Friday, August 14, 2015

My Home Purchase Strategy / Rental Hack (December 2010)

It was the best house I could afford in my area for $430,000 for the square footage, proximity to work, condition, school district and rent potential being close to Cal State Fullerton. Rent potential was a large factor in my purchasing decision.

Due to the unique home layout, I was able to rent out a portion of my house for upwards of $1,236 / month offsetting my monthly payment with impound (property taxes & insurance) of $2,145.80 / month. So that was $909.80 / month for the house out-of-pocket. Principal is about $674.77 / month (which goes back toward equity), so I was really paying $235.03 / month for 3 bedroom, 2 bath, 1,500 sq ft (including garage which is my man cave). This doesn't include home appreciation.

January 2015, my home was appraised for $616,000 which enabled me to get a home equity line of credit available to be drawn upon at $57,000 which will most likely remain untouched for now until I find a worthy investment.

The previous apartment around 2007 - 2009 was a 2 bedroom, 1 bath apartment, for $1,050/month. With my Veteran status, I managed to do 10% down, and refinanced a couple times down to 3.25% over 30 years in November 2012. Down payment sources came from savings, Roth IRA contributions, and saving up for about a year prior to the house purchase living in a hotel suite paying no rent

With our 4th kid on the way, and with the little ones getting bigger, we decided to expand to the full house, which basically doubles our living space. It almost feels like moving into a new house. Subtracting out Principal, the cost is now $1,471.03 / month for 4 bedroom, 3 bath, 2,500 sq ft (including garage). If you consider a 3% appreciation of $430,000, that comes to $12,900 / year, or $1,075 / month. If I subtract out the appreciation, then at the end of day, I'm paying $396.03 / month at the end of life. Though, if you consider appreciation compounds, I imagine it's less than that.

Due to California, Proposition 13, my property taxes cannot increase more than 2% per year, which incentives me to stay put and not sell. My intention is to rent out the property if I move out in order to maintain the highest potential cash flow, and cash out the equity instead as necessary as alternate investment options become available.