I won the bid on this house and have been happily living here for about 1.5 years. I do pay for all the utilities for the house, but the basement level is on its own zone for heat. The rent my tenant pays equals about half of my monthly mortgage amount (that is principal, interest, and taxes). I could never have afforded this house without renting out the basement. By living this way I have actually reduced my monthly living costs by becoming a home owner instead of a renter. That is almost unheard of in the Boston area where most homes are cheaper to rent than own.
I guess my message is, don't be afraid to think creatively. Remember that a house is really just four walls and a roof. A home is what you make of it. Charm and character are things you can insert later if they are important to you. |
| posted by Boston Gal @ 7:20 AM *
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| 12 Comments: |
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That sounds like a great idea. You can probably get above market price while still being reasonable for a renter.
HB
http://frugaljoy.blogspot.com/
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You're very lucky-- what a find! You make a very good point about what a single person wants in a house vs. what a family or couple needs-- the real estate agents are probably so used to marketing things to families, they can't see that the perfect buyer for a place like this is someone like you.
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thanks for sharing that! i love hearing real life house stories, especially creative ones with a pic. find it interesting. also makes the prospect of owning seem more real to me in the future.
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Hi!
I read your post with a smile, since I did the exact same thing in August of 2004. I live in a fairly swanky town in Maryland, just outside the D.C. line, where houses were averaging about $400,000 last year. I stumbled on a 3-bedroom 2-bath brick Cape Cod in a comfortable neighborhood on a regional park that was structurally sound and very plain outside, but quite hideous inside. Gross wall-to-wall, scribble marks on wildly painted walls, a quasi-finished basement, etc. I saw couples walk in and turn around and walk out right away. I bought it for $365,000, renovated the basement first with a kitchen and got lovely tenants in by Christmas who now pay almost half my mortgage. I also renovated the rickety upstairs kitchen and added a master suite with full bath to the attic for myself. It's now a 5-bedroom 3 full bath home worth about $525,000. Since I bought it, I've gotten engaged and am pregnant. My tenant is a nanny. Thank goodness for ugly houses.
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Interesting.
But the house prices in these stories are just shocking.
Hell, who am I cheating ? I bought my 111.000 euro small apartment just a year ago, and already thinking of getting something bigger in a couple of years. (Though this place does have its positive points ! I love the environment and the quiet.)
Way to go people. Maybe I'll have the nerve to follow in your footsteps ! What's stopping me is the fear of having trouble with tennants. Many families have gone from rental to owner over the last few years in Belgium, due to the low interest rates. So the only people who want to rent a place are either young and just starting out, or people with a really low and insecure income. So you have a fair chance of getting trouble if you rent out a place.
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I too have done similar, though not in buying the house, but affording life afterwards. I have rented out a room with its own bath in my townhome while I worked through my master's degree. That paid 50% of my mortgage payments.
Right now I am in a tight spot financially and am renting out a room in my home for about 40% of my mortgage payment. My only problem is in each case I don't have a seperate door for the renters. The biggest trick is getting the right person. Thankfully this renter is great and looks to want to stay long term if possible. His rent has enabled me to keep my wildly price inflated DC area house (bought 8 years ago for $131,000 and identical models nearby have sold for $475,000)
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I missed the boat on this topic. Today, even after reading all of the ways to save money for down and all, i still ask how she was able to purchase a $370k with roughly 22% down, while having a mortgage on the condo, paying shared rent for the time leading to home purchase? (ok, i understand $26k for 30yr,8% loan, and, the rent income from condo was paying itself for the mortgage and condo fee and your shared rent fee.That's amazingly great!) Still, how did the banks lend you more debt? Well, I've reached 30 and want to follow your footsteps to a dream home. But with the current high prices (even with the high inventories and price drops and higher interest rates(6.5%,0pt,30yr), it remains a dream. Do you think you would be able to repeat what you did today, with today's salary? If you made ~33% less than you make now, do you think you would be able to pull it off? Would you be like me and getting tired of paying someone else's mortgage and other housing costs?
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great story.
i started the same way. I had a friend stay in the 2 bedroom and pay rent which was about 40% of my monthly payment for a year. eventually he moved out but 2 years later when i was selling the place he ended up buying it!
I only wish i had bought a 4 bedroom and had 3 of my friends live in it. I would've made a lot more money!
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This is an old post, I realize, but can you tell me what the tax implications are when you rent a room in your home? Do you have to report the rent you collect as income? Thanks :)
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Nice going. I might sell my 'non-performing' asset- my condo, and buy a three-family allowing me to rent out 2 units. Not a novel idea , but solid.
As an office designer I have installed more than a few offices in closets. It works just fine.
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Hi Boston Gal...LOVE YOUR STORY!!! This is exactly why I started my site: www.singlewomanhomeowner.com: check out the site, and if you wouldn't mind sharing your story on our site, it would be great! Please feel free to let freinds and family know about it. Also if you have a great female realtor who helped you, please let her know about the opportunity to be "the expert" in this niche market, but joining our network...
Ginny
askGinny@SingleWomanHomeowner.com
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That sounds like a great idea. You can probably get above market price while still being reasonable for a renter.
HB
http://frugaljoy.blogspot.com/